The 3 Unchanging Features of Great Neighborhoods

What's not going to change in 10 years?

I very frequently get the question: 'What's going to change in the next 10 years?' And that is a very interesting question; it's a very common one. I almost never get the question: 'What's not going to change in the next 10 years?' And I submit to you that that second question is actually the more important of the two -- because you can build a business strategy around the things that are stable in time...

[I]n our retail business, we know that customers want low prices, and I know that's going to be true 10 years from now. They want fast delivery; they want vast selection. It's impossible to imagine a future 10 years from now where a customer comes up and says, 'Jeff I love Amazon; I just wish the prices were a little higher,' [or] 'I love Amazon; I just wish you'd deliver a little more slowly.' Impossible.

And so the effort we put into those things, spinning those things up, we know the energy we put into it today will still be paying off dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.

Jeff Bezos

I have increasingly started to think of neighborhoods as products. In a world where people have more autonomy in choosing where they live, they can start to compare places to live in a way that wasn’t possible before. If new neighborhoods are to be successful, they will need to offer a set of features more compelling than what’s available elsewhere.

One interesting exercise to isolate the features that will always be valued is to invert the question and ask: “What product features will always be important, regardless of what’s in fashion?”

Like slower shipping speeds for Amazon, which features can we never imagine people requesting decades from now? Those are the features we can safely build into products.

1. Price

Ahh yes, price. That old dictator of customer behavior. The vertical axis of every demand curve.

Price underpins everything else. There is no evaluating an economic decision without knowing the cost. Whenever someone offers us something we must know how much it costs to know if it’s a trade-off we’re willing to make. Said another way by all-time investing great Warren Buffett:

“What is smart at one price is stupid at another.”

The price of housing is something that everyone has some familiarity with. Nearly every adult has either had to 1. Pay rent for an apartment or 2. Borrow money for the purchase of a house.

The cost to obtain housing varies wildly from city to city, and even then varies between neighborhoods within cities. Many places are notorious for housing costs that are prohibitive to all but the highest earners.

The cost of housing in a particular neighborhood is a very salient feature. It’s one of the main factors people will look at when deciding where to live, and always will be.

We can apply our inverted question about product features to price fairly easily. In ten years will people want to pay more for the same quality housing? Will they be asking:

“I love the neighborhood I live in, I just wish it were a little more expensive”

Impossible!

On to the next feature.

2. Economic & Social Opportunity

Why do people move to big cities? The very short answer is: for jobs and sex.

Cities act as marketplaces for all kinds of things, but two of the most important are labor markets and dating markets. These are two-sided markets with buyers on one side and sellers on the other. The goal of all market participants is to form the best possible match with the other side.

The value of networks doesn’t increase linearly. If you double the number of people participating in the marketplace it doesn’t make the whole marketplace twice as valuable. It makes it exponentially more valuable (I’ll rely on the math folks to explain precisely how much more valuable, but it’s a lot more than double.) That means that cities where lots of people live are especially valuable as places to 1. Find work or 2. Find a date

People like to be where there are new opportunities for economic and social growth, full stop. Having more options not only feels better, but increases the likelihood of a successful match between employer/employee in the case of labor.

Therefore we can be pretty sure that neighborhoods offering more social and economic opportunities for people will be popular. This can be demonstrated by trying to imagine someone requesting the inverse; the product feature of “less economic opportunity”:

“This is a really great place, but I wish there were fewer employers hiring people here, or fewer possibilities to make new friends, or fewer prospective dates (if single)”

Unbelievable!

Next feature.

3. Proximity & Access

One dimension of a neighborhood is how much proximity it offers. How much stuff can you easily get to in a 15 minute walk from your front door?

In most American neighborhoods the answer is: not much.

This type of auto-dependent, single-use neighborhood has been the hallmark of American real estate for decades and is sufficiently supplied in the U.S.

Proximity is the vital ingredient that makes all urban areas tick. It is this proximity that enables people to exchange ideas, goods, fashion, beliefs, knowledge and anything else they see fit, generating the diversity that the most valued places all share. It is when people come together that mankind's greatest achievements and most engaging environments have been realised. And it is when this proximity is diluted that the success of urban areas is most harmed.

The Jane Jacobs Way

Proximity isn’t just a nice perk - it’s actually what makes places, places. Areas where there is only a single land use are not alive in the same way mixed-use neighborhoods are, and people realize this:

Millennials prefer urban amenities more than their predecessors: 50 percent consider it "very important" to be within an easy walk of places "such as shops, cafes and restaurants,"

We Want More Walkable Neighborhoods -- but Can Our Communities Deliver?

Only ~8% of people in the U.S. live in neighborhoods with a WalkScore of at least 70. This means that only 1 in 12 Americans can accomplish their errands on foot.

People Want Walkable Neighborhoods

The risk to offering proximity as a neighborhood feature is if enough walkable neighborhoods are built so that the tens of millions of Americans who prefer to live in those environments can do so and the demand is met.

In very rough numbers, that would mean tens of millions of new units in walkable areas are built quickly. Even in good years, fewer than two million units of housing are started and most of those are still single-family suburban homes! Couple that with the complexity brought on by the regulation and planning involved in building these places and it seems unlikely this demand will be filled any time soon.

All of this makes it a third pretty safe neighborhood feature to offer: more proximity to people, shops, and activities. In short, more walkability.

So let’s invert that for our third product feature proposition. In ten or twenty years, are people going to walk up and say:

I sure love the neighborhoods you’re building. I just wish you would make some where daily life is a little less convenient. I wish my house was farther away from things, I saw friends and family members less, and I spent more time in my steel box each day.

Inconceivable!

What Else?

Different people will value different specific features in neighborhoods. The three I’ve listed above strike me as generally true across a wide range of people. Who doesn’t want to pay less rather than more for the same product?

Beyond these, what other features are relevant to people generally?

Which features might appeal to some people but not others?

Far from being a negative, niche interests and features might make for some really interesting neighborhoods. A good product strategy is to make a smaller group of people extremely happy, rather than try to make a larger group just satisfied.

I look forward to hearing people’s thoughts! Until next week,

Joel