Less relocation impacts real estate investments. About 3.5 million workers relocated for a new job last year, a 10% drop from 3.8 million in 2015. The current relocation rate of 10 percent is 72 percent lower than in the mid-to-late 1980s. The average annual relocation rate from 1986 to 1990 was 35.2 percent (US census). Why is relocation so important for real estate? How should this influence your real estate investment strategy?
What is the importance of workforce mobility?
As the global economy shifted from manufacturing to innovation, geography was supposed to matter less. But the experts were wrong. A new map is being drawn with certain areas prospering while other areas languish.
A closer look at the 300-plus metropolitan areas of the United States shows that Americans with high school degrees who work in communities dominated by innovative industries actually make more, on average, than the college graduates working in communities dominated by manufacturing industries, according to research by University of California, Berkeley economist Enrico Moretti, the author of The New Geography of Jobs (see a Forbes review of the book). I highly recommend you read this book. It lays out a great explanation of why certain cities are thriving while others will continue to decline and will influence your real estate investing decisions.
Workforce mobility is one of the keys to economic prosperity. For example, there are thousands of openings in Denver from computer programmers to plumbers and yet these jobs are going unfilled with an unemployment rate of around 2%. While on the flip side the US virgin Islands has an unemployment rate of over 10%. This mismatch of locations/employees is a critical problem plaguing the US economy that is getting drastically worse with mobility declining substantially. Areas like Denver will have constrained growth due to lack of employees while the Virgin Islands will also languish.
Why don’t employers move?
Employers move to take advantage of certain labor talents. For example, a number of companies have relocated to Atlanta to take advantage of the highly skilled labor force and other factors. These companies are not moving in droves to areas with high unemployment. Instead they are moving to areas already with low unemployment as these areas have the skillsets of workers that they demand. Companies seem to “conglomerate” around certain areas. For example, Seattle and Portland are high tech hubs , other areas are aerospace, computer engineering, outdoor industries, etc…. Companies are following the “herd mentality” and locating around other like companies. This trend will not only continue but strengthen.
Impact on real estate now
Workforce mobility, or lack thereof, will have a profound impact on real estate. Areas like Denver and Atlanta are seeing fast appreciation while other areas will continue to languish. For example Denver has appreciated 55% since the recession while Youngstown, OH is -26% below the recession peak (Clear Capital).
The smaller number of workers moving will continue to drastically favor certain cities. With a smaller pool of workers, companies will pick cities that can attract the necessary workers further perpetuating the disparities among cities. For example West Virginia in 2015 lost .54% of its population while Colorado gained 1.7% (USA Today)
For example, the North Face’s parent company just announced they were relocating to Denver 800 high paying jobs from other cities. Denver has a net gain of workers while other cities continue to lose available workers.
Denver, Atlanta, and others will continue to prosper while others are left behind. This prosperity will be more profound due to lower mobility rates. With increasing populations of well educated workers, housing and commercial prices will continue to appreciate.
How should this influence your long-term investing?
The thriving cities now will continue to thrive as companies in specific industries conglomerate around certain areas. This will continue to increase prices until some “tipping point” where prices rise too fast and price out many workers. Once this occurs net migration to these areas will slow along with price appreciation. Although price appreciation will slow, areas that can attract the limited number of workers willing to relocate will outpace other areas.
The drastic reduction in worker mobility will perpetuate the disparity amongst cities throughout the United States. The laggards will continue to fall further behind as they are unable to attract the limited number of available relocators. Certain cities that can attract talent will continue to thrive. This is where you should look for long term real estate investments.
Resources/Additional Reading
- http://www.challengergray.com/press/press-releases/historical-analysis-fewer-job-seekers-relocating-new-positions
- https://www.wsj.com/articles/fewer-americans-uproot-themselves-for-new-jobs-1534690800?mod=djem10point
- https://www.gsb.stanford.edu/insights/enrico-moretti-geography-jobs
- https://www.clearcapital.com/analytics/home-data-index/
- https://www.usatoday.com/story/money/economy/2018/01/15/fastest-growing-and-shrinking-states-closer-look/1019429001/
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all they need is their simple one page application (no upfront fees or other games).