The Affordability Question
One of the distinct advantages much of the Sunbelt has had over the last several decades is how inexpensive it is to live and do business in these states. Regulatory ease of doing business in places like Florida, North Carolina, and Texas has drawn new business for years. Florida in particular, obviously saw a huge influx of money from the Northeast through the pandemic with the promise of lower cost of living, better regulations, and warmer weather. The only problem with that? That influx meant huge amounts of inflation, particularly in the housing sector. But it’s not only housing. It’s utilities, it’s insurance, it’s the cost of food, it’s interest rates. With that in mind, what if it is no longer affordable to live in these states? Will the other things that appeal to migrators be enough to bring them to the Sunshine State? Or will the migration slow? If it does, maybe housing prices fall (after all they’re up 50% in the last 3 years)? That process has begun with single-digit declines in most major cities over the last several weeks. But the insurance and utilities? They may be stickier. Those markets aren’t just about supply and demand, they’re about risk and cost, and they may be harder to move. Changes in insurance have been particularly problematic as some insurance can be more than 5x more expensive in Florida and other coastal regions than it is in neighboring states with less marine exposure.
What then does a family or business do to improve their situation if the move to Florida or Texas no longer makes sense? For businesses, this is probably an easier decision. Focus on places like Cincinnati or Louisville where there is an educated population and affordable costs of living for their employees. For families, it probably means that they sacrifice and either move to a condo or rental or remain in the more affordable parts of our country without the warm weather. The dynamics around this situation have potential to change markets for housing of all sorts, and we as investors have an eye on which cities and properties can still make sense for our investors. The one thing that is most clear, is that historically normal behavior appears set to change, and we need to be ready for it.
Source: Bloomberg
