08/02/2021 | by
Artistic rendering of change seen as birds in flight.
The pandemic's impact on daily life is sure to be a broad area of research for years to come. Yet in some instances, patterns of behavior are already emerging.

The impact of the COVID-19 pandemic on all aspects of daily life will likely be a broad area of research for years to come. Yet in some instances, including decisions regarding the towns and cities where people choose to live, patterns of behavior are already emerging and are being carefully analyzed.

Stephan Whitaker, a policy economist with the Cleveland Federal Reserve Bank, recently published a research paper, "Migrants from High-Cost, Large Metro Areas During the COVID-19 Pandemic, Their Destinations, and How Many Could Follow." REIT magazine spoke with Whitaker on trends in domestic migration patterns before, during, and after the pandemic.

We're just beginning to realize the impact of the past year's migration flows of people exiting large metros in response to the pandemic. Is there any indication yet as to whether people are now starting to consider moving back into the larger cities or will the exodus to smaller cities and towns continue longer term?

If you look at quarter-over-quarter migration activity in 2020, there was a very rapid acceleration of net outflows, specifically in the third quarter of 2020, and even though the levels in the fourth quarter remained high, they didn't accelerate further beyond those of the third quarter. And so, I think that's why you can already see the turning point in the fourth quarter data. Now, we must wait for the next couple of quarters' data to see whether things will continue in the direction that they took in the fourth quarter of 2020, or if the migrations have accelerated or decelerated further.

Even in the decade prior to the pandemic, statistics were showing that people were already moving out of large metro areas with populations of 2 million people or more and a higher cost of living. How will this trend affect population growth within larger metro areas?

Domestic migration is all that is being measured in my research and does not include international migration, so it's only one component of population change. There are others of course that naturally increase migration too, like births and international migration.

The data shows that the largest and most expensive cities in the U.S. have been net losers of domestic migrants over the last decade for sure, but ironically, their populations have not declined. So, they may not have grown very much or very quickly, but their populations generally do not go down. That means that the natural increase (births) and the international migration is large enough and positive enough to offset that negative contribution from the domestic net migration.

If there is an increase in net, domestic outflow migration from the largest and most expensive metros, which was prompted by the pandemic and then continues after the pandemic, then that means that those metro areas will grow even more slowly. That's going to mean a little bit less demand for housing; house prices will continue to appreciate, but a bit more slowly.

The experience that we now have with remote work and the possibility of some employees negotiating a permanent remote work situation with their employers, is creating or enhancing a release valve for these very high-cost areas too. In the past, if people wanted to move because they decided it was too expensive to live in a particular area, then they had to find another job with another employer in order to move. Now, there's this possibility of continuing to work for an employer that's maybe based in a high-cost region, but you can now move somewhere that's less expensive.

People have been working remotely for decades, but now this is likely to be more commonplace because almost everyone with a job that allowed it adapted to a remote working experience during the pandemic. Now it's all about what type of work can be done productively, yet remotely. There are some jobs that require a presence at the workplace, where others can be done remotely. The things that I would look for going forward are a slower population growth, slower housing price appreciation, and more of the workforce being able to relocate, which will continue taking the pressure off specific geographic locations that have traditionally been categorized as high-cost metros.

Nareit Senior Economist Calvin Schnure has looked at data from CoStar on net absorption in the first quarter of 2021 and discovered a rebound in demand in big cities, including high-cost cities like San Francisco. There were also declines in vacancies and increases in multifamily rents in other high-cost cities, although New York was an exception with flat vacancies and a slight uptick in rents. Does this suggest there may be a boomerang effect for some workers who migrated to lower-cost cities, moving back to say, New York, once the pandemic has truly subsided?

It's entirely possible that if rents were increasing in the other metros during the pandemic, while they declined in New York, then you could assume that some people may be at their destinations and realize that, for example, housing prices shot up during the pandemic in the suburbs of New York in places like Connecticut, and are today not that much cheaper than New York. I could see a situation where some people might consider migrating back to large, higher-cost metros like New York and San Francisco once things settle down.

What do the demographics of migrants look like?

The changes that happened during the pandemic were mostly concentrated amongst younger people, but younger people tend to move more frequently anyway, pandemic or not. There was little change in migration among senior citizens.

In my research, I categorize populations using age brackets ranging from 18 to 34, 34 to 65, and 65 and older. In my definition of urban neighborhoods, it's still the case that income distribution is lower than in non-urban neighborhoods. For example, if you slice up neighborhoods at the national median for income, there are more people flowing out of urban areas that are coming out of below-median income tracks. During the pandemic, however, we did see net migration flows out of above-median income neighborhoods that were actually higher than the net migration out of the below-median income neighborhoods.

I think that this speaks to the fact that the pandemic was certainly impacting the motivations of upper-income people more than it was for lower-income people who possibly had fewer options to make a move. I break it out by the inflows and outflows of above- and below-median income neighborhoods. For the below-median income neighborhoods, the outflows were actually down just a bit from recent years, or from 2019 at least. Whereas the inflows dropped off by at least 10,000 per month. And for upper-income neighborhoods, inflows were also down about 10,000 per month from the end of 2019, and of course outflows trended up.

Today we're seeing individual tech workers and, in some cases, entire firms move to lower-cost areas or remote working arrangements. Should we expect to see a continued spread of regional tech hubs in lower-cost cities, or what some people refer to as "next cities"?

If a remote worker is motivated to move away from a high-cost area, they certainly can do so, but minimally, they must be somewhere with good internet access. For now, then, this does rule out very remote places. It's more about considering why they would choose to relocate.

We are seeing that even if people are choosing to leave high-cost metros, the differences between housing costs are smaller than before. It's not going to motivate people to choose place "A" over place "B" based solely on housing costs, as the difference is maybe just 5% to 7%. And if housing prices aren't the motivation to move, then maybe it's things like proximity to family, or certain amenities like good schools, theaters, or museums. These are generally the kinds of amenities that are supported in a metro area with a population of 1 to 3 million.

Conversely, are people looking for natural amenities, do they want to be in a ski town or maybe a beach or college town? If people are truly scattering, then we probably won't see major hubs sprouting up because people are spread all over the place. Regarding whether entire firms are relocating, there's a tendency for certain firms continuing to need to cluster because the firm requires a more collaborative workplace environment. For example, they might need to share knowledge networks, supplier networks, or employees need to be able to be onsite in the case of a manufacturing or an engineering firm.

We do see that once an industry gets more mature, it can disperse its production processes to lower-cost places. And if you go back to the history of the steel industry or the auto industry, or electronics or photography, you can see that many industries have followed this same pattern in the past. If you're talking about businesses like software, those firms could be following a pattern that doesn't necessarily have anything to do with the pandemic. Rather, it functions just fine with a distributed workforce that can work remotely from just about anywhere.

Based on your research, what is the outlook for the types of people and industries that will remain, or grow, in a large-city metro?

That's an interesting question because historically, whenever an area has become too expensive to operate efficiently in, we've seen many companies and firms opting to move or outsource all or part of the work that was traditionally done at their headquarters or main workplace location. Skip to today and we're seeing a situation where individual employees could potentially move somewhere less expensive, where they might also have a cost-of-living adjustment levied on them by their firm, so an employer today doesn't necessarily have to relocate an entire office to gain efficiencies and improve profitability.

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