The advent of the Internet was supposed to change everything. Analysts predicted roughly 20 years ago that cities would continue to shrink because transactions could be completed from virtually any place. Marketing no longer required highly visible space downtown or in a shiny suburban office park. The need to deal with urban environments, associated traffic and various social ills was deemed to be a remnant of the past. People would telecommute and come together only for special events or for occasional planning sessions. Cities, which in many cases had already been declining in importance due to de-industrialization and suburbanization, were destined to fade.

As is often the case, the analysts were wrong. The spreading influence of the Internet and the remarkable technological advances in many other categories (e.g., life sciences and energy exploration) actually have brought creative people closer together. Rather than disperse, technologists have joined forces in San Jose, Calif.; Houston and Austin, Texas; Seattle; Boston; New York and many other cities.

From 2000 to 2010, America’s urban population increased 12.1 percent, growing faster than the overall national rate of 9.7 percent, with young people disproportionately driving re-urbanization. Young people continue to spurn the suburbs in favor of urban living in large numbers, with more of them moving into the very heart of cities.

According to a report published by City Observatory, a think tank recently featured in The New York Times, the number of college-educated people ages 25 to 34 living within three miles of city centers is up 37 percent since 2000. As pointed out in the article, young, college-educated people continue to relocate in large numbers, with roughly a million crossing state lines each year. Where they end up will have much to do with where the next set of office buildings and retail centers are built, as well as where new school capacity is supplied.

In general, the most educated young people are heading into large metropolitan areas for both lifestyle and labor market reasons. The Houston metropolitan area, the worldwide center of energy technology, has emerged as a hotbed of young talent. During the 12-year period beginning in 2000, the population of college graduates ages 25 to 34 living in the Houston metropolitan area climbed 50 percent—remarkable for a community founded during the 1830s. Meanwhile, the population of young, college educated people expanded 48 percent in Nashville; 47 percent in Denver; 44 percent in Austin; 37 percent in Portland, Ore.; 36 percent in Washington, D.C.; 34 percent in Buffalo, N.Y.; and 32 percent in Baltimore.

What This Means for Construction

The implications of these patterns for the nonresidential construction industry cannot be over-emphasized. According to Enrico Moretti, author of “The New Geography of Jobs” and an economist at the University of California, Berkeley, for every college graduate who accepts a position in an innovation industry, five additional jobs are produced in that city. These jobs include waiters, carpenters, physicians, architects and teachers. “It’s a type of growth that feeds on itself. The more young workers you have, the more companies are interested in locating their operations in that area,” Moretti says.

To date, a significant fraction of the construction that relates to re-urbanization has been in the form of apartment construction. For example, in New York City, investors have been looking to Brooklyn, where approximately 15,000 new rental units are under construction or in development, according to KPMG. The borough’s newly chic neighborhoods of Bushwick, Greenpoint and Crown Heights are attracting Manhattan-like rents, according to reports from Real Capital Analytics.

Retirees also have been heading to cities in larger numbers, helping spur both condominium and apartment construction. Health issues are of paramount concern, with retirees searching for proximity to major medical centers, including top hospitals in Baltimore, Cleveland and St. Louis.

Other nonresidential construction segments impacted by the move back to the cities include mass transit, water/sewer, religious, public safety and higher education. IBISWorld provides some hard data regarding identifiable industry impacts associated wit the 22 million individuals who moved to cities across the United States between 2008 and 2013. Among the most impacted segments are full-service restaurants (3.1 percent annualized growth between 2009 and 2014), education (3.4 percent) and public transportation (1.2 percent).

Perhaps most importantly, these demographic trends are likely to persist. Generation Y is comprised of approximately 86 million people born between 1980 and 1999—representing about 27 percent of the U.S. population. While many will eventually leave the cities for suburbs once they have children, others will choose to stay. Moreover, Generation Y appears to be in no rush to have kids. According to the Center for Disease Control and Prevention, birth rates for women in their early 20s are at record lows and rates for women in their late 30s are the highest since 1963. Accordingly, re-urbanization appears to have plenty of staying power.


Anirban Basu is chief economist of Associated Builders and Contractors. For more information, visit www.abc.org.