Time to Get Out of Dodge: Migration to the Suburbs
Has it dawned on you yet that we aren’t getting back to normal?
After an exclusive one-on-one chat with Jim Rickards at the Sprott Natural Resource Symposium last week, Jim was keen to point out that this a ‘multi-generational event’. Saying the effects of the pandemic are likely to have a five-year impact on the economy, however, the end result of that will change the behaviour of people much more.
Early on in the pandemic I wrote that commercial real estate is probably the one sector you don’t want to be in right now.
And as Jim points out today, that’s not the only trend we are witnessing. Already underway in the US there is a migration to the suburbs. In Victoria and New South Wales, we are already seeing people expressing an interest in moving to rural areas.
What does all this mean for the economy going forward?
Read on for what Jim has to say.
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Until next time,
Editor, The Daily Reckoning Australia
The Great American Exodus
I want to discuss some of the permanent changes that the national economy is going through.
It has to do with what you might call the Great American Exodus.
There’s a massive migration out of the big cities. Millions of Americans are fleeing the cities for the suburbs or the country from coast to coast.
There’s hard data to support that claim.
For example, let’s say you want to rent a U-Haul trailer from New York City to the Catskill Mountains, which are not that far away. Or you want to rent a U-Haul trailer from Los Angeles to, maybe Sedona, Arizona.
It’ll cost you much, much more than if you were going the other way. If you went from Sedona to LA, or the Catskills to New York, the price is only about one quarter as much.
In other words, you must pay a 400% premium to get the trailer going out of town, but U-Haul will practically pay you to bring it back in.
And there are shortages.
If you’re moving out of your apartment to a house or another apartment outside of the city, try getting movers. I’ve done this recently myself and know others who have. It was very hard to book moving companies or something as simple as a U-Haul trailer.
So, the mass exodus out of cities is a real phenomenon, backed by solid evidence.
Mass migration to the ‘burbs
This is a shift we probably haven’t seen since the 1930s, when people left the Dust Bowl and moved out to California, looking for jobs in the agricultural industry. That was a mass migration. We’re seeing another one now, except this one’s going in the opposite direction.
And that’s a big problem for the economy because cities are centres of economic activity that contribute a lot to GDP. There are three primary reasons for the exodus.
The first is simple demographics. People talk about millennials as if they’re kids just out of college.
But the oldest millennial is turning 40 in two years. So, they’re not kids anymore. They’re often adults with jobs and families, and a lot of obligations.
Many of them have been living in cities since cities are generally interesting places to live and offer the greatest opportunity.
But there’s a natural tendency for people in that demographic, who might have enjoyed the city in their 20s and 30s, to say it’s time to move out to the suburbs when they reach a certain age.
And that’s happening now. So that’s the first factor contributing to the mass migration from cities.
The others are far more serious…
The most obvious is the pandemic. Look at New York City. Clearly it was ground zero for the pandemic in the United States. Something like one-third of all US coronavirus fatalities took place in New York City or its immediate surroundings. That’s a highly compressed area.
And people realise that the density of the population, living on top of each other in crowded apartment buildings and offices, taking crowded public transportation, going to concerts and Broadway shows, etc, is like living in a petri dish.
It’s obviously a lot easier to catch a virus in a crowded subway car than on a country road.
So, people are saying, ‘Give me space, and I think my health prospects are a lot better’, and that’s actually correct.
The third factor driving Americans out of cities is the riots.
Do not understate the damage of these riots.
I don’t want to veer off into the social aspects or politics of the riots.
Everyone’s got their own opinions. And peaceful protesting is our constitutional right, which should be supported. If you’re peaceful, you have every right to protest against injustice.
But no one has a right to loot stores and start fires. We shouldn’t have to debate that.
But that’s what happened in large cities throughout the US. Minneapolis obviously saw a lot of violence. But New York, Los Angeles, Chicago, Philadelphia, Atlanta, St Louis, Denver, Portland, Oregon, and many other cities suffered similar damage.
And with many calls to defund the police, people who might enjoy city life can see the writing on the wall. Crime rates are already spiking in New York, for example, which will probably get worse. And the NYPD has seen a 400% increase in retirement applications since the riots.
Commercial real estate will suffer
Cities have always been a trade-off. You had high taxes, lots of city noise, crowded conditions, and certain levels of crime.
But many put up with all those costs and annoyances in exchange for a very lively cultural and intellectual environment, more interesting jobs, interesting people, museums, great restaurants, movies, live shows, Broadway in the case of New York, etc.
But now the trade-offs don’t seem worth it for many. The cultural aspects are gone. Museums are closed. Restaurants are closed.
Movie theatres are closed, etc. And crime is going up. So, you’ve got all the costs and then some, but none of the benefits. And that’s why people are leaving.
So, when you combine demographics, a pandemic that makes city living unattractive and riots, you get a major generational shift that we haven’t seen since the 1930s.
Now, you cannot underestimate the economic impact of this. The cities are where 80% or more of the population, economic output, job creation, and R&D are centred. And who’s leaving the cities?
It’s the people who can have the option to leave. It’s the talent. It’s the money. It’s the energy. It’s the people that you most want in your cities who have the ability to leave.
And of course, now we have this whole work from home model.
So, a lot of corporations are saying, we don’t need 10 floors on 53rd and Park Avenue. We can do two floors of shared conference facilities, with a shared receptionist. So, the commercial real estate market faces some strong headwinds.
The bottom line is, we’re looking at a substantial drag on economic recovery based on this migration out of the cities. It’s a big story that’s not getting nearly enough coverage.
And this is going to continue.
This is something that only happens every two or three generations. You probably have to go back to the baby boom in the late 1940s and early 1950s for something comparable.
But there’s one sector of the economy that is doing well. That’s residential housing because it’s getting hard to find a house in many places.
People are even bidding on houses without ever having seen the property.
If you’re looking to invest, you might want to look at suburban real estate and housing.
All the best,
Strategist, The Daily Reckoning Australia