NYU Stern School of Business, behind me, is one of the world’s known and most respected business schools. Did the school have an impact on the city or the neighborhood (Greenwich Village)? Are academic institutions important to city populations? And most importantly, does education have any affect at all on real estate? Lately I’ve been introduced to Student Housing and had an opportunity to learn a little about this real estate niche. Education and real estate are certainly entangled in a Gordian Knot. Not necessarily through Student Housing though. You may scroll down to read more.
In SkyRock we’ve participated in the purchase of a 248-unit (1BR/1BA – 2BR/2BA) 203,750 Sq. Ft. multifamily property in Yardley, PA. Amenities include a Swimming Pool, Tennis Court, Club House, Business Center and spectacular views. The property is located in a strong demographic area, about a 30-minute drive from Downtown Philadelphia and a little over an hour train ride to NYC. The 5-year business plan includes unit upgrades to a luxury level that’s suitable for the area and the property.
Alexander Cutting the Gordian Knot
Donato Creti (Cremona 1671-1749 Bologna)
According to legend, a Gordian Knot (From Greek: Γόρδιος δεσμός) is several knots tightly entangled, with no visible end and impossible to untie. Many failed but when Alexander the Great faced the challenge, he “solved” it with a single stroke of his sword. There’s more to this legend. Presently the term Gordian Knot refers to a very strong connection and Alexander’s solution is an example to thinking “out of the box”.
The relation between knowledge or education and real estate seems simple: education infrastructure draws the population which consumes education and competes on local real estate, which in-turn pushes price up. Is it really? Maybe the opposite is true? Educated population draws institutions and employers that need a skilled workforce and the competition on talent has an impact on wages, hence the rise in real estate value. There’s more than one interface to education and real estate and each interface has a different explanation. In addition, in most of the world, education is heavily influenced by government and public policies and so it isn’t a good example of a free market. Is education (or high professional skills) important to the real estate market in big cities?
I’ve gathered indicators that help form an opinion. Small cities still have a long way to go before they become players in the real estate market, so I’ve focused only on big cities. I’ve compared the size, population and growth and tried to assess the potential. I believe that not only real estate people may find this information very interesting.
US Big Cities by Population
Data reflects 2018 Census from US Census Bureau
No surprises here. New York City is leading this list, unmatched with 8.4 Million people. Followed by Los Angeles and Chicago. My list consisted of 34 cities, but you can’t view the entire list clearly on a single screen. You immediately notice that NYC is completely different from any other big US city and therefore distorts the statistics.
US Growing Cities
The data was gathered by comparing 2010 and 2018 census from US Census Bureau
The graph changes when you compare US growing cities. New York City drops to number 30 (in 2018 NYC had negative growth!), Los Angeles drops to 27th place. It’s clearly easier to grow the population of small cities and therefore the comparison reflects the percentage change between 2010 and 2018. The list is led by Seattle with 22.39% followed by Austin, Fort Worth, Denver, Charlotte, Atlanta, Miami and Washington DC. All around 20% growth.
List of US Cities with Academic Institutions
The data was obtained from The National Center for Education Statistics
The list of cities with academic institutions brings back mega-cities like NYC, Chicago and LA to the top of the list. This list also includes cities known for leading academic institutions and large student bodies like Philadelphia, Atlanta and Boston. To be honest, I don’t trust this graph. When I began drilling down into the numbers, I noticed that the field is monitored but the criteria used aren’t the same. Some cities counted only colleges, some incorporated only universities, some added research centers, some included non-academic trade institutions, some considered religious schools as high education, etc. In addition, city lines and metro areas were flexible and changed from city to city and year to year. You may get an idea from this graph, but I wouldn’t use it in an academic study… 😉
US Most Educated Cities
This shows the share in the population of people 25 years and older with a 4-year minimum academic degree. The data was taken from Insider Magazine publications.
Washington DC leads this list with 54% of the population having an academic degree. Specifically, for this city, the main employers aren’t Hi-Tech but more from the Service and the Government sectors. DC is followed by San Francisco, San Jose, New York City and Boston. This graph reflects 2018 figures. But to understand the trend, we should investigate how the numbers changed in the last 10 years and this takes us to the next graph.
Academic Population Fastest Growing Cities
This shows the growing share in the population of people 25 years and older with a 4-year minimum academic degree. The data was gathered by comparing 2010 and 2018 census published in the New York Times.
Philadelphia and New York City led with a rapid growth of residents with an academic degree. Followed by San Francisco, San Jose, Washington DC and Austin TX. You may already notice that some city names keep coming up although the correlation isn’t yet clear….
City Rank by Median Income
Data reflects 2018 figures per household income and was obtained from USADATA
San Franciscans get the highest pay in the US. That may explain the high rent in the city. Or maybe it’s the other way around? Competition for land raises rent and housing prices which in turn raises wages? SF is followed by Seattle, San Jose, Washington, San Diego, Boston and Atlanta. Residents of Austin TX don’t earn as much and are ranked 22nd, NYC is 17th and LA is 15th. But we know that some of the wealthiest people live in these cities. This is an indication to the level of inequality in those cities and a lurking class war (in some cities it had already begun led by left coalitions).
City Rank by Unemployment
2018 figures were taken from U.S. BUREAU OF LABOR STATISTICS
San Jose residents can get a job in an instant. They also get well paid but pay dearly for housing. Second is Denver, then Austin, San Diego, Boston and Minneapolis. All these cities have a strong demand for skilled labor. All are educated cities. The Unemployment graph is somewhat less important because, as you can see, unemployment in all leading cities is similar and very low now.
Conclusions
The most educated cities (by rank) are Washington DC, San Francisco, San Jose, New York City, Boston, Raleigh, Philadelphia and Austin TX.
Cities with the highest workforce paycheck (by rank) are San Francisco, Seattle, San Jose, Washington DC, San Diego, Boston, Atlanta and Denver.
Academic population fastest growing cities (by rank) are Philadelphia, New York City, San Francisco, San Jose, Washington DC and Austin TX.
One doesn’t have to be a statistics genius to realize that the city names that come up all the time are San Jose, San Francisco and Washington DC (all lists), followed by New York City, Philadelphia, Boston and Austin TX (two lists). You can see that most educated cities are home to those who earn more and can find a job quickly… These are probably the same people who pay higher taxes, which in turn pay for better schools and public services. That population also pays higher rents or buys expensive homes.
As for cities with academic institutions: this criterion is meaningless here. As I’ve mentioned earlier, this graph can be discarded as the data in this report was different from one city to the next. At any rate, big cities would naturally have more schools but even so, we can assume that when students graduate, they move to where work is.
As for growing cities, this graph indicates short to medium term high demand for housing. Real estate entrepreneurs that plan on a “quick flip”, may want to consider Seattle, Austin, Fort Worth, Denver, Charlotte, Atlanta, Miami and DC.
If you want to face the future, you may want to consider the graph of Academic Population Fastest Growing Cities. This list by rank is Philadelphia, New York City, San Francisco, San Jose, Washington DC, Austin, Raleigh and Seattle. Some of these cities also rank highly in the congestion and inequality lists (I didn’t include those graphs because I realize that there’s a limit to your patience…) and this will bring about limitations on rent and ownership (you may click here to view my article from a few months ago) and therefore the real estate potential in those cities won’t be fulfilled.
Overall Conclusion: the leading cities are San Jose, San Francisco and Washington DC. These cities already have a strong educated population that continues to grow and continues to create demand for quality housing. Now we can focus!
Remark 1: When I discussed my conclusions with a senior banker he said: “everyone made money in real estate in San Jose in the last decade. It didn’t take much brain”. My reply: indeed, sometimes all you need is luck or common sense…”.
Remark 2: Statistics can always be manipulated to justify your arguments. Everybody knows the story about the 6-ft tall statistician who drowned in a 5-ft average depth lake… The same goes with this exercise, you should be aware of this data, but it doesn’t necessarily reach the correct conclusion, because it considered big cities as a single homogeneous unit. In addition, we can’t calculate external effects. The saying that “real estate is a local business” is very relevant here. For example, some of NYC boroughs have a population count larger that some US big cities. Had we compared the neighborhoods of the Upper East Side to East New York, Brooklyn, the results would have been completely different. A good analysis would compare neighborhoods within big cities. At any rate, the figures above are important for general knowledge and focus on criteria which may be important in real estate investments.
Remark 3: In December 2019, after this article was almost ready, I read an article in the Wall Street Journal that the fastest growing cities in High Tech were Boston, San Diego, San Francisco and San Jose… Another recent Redfin analysis showed that the San Jose competition on houses is breaking new records and that most houses are sold above asking prices… Even big companies, led by Apple, commit billions to combat the housing crisis in California. So, it appears that the data above is legitimate.
This publication is personal and not for general circulation. It does not form part of any offer or recommendation. It does not take into consideration investment objectives, financial situation or needs of any specific person. Prior to committing to an investment, please seek advice from a licensed professional regarding the suitability of the product for you and read the relevant product offer documents, including the risk disclosures, If you do not wish to seek financial advice, please consider carefully whether the product is suitable for you.
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