America’s largest counties have undergone profound transformation in recent years. The new hybrid normal ushered in by COVID freed many employees from the grind of a five-day-a-week commute. And with fewer workers needing to put in daily face time at the office, many left big cities in favor of smaller towns and suburbs. This, in turn, accelerated domestic relocation trends which had already begun to emerge before the pandemic.
To explore the impact of these trends on local housing markets, we dove into the data for Hillsborough County, FL – home to the city of Tampa and one of the areas that has seen the greatest migration-fueled population growth in recent years.
Spotlight on Tampa: The Hunt for Affordable Housing
Hillsborough County experienced 2.8% positive net migration between February 2020 and February 2023, meaning that people moving in from other areas of the country drove a 2.8% population increase over that period.
Much of this domestic migration appears to be driven by the ongoing quest for affordable housing. The top three counties feeding migration to Hillsborough County over the past three years had typical home values and rents that were higher than those in Hillsborough County itself. The top three counties that people left Hillsborough County for also had 10% to 30% lower home values. In other words, people moved to Hillsborough County from more expensive places, and left the county for more affordable regions. This trend, which we have also observed in other regions, indicates that at least some of the migration to and from Tampa is being propelled by residents seeking affordability, especially as it relates to housing. Housing is the largest overall component of the Consumer Price Index (CPI), comprising more than one third of the overall index and thus, any savings on housing has an outsized impact.
This net migration from more expensive to more affordable areas appears, in turn, to contribute to rising housing costs in the destination counties. Between February 2020 and February 2023, Hillsborough County saw housing prices skyrocket by 50.8%, according to data from Zillow – significantly more than the nationwide baseline of 39.5%. Area rent prices also increased by 43.6% over the same period, compared to just 26.0% nationwide. While this market boom has engendered many benefits, it has also left its mark on the availability of affordable housing.
Population Shifts Driving Up Housing
To more closely examine the potential impact of domestic migration on the affordable housing market, we looked at pricing trends in Class C multifamily properties Florida – specifically in Tampa and Orlando, two of the fastest-growing markets in the U.S.. Class C properties are typically more than 20 years old and situated in less desirable locations. They often have deferred maintenance and require additional capital expenditures to meet current market standards. Consequently, Class C properties typically offer significantly lower rental rates when compared to Class A or Class B properties in the market making them cheaper and more affordable for lower income renters.
Analyzing Tampa and Orlando zip codes with at least five Class C properties reveals a strong correlation between origin-to-destination HHI ratios and rent increases in these buildings. Origin-to-destination HHI ratios represent a weighted average of the median household incomes (HHIs) of domestic migrants’ areas of origin, relative to the median HHI of their destination. (For example, an HHI ratio of 20.0% means that people moving to an area came from places with median HHIs that were 20.0% higher than the local median.)
Simply stated, zip codes attracting migration from areas with higher incomes than their own have experienced outsized rent growth. The magnitude of this origin / destination income variance has been highly correlated to rent growth.
Americans, it seems, are taking advantage of the flexibility made possible by remote and hybrid work to seek out less expensive markets. The resulting influxes, in turn, have and will likely continue to drive up rents and home prices in more affordable areas. At the same time, as we’ve noted, population outflows from big cities may slow price increases, eventually creating new opportunities for populations that may otherwise have been priced out. For stakeholders like residential developers and policy makers, understanding these cycles and their impact on real estate markets is critical to ensuring the availability of affordable housing and the continued vitality of local communities.