Real Estate Technology Entrepreneur – CEO Griffin Funding, Co-Founder & Chairman Greendoor, Managing Member Revestor.
As an avid follower of real estate trends, I have been reading a lot of articles about how the Covid-19 pandemic is moving people out of the big cities and into the suburbs. But this isn’t exactly true. Yes, being in a much more spread-out community with your own yard and personal space is alluring in times like these. But the trend of moving out of the congested lifestyle of the big city started long before we were hit with the days of social distancing.
The uptick of people moving to less dense areas actually started back in 2014, more than five years ago. According to an analysis published by Brookings, the growth gap between U.S. cities and suburbs from 2010 to 2015 shrank each year. By 2014, cities grew 1.02% while suburbs expanded by 0.99%. By 2016, city growth had declined to .82% while the suburbs grew by .89%. In other words, folks have wanted to get out of the concrete jungle long before the coronavirus.
There have been a number of changes in our society that have moved people out of the hustle and bustle — for one, the ability to work from anywhere. The remote work life has been catching steam for quite some time. For years, many employers have given the option of working from home or out of the office at least one day per week. This has allowed some families to move further away from the city where they can afford a bigger home in a nice community with good schools.
If you could work remotely from anywhere, why wouldn’t you choose a mountain resort town, a desert oasis, a rural ranch home or a place close to the beach — especially if the homes are more affordable and in a state with a lower tax rate? Skiing, snowboarding, hiking, fishing, hunting, golfing, boating, waterskiing, scuba diving, surfing and any other activity that connects us to nature certainly seems more appealing to most than having their head stuck in a smartphone all day.
Some would say that working remotely pushes us more toward a virtual world of singularity — which, yes, may be true for work, but if one is disciplined enough, you can actually liberate yourself by connecting to the natural world around you rather than the matrix on your phone.
Some people are held back by being an airplane ride away from family and are opting for a new location that is within driving distance from family, friends and their office. Others have opted to move themselves and their businesses to Puerto Rico. I’ve seen my fellow entrepreneurs make this move to lower their total federal and state income taxes down to as little as 4%.
With a significant number of companies moving to a more remote work business model, even when people are allowed to go back to the office, this change in the way we work will leave a lasting impression on our lifestyles and living locations. Ultimately, the events of today did not kick off a trend but will provide a significant tailwind to this demographic shift.
I have personally witnessed San Diego, Orange County and Los Angeles residents exiting to nearby Big Bear, Lake Arrowhead, Santa Barbara and the Palm Springs area. I have friends moving from Chicago to Michigan to live in a house on the lake with more room than the city and with lower state taxes. I have friends in Manhattan who are either moving up the Hudson to towns like Rhinebeck, New York, or over to Skillman, New Jersey to enjoy lower state taxes. Those who can’t afford to buy are staying in short-term rentals in resort areas. One study found that occupancy rates are already back to pre-pandemic levels in some areas.
On the flip side, “When you step back and look at the bigger picture, it seems that those writing off urban real estate have done so prematurely,” said Zillow economist Jeff Tucker. “There is some localized evidence of a softer urban market, particularly in the highest-priced markets, San Francisco and Manhattan, and an eye-catching divergence in sale prices, but no evidence of a widespread flight to suburban pastures.”
Another factor to take note of is that homeowner tenure in their homes is at a historic high. Homeowners are not necessarily looking to move around, they want their forever home — especially when they are locked into a historically low-interest rate on their mortgage. These changes have been happening for more than five years; they are more than just a flash reaction.
The information above gives us enough data to understand homeowners who are considering moving to a state with more affordable housing and less income tax and to take advantage of historically low interest rates. Locking an interest rate in now is almost free money. The data can also help real estate professionals make an informed decision about investing in short-term rentals in these areas, not only to provide mobility for ourselves but diversity in our investments. DSCR loans on short-term rentals went away at the beginning of the pandemic, but they are back now and should be considered when financing investment properties.
It’s important for those of us in the real estate industry to recognize the difference between a shift and a trend because, while trends come and go, major shifts have long-lasting impacts on our future. The question is, what are you going to do to capitalize on it?