‘Secondary’ cities rise in popularity
WASHINGTON – Nov. 12, 2018 – As they began planning their future together, Ashley Brown and her fiancé, Aaron Shuman, concluded that they could no longer remain in Los Angeles because it was getting much too expensive.
"Our rent in L.A. was $1,500 for a tiny, 650-square-foot apartment with no amenities," said Brown, 29, a native New Yorker, actress and New York University graduate. She and Shuman, a 28-year-old musician, began looking at Austin, Texas; Detroit; Portland, Ore.; and Columbus, Ohio, before settling on Atlanta.
"There's a great arts community here (in Atlanta), and it's a growing city with lots of entrepreneurs," said Brown, who is now working several jobs and plans to open a business. Also, the dollar stretches much further in their new city, giving them breathing room.
"We pay $1,200 a month for more than double the space, with two bedrooms, two bathrooms and everything brand-new," she said.
Brown and Shuman are part of a wave of people migrating from coastal cities to "secondary" cities – drawn by a lower cost of living, lighter tax burden, job growth and a better chance to buy a home they can afford.
Nashville, Tenn.; Sacramento, Calif.; Atlanta; Phoenix; Austin, Texas; and Dallas are among the top-10 cities with the largest influx of new residents, according to new data from the Redfin real estate brokerage.
Not surprisingly, high-cost cities from which people are fleeing include San Francisco, New York, Los Angeles and Washington.
"People in the coastal markets are just fed up with double-digit price increases, and they're moving to a commuter town or to the middle of the country," said Daryl Fairweather, chief economist for Redfin. "In our most recent 'hottest markets' report, Indianapolis tied for third place with Boston among the cities where homes go under contract fastest. People are moving there from Chicago, Los Angeles and the Bay Area because it's affordable."
The migration also is driven by the Republicans' tax overhaul, which, among other provisions, eliminated the state and local tax deduction for six states with high property taxes: California, Illinois, Pennsylvania, New Jersey, New York and Texas.
"If you can't itemize your taxes, you're not getting the tax benefit that offsets your high mortgage-interest payments, which also cuts into affordability," Fairweather said.
Other research illustrates just how out of reach a home purchase is becoming for typical Americans.
In the third quarter of 2018, the ability to afford a home was down to its lowest level in a decade, according to an analysis by ATTOM Data Solutions, an Irvine, Calif.-based property database. In 78 percent of markets, home prices were less affordable than their historic averages.
"We found that 30 percent of the population lives in a county where you need an annual income of at least $100,000 to buy a median-priced house," said Daren Blomquist, ATTOM senior vice president.
Many people relocating initially thought moving to a secondary city was trading down, but they quickly discovered that wasn't necessarily the case.
What they did trade was stress in return for a higher quality of life.
When Meg Epstein moved to Nashville from Southern California because of her husband's job, she said, she expected to find friendly Southern-style hospitality. She didn't expect to fall in love with the culturally rich city, which, she said, is much easier to enjoy than Los Angeles.
"I spend so much less time in the car and in traffic. Valet parking is free, and I don't need reservations to go out to great restaurants," said Epstein, founder of California South Development, which builds condos in Nashville and other cities. "Nashville is known for its music scene, but a lot of people don't realize it has a great symphony and access to all kinds of arts and culture."
Sacramento, which tops the list for the largest net inflow of residents, has the highest percentage of new residents coming from San Francisco. Sacramento's median sales price in September was about $350,000, a fraction of San Francisco's $1.5 million.
The highest percentage of Atlanta's and Nashville's new residents are from New York City. New residents in Phoenix, Dallas and San Diego are mostly from Los Angeles; Portland's and Austin's new residents are largely from San Francisco.
Miami is seeing significant traffic both ways: Inbound migration is from New York and Orlando, Fla., while outbound migration is to Tampa, Fla.
"We started to notice this trend a few years ago, that despite real estate investor focus on '24/7' gateway cities like New York and San Francisco, there's stronger growth happening in the next tier of cities," said Ed Walter, global chief executive for the Urban Land Institute, a Washington-based organization representing urban land use and real estate experts around the world.
ULI also has a top-10 list, focusing on markets poised for a real estate investment boom.
"Emerging Trends in Real Estate 2019," a joint project of PricewaterhouseCoopers and ULI, includes eight midsize markets, some of them also on Redfin's list of where people are moving.
ULI's list includes Dallas-Fort Worth; Raleigh-Durham, N.C.; Orlando; Nashville; Austin; Denver; Charlotte, N.C.; and Tampa. Walter calls these "18-hour cities," meaning that their downtowns have changed from purely office space to include residential development and nightlife.
"While these are not 24-hours-a-day busy like New York City, there's lots of activity, from early-morning coffee through the time the clubs close around midnight," Walter said.
Brown and Shuman said they have found plenty of clubs, bars, theater, concerts and restaurants in Atlanta. Moreover, tickets, alcohol and food all cost less than in Los Angeles, they said.
"We've seen a bunch of comedy shows with performers from L.A., so we can see the same people for less money," Brown said.
Rents are lower in these secondary cities, too, said Nat Kunes, vice president of product at AppFolio, a property management software company.
"Even though rents are rising faster in secondary cities like Nashville, Austin and Atlanta than in New York; Washington, D.C.; San Francisco; and Los Angeles, they were lower to begin with," Kunes said. "Rents are up 3.7 percent in Nashville this year, compared to the long-term nationwide average increase of 2.2 percent per year."
A lower cost of living can make it easier for newcomers to better enjoy the urban experience, whether they're renters or homeowners, Kunes said.
"It's easier to afford to live downtown or in the inner suburbs in these cities. And, on top of that, people can walk or ride their bikes or scooters and not have the expense of a car," he said.
Some cities, such as Phoenix and Orlando, are seeing growth as much from baby boomers seeking a lower cost of living for their retirement as they are from millennials, Kunes said.
Brown and Shuman moved to Atlanta anticipating that they might make less money but that it would still be more affordable. Instead, Brown said, they're both making more money than they did in Los Angeles, which compounds the benefit of the lower cost of living.
"There are lots of big companies in Atlanta, like Delta Air Lines and Mailchimp, that pay very well," Brown said. "If you have a college degree, it's pretty easy to get a job here."
Jobs are an important piece of the choice to move.
"One thing that makes it easier for people to relocate is that there are more remote workers all the time," Fairweather said. "If you can live anywhere, it makes more sense to live somewhere that's less expensive. At the same time, more companies are willing to open offices in other cities to accommodate remote workers."
"It's the combination of affordable housing and jobs that are causing people to move," Blomquist said. "In places like Tampa, Dallas and Las Vegas, there's a booming economy, with lots of jobs, along with relatively affordable homes. You can cut your housing costs in half if you move to Dallas from Los Angeles and there are jobs there, too."
Non-farm employment rose the fastest in Florida, at 4.8 percent in September, compared with September 2017, according to the U.S. Bureau of Labor Statistics. Employment was up 3.3 percent in Texas, 3.2 percent in Nevada, 2.9 percent in Arizona, 2.5 percent in Georgia and 2.1 percent in Tennessee.
Well-paid science, technology, engineering and math (STEM) jobs are flowing to some secondary locales, such as Denver, Austin, Raleigh-Durham, Nashville and Charlotte, Walter said, especially with startup companies that want to locate in affordable cities.
"One of the driving factors in places where STEM jobs are growing is a good relationship between universities and businesses, such as Vanderbilt in Nashville and the University of Texas in Austin," Walter said. "Businesses also want to locate in places with higher-than-average population growth, higher-than-average job growth and a lot of younger people starting careers."
Many of the cities are in the Southeast and Texas, places with a reputation for a simple regulatory system that makes it easier to start a business, Walter said.
Some of the high-growth cities also benefit from a convenient location.
"I can get a direct flight to London, be in New York or Miami in less than two hours, and take a weekend trip to Charleston from Nashville," Epstein said.
Tax advantages also help drive growth in some of these markets. There's no state income tax in Florida, Nevada, Tennessee or Texas.
The biggest challenge facing secondary cities is how they will handle growth. Home prices have risen rapidly in many of them, so although they are "affordable" cities compared with some coastal markets, they're far less affordable than in the past, Blomquist said.
"We look at affordability in relation to local wages, and we've seen that in places such as Clark County in Las Vegas, you now need 44 percent of the average annual wage there to buy a median-priced house, which is much more than in the past," Blomquist said.
Nationwide, average wage-earners would need to spend 37 percent of their income to buy a median-priced home, above the historic national average of 34 percent. But in high-priced markets, such as Kings County (Brooklyn), N.Y., 135 percent of average income is required to buy a median-priced house.
"It's great if you have a place to sell in a high-priced market and move to a lower-priced market, but for long-term residents, rising prices in these secondary cities (are) making them less affordable," Blomquist said. "In some markets, like Denver and Dallas, that were 'steady Eddie' markets with relatively stable home prices, we've seen home prices rise faster than wages. That means there's a potential for a bigger downturn unless home price appreciation slows, as it already has in many markets."
Another major challenge for many of these cities is the lack of public transit, particularly a rail network.
Proposals are in place in Atlanta to build 21 miles of light rail and 18 miles of bus rapid transit lanes, but that can take years to accomplish. In Nashville and Austin, voters in recent years rejected public transit plans because of the increased tax burden required to pay for such systems.
In Dallas, funding is still an obstacle to plans to expand a downtown subway system and a commuter rail line. City officials there also are looking into streetcars and bus lanes as a traffic solution.
"It will be interesting to see how these cities handle transit options over the next decade," Walter said. "Some cities have been proactive and have put in dedicated bus lanes or rail already, and they'll handle growth better. Cities that don't address transportation issues will likely see growth slow in future years."
Copyright © 2018 Valley News, Michele Lerner
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