Community Wealth and the Future of Consumer Demand in America

Community Wealth and the Future of Consumer Demand in America

Much has been written about the growing wealth and income gap between America’s rich and poor. However, the wealth gap exists not just among individuals, but among entire communities. And we can anticipate where local consumer demand is headed by examining the state of local communities.

To better understand the variations in community wealth, The Demand Institute, a non-advocacy, non-profit think tank jointly operated by The Conference Board and Nielsen, recently published a report reviewing more than 500 different metrics in 2,200 of America’s largest communities coupled with in-depth interviews with 10,000 U.S. consumers. At the center of this analysis was a deep investigation in the state of the U.S. housing market. Housing is often a consumer’s single most valuable and visible asset, and it tracks closely with all other measures of people’s wealth and income. So not surprisingly the local housing market is one of the most powerful and accurate metrics for evaluating community wealth.

The Community Wealth Gap

In the U.S., the wealthiest people and communities hold a disproportionate amount of the country’s wealth—and a large part of that is housing. In 2012, the top 10 percent of the 2,200 communities reviewed based on their owner-occupied housing inventory’s total market value held 52 percent of the country’s aggregate housing value. Comparatively, the bottom 40 percent accounted for just 8 percent of the housing values of all 2,200 communities.

So how big is the gap between these two groups? In nominal terms, the value of the top 10 percent’s housing rose 73 percent between 2000 and 2012, from $2.5 trillion to nearly $4.4 trillion. At the same time, the value of the bottom 40 percent’s housing grew by 59 percent, but from far lower a starting point: from $440 billion to only $700 billion. This means that while the top 10 percent of cities and towns added nearly $2 trillion in nominal dollars to their housing wealth over the course of 12 years, the bottom 40 percent added just $260 billion. Examined though another angle, the median home price in the top 10 percent in 2012 was $241,000 but was just $127,000 in the bottom 40 percent.

Behind this disparity in housing values, lie significant differences in population, job and income growth. During the same period, the top 10 percent of communities accounted for 41 percent of aggregate population growth, 49 percent job growth, 51 percent of the increase in income, and a full 53 percent of the gains in aggregate housing values. Meanwhile, the bottom 40 percent captured only 11 percent of population growth, 9 percent of job growth, 9 percent of the increase in income, and just 8 percent of the gains in housing values.

And these factors contribute to differences in housing wealth per household. Housing wealth per household in the top 10 percent of communities was 103 percent higher in 2012 than in the bottom 40 percent, having grown by 57 percent between 2000 and 2012. This compares with 49 percent growth in the bottom 40 percent.

The Connection between Community Wealth and Consumer Demand

The well-being of communities and the people who live in them are interconnected. When one does well, the other benefits, but the opposite is also true—when one suffers, the other often feels the pain as well. These positive and negative trends often form feedback loops. In a positive cycle, increasing wealth for a community and its people will drive up home prices, which further supports the community and its members’ wealth. Meanwhile, decreased wealth for a community will hurt the opportunities for those who live there, causing many to leave or fewer to move in. With less demand, home prices will drop and make the community less appealing, further perpetuating the downward spiral. Changing home values end up acting as an excellent barometer for understanding how confident consumers feel about their economic prospects, which in turn drives their decisions for how to spend or save their money. 

Breaking the cycle can be difficult. The Demand Institutes’ research shows there’s been remarkably little upward or downward mobility in housing values among the 2,200 cities and towns studied—about two dozen moved either into or out of the top 10 percent between 2000 and 2012. And we can’t expect a housing boom to kick start the local economies any time soon. The housing market is recovering slowly and steadily, which won’t undo all the damage the financial collapse caused to many cities and towns across America. Absent unexpected developments, it seems likely that the weakest communities will lag further and further behind.

In fact, assuming aggregate housing values continue to grow at similar disparate rates over the next 10 years, the top 10 percent of communities could see their total housing values rise over seven times more than that of the bottom 40 percent. That would mean value gains worth $1.9 trillion for the top 10 percent, compared with only $260 billion for the bottom 40 percent. That differential is significant.

No matter how severe the crisis, however, today’s community situation is not destiny. There are many cities and towns that have turned around their situation through a combination of public and private collaboration. Prime examples include Hoboken, N.J., and Issaquah, Wash. Three decades ago, both were facing economic weakness, yet today a mix of interventions has driven prosperity and stronger prospects. 

Ultimately, it is in everybody’s interests that American communities become stronger—strong communities will support increased consumer demand and healthier economic growth for the nation. We believe these new research findings from The Demand Institute will stimulate a vibrant conversation across public- and private-sector leaders to identify tangible ways to help struggling communities become more successful in the future.