by guest author, Peter Fugiel, Ph.D.
Population growth has a direct – but not always intuitve – impact on real estate trends.
Over the next several decades, the U.S. population is projected to grow at staggering rates, though not all cities will benefit equally. Sunbelt real estate markets are poised to benefit most from the influx of new residents.
Ironically, some of the fastest growing real estate markets in the next forty years are the very same real estate markets that have suffered the most significant recent home price declines.
A recent BizJournals.com article included a list of cities projected to experience the greatest population growth between now and the year 2025. There were few surprises. Well-known Sunbelt metro areas – like Dallas-Fort Worth, Houston, and Atlanta – are each likely to gain a significant number of new residents over the next two decades.
On the other hand, many “Frostbelt” cities will decline or, at best, grow very slowly. This list includes Detroit, Buffalo, and Cleveland. Philadelphia will drop to tenth, from fifth place. Boston’s 11th place rank will be taken by the far eastern Los Angeles suburbs (called “the inland empire”).
In addition, the Pew Foundation has issued a major report on expected U.S. population trends for mid-century. By 2050, using the U.S. Census “middle-range projections,” the country’s population could surge to 435 million. We would be growing as fast as Indonesia – and we would have the largest immigration growth of any country on the planet.
Even if the United States managed to reduce the rate of immigration by as much 50 percent (to exclude all illegal immigration and then some), the nation’s 2050 population would still be approaching the 400-million mark. In the next generation, the long trend of U.S. population growth, which is as old as the republic, might finally diminish. The United Nations is projecting the world’s population to plateau in the year 2075, somewhere around 9.22 billion.
For purposes of this article, it is important to recognize that it will be a handful of very large metro areas that will receive the majority of new population growth. Future American population growth will be highly uneven among various U.S. city and metro areas. Ironically, some of the fastest growing real estate markets in the next forty years are the very same real estate markets that have suffered the most significant recent home price declines.
It is almost as if the country is now discounting the future value of distressed properties in such places like Las Vegas, Miami, Riverside-San Bernardino, and Phoenix. Still, we should ask: Isn’t there some way to ’preserve’ the distressed owner housing inventory in these markets in anticipation of future population growth? Banking and federal agency failures notwithstanding, we probably owe it ourselves to figure out how we can re-package market specific properties in anticipation of likely future demand.
Causes of Future U.S. Population Growth in Certain Metro Areas
Even though the U.S. population will be aging during the next generation, there will be a large new young adult labor force. The labor force will be comprised both of the “echo” generation, as well as recent immigrants and their children. Unlike most of Europe and Japan, the U.S. birth rate will be positive throughout the next thirty years. After the year 2025, it is projected that seventy-five percent of all additional U.S. population gains will be attributed to post-1970 immigrants, their children and grandchildren. U.S. population patterns are unlike those of most other countries with mature economies and higher levels of wealth.
Immigration is a young adult phenomenon, and with immigration, comes higher birth rates for at least another generation. No other industrialized nation will grow nearly as fast, even from legal immigration, as the United States. As many as 750,000 to 1.5 million immigrants are projected to move to the U.S. every year for the next thirty-five years.
U.S. Population Growth: 1790-2000
Graph, U.S. Population 1790-2000, provided by Wikimedia.
No one was counting on growth numbers like this a generation ago. Although the so-called ’dependency rate’ in America is causing actuarial assumptions to turn negative, it is the striking longevity changes that are even more troubling. The U.S. Census is now projecting that by the year 2050, there will be one million Americans that are 100 years or older.
Know Your Local U.S. Real Estate Markets: They are Not All Going to Grow
The two causes of rapid population growth in U.S. cities will be (international) immigration and (domestic) emigration. Emigration is the movement of Americans from one city to another. Metro regions like Atlanta, Denver, and Charlotte will continue to benefit from both foreign immigration to their center cities and from domestic emigration, to their new, far suburbs. These twin sources of population growth will not exist for many metro areas and cities. So over time, U.S. cities will continue to change their population rankings. New York is projected to gain another one million area residents. Even though New York is ’exporting’ current residents to other states, its continuing immigration gains are so substantial that the New York region will continue to show an increase of a million people.
Phoenix is projected to grow rapidly because it is a hub, both for Mexican immigration and for American emigration. The same holds true for Miami with Latin American immigration, and for California’s inland empire with its Asian immigration.
The Chicago metro market is expected to gain nearly 600,000 additional residents, while Midwestern cities like St. Louis, and Cincinnati, will show more modest increases, equal to a third of the Chicago region’s projected growth. Pittsburgh will lose a hundred thousand residents in this time period, while Portland will gain another 800,000 residents.
Most importantly, Texas markets are projected to add huge population numbers. Just three Texas mega cities – Dallas-Fort Worth, Houston, and Austin – could add another eight million new residents in the next generation. That is like adding the entire population of the state of New Jersey to the current Texas population of twenty-two million.
The Texas housing markets have not experienced big price declines in the past several years. The projected rapid population gains expected for the biggest Texas metro regions are more likely, just because of the lower costs of both housing and land. Interestingly enough, not all Texas cities are expected to grow rapidly. Smaller cities, with slower job growth, will not attract the volume of immigration and emigration that the biggest Texas metro areas will.
For those who believe population projections are contingent upon economic downturns, it has to be remembered. Immigrants come to America for its relatively high standard of living, and its extensive community infrastructure. The only period of time when immigration subsided in American history, was when the country legally stopped the flow of immigration. A high percentage of recent American immigration has been from legal, not illegal sources.
Did We Just Go Through a Real Estate Growth Recession, Disguised by the Banking Collapse?
If you look at the projected population trends for many of the U.S. Sunbelt markets, it is clear. There was some basis in fact for investors and lenders to get ’carried away’ with their financing expensive housing in many metro markets. Phoenix, for example, had already been though a severe real estate recession before. Yet in the past five years, it has repeated its 1980s banking mistakes. Texas, on the other hand, had a severe real estate market contraction in the 1980s, just like Phoenix. However, Texas has emerged relatively unscathed in the recent price downturn. Texas was not favored as was Phoenix.
Even though home prices are now being adjusted all over the Sunbelt, long-term population trends appear to be very positive. One wonders: Is there some way to capitalize the unsold growth market home inventory, in anticipation of future demand?
Perhaps the key question is not that new population isn’t expected again. The real question is, will these popular local markets be allowed to over-build and to over-price units again? Will speculative markets be allowed to raise home prices far beyond local income levels? If we have learned anything from this profound recent adjustment to market prices, it is that prices can’t be too far away from area incomes. That principle applies just as well to the glut of South Loop condo units in Chicago, as to extravagant investor units in Miami.
Home production and prices should be pegged to emigration numbers and household incomes. Expensive’ investor units should never receive federal loan or securitization guarantees, of any sort.
No one is advocating public oversight of construction starts in certain “boom and bust” markets. But after two periods of severe overbuilding, that has cost the federal government a lot of public funds, one wonders. Do local officials in high growth areas want to take any responsibility for how much speculative housing is built in their local communities? Local building permits are the engines of the free market real estate industry. Localities and the states should take great pride in trying to understand their local supply and demand equation.
The future demand for the current over-supply of Sunbelt owner units looks very good. The next article in this series will produce a market by market analysis of which American markets seem most likely to recover from the current real estate recession.
About the Author:
Peter Fugiel, Ph.D., is a realtor with Keller Williams & Fox Associates on Chicago’s north side. His housing research web site, Chicago Realtyscape.com, provides a detailed look at the Chicago real estate market. For more information about specific properties, visit Peter’s Keller Williams real estate site.
Prior to joining Keller Williams, Peter was a vice president and senior housing analyst with Nuveen Investments for many years. At Nuveen, he specialized in housing development financings and mortgage pools in all regions of the country. Peter holds a Ph.D. in public financial management from Northern Illinois University.
Highlights: Population Shifts Expected to Impact Local Real Estate Markets
Rapid U.S. population growth is expected to breathe life back into many weak real estate markets.
The two major factors influencing population shifts in the U.S. are immigration from other countries, and domestic emigration (movement from one city to another).
Local real estate markets will be affected by population shifts into and away from various metro areas.
Only a handful of large metro areas, mostly in the Sunbelt, will receive the majority of new population growth over the next forty years. Many cities – particularly in the Frostbelt – are expected to experience a decline in population.
Preserving the distressed homeowner inventory in markets such as Las Vegas, Miami, and Phoenix, as examples, makes sense in anticipation of future population growth predicted in those areas.
Despite the aging of the Baby Boomer generation, a large new adult population will be entering the workforce over the next several decades, stemming from the echo generation as well as recent or new immigrants.
Related MuniNetGuide.com articles
Home Price Declines Lead to New Local Market Differences (guest feature by Peter Fugiel, May 2009)
Population Shifts Reflect Cities’ Vitality (March 2009)
Do We Know How to Revive the Housing Market? (guest feature by Peter Fugiel, February 2009)
The Foreclosure Crisis: Not All Markets are the Same (guest feature by Peter Fugiel, October 2008)
Mortgage Crisis Threatens Municipal Credit Quality in Some Areas (expert interview with Michael J. Ross, September 2008)