Workers move for a lot of different reasons. Some are looking for a better paying job, others are looking for more affordable housing and still others are just looking for less depressing weather. But the truth is, when people move in search of something better, they usually bring better with them, usually in the form of higher demand for goods and services.
For more than a decade, the Sunbelt has seen tremendous population growth as businesses searched for cheaper labor. It worked too, cities like Phoenix and Atlanta saw a massive growth because they had demographics and incentives that were attractive to businesses. Subsequently, workers started looking to those cities as a great place to live and work. This kicks off a virtuous cycle where people who are used to higher prices enter a market that is tightening. This causes inflation.
As we look back over the last year, inflation in the United States, as measured by the Consumer Price Index increased approximately 5%. Shelter during that same period increased more than 7%. But in some cities, those numbers were even bigger. In Phoenix for example, rent increased 26%. In Tampa? It increased 23%. This is a 1-year number folks and it’s amazing if not sustainable. Wages across the country have been trending higher over the last several years as well, but they have not kept up with that type of change, and worker migration is partially to blame for this.
The great news for investors is that we can take a look at any given city or region and make some reasonable assumptions about economic growth and get ahead of worker migration. There is no panacea for this process, but finding growing businesses with big capital expenditure plans can help us as multifamily investors buy properties in areas where rent pricing is more likely to increase than it is in other cities and businesses will always look for another way to drive efficiencies.
Source: Wall Street Journal