The coronavirus crisis has taught us that New York is about the worst place to be during a pandemic. Nobody wants to be cooped up in a tiny apartment in a city known for its bars, restaurants, shows, sporting events and museums. It’s the primary reason why people are willing to pay astronomical prices for real estate. So it’s understandable that almost every day brings another story of someone fleeing the city for good.
I moved to South Carolina in 2010, but I have many friends who only recently left New York for suburban areas after having lived in the city for decades. They found that their standard of living immediately went up. They’re living in a bigger space, their children have a yard to play in and there are bigger parks and trees – all for much less than what they were paying in the city. The Council for Community and Economic Research lists New York as having the highest cost of living of any U.S. city – by a lot. I haven’t really endured a lot of hardship under the pandemic lockdown.
Politicians have always been fond of saying that New York is special and that it will always draw those who want to be a part of its culture and the arts. The terrorist attacks on Sept. 11, 2001, had many people predicting that there would be an exodus from the city. Some may have left, but the trend didn’t last long. Fears subsided after a couple of years and people returned. But everyone has their breaking point. There were people who were willing to put up with the high taxes for all that the city had to offer, but could not endure the lockdown and the uncertainty of living in a dense urban environment going forward, especially when we have no vaccine to fight this pathogen.
Of course, New York isn’t the only big city with these issues. It’s just that no city has more at stake. Bloomberg News reported that the city is seeking authority to borrow as much as $7 billion if necessary to make up for the revenue lost because of the pandemic. Mayor Bill de Blasio had already increased the city’s budget by $20 billion since taking office, hiring more than 30,000 municipal employees. It’s not hard to imagine a scenario where already high taxes will go up even further while what you get in return for those taxes diminishes.
This comes as many companies say employees working remotely are just as productive, if not more. No industry is as important to New York as banking and finance. And yet Morgan Stanley Chief Executive Officer James Gorman said in April that what is clear is that the firm will have “much less real estate” going forward. “We’ve proven we can operate with no footprint,” he said in an interview with Bloomberg Television.
We could be seeing no less than the end of the decades-long trend of gentrification of cities and the start of a decades-long trend toward gentrification of the suburbs. People with higher incomes and education – or those who tend to be able to afford to live in cities – are generally more mobile and have the means to move. Even sad sack Connecticut, which had suffered a big exodus of people due to high tax rates and fiscal mismanagement, is starting to see its real estate market get hot again. The Stamford Advocate reported last month that “buyers were materializing in the past few weeks looking to escape New York City, paying asking prices on the spot for single-family homes.”
What also makes this time different is that many people living in New York and other high-cost cities were already penalized by the tax law of 2017, which limited the deductions of state and local taxes. According to the Census Bureau, 4.7 million people in the U.S. moved to a different state from 2018 to 2019, with 2.4 million moving to a different region. About half of those had some level of higher education. Internal Revenue Service data shows that the state of New York has lost 1.4 million residents to the rest of the country since 2010, with an average income of about $90,000. The majority of them ended up in Florida.
This migration will also have a profound effect on the electoral map and politics, with red states in the south likely becoming less red. South Carolina has a reputation as a reliable red state, but in 2018 Republican candidate Henry McMaster (and Nikki Haley’s former lieutenant governor) won the election over his Democratic opponent by an uncomfortably slim 54%/46% margin. According to an Election Data Services analysis of Census data, projections of population migration point to a change of 10 congressional seats by the end of 2020. Among those states seen gaining seats are Texas, Florida, Arizona, and Montana. Among those expected to lose seats are California, Illinois, Michigan, New York, and Pennsylvania.
The Covid-19 lockdowns were necessary to “flatten the curve” and slow the rate of infections so the hospitals didn’t become overwhelmed. But the lockdowns haven’t been fun, and in cases where people have children at home, have been almost impossible. People will be willing to consider living in places down south that they had never before considered. If you’re not the sort of person to get tweaked by the occasional Trump bumper sticker or religious-themed billboard, it’s actually pretty great. And it doesn’t snow in the month of May.
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(This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Dillian is the editor and publisher of The Daily Dirtnap, investment strategist at Mauldin Economics. He may have a stake in the areas he writes about)