Professionals have begun migrating en masse from America’s biggest cities to urban areas with hot job markets, more affordable costs of living and comparable lifestyles. Additionally, businesses are seeking a break from state income taxes. Many states with great income-to-cost-of-living ratios also have the least tax liability.
The important questions real estate professionals are asking are: Which underlying factors are driving this incredible migration? What could it mean for the real estate market in these areas?
Young professionals chase growing job markets and lower costs of living.
The American cities that steadily attracted young workers for over a century have started losing their young professionals. In August 2019, 277 people left New York City every day. Los Angeles and Chicago weren’t far behind, with 201 and 161 departures per day, respectively.
In many of these cities, the cost of living has outpaced the high incomes that attracted professionals in the first place. In others, like Detroit, economic events have eliminated thousands of jobs altogether.
Meanwhile, cities like Dallas; Phoenix; Orlando, Florida; and Austin, Texas, where I’m based, have enjoyed blossoming job markets, less expensive housing, room to expand and tax-friendly business environments. Even places without comparably high income — Des Moines, Iowa, for example — attract young workers with exceptionally low housing costs and steady job markets.
Major employers seek low-tax cities with room to grow.
Leading firms in tech, life sciences and manufacturing are increasingly moving operations to states and cities with business-friendly tax environments. Eighteen of the 30 fastest-growing U.S. cities are located in Florida, Washington, Nevada and Texas, states without an income tax.
Oracle, Google, Apple and other heavy hitters are building sprawling corporate campuses here in the Austin metro area. In addition to saving millions of dollars in state and local taxes, these companies can offer employees high-quality housing options for a fraction of what it costs to live in places like New York, Los Angeles and San Francisco.
Employees who can live affordably in good houses and apartments and avoid onerous local taxes can keep more of each paycheck and enjoy a high quality of life. Corporations like Apple place a premium on areas that make it easier to cultivate happy, loyal professionals.
Real estate markets surge to meet the new demand.
These rapid-growth cities have thousands of new arrivals each month who need places to live. As a result, real estate developers — especially multifamily developers — find themselves in one of the hottest markets in decades.
Well-salaried corporate workers can afford market prices for upscale apartments, and many expect modern amenities. In certain cities, developers and investors are responding to the demand by building new high-quality apartment complexes wherever they can. Last year, while down in the Northeast and Western regions of the United States, multifamily starts increased in the South and Midwest. Austin, Orlando and Minneapolis-St. Paul all made the top 10 for new permits.
Real assets such as multifamily developments and self-storage units can offer investors reliable long-term gains, passive income streams and resilience against negative market shifts. This should make cities with an influx of high-income professionals very appealing to investors who want to build diverse portfolios with a long-term outlook.