COVID’s Impact on Migration, Rents and Lifestyle

Kelvin Tetz of Moss Adams and Randall Sakamoto of Rosen Consulting Group analyze the trends driving multifamily forward.

Kelvin Tetz

As the world looks back at three waves of the COVID-19 pandemic, the impacts on multifamily housing point to important mid- to long-term trends affecting real estate investors, developers, builders, and the entire industry.

Though timely and factual demographic data remain somewhat scarce, a Moss Adams perspective on pandemic-related shifts and migration offers a view on trends that may impact the residential and commercial real estate industries. 

Growth Opportunities Spread

Out-migration to lower-cost regions accelerated compared to pre-2020 trends, providing significant growth drivers for in-migration markets while out-migration markets seek nuanced opportunities for development and investment.

Notable top choices are suburban and third-tier markets, which previously lost residents in prior out-migration trends such as cities and towns in the Central Valley of California and rural Pennsylvania. This bodes well for similarly overlooked markets which can offer attractive options to a workforce that is now more mobile than ever.

On the flip side, the effect of the COVID-19 era on multifamily formats will continue to favor multi-bedroom and larger units with space for home offices or remote learning. Urban apartment demand lagged during the pandemic, but the appeal of city living for young professionals and retirees who can afford a second home should stabilize, and the CBDs will likely grow with the expected return to office work.

What Motivates Migration

A closer look at the drivers and trends reveals many factors for the real estate industry to examine closely in their go-to-market strategies.

Prior to the pandemic, out-migration from high-cost states accelerated, driven by a lack of housing affordability, changes to tax laws, and increasingly onerous regulatory and tax environments, among other quality of life issues.

Leading up to the pandemic, states with substantial numbers of households departing included New York, New Jersey, California and Illinois—all states with significant tax burdens. During the same period, in-migration accelerated in states such as Arizona, Florida, Idaho, Oregon, South Carolina and Texas—generally states with lower tax profiles.

On average, roughly 10 percent of the U.S. population moves each year, according to the U.S. Census Bureau. This share slowly decreased over time as the urbanization trend matured.

Randall Sakamoto

In comparison, from the 1950s to 1970s, when large portions of the population chose to migrate to large cities from rural regions for better job prospects and lifestyles, roughly 20 percent of the population moved each year.

A large share of the population moves to cities within the same metropolitan area annually. Since 2000, roughly two-thirds of those who moved remained in the same county. While this share will undoubtedly decrease as full 2020 and 2021 data becomes available, we expect roughly half of movers will remain in the same region. Many of these movers relocated from urban neighborhoods to suburban housing or from smaller condos and single-family homes to larger homes in the suburbs that offer more space for home offices and distance learning.

Since the pandemic began, demand for rental apartments and single-family homes has remained elevated in suburbs and less-dense neighborhoods outside of urban cores. In areas of California such as the Inland Empire, Sacramento, and parts of the Central Valley, for example, households moved from higher-cost coastal counties to inland cities offering more bang for the housing buck.

By examining property sectors, it’s apparent that out-migration to lower cost regions is occurring on a larger scale than the pre-2020 period. Prior to the onset of the pandemic, roughly 15 percent of movers went to a different state. This share increased in the last decade as affordability constraints, particularly within coastal states, weighed on households.

Where Opportunities Are Best

Observations on recent apartment absorption rates provide a view into what’s next.

While landlords quickly leased vacant apartment units in downtown submarkets and dense neighborhoods in 2021, the average rent in certain downtown markets increased by roughly 5 percent since 2020—and an even greater amount for some prime urban submarkets.

Households, especially younger ones, are returning to urban neighborhoods, attracted by opportunities and amenities that existed prior to the pandemic—diverse and dynamic job opportunities, cultural and nightlife amenities, and vibrant streetscapes. More established households, as well as retirees seeking more affordable housing options, are relocating to secondary and tertiary markets.

As local economies normalize and expansion resumes, it appears that demographic trends before the pandemic will resurface, leading to strong economic growth across a range of metropolitan areas.

The pandemic will undoubtedly leave a lasting impression on lifestyles and methods of doing business for years to come. Even though everyone may need to learn to live with COVID-19, migration patterns will likely revert to pre-pandemic trends where dynamic cities attracted new and often younger households, even as more established households relocated to more affordable locations.

Kelvin Tetz, CPA, partner, leads the Moss Adams Real Estate Practice and has practiced public accounting since 1998. He is based in San Francisco. Randall Sakamoto is director of research for Rosen Consulting Group, San Francisco.

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