New York, LA And Chicago Keep Losing Workers To The Sun Belt
America’s three largest cities all lost population last year, while many Sun Belt cities continue to grow. But while economists typically point to population growth as the sign of a healthy city, the trend is not seen as doom and gloom for business and development in gateway markets.
The New York City metropolitan area lost just under 20,000 people between 2017 and 2018, while Greater Los Angeles lost a little over 7,000 residents, according to U.S. Census Bureau estimates. Greater Chicago lost 22,000 residents, or 0.2% of its population, in 2018, the fourth consecutive year of decline for the Windy City.
It is a different story in many Sun Belt and southeastern U.S. cities.
The Dallas-Fort Worth metropolitan area gained 132,000 residents in 2018, the most of any U.S. metro area and triple the growth rate of the entire country. Phoenix gained 96,000 residents and is expected to replace Boston next year as the 10th-largest metro area in the U.S., according to CBRE.
Houston (92,000), Atlanta (76,000) and Orlando (60,000) rounded out the top five for population growth last year.
“For long-term economic vitality, population growth is a crucial factor,” said Branner Stewart, a senior research manager at the University of Massachusetts Donahue Institute. “On the surface, having declines raises eyebrows about long-term growth, and now that we’re this far into the economic cycle, Americans are now becoming more comfortable moving elsewhere in the country than they were during the recession.”
The census data shows outward domestic migration as the culprit for much of the population loss last year in the top three U.S. cities. New York’s metro area lost nearly 200,000 of its domestic population while Greater Los Angeles lost nearly 119,000. Chicago lost about 84,000. The regions made up for some of those losses by gaining population through international migration and having higher birth rates than death rates.
As for what’s sparking the migration to places like Houston and Orlando, experts think it's all about the money.
The most recent U.S. tax reform reduced the personal deduction and reduced the maximum mortgage interest deduction from $1M to $750K. The number may still seem high, but the median home price of current home listings in New York is roughly $800K, according to Zillow. In Los Angeles, the median home price listing is just over $802K.
In Dallas, it is just under $390K.
“The Sun Belt has been on a growth curve for more than 30 years,” said Transwestern Director of Research Keith Pierce, who is based in Atlanta. “I think what’s happening now is the impact of the huge cost of living in some of these gateway markets.”
The high cost of living and doing business in gateway cities has also pushed some companies into the heartland. Tech companies like Apple have flocked to Austin. Boston-based Liberty Mutual employs 4,000 people across 33 offices in Massachusetts, but it also plans to hire or move 5,000 workers to a single site in Plano, Texas.
Amazon is moving forward with HQ2 in Northern Virginia, but it also has plans for a 5,000-employee office in Nashville. The e-commerce giant’s initial HQ2 request for proposals said cost of living would play a role in its expansion decision.
Companies have relocated to bigger U.S. cities this cycle typically in pursuit of the regions' deep pools of talent. But CBRE Chairman of Americas Research and Senior Economic Advisor Spencer Levy said he has also seen some businesses move to slightly smaller cities to have a better chance of hiring the best talent in that given market.
“While everyone wants to have the highest quality talent, you have to compete in whatever market you go to with whatever is the most popular employer in town,” Levy said. “Sometimes it’s better to be the big fish in a smaller pond to get the best talent in that market.”
Despite the population trends toward the Sun Belt, Levy and others interviewed for this story are not ready to ring the alarm bells for the largest U.S. population centers.
“Nobody wants to lose population because population matters for all types of real estate,” Levy said. “But I’m not alarmed by it because I look at talent perhaps even more than overall population.”
Pittsburgh had the largest population decline among U.S. metropolitan areas larger than a million people, but Levy said it is widely still seen as a good market in the eyes of CRE thanks to its universities and hospitals boosting the city's appeal as a center for technology and research and development.
There is also a durability in the kind of jobs that remain in gateway markets as opposed to the ones helping fuel growing Sun Belt markets. Complex research jobs in places like Silicon Valley or Boston are not as dispensable in a downturn as back office jobs, Levy said.
Los Angeles may have dropped in population, but it has also been CBRE’s top destination for institutional investment for the last three years. New York officials are even questioning if the census estimates are accurate.
“Every market and metropolitan area has opportunities and challenges,” Pierce said. “I wouldn’t worry too much about population loss, but it’s important to pay attention to where these people are going, why they’re leaving and what can be done to address it."