May 29 2008
Joshua Berlow’s Real Estate Theory #23
It’s not really Theory #23. It’s theory #1, I suppose. It’s been my theory at least since 1999, when I purchased a house in Baltimore City for myself and my family. The theory is simple and goes like this: Oil is a finite resource. Sooner or later, we’ll run out. There’s no viable alternative to gasoline, and even if there were, there’s already too many cars out there to replace. As gasoline prices rise, houses in the suburbs will drop in value. There will be a corresponding rise in the value of city real estate. Suburbia is predicated on cheap gasoline, whereas cities are from a time before gasoline. Cheap gas is a temporary phenomena. Buy city real estate and sell suburban real estate.
After eight years, it’s safe to say, “I told you so”. Now my theory has been borne out. However in 1999 I was the only one saying it. When I moved from DC to Baltimore in 1999, a real estate investor in the DC ‘burbs told me, “Don’t buy real estate in Baltimore City. It’ll never appreciate”! At the time, buying real estate in the city was risky. In the city you had to deal with crime, drugs, racial issues, bad schools, abandoned buildings, Mayor O’Malley, high taxes, etc etc. As recently as three years ago I posted to another blog about buying in the city and was jumped on by suburbanites. Within the past couple of years two of my neighbors bailed out* and moved to the ‘burbs. This was before $4 gas.
The neighborhood that I bought into has come back big-time since I bought in 1999. I don’t know if I could afford to buy my house if I had to buy it again now. However, there’s still “bad” neighborhoods in Baltimore City. They’re “bad” neighborhoods to some people. I’d say that one man’s “bad” neighborhood is this man’s sweet deal!
http://www.joshuaberlow.com/real2.htm
*In both cases, the houses sold immediately. The only house in the neighborhood that hasn’t sold immediately after being put on the market is one guy who’s holding out for $100K more than any of the others has sold for. Maybe he knows something… 
4 Comments to “Joshua Berlow’s Real Estate Theory #23”
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I wish that was the case for me. Despite living in cities (Baltimore or DC) for the last 8 years, most of the time I have worked in the suburbs. And given the amount of people on the roads with me it looks like a lot of others are doing this “reverse” commute. Chances are if I ever move out of the city my job will get moved back downtown. Such is our luck…. But point taken. As long as there are young professionals and college grads flooding into the city every year – Baltimore real estate long term will be just fine.
Of course there are a few people that have a reverse commute, but if you stand outside of my house any morning of the week you’ll see the vast majority of traffic going downtown and back out again in the evening. The parking rules reflect this. When I lived in DC it was the same thing- traffic goes downtown in the morning and back out at night. If you live in the ‘burbs you do more driving just to get groceries or to go anywhere at all. Some of us will stay in the city no matter how old we are… I’m no spring chicken. Gas issues aside, it’s more interesting.
With you…check this guy out, he just spoke at Downtown Partnership of Baltimore’s State of Downtown breakfast.
http://www.theatlantic.com/doc/200803/subprime
Says the next slums are the ‘burbs as we know them…
If you think about it, that’s the way Europe is…those riots in France a few years back were effectively in the suburbs…
Now I just hope my job stays downtown!
-m
Great blog entry. I have to disagree that I think your theory may only work for Baltimore and other cities like Baltimore (and maybe that was your intention if so ignore me!) I used to live in the suburbs right outside of DC and I could easily walk to the mall, grocery store, and anywhere else I needed to go. I even worked in DC and never used my car except when I needed to come up to Baltimore.
I’m new to Baltimore so I’m still trying to love this city as much as everyone seems to. I did notice that a number of young professionals I know work outside in the suburbs just like Glen. Maybe if Baltimore city had more job availabilities (i.e. corporations, nonprofits, government jobs, etc. that are lucrative) and more things for people to do with their families more people will want to move and stay in Baltimore. Just a thought from a newbie.