Population Migration and CRE: The Move South
- Jason Gordon & Bob Brown
Click Here to Download for Easy Reading
- Jason Gordon & Bob Brown
Click Here to Download for Easy Reading
Among the many demographic trends, I presume CRE executives monitor, perhaps the most interesting is population migration. Within America’s borders, migration is driven by a multitude of factors, including government policy, cost of living, new technologies, family size, and life cycles. CRE executives who accurately identify and adapt to demographic trends early (where people will want to live and work), are likely to have a competitive advantage.
According to the U.S. Census Bureau, all the top ten fastest growing states in their survey covering the one-year period ending July of 2018 were in the South and West. (In descending order these states are Nevada, Idaho, Utah, Arizona, Florida, Washington, Colorado, Texas, South Carolina, North Carolina.) With the exceptions of Idaho and Washington, all are located within the broader definition of the Sunbelt. Digging deeper, the data informs that all the states in the Northeast and Midwest saw meager population gains of under one percent, with four of those states (New York, Rhode Island, Connecticut, and Illinois) registering net population losses.
Developers, however, should be just as interested in the underlying statistics as they are in the top line figures. When immigrants are excluded, for example, Florida and Texas head the list for net domestic migration. And since U.S. citizens are, on average, considerably wealthier than immigrants, CRE executives can determine housing price points, types of office space, shopping options, and entertainment venues which comport with those patterns.
Within the broad migratory trends of the population, in general, there are important subsets which demand careful attention when developers and builders construct new communities and individual housing … retirees flocking to the Sunbelt, for example. While retirees have been moving to the Sunbelt for decades (in numbers far greater than to any other region) to enjoy their twilight years in balmy climates, America has never seen a generation nearly as large as the baby boomers (those born between 1946 and 1964) transitioning into retirement.
According to analysts at PNC Bank, “An estimated 10,000 baby boomers (about 18% of the population) will reach age 65 every day through 2030, at which point all members of the generation will be of retirement age.” Given these demographic trends, real estate opportunities in the Sunbelt states include adult communities with amenities like wellness programs, on-call medical personnel, bike racks, health clubs, entertainment options, etc. And as senior citizens age, the importance of self-contained communities offering these kinds of amenities increases. Although some retirees have strong income streams, for the majority, their peak earning years are behind them. We can infer, therefore, that seniors are far more budget conscious than the younger generations. With this in mind, moderate housing price points (including rentals) are called for in the majority of new communities and residential buildings.
But beyond climate and housing costs, retirees seek an overall lower cost of living. With less disposable income, boomers are drawn to the Sunbelt due to lower costs of life’s necessities and luxuries than the large urban centers where many once lived. Everything from groceries to dry cleaning, restaurants to gasoline, repairmen to sundries usually cost less – often a lot less. Due in part to this influx, it should come as no surprise that 40 percent of America’s population now reside in the Sunbelt. Further, the Urban Land Institute (ULI) estimates, “The southern regions will welcome 62 percent of the U.S. household growth over the next decade.” Additionally, since lower tax burdens are a determinative factor when boomers decide where to retire, Wallethub compiled a list of states with the heaviest tax burdens (including income, property, and sales tax). New York topped the list, New Jersey came in at number seven, Illinois (9), Ohio (12), and California (11). Of the states listed as the fastest growing in the country, all fall in the bottom half of the list – where the tax burdens are lower. Accordingly, the PNC Bank report advises, “Essentially, developers can expect softening demand in the North and Midwest as retiring Baby Boomers flock to the south. There, projects like affordable rental housing, townhomes and small-lot detached housing should thrive.”
What About the Millennials?
In an earlier article, I wrote about millennials choosing to live in the suburbs and exurbs where home prices and the cost of living, in general, are lower than in urban cores. But is this generation also flocking to the southern tier of the country? “Traditionally, New York, Boston, Washington DC, and San Francisco have drawn the majority of recent college grads, but the high cost of living … in these large metro regions are driving more young adults to mid-sized cities in the south and west,” reports the investment management firm, Legg Mason. “These areas also have thriving energy, tech, new media, entertainment, hospitality, health care, and financial services industries.” With a disproportionate percentage of millennials mired in student debt, they too seek less expensive digs and a lower cost of living. Because Sunbelt cities offer considerably lower median home and apartment rental prices than gateway cities, it is not all that surprising that 50% of millennials currently live in the Sunbelt. Legg Mason calculates that millennials will constitute 75% of the workforce by 2030. “Such relative affordability may become more important as young adults age, marry, and have families. These milestones are more likely to occur in this region.” As a result, “We expect Sunbelt markets will continue to capture more jobs as their younger populations continue to grow.”
Secondly, while it may seem surprising at first glance that cities in the Sunbelt actually have lower home ownership rates (50-60%) than the national average (64.8%), much of this statistic can probably be attributed to the debt millennials carry, and the resulting difficulty in mortgage approval. Also, when marriage is not on the horizon, home ownership becomes less of a priority. As the ULI analysis predicts, renters are on track to comprise 58% of new households in the coming decade.
There is virtual unanimity among analysts, as a study by Brookfield Asset Management reports, “Midsized sunbelt cities have experienced higher growth rates in recent years. We believe this will continue as the number of people reaching traditional family-forming years, as well as those nearing retirement are likely to grow significantly in these markets over the next few years.”
What is the takeaway? The largest US cities with the highest tax rate and where living is most expensive needs to address the migration of Baby Boomers and Millennials in the short term. If you are living and working in the Sunbelt, enjoy the growth and demand for the foreseeable future.