The 'Wild Card' On In- And Out-Migration? Relative Affordability

Something not-so-funny happened on the way to a rapidly-evolving "new geography" of American local economies.

With the rigor of data, expert perspective, and social observation, University of California Berkeley professor and author Enrico Moretti mapped out The New Geography Of Jobs, describing how three decades of glacial structural transformation were – in 2012 – about to accelerate, which they did:

Today there are three Americas. At one extreme are the brain hubs—cities like San Francisco, Boston, Austin, and Durham—with a well-educated labor force and a strong innovation sector. Their workers are among the most productive, creative, and best paid on the planet. At the other extreme are cities once dominated by traditional manufacturing, which are declining rapidly, losing jobs and residents. In the middle are a number of cities that could go either way.

For the past thirty years, the three Americas have been growing apart at an accelerating rate. This divergence is one the most important recent developments in the United States and is causing growing geographic disparities is all other aspects of our lives, from health and longevity to family stability and political engagement. But the winners and losers aren’t necessarily who you’d expect.

Moretti’s groundbreaking research shows that you don’t have to be a scientist or an engineer to thrive in one of these brain hubs. Among the beneficiaries are the workers who support the "idea-creators"—the carpenters, hair stylists, personal trainers, lawyers, doctors, teachers and the like. In fact, Moretti has shown that for every new innovation job in a city, five additional non-innovation jobs are created, and those workers earn higher salaries than their counterparts in other cities." – Goodreads

Arguably, some of Moretti's insight beamed on trends that continue to play out as he'd envisioned they would. Some though, like those that imagined that industrial-era cities and towns were in for an existential struggle to resurrect themselves for a next new life as knowledge-economy and innovation hubs, may prove to be mistaken.

Since the 2020 COVID-19 pandemic and its aftermath, there have been significant shifts in the "new geography" of jobs and housing, with notable changes in mobility and migration patterns. Several key drivers have influenced these changes, reshaping the values and economics of migration-magnet metropolitan areas, as well as secondary and tertiary markets.

Hybrid Work Options: The pandemic accelerated the adoption of remote and hybrid work models. As more companies embrace flexible work arrangements, people are no longer tied to living in proximity to their workplace. This shift has allowed individuals and families to consider relocating to areas that offer a higher quality of life, better affordability, and more appealing natural environments.
Quality of Life Choices: The pandemic highlighted the importance of quality of life factors, such as access to outdoor spaces, lower population density, and better healthcare infrastructure. Many individuals and families are now prioritizing these factors when considering relocation. Areas with scenic beauty, outdoor recreational opportunities, and a sense of community are becoming more attractive.
Housing Affordability: Rising housing costs in major metropolitan areas, coupled with the affordability challenges faced by many individuals, have led to increased interest in more affordable markets. People are seeking locations where their housing budget can afford a better quality of life, larger homes, or access to desirable amenities. This has driven migration to smaller cities, suburban areas, and regions with lower cost-of-living.

Pandemics, climate disruption, and a housing-affordability crisis that has taken on a life of its own as a big motivator for out- and in-migration trends can tend do that to a well-reasoned scenario for America's cities and towns, as we now know.

Consider:

In today’s market, it’s extremely difficult to buy a house for just 16 percent of your income—or 28, or 30. The average new homebuyer today, according to Zillow, will spend 34 percent of their income on housing—the highest amount since 2004, which is as far back as Zillow’s data goes. That’s if they have a 20 percent down payment. If they don’t, the cost burden will be even higher. Prices are still high because housing stock is so low: With mortgage rates at about 7 percent, people who locked in 3-ish-percent rates a few years ago aren’t moving. “It is clear that affordability has become the No. 1 challenge for new buyers and renters in the housing market today,” says Orphe Divounguy, a senior economist at Zillow." – Olga Khazan, The Atlantic

It's not that "brain hubs" have lost their mojo in and of themselves, it's that they're mostly prohibitively expensive to be a young adult in many of them. And young adult households – where children, fast-rising incomes, and outsized consumption patterns tend to go with the turf – influence our thinking about what's coming and going when it comes to "new geographies."

Last year, according to the financial tech company SmartAsset, Tampa was in the top 10 American cities that both millennials and Gen Zers are moving to (Miami figured on neither list).

“Tampa’s let me expand my network across multiple industries,” said Trinidadian-born Nneka Jones, 26, an artist and entrepreneur who likes the balance between “work and adventure” her adopted city offers. Draws for her: the beaches and outdoor festivals. South Florida native Clint Dunlap, 37, left Tampa to live in New York City but returned after the city’s postpandemic boom. “I see similarities between Tampa and New York for walkability and convenience,” said Dunlap, who owns Material, a hair salon on Howard Ave. – Alexander Lobrano, Wall Street Journal

Drivers reshaping in- and out-migration patterns are creating new dynamics in residential real estate. Some potential impacts include:

Migration to Affordable Markets: Cities and regions that offer a combination of affordability, amenities, and quality of life are experiencing increased in-migration. Smaller cities and suburbs near major metropolitan areas are attracting individuals and families who desire more space and a better cost-of-living.
Economic Growth in Secondary and Tertiary Markets: The influx of new residents brings economic opportunities to secondary and tertiary markets. These areas experience growth in local businesses, infrastructure development, and increased demand for goods and services.
Real Estate Market Shifts: Migration to more affordable and naturally appealing markets can drive increased demand for housing in those areas. This can lead to rising home prices and a competitive real estate market. It may also incentivize developers to invest in housing projects and infrastructure improvements to meet the growing demand.
Urban Revitalization: Major metropolitan areas that faced challenges during the pandemic, such as high costs of living and dense populations, may experience a reassessment of their attractiveness. This could result in efforts to revitalize urban areas, including investments in affordable housing, public spaces, and improved amenities.

Overall, the future of residential real estate will be shaped by the blending of hybrid work options, quality of life choices, and housing affordability. The migration patterns seen since the pandemic reflect a desire for more affordable, higher quality-of-life, and naturally appealing markets. As these trends continue, areas that meet these criteria are likely to experience population growth, economic development, and changes in their real estate markets.

Still in all, when it comes to matching up where people desire to live and their means, relative affordability – for an era likely to traffic as a "higher-for-longer" stretch that includes far more than mortgage interest rates – is about as good as it gets.