Along with the oft-pronounced, desperately wished for death of the suburbs, no demographic narrative thrills the mainstream news media more than the decline of the Sun Belt, the country’s southern rim extending from the Carolinas to California. Since the housing bubble collapse in 2007, commentators have heralded “the end of the Sun Belt boom.”
Yet this assertion is largely exaggerated, particularly since the big brass buckle in the middle of the Sun Belt, Texas, has thrived throughout the recession. California, of course, has done far worse, but its slow population growth and harsh regulatory environment align it more with the Northeast than with its sunny neighbors.
Moreover, the Sun Belt is poised for a recovery, according to the most recent economic and demographic data. Even such hard-hit states as Arizona appear to be making an unexpected, and largely unheralded, recovery.
Take Florida. The Sunshine State may have experienced rapid population loss during 2008 and 2009, but the just-released 2011 Census estimates show a remarkable turnaround, with the state adding 119,000 domestic migrants last year. This may be less than half the gains in 2004 and 2005, when the in-migration reached nearly 250,000, but it is close to levels enjoyed a decade ago.
The big winners in terms of growth were in the South, with Texas, Florida and North Carolina as the leading in-migration states. Virginia, South Carolina, Georgia, Tennessee and Virginia also ranked in the top 10. Overall, the Southern states reaped 95% of the inter-regional net domestic migration (people moving from one state to another). Arizona, another state widely written off, enjoyed an 11th place finish, with a net gain over 13,000.
As for the much-cherished notion that people will start flocking to highly urbanized, high-cost littoral states? Well, as they say in my native New York, fuggedaboutit. As has been the case for most of the past few decades, the Empire State has once again been the biggest loser, not of pounds, losing 113,000 people. Following close behind are California and Illinois, all of which are once again losing people in large numbers to other places.
In contrast, one of the few Sun Belt states to lose migrants is former high-flier Nevada, which lost 11,000 people to other states. The Silver State’s continued decline seems traced to what Phoenix economist Elliot Pollack describes as its “one-trick pony economy.” In Nevada, that economy is tied to gambling, which has been hit by the recession and by increasing competition both domestically and in East Asia. It also suffers from its unhealthy “evil twin”dependency on still-weak California.
The reasons behind these shifts are complex. For one, there is a slowly improving economic climate in many Sun Belt cities. In terms of year-to-year job growth, Dallas ranks first and Houston third, while Orlando, Miami and Phoenix all are among the top 10 of the country’s 32 largest metropolitan areas. Among the states Texas ranks fifth and Arizona ranks seventh, while Florida clocks in at 16th. This may not be the gangbuster growth of previous decades, but is far from moribund.
Looking forward, some of the “bubble states”appear to be taking a lesson from Texas and are reconsidering their former growth formula, which relied far too much on tourism, retirees and housing construction. “We know the business model has to change from just tourism and retirees,” notes Chris McCarty, director of the Bureau of Economic and Business Research at the University of Florida. “We need to make a modification in our approach and now there’s a desire to do something about it.”
Increasingly, places like Phoenix, Orlando and Tampa are focusing on more broad-based growth in such fields as biomedicine, software and trade, which may produce steadier, if not quite as rapid, growth. Aggressively pro-business governments in almost all Sun Belt states with the exception of California will enjoy better economic prospects as companies seek out lower-tax, less regulated environments.
But ultimately demographic trends may prove more determinative. People moving into a state provides many things such as new workers, skills and, perhaps most important, capital. An examination of IRS data of income brought in as a result of migration by the Tax Foundation shows that Florida ranked third in terms of overall gains, behind only Montana and South Carolina. Arizona ranked fifth. The biggest losers are all in the frost belt: Michigan, New York, Rhode Island and Illinois.
If we are, as is likely, returning to something approximating earlier patterns, we should expect these trends to accelerate gradually over the coming years. One critical factor will be our rapidly aging population. Over the past decade, Phoenix as well as the Florida burgs of Tampa-Saint Petersburg, Orlando and Jacksonville all ranked among the top 10 destinations for aging boomers. This pattern may be reasserting itself.
Housing prices are a critical factor here. Once-soaring prices in communities such as Orlando and Phoenix have adjusted to the more historic median multiple (median housing price relative to income) of roughly three; in contrast, despite some declines, prices in metropolitan areas like New York, Los Angeles, San Francisco, San Diego and San Jose all remain around six or higher.
This suggests that many retirees and down-shifting boomers people still working but able to relocate their jobs may find cashing out of their more expensive houses in the Northeast, Chicago or coastal California an effective way of supplementing often depleted IRAs. “There’s a lot of older people with equity who can find bargains that weren’t around in 2006,” observed the University of Florida’s McCarty.
More important still is the movement of younger people from the large millennial generation. Despite the assumption that this group inevitably prefers dense, expensive cities, the 2010 Census showed people 25 to 34 moving primarily to Sun Belt cities such as Orlando, Tampa, Houston and Austin, as well as Raleigh, North Carolina. “There are a lot of people who will be getting into their 30s [who] still haven’t created a household or bought a home,” says Phoenix-based economist Elliot Pollack. “They mostly won’t be able to do that in California or the Northeast, but they can do it in places like Arizona.”
Pollack maintains that the real estate meltdown has actually created opportunities for the emerging generation. Burdened by college debt and what could still be a sluggish economy, they may find, like so many of their parents, that their best options for homeownership lie in these Sun Belt growth markets. In this sense, the millennials, like the generations before them, may not be the ones to kill the Sun Belt but the demographic which will propel it into a new period of more steady, and sustainable, growth.
The Top 10 Growing States (per 2011 Census estimates)
- North Carolina
- South Carolina