Personal Transportation… America’s Real Addiction

by David Fessler, Investment U Senior Analyst
Wednesday, November 16, 2011

Not really. The real problem is that, as a developed society, we’re addicted to unencumbered transportation. That most often takes the form of the family car. Every errand, soccer practice and commute is largely done by automobile.

The family car enabled the great migration to suburban living that began right after the end of World War II, and is just now coming to an end.

It’s this suburban, personal transportation addiction, and the behavior patterns that are associated with it, that must be changed if we are to keep the “American Dream” from turning into the “American Nightmare.”

Experts predict that as little as a 10 percent disruption in the supply of U.S. crude oil would have devastating effects on our society. Rail, truck and air transportation would all be affected. Society as we know it would come to a grinding halt.

The large number of vehicles, their high rates of usage and their relatively high inefficiencies will all have to change. The problem is, nothing is currently being done in any large-scale way that will effect the change over the next 20 or even 30 years.

But It’s Not Just About More Fuel-Efficient Cars

By then, it may be too late, according to Randy Udall, in a program on urbanization that appeared on CNBC earlier this week. His comments are a stark reminder that we need to get going:

“We can double new-car efficiencies like we did between 1972 and 1985. We can do that again, and it’s probably job one.

“But there are other things we need to do. We need to re-invest in public transportation. We have to think, how are we going to get this incredible civilization from today to 2100? Nobody in the United States has a clue.”

The obvious question is: Where’s the money going to come from to affect this change? It’s clear something has to be done. The cost of maintaining the roads, water, sewer and other infrastructure associated with 50 years of unchecked suburban sprawl has many city budgets on the verge of breakdown.

Infrastructure repair is the subject of another article. If cities are designed properly, suburban sprawl can be minimized, and mass transit can be designed to service neighborhoods.

Many people from the baby boomer generation are “scaling down.” They’re ready for smaller places to live, and many are ready to even give up their cars. The thought of higher density isn’t a problem for many of them.

The current generation of 20 to 30 year olds is much more social than their parents. They aren’t in a great rush to get married, either. They want to live near others their age. They’re willing to accept higher density right out of the chute, and living in cities appeals to them.

Reversing 50 years of suburban migration isn’t going to happen overnight. Major infrastructure projects will require funding, and that’s in short supply right now.

How to Play Re-Urbanization

As more and more people move from lower density areas to the cities, apartment owners and other city-based businesses will thrive. One of my favorite ways to play the urban real estate market is via companies that own large apartment and condo complexes.

Most are structured as real estate investment trusts, more commonly referred to as REITs. They’ll continue to do extremely well as boomers scale down and move to towns and cities.

It’s already happening. According to Reis, Inc. (Nasdaq: REIS), the real estate information company, the national apartment vacancy rate dropped to 5.6 percent, the lowest figure since late 2006.

That rising occupancy rate has landlords raising rents: An average of 2.4 percent over the past year. That translates directly to the bottom line of apartment REITs. But not all REITs are doing well. Here are two that are.

The first is Equity Residential (NYSE: EQR), up 11 percent year to date. In addition to further share appreciation potential, EQR currently yields 2.33 percent. EQR owns all or a portion of 451 properties located in 17 states and Washington, D.C. As of December 2010, its portfolio consisted of 129,604 dwelling units.

Another REIT to consider is Camden Property Trust (NYSE: CPT). Camden currently yields 3.27 percent. It owns 63,293 apartment homes in 188 multi-family developments across the United States.

Either of the two REITs mentioned above is a great way to play the coming re-urbanization of America. Perhaps you’re one of those thousands who are making the move to the cities.

Good investing,

David Fessler