As we celebrate America’s 250th anniversary, the Front & Center podcast takes a look at the history of the built environment in the U.S.
CenterSquare Advisory Board member Joe Gyourko, Martin Bucksbaum Professor of Real Estate, Finance and Business & Public Policy at Wharton, former Director of the Zell/Lurie Real Estate Center and current Nonresident Senior Fellow at the Brookings Institution and research associate at the National Bureau of Economic Research joins host and Senior Investment Strategist Uma Moriarity to examine how the cities and physical spaces we live in evolved over the long-term. Uma and Joe discuss the forces driving urban growth, including why some cities adapt and thrive while others decline, what decades of zoning restrictions have done to housing affordability, and what it might take to build the next great American city.
00;00;00;01 – 00;00;21;04
Joe
They changed a lot. And cities that can adapt. Live long lives and those that can don’t. But over your average 5 to 10 year period, it actually doesn’t matter that much. But I’m old enough to know it matters. Over my lifetime.
00;00;21;06 – 00;00;35;06
Intro
Hello and welcome to Front and Center, a show dedicated to insights and perspectives on commercial real estate investment across the public and private markets. For more information, please visit Center square.com.
00;00;35;09 – 00;01;01;09
Uma
Welcome back to Front and Center. I’m uma moriarty here, investment strategist and global head of sustainability here at Center Square. This year, America turns 250 years old. And while most of the celebrations will focus on politics, culture, history, I want to mark this anniversary through a slightly different lens, which was through the built environment, the cities, the neighborhoods, the fiscal spaces that we now take for granted didn’t just emerge by accident.
00;01;01;09 – 00;01;20;22
Uma
They were shaped by capital policy, geography, and sometimes maybe even pure ambition. My guest today has spent his career studying that intersection. Joe Jurco is a Martin Bucksport professor of real estate, finance and business and public policy at the Wharton School and the director of the Zell Lurie Real Estate Center. He’s one of the most influential voices in urban economics.
00;01;20;25 – 00;01;24;22
Uma
I’m biased. I think he’s the best. Joe, welcome back to Front Center.
00;01;24;24 – 00;01;26;24
Joe
Thanks. Great to be here.
00;01;26;26 – 00;01;50;14
Uma
Just start with kind of that long arc real estate investors like us, we spend a lot of time on the next quarter thinking about assets in kind of the 5 to 10 year time period. You’ve spent your career thinking about cities over decades and centuries. What does that longer lens really reveal? That maybe some of the short term thinking that we tend to have might miss.
00;01;50;16 – 00;02;26;02
Joe
Okay, so in general, a 5 to 10 year perspective is plenty long, but every now and then it’s way too short. And the way you see that through history is cities change, they adapt, and sometimes they really decline. They do that for the following reasons. Cities by which I really mean not the political jurisdiction of New York City or Philadelphia, but the metropolitan area, the labor market area in which all the workers and firms exist.
00;02;26;04 – 00;02;57;05
Joe
They exist because it’s really productive for us human beings to bump into each other, exchange ideas and the like. That’s why they’ve always existed. And every now and then, the reason for that productivity changes. And sometimes cities adapt and sometimes they won’t. I’ll give you two examples, one from my boyhood over time. I grew up in a small suburb near Dayton, Ohio.
00;02;57;07 – 00;03;23;01
Joe
Dayton, Ohio was a pretty vital manufacturing town when I was a kid. 50 years ago, that’s when I left. I was a kid 60 years ago there. And today it’s half its population than when I left to go to college and and never returned New York City. However, in other words, Dayton didn’t adapt. When we industrialized, it couldn’t change.
00;03;23;03 – 00;03;48;18
Joe
New York City was subject to the same deindustrialization forces the Dayton was, but it changed. And that was the third or fourth time New York City had adapted. Philadelphia was the first financial capital of the United States. New York City has been since, you know, just after the Revolutionary War. They adapted in that way. They were a great trading center.
00;03;48;20 – 00;04;14;18
Joe
Then the state of New York built the Erie Canal, and they became the connection to Chicago in the interior of the country. They changed a lot. And cities that can adapt live long lives. And those that can’t don’t. But over your average 5 to 10 year period, it actually doesn’t matter that much. But I’m old enough to know it matters.
00;04;14;18 – 00;04;24;10
Joe
Over my lifetime. You would have to have a view. The date would be different than Philadelphia or New York.
00;04;24;12 – 00;04;51;15
Uma
So maybe just a dig in to that point. The cities that really dominate real estate capital today, whether it be New York, Boston, San Francisco, Los Angeles, others they weren’t inevitable. They earned that status through either. Geography, commerce, policy. What’s the through line from the colonial port towns that we started with here to the gateway markets that investors are really focused on deploying capital in today.
00;04;51;18 – 00;05;23;02
Joe
It really is an adaptability and a bit of a diversification. New York, for instance, in the Revolutionary War era, Newport was a very big port town. Charleston was a very big port town, but New York became the business and trade capital of the country. What enabled them to do it? They always had a bit of diversity. They had high human capital and entrepreneurship that helped them adapt.
00;05;23;05 – 00;05;46;21
Joe
That’s the stuff that matters. It is true. You have a huge advantage being on the coast because you’re near water, and water provided cheap transportation in that era, but not so much anymore. You have to have other things, and what they have is great human capital, a willingness to change and adapt over time, and an ability to do so.
00;05;46;21 – 00;06;09;03
Joe
So it takes not just effort, it takes will to do that. And those cities that have survived Boston, New York were great cities in the revolutionary era. On the West Coast, nothing was a great city in the revolutionary era. But San Francisco, the Bay Area and Los Angeles have been with this a long, long time is big cities.
00;06;09;06 – 00;06;34;08
Joe
But Seattle’s a recent joiner of that group. It didn’t used to be. It’s an ability to adapt to changing economic conditions and to maintain what big urban economists like me think of these as agglomerations, as strong agglomerations of both pools of labor and capital. And if you can maintain them, you can live a long time.
00;06;34;10 – 00;06;53;05
Uma
To kind of pull out that thread a little bit more. Right. We went through this industrial revolution. You mentioned Dayton as a great example of that, where you ended up building up these cities, these towns around something like that. And then once that manufacturing left, many of those cities never really recovered. What is the rise and fall of that industrial city?
00;06;53;06 – 00;07;00;08
Uma
Teach us about the durability, or maybe even the fragility in real estate value, and how we should be thinking about that as investors.
00;07;00;10 – 00;07;24;04
Joe
Well, it says in the long run there’s great fragility and you better have a clue about what you think the long run is. If you’re a really long run investor, or for me today, what Center Square needs to have a clue on is what’s I going to do? That’s the industrialization of today is what is I going to do to these places?
00;07;24;06 – 00;08;00;14
Joe
We have a really clear view of the modern era since 1972. Factors strongly predict. Did your population grow over time? One was do you have warm weather in the winter? Mean January temperature is an incredibly strong predictor of population growth across metropolitan areas. Believe it or not, there’s a strong desire to be warm in the winter. The second one, which is really critical, is how skilled is your workforce over the last 50 to 60 years?
00;08;00;16 – 00;08;27;01
Joe
The share of college graduates predicts what happened to your population growth. And there it’s pretty interesting. Not surprisingly, New York, San Francisco, Philadelphia, Boston we have pretty highly educated labor forces, but so does Atlanta and the like. So those two things really, really matter. And if you ask me, what’s I going to do to those? Not much.
00;08;27;01 – 00;08;38;04
Joe
I think they’ll still be strong predictors of population growth and the rise of values. And in cities going forward.
00;08;38;07 – 00;09;04;26
Uma
Okay. Interesting. So maybe shifting more towards the policy side of things here. A lot of the postwar suburban build out. Right. It was such a big capital allocation event in our history, from highways to our current mortgage system, cheap land at the fringe, allowing for that build out. How much of the built environment that investors operate today was shaped?
00;09;04;26 – 00;09;11;04
Uma
Maybe less by market forces than by deliberate government choices?
00;09;11;07 – 00;09;41;06
Joe
A decent amount. Big cities and again, think metropolitan areas. Their great strength is the density they have. You and I can bump into each other, share ideas, maybe form a company. Maybe that idea’s good. Then we’re off to the races. The problem with that is density has cost. And you mentioned transportation. One of them is you got to be able to get around the area to be able to bump into each other, share ideas and the like.
00;09;41;10 – 00;10;14;23
Joe
So transportation networks are really critical. The metropolitan area will not be productive without a really well-functioning transportation network that has always been the government’s responsibility. If you ask me, what’s the risk of where we live in the Philly metro area, it’s if we somehow, for political reasons, decided we don’t want to basically maintain the public transit network and we’re going to stay away from politics.
00;10;14;23 – 00;10;41;21
Joe
But it is partly a political problem. A quarter of all people who work in downtown Philadelphia get there by public transit. If public transit system failed here in New York, Boston, Chicago, even Atlanta, certainly in the Bay Area and San Francisco. It would clog up the system. They become much less productive. So the road network, the highways we built in the 50s opened up the suburbs.
00;10;41;21 – 00;11;08;03
Joe
And that made housing relatively cheap. It was a massive increase in residential land supply. You could live 25 miles out of the city and still get to work. You didn’t have to live next to your employer anymore. So public investment has always been vital. I’m writing a book on the history of housing supply and affordability. It was vital in the 19th century.
00;11;08;05 – 00;11;14;03
Joe
It’s always been important. It has never been purely a private enterprise.
00;11;14;06 – 00;11;35;16
Uma
And the other thing that we’ve also seen from a policy perspective, the cycles of cities maybe being saved from top down intervention, right. So whether you’re trying to think about things like urban renewal, enterprise zones, opportunity zones. Does the historical record give you confidence in these types of strategies, or are you more skeptical?
00;11;35;19 – 00;12;09;01
Joe
No, not in terms of do they make a city more viable in the long run? They may be necessary. Again politically just to alleviate pains and stresses, or we want to redistribute in some way because some part of the city or some group is not benefited from the industrialization or the deindustrialization and the rise of the service economy, or in the future somebody gets harmed by AI, but long run, they don’t drive urban growth.
00;12;09;01 – 00;12;21;18
Joe
They don’t drive productivity. They’re basically shifting resources around, which isn’t to say they’re they’re bad inherently. I don’t believe that. But they’re not fundamental growth drivers.
00;12;21;24 – 00;12;25;07
Uma
Not necessarily the saviors. I guess that they might be.
00;12;25;10 – 00;12;41;04
Joe
Yeah. Exactly right. You should view them as Band-Aids, and they may be absolutely important Band-Aids. And we may want to do them as a society, but they’re not going to differentiate Dayton from New York.
00;12;41;06 – 00;13;02;27
Uma
In touching on the housing affordability topic that you mentioned just a bit ago. Your research has worked on trying to put a number on something that we’ve always felt, but maybe couldn’t quite quantify. Is that the zoning and the policies in cities like San Francisco and Boston have added, we call it 30 to 50% to housing costs. What is that regulatory environment?
00;13;02;28 – 00;13;09;09
Uma
What created it? Why has it proven to be so difficult to really undo?
00;13;09;12 – 00;13;39;10
Joe
Well, the problem is us. We have developed a system of regulatory control which is very localized. So I live in the big borough of Swarthmore, Pennsylvania, and under American law, Swarthmore, our zoning authority, is responsible for whether you get a permit. And it does not have to consider whether you’re harmed. If you don’t get a permit. So what does the zoning authority do it.
00;13;39;10 – 00;14;06;10
Joe
Ask near neighbors like me. Do you want this unit built for a roommate? And if I say no because it’s going to congest the area, it’s going to do something. Almost all new development has some negative spillover on the nearby neighbors. It’s very, very easy for us to turn down permit applications. And interestingly enough, that system has been in place since the 1920s.
00;14;06;12 – 00;14;34;09
Joe
It’s a very famous Supreme Court case which legalized zoning in 1926, but we never restricted housing in a big way until starting in the 1970s. So it’s a recent phenomenon. And the bad news is it started on the coast. We all know Boston, New York, DC on the East Coast, now Seattle, San Francisco, LA and San Diego on the West Coast.
00;14;34;09 – 00;15;02;00
Joe
So they’ve been restricting development again locally. It’s not some regional or state policy, it’s local. The bad news is you’re starting to see this happen in the Sunbelt. Building intensity in Atlanta is down roughly one half from what it was in the 1980s. In the 90s, they still build way more units than Boston and New York do, but they were doing 60,000 units.
00;15;02;03 – 00;15;32;28
Joe
This is just single family. In the 80s and 90s, 30,000 today, this is the metro again. They’re just not building as much. And you’re starting to see price rises outpaced income increases in the Sunbelt. So they’re starting to look like 1980s coastal cities. That’s what worries me the most because they’re where all the big job growth is. So it’s, you know, that’s important.
00;15;33;00 – 00;15;54;08
Uma
Which leads me into my next question around these kind of superstar cities, a small number of these supply constrained markets have been capturing a disproportionate share of high income households and capital. And that phenomenon has held up really well. Right. So we saw it across the coastal cities. You’re now starting to see it in the Sunbelt. The same thing that you mentioned here was Atlanta as an example.
00;15;54;14 – 00;16;02;01
Uma
Do you see anything on the horizon that breaks that dynamic, or is this just the structural way in which we live and work?
00;16;02;04 – 00;16;30;16
Joe
That’s a political question. And on the old guy in this interview, for the first time in my adult life, I can envision a coalition, a political coalition of envies. There’s a group out there of young people who are going, oh, there’s something wrong with this system. We can’t afford the housing that people of my generation could afford and then benefit from the price increases.
00;16;30;19 – 00;16;57;27
Joe
That coalition would then include parents like me. I have a 30 year old and a 27 year old who both live and work in New York City and needless to say, they can’t hope to afford to own a home. And they work once in the law, once in management consulting. These are not poor people. I’m talking about that coalition as it spreads from the coast to the Sunbelt.
00;16;58;00 – 00;17;27;28
Joe
It’s possible. I don’t think either of us should hold our breath. It’s possible that coalition could lead to more development because it’s political. There’s a mayor of every locality who appoints a zoning board or might get elected, but those are the folks making the decision. And then I think it would take something like the individual states coming in and passing laws says you’re just not allowed to turn everything down.
00;17;28;01 – 00;17;38;14
Joe
But yeah, I can imagine it. Do I think New York and San Francisco will become affordable in the next ten years? Absolutely not. No, I don’t.
00;17;38;16 – 00;18;00;05
Uma
Yeah, it’s interesting watching that spread from these coastal cities that we’ve known to be so expensive in terms of the cost of living. You saw so much of that population migration to more affordable Sunbelt cities, but the affordability is starting to become a challenge there as well as you mentioned. So interesting to see it continuing across these new urban centers that we’re building.
00;18;00;07 – 00;18;23;15
Joe
So the latest data we have from the government is 2024. You can go to census tracts and compute median price to income ratios. So it won’t surprise you. In 2024, the median census tract in Boston, the price to income ratio was five and a half, right? It’s way higher. It’s eight in the San Francisco Bay area eight, New York City six.
00;18;23;17 – 00;18;58;01
Joe
But it might surprise you to know that the median in the same 2024 year in Phoenix was 4.6. In Las Vegas, it was 5.0, and in Miami it was 5.4. So these places in the Sunbelt where we have big job growth, kind of look a bit like New York and Boston these days. It’s a real phenomenon. And that will, if anything, is going to generate a political force for more building, it’ll be something like that.
00;18;58;04 – 00;19;24;06
Joe
Everyone used to think of this as a blue state problem. It’s now it’s just not anymore. And that’s different. It’s the first time in American history where we’ve run the risk of the middle class not being able to afford housing anywhere where there’s job growth. The very bad news is, for me as a former Daytona and is priced, income ratios are really low.
00;19;24;06 – 00;19;38;24
Joe
They’re well below three. There are no jobs that people want in Dayton. So you’re not going to move there. My kids aren’t going to move there. They might move to the Sunbelt, but it’s getting expensive. That’s the bad news.
00;19;38;27 – 00;20;04;14
Uma
Maybe shifting gears to what this means for capital flows, for investments in institutional capital has, I think, fundamentally changed who owns the American built environment. Right. We went from a world of a lot of local landlords, now global asset managers who own a lot of the built environment. Has that shift changed the cities themselves, or is it just a matter of who holds the deed?
00;20;04;16 – 00;20;38;22
Joe
I don’t think it matters all that much to the productivity of New York Philadelphia. That is their long run growth potential. I don’t think it matters politically. It in genders, a lot of debate, most of it I consider not helpful, quite frankly. So no, I just don’t think it affects cities. It’s the big capital sources going. We think we can predict long run growth and we want to own assets where we think they’ll be long run growth.
00;20;38;27 – 00;21;04;10
Joe
They’re not driving the long run growth. They’re not causing the productivity. These big institutions, the Norwegian fund and the like, they’re not driving I and I it’s going to determine the productivity of these things in your lifetime. I may live long enough to see it too, but that’s that’s going to be driven by the normal technological forces.
00;21;04;12 – 00;21;22;26
Uma
Okay. So for an investor who is trying to position for the next decade, for the next 20 or 30 years, what are the signals in the built environment that you would be looking at to tell you whether a market is building towards something that’s durable, or maybe just borrowing against the future, if that’s the way to put it.
00;21;22;28 – 00;21;49;29
Joe
For me, I kind of still look at the things that the urban economics research tells us has been predictive in the last half century, and that is we still like warm weather as opposed to cold weather. But really importantly, you better have an adaptive labor force. And adaptive labor forces tend to be pretty highly skilled. Now, you know, this is not saying nobody’s kid should become a plumber.
00;21;50;05 – 00;22;18;10
Joe
A lot of people should become a plumber because we have a shortage. But plumbers are not going to drive long run productivity growth in an area you need. I would search for what’s the skill level across the population and it should be high. And then a sense of entrepreneurial wisdom. It takes real entrepreneurship to change the growth profile of a city.
00;22;18;12 – 00;22;45;26
Joe
New York went from being a trading center to a big industrial center that was combined with finance, that turned into huge finance, which is now becoming a fairly big tech center in New York. You’ve got to have that ability to branch out and to ride the growth path that’s there, that’s being set by much deeper economic and technological forces in society.
00;22;45;26 – 00;22;50;26
Joe
So you got to figure out what’s going to allow you to ride those streams.
00;22;50;28 – 00;23;12;20
Uma
Yeah. It’s interesting. I think today, more than at least the time that I’ve been doing this, and a lot of folks here at Center Square, the impact of policy is having such a material impact on this as well. These days, particularly as we’ve been talking about housing, housing affordability, very much so intertwined with how policy is playing out, maybe just to kind of close this conversation.
00;23;12;22 – 00;23;33;25
Uma
America at 250 years old, maybe this is a useful moment to ask what would it take to build the next great American city, not just restore an old one, actually build something new? I guess. A do you think that’s even possible in today’s environment from a regulatory, financial and political perspective? And maybe what would that actually look like?
00;23;33;27 – 00;24;02;11
Joe
I don’t think that’s how it will happen, because the advantages that New York and the Bay area have are these already dense agglomerations of highly skilled people in tech, in finance and the like. That is a huge advantage. Everyone who runs a tech company in the Bay area, everyone who runs a finance shop. Goldman Goldman understands real estate is cheaper elsewhere in the country.
00;24;02;13 – 00;24;43;18
Joe
They don’t move because they think they’ll lose the productivity associated with poaching, the labor force of their competitors and others. So I don’t think it’ll be a brand new place. It will be the place. And I don’t necessarily think it’ll be New York. That’s the king forever, because you need a place that’s willing to experiment that won’t overregulate, that will if you need more people, will allow more housing, because the downside of the Bay Area in New York is their net permitting rate is really close to zero, so their populations don’t grow.
00;24;43;20 – 00;25;16;21
Joe
You’ve got to find your expertise from the given number of people there. I’d still bet on someone in the Sun Belt or the mountain region being that, but they’ll already exist. It will either be Denver or Atlanta or Austin. Nashville becomes some great metropolis because they’re just more welcoming of cheap housing, which will attract people. And some of those people will turn out to be unbelievably great inventors and entrepreneurs.
00;25;16;23 – 00;25;23;18
Uma
Okay. So we’re going to have this conversation again, Joe, you and I in 250 years and we’ll see where really?
00;25;23;21 – 00;25;26;24
Joe
Yeah. Okay. I’ll try to make it to that.
00;25;26;24 – 00;25;49;19
Uma
You might I was on the calendar invite. I think what strikes me most about this conversation is that so many of these concept, the supply constraints, the affordability gaps, the geographic concentration of capital, none of it was accidental, right? It’s been the accumulation of choices that we’ve made over many, many, many years. But it also means that it can be changed by those same choices as well.
00;25;49;21 – 00;26;06;24
Uma
So accumulation of choices, we’ll see what happens in the next 250 years. So I think your work really has shaped how so many people within the real estate industry, economists and investors think about cities. And I’m grateful you brought some of that perspective to us here at Front and center today. And to our listeners, thank you all for tuning in.
00;26;06;24 – 00;26;21;22
Uma
If you found this episode useful, be sure to subscribe and share it with your network. We will be back in a couple weeks with the next episode of Front and Center.
00;26;21;24 – 00;26;39;12
Outro
Thanks for listening to Front and Center. You can subscribe on your favorite streaming platform, and please be sure to leave us a review. To stay up to date, you can visit our website at Center square.com to access our thought leadership, sign up for our mailing list or contact our team. We look forward to hearing from you.
00;26;39;14 – 00;26;58;01
Disclaimer
The content of this podcast is informational only and represents the viewpoint of the presenters at the time of recording. It should not be regarded as a solicitation nor investment advice. All information presented is subject to change at any time based on new data analysis or market conditions. Past performance is no guarantee of future results.
