At a friend’s house for dinner last weekend, the conversation, as often happens, turned to real estate. Someone asked me what I would invest in at the moment. I think they were surprised by my answer. I said ‘I thought that, with skyrocketing energy prices, the total ‘energy cost profile’ of a home will become a key value factor, and that alternatives to heavily energy-dependent suburban houses may be good investments. The car-dependent suburbs surrounding cities like New York may be great places to raise kids, but the total energy load of living their may make them unaffordable. There are 2 parts to that energy load. The first is the cost of heating and cooling the house, and free-standing houses generally guzzle more energy than apartments or attached townhouses with common walls. Houses may also be much larger in the more distant suburbs, reflecting the trend in the last two decades to build bigger and bigger homes. The second part of the energy load is the cost of using cars as a primary mode of transportation, for commuting as well as running errands.
If gasoline and heating oil remain in the $4 to $5 a gallon range (or go even higher), many people may rethink their housing/lifestyle choices to find a combination with a lower total energy load. Smaller houses, as well as family-size (3+ bedroom) apartments (coop, condo or rental), closer in, within walking distance to convenient public transportation, I believe, are going to become more and more attractive to consumers weary of $100+ fill-ups. I think traditional neighborhoods, with services like supermarkets and drug stores within walking distance (or a very short drive) are going to see a resurgence.
If I was going to invest right now, I’d draw a circle from midtown Manhattan that encompasses a maximum 30 to 40 minute public transportation commute to midtown. Then I’d look for areas with family-sized housing stock (3+ bedroom apartments, townhouses or small homes). Some interesting areas might be the Bronxville / Tuckahoe area of southern Westchester, Kingsbridge Heights / Riverdale in the Bronx, areas of Queens beyond the hipster enclave of Long Island City, and Secaucus, NJ.
One of the guests at the dinner asked why I didn’t include Hoboken or Brooklyn Heights / Prospect Park. My reply was that they’re just too expensive for a budget conscious suburbanite looking to move closer in to cut costs. This person countered that the areas I mentioned just won’t be that attractive because they aren’t “cool” (like Hoboken). But that’s the point. These energy-cost refugees won’t be looking for “cool”; they’re looking for convenient and cost effective. Hoboken and Brooklyn became cool because they attracted Manhattanites looking for a “Manhattan-like” feel without Manhattan prices. The big difference in the shift I think is coming is that it isn’t driven by Manhattanites moving out to reduce housing costs, but rather suburbanites moving further in to reduce energy costs. They may work in Manhattan, but their lifestyle identity isn’t Manhattan-centric.