Popularity of Downtown Brings Benefits, Drawbacks
Urban living is on the rise in downtown Knoxville. The city dedicated $12.8 million to projects in and around the area in 2018, and more than $19 million over the last five years. There are currently 99 residential developments with more than 1,800 units.
But the popularity of downtown living comes with a steep cost: the average sale price of a condominium is close to $300,000, well above the $161,000 median cost of buying a home. It’s also more than double the median price of a condo in 2012-13, according to the Department of Housing and Urban Development.
The Knoxville-Knox County Metropolitan Planning Commission’s most recent report contains good news for downtown development: Housing growth is expected to continue in the short term. But down the road, downtown Knoxville’s existing building inventory will decrease. Developers will have to get creative about new housing.
The assessment also raises questions: Is growth pumping up a bubble? What happens when potential residents or business owners are priced out of the area?
For some perspective, WUOT All Things Considered host Hannah Martin reached out to Dr. Matt Murray. He’s the Associate Director of the Boyd Center for Business & Economic Research. Below is the transcript of an e-mail conversation between Martin and Murray.
Is residential pricing getting too expensive in the downtown area?
Murray: Residential housing costs are up in virtually every metropolitan area of the United States and [Tennessee]. There has been too little residential construction, and for downtown areas like downtown Knoxville, capacity is simply constrained by space and the time it takes for conversion of properties to condos or apartments.
At the same time, it is clear that preferences for living in a city and in the downtown environment has grown markedly in the last ten to fifteen years. So it’s supply and demand, and rising prices. Are properties “too” expensive? As long as properties are selling, the prices cannot be too high, though buyers may grumble. Many are prepared to pay a premium to enjoy the amenities of a downtown.
Since Market Square serves as a big draw for tourists and the downtown area has boomed, is there a chance that in a few years’ time, locals will no longer consider downtown Knoxville a hotspot?
Murray: I do not think the scale of downtown tourism in Knoxville is a threat. In fact, the tourists help provide the purchasing power to sustain downtown activity. We do not have the historical draw of Nashville, nor the presence of professional sports teams. Plus, the Knoxville downtown still has ample room for continued revitalized growth.
Of course, everything can change. 100 years ago, downtown was relatively vibrant. Then sprawl to the suburbs and downtowns died. Downtowns are hot again—for how long?
Would investments in housing and retail shops be better made elsewhere?
Murray: A desirable feature of downtown developments is density and reduced sprawl and all of its costs. Retail will follow people, so if people choose to live downtown retail will follow. When we lived in the suburbs, retail followed us there in the form of malls and strip malls. Now these are dying because of changing residential location patterns (along with other factors, like the internet). Housing and retail need to be where people want to live, and they increasingly want to be in the city.