Patrick L. Phillips, chief economic officer, Urban Land Institute, keynote address at “Sustainable Suburbs: Re-Imagining the Inner Ring,” Feb. 12, 2011, North Carolina State University

Thank you for the invitation…As the closing keynote, it’s my job to wrap up today’s event with a “40,000-foot” perspective on the evolution of our urban areas. I’ll talk about the economic and environmental realities of what and where we’ve built, and the forces of change that are compelling us to be more innovative and more efficient as we move forward. Without question, inner-ring suburbs have a particularly promising -- and prominent -- role in 21st century cities.

Earlier today, you heard from Bill Hudnut, who was ULI’s first senior resident fellow…and whosework on the changing metropolitan form helped move forward ULI’s message about building innovative, sustainable communities. ULI has a long history in this regard -- in fact, this year, the Institute marks its 75th anniversary.

ULI was established in 1936 by a small group of developers who were dedicated to building for permanence. They felt a responsibility to build communities that would be cherished for generations…to strive to get it right the first time, and to share their mistakes when they didn’t. We began with about 200 members in the U.S., and now we have nearly 30,000 members worldwide, with offices in Washington, DC, London, and Hong Kong.

ULI Triangleis one of 51 district councils in the Americas where ULI has a local presence; plus we have 16 district councils in Europe and Asia.

Our membership crosses all land use professions, which illustrates the interdisciplinary nature of urban design and development. ULI members are developers, financiers, investors, urban planners, architects, landscape architects, urban designers, traffic engineers, academics, industry analysts and a growing number of public officials.

ULI’s culture of knowledge sharing started with its founders. In the 1930s and 40s, they would take trains to meet each other, throw their blueprints on a table, and talk about what was right or wrong with how they were building or where they were building. Now, of course, we can share similar details in just a few seconds with a few clicks on our computers. But ULI’s tradition of sharing lessons learned remains unchanged.

We like to think of our members as land use leaders who are dedicated to making a positive difference in how our communities are growing. Our members are committed to sharing what they know, and to inspiring the next generation of land use leaders to carry on the tradition.

In fact, one of our most prominent land use leaders, Gerald Hines, founder of the Hines real estate organization, established an urban design competition a few years ago for graduate students studying some aspect of real estate. He wanted to challenge the younger generation of land use practitioners to come up with practical solutions to a design and development challenge posed by an actual urban site.

Some of you may already know this, but I’m proud to say that the 2010 winning team was from NC State and UNC Chapel Hill. Congratulations! This student combo worked on a redevelopment plan for a San Diego neighborhood -- a plan that emphasized neighborhood diversity, affordability to families of mixed-income families and walkability -- a lot of the same issues we are discussing today. .

I’ll turn now to some of the opportunities and challenges facing urban growth going forward… not just in recovering from the recession, but in the decades ahead. I’ll talk about how inner-ring, or first-tier suburbs are uniquely positioned in this evolution.

There are innumerable “best of” lists for cities – but if you drill down to what distinguishes the highest ranked cities, it’s always related to livability and sustainability. At ULI, we take a “big picture” view of sustainability as it applies to community building. We believe true sustainability can only achieved if it takes into account economic, social, and environmental aspects. It’s becoming very clear that how our cities are developed, how they welcome new residents, how they accommodate all income groups, and how they use energy and natural resources are becoming more and more crucial to urban sustainability.

At its core, sustainability includes a variety of components, such as an adequate supply of housing affordable to the workforce, adequate transportation options, and environmentally conscious design and development. While they are all important individually, they are all intertwined in the creation of thriving neighborhoods, cities and urban regions.

In the area of workforce housing, it’s clear that despite the housing collapse in many areas, there is still a shortage of affordable housing that is close to jobs. Yes, home prices declined, but that does not address the fact that in most urban areas, the bulk of the mainstream workforce lives far from employment.

During the past decade, many workers moved to the edges of cities in search of housing they could afford. What they found was that the savings in housing costs were offset by the extra money spent on transportation to work, shopping and other areas of activity.

The Center for Neighborhood Technology has produced some fantastic research in this area. Last year, the Center explored the ramifications of housing location in terms of economic and environmental impact.CNT looked at more than 300 urban areas throughout the U.S., including the Research Triangle. What I’ll show you is illustrative of what’s happening in urban areas all over the country.

SLIDE ONE HERE

In the map on the left, the yellow areas are those in the Raleigh-Durham-Chapel Hill metro area where workers spend less than 30 percent of their income on housing. This makes the area look fairly affordable. However, the map on the right shows what happens when transportation costs are thrown into the mix. All of these turquoise areas are where people are spending more than 45 percent of their income just for housing and transportation.

SLIDE TWO HERE

This next set of maps shows transit use and vehicle miles traveled in the metro area.

In the slide on the left, the light yellow areas represent areas where one percent or less of the population uses public transit for commuting. In the slide on the right, the dark green areas show all the areas where people drive an average of more than 18,000 miles per year for work and errands.

This thirdset of maps shows the difference in costs for transportation between 2000 and 2008, primarily due to gas price increases.

SLIDE THREE HERE

The map on the left is for the year 2000, and the areas in light colored areas are where people paid $900 to $2,700 per year on gas. The slide on the right is for 2008, and the areas in red are all those where people are paying more than $3,600 a year just on gas. If you dig further, you’ll find that the cost burden has risen most dramatically for those living in the outermost areas. This is another indicator of the heavy toll on workers who live far away from their jobs.

What these maps tell us about growth patterns in RaleighDurham is a familiar story all over the U.S.This is not just a problem for America’s most costly cities.

We still have a long way to go to close the gap between housing and jobs, and the cities that tackle this issue will be the ones that come out on top.

At ULI, we are ramping up our support of development that places housing closer to jobs. Three years ago, former ULI Chairman Ron Terwilliger donated $5 million to ULI to create the ULI Terwilliger Center for Workforce Housing, which is elevating workforce housing as a national and local priority. The center is promoting mixed-income housing as the best solution, because it combines market-rate with below-market rate units.

Through collaborative projects with our District Councils and other organizations, the center is working to raise awareness of the need, gain more acceptance of mixed-income housing, and diffuse skepticism about who benefits from workforce housing.

SLIDE FOUR HERE

The Terwilliger Center has studied housing and transportation costs for different neighborhoods in three markets – Washington, San Francisco and Boston, and is now focusing on solutions to get workforce housing built where it is needed in those markets and others.

It’s clear that the disconnect between housing and jobs, long daily commutes, and time wasted in traffic is causing more and more people to rethink how and where they are living. In metro areas across the country, the neighborhoods with the highest rate of foreclosures and the largest decline in home values are those on the outer edges…the neighborhoods that have the least access to transit and are the farthest from employment centers.

ULI has long emphasized the connection between housing and transportation. Before smart growth became a buzzword in the 1990s, we were talking about the need to build in a way that reduces car dependency.

However, what’s different about these topics now is the context in which they are viewed and discussed. Climate change has added an important new dimension to land development issues we have been grappling with for a long time.

SLIDE FIVE HERE

Around the globe, the impact of development on the environment is being evaluated in terms of cutting carbon gas emissions, and implementing sustainable land use patterns. Just last year, ULI published a book, Land Use and Driving, which makes a compelling argument for land use as a key tool in offsetting the detrimental impact of climate change.

The report links concentrated, walkable development and a reduction in the number of miles driven. It contends that making a measurable difference in climate change can best be achieved through a combination of more compact development and fuel-efficient vehicles.

SLIDE SIX HERE

The connection between land use, driving and carbon emissions is clearly illustrated in these last slides from the Center for Neighborhood Technology. These are also for the Triangle area.

In the slide on the left, the areas in red are where the average household emits at least 8 metric tons of carbon emissions per year due to auto use.

Eight metric tons is the equivalent of the emissions from one SUV driven no more than 9,000 miles per year. Given that the average number of miles driven in this area is twice that high, the actual emission total per household is likely much higher.

In the slide on the right, the light yellow areas are those with densities of no more than 2 households per acre.

As you can see, there is a direct correlation between density and vehicle carbon emissions. Areas with both low density and high car use are those with the highest carbon emissions.

This situation is true in urban areas all over the U.S.The link between land use, driving, climate change and environmental preservation makes a strong case for innovative community building throughout urban regions…particularly in suburban areas. It’s triggered a fundamental shift in thinking regarding land use design and development.

Just a few weeks ago, during President Obama’s State of the Union address, he spoke of “winning the future” by better equipping our nation’s citizens to thrive in a knowledge-driven economy.

Referring to the wave of innovation spurred by the space race of the late 1950s and 1960s, he said, “This is our generation’s Sputnik moment.”

A similar analogy might be applied to the land use industry. This point in timemight be considered our industry’s Sputnik moment, when we readjust our thinking and our expectations about real estate. Perhaps most important is for us to rethink the roleof the built environment in accommodating the “new” or “next” economy.

For the past two decades, we focused primarily on rebuilding urban cores, transforming theminto places to work and live, not just work and leave. Affluent, childless professionals and empty nesters moved downtown, creating a development boom, and in many cases breathing new life into old space and allowing cities to reinvent their economies.

Without question, this downtown growth changed how we view our cities. But, it is only one part of the urban evolution.

What we learned over the past 20 years is that there is a market for compact, mixed-use design, smaller housing space, and transit-oriented development that minimizes the need to drive.

But the bigger lesson —one we are still learning how to apply—is that there is a demand for this development that stretches beyond downtown cores and into the suburbs. And it is the first-tier suburbs that are best positioned to accommodate this type of development.

SLIDE SEVEN HERE

That was the view held by this year’s Emerging Trends in Real Estate, our flagship industry forecast that we publish with PricewaterhouseCoopers.

It’s based on hundreds of interviews and surveys of the nation’s foremost industry analysts and practitioners. As in the past two years, the 2011 report was less than optimistic about overall prospects for investment and development.

However, Emerging Trends named infill housing as one of the few promising areas for both investment and development – along with senior housing and student housing. It also listed urbanizing suburbs as showing the most promise, characterizing them as more “stimulating” than farther-flung places.

This is not to say that the inner-ring suburbs have no challenges – in the current economic environment, all areas face some uphill battles. In fact, many of these suburbs face the same problems that urban cores had 20 years ago – higher development costs, higher land costs, and, in some cases, sketchy public schools, an aging population and an aging housing stock.And all of these challenges are occurring during a time of sharply declining public resources.

But, the pros outweigh the cons. Inner-ring suburbs are in the sweet spot for redevelopment. They have a distinct urban feel but not quite the urban grit. They are close to transit, jobs, cultural and entertainment facilities. They are walkable, architecturally interesting… and they are employment centers.

Several of the nation’s prominent education and medical facilities tend to be located not in urban cores, but in nearby suburbs. Consider Villanova, outside of downtown Philadelphia; Washington University, close, but not in downtown St. Louis; Carnegie Mellon University, just outside of Pittsburgh’s downtown; and the TexasMedicalCenter, outside of Houston’s downtown.

Over the past few years, we’ve seen more of these centrally located “eds and meds” reaching beyond their borders to become part of the greater community, enhancing the surrounding neighborhoods.

Creative public-private partnerships involving these institutions have catalyzed economic development and attracted venture capital. As a result, these areas have withstood the recession better than others. They are knowledge economy hubs, and this will serve them well in the years ahead.

Now, I want to spend a few moments on the forces of change that are redefining our living and working environments. It’s all about population growth and demographics.

SLIDE EIGHT HERE (LAST SLIDE)

Consider that:

  • More people now live in urban areas than rural ones, in the U.S. and worldwide.
  • The U.S. is expected to add an additional 150 million people over the next 40 years, with the Southwest and South gaining the most population, including new immigrant households.
  • The first wave of baby boomers is hitting 65. Most will shun retirement and stay in the workforce. Many, if healthy now, could still be alive in 40 years.
  • The children of baby boomers, Generation Y, has started to enter the housing market and workforce. They are the most technologically connected generation in history – they are far more interested in social networking than cars.
  • For the long term, household size will shrink steadily, due to more people living alone, delaying marriage and childbirth, and having fewer children. The recession has caused a bump in multi-generation households, but this is not expected to be a long-term trend.
  • There likely will be a housing shortage over the next few years. Housing starts hit a 30-year low in 2009…

… (554,000) and just inched up from that low point last year. Despite the high number of foreclosed homes nationwide, demand for housing in sought-after, accessible neighborhoods – such as first-tier suburbs – will outstrip supply.

  • Up to 80 percent of the development and redevelopment that takes place through 2050 will occur in the suburbs, rather than downtown cores.

All these factors, combined with public mandates to shrink our carbon footprint, will influence what and where we build.