Tuesday, February 4, 2020

Blue State Exodus? Maybe.

Population growth rate in the US is slowing, but in some States, population is actually decreasing.  In others, while birth rate means net growth, more are leaving than moving in.

In  a previous posting, I mused why anyone would want to stay in a State with five-figure property taxes.   The reasons given are many - some want to be near their relatives - brothers, sisters, parents, children.  Others have jobs they need to make a living.   But as you retire, and particularly if you retire on a fixed income (doesn't everyone?) or worse yet, a fixed amount of money, the idea of paying high prices for taxes, food, gasoline, and every other expenses in your life seems rather foolhardy.

If you live in a major coastal metro area, odds are even a basic three-bedroom, two-bath house could cost more than a half-million dollars.   You could sell this and move elsewhere to a better house that costs less than half as much.  As a bonus, the taxes would be far, far less, and the cost of basic living expenses a lot less (and the crime rate lower, etc.).  That is the selling formula for The Villages and other retirement communities.

A lot of people do the math on this and "cash out" of expensive properties "Up North" and move away.   Kind of compelling - you cut your cost of living in half and walk away with a quarter-million dollars, tax-free.   Why not?

It is funny, but some prognosticators argue that there will be a "Silver Tsunami" in the coming years as old people die off and sell off their retirement homes to move back North to be with their kids or to move into assisted living.   Maybe, maybe not.  Many are "aging in place" with home health care workers, rather than going to a home.

These same "experts" claim that all these retirement homes will hit the market at the same time, and no one will want to buy them, as they are not in or near major coastal cities.  So you know where these "experts" live - New York City - and nothing else in the world really matters to them.

I think it could be the opposite, at least in the short-term.   And the trend has been going on for some time.  A neighbor of mine had a home in Connecticut with a $20,000 property tax bill - and this was a decade ago.  They owned a lot of land, which in retrospect, was a big mistake.   They sold that house and moved here and never looked back.   It literally wasn't affordable to stay.

It could be that in the near-term, you will see a migration away from such States and towards lower-tax, lower cost-of-living States.  And when that happens, who will buy the properties up North?  My Connecticut friend had to wait a year or so to find a buyer for their house.  When their parents passed away, the same thing happened - not many people were chomping at the bit to own a home in high-tax Connecticut.  A reverse silver tsunami seems far more likely to me.

The 10 states that lost population were New York (-76,790; -0.4%), Illinois (-51,250; -0.4%), West Virginia (-12,144; -0.7%), Louisiana (-10,896; -0.2%), Connecticut (-6,233; -0.2%), Mississippi (-4,871; -0.2%), Hawaii (-4,721; -0.3%), New Jersey (-3,835; 0.0%), Alaska (-3,594; -0.5%), and Vermont (-369 ; -0.1%).
Of course, these statistics can be a little misleading.  There are States that are not on this list which are still showing a loss of citizens.  California, for example, by dint of birthrate, is still showing population growth.  But if you look at migration trends, more people are leaving the State than moving in.   If it weren't for the babies being born, the trend would be negative - but babies don't get to choose where they are born:
Twenty-seven states and the District of Columbia lost population through net domestic migration between 2018 and 2019, six of which had losses over 25,000, and three of which experienced losses greater than 100,000. The top states with net domestic migration loss were California (-203,414), New York (-180,649), Illinois (-104,986), New Jersey (-48,946), Massachusetts (-30,274) and Louisiana (-26,045).
Getting back to overall population loss, the "tri-State" area (New York, New Jersey, Connecticut) are represented here, of course.  West Virginia is there for different reasons - loss of jobs and economic opportunity, as fracking gas continues to trounce the coal business (and looks to continue to do so in the foreseeable future).  Illinois has its infamous budget issues and of course manufacturing job losses.  Louisiana is struggling with an economy that is based too much on extraction of minerals - mainly oil - as well as historical corruption and inept government.

Hawaii?  Just too damn expensive to live there.  Ditto for Alaska, and again, the traditional oil business is declining.  Mississippi is an outlier - a Southern State that is losing population.  But then again..... Mississippi.   Vermont has a pretty high cost of living, and economic opportunities (outside of Ben & Jerry's) are limited as well.  So you could see why people might leave.

But where are they going?  Another table from the same study shows which States are showing the highest population growth:

Top 10 States in Percent Growth, 2018 to 2019
RankGeographic AreaApril 1, 2010
(Estimates Base)
July 1, 2018July 1, 2019Percent Growth
1Idaho1,567,6571,750,5361,787,0652.1%
2Nevada2,700,6773,027,3413,080,1561.7%
3Arizona6,392,2887,158,0247,278,7171.7%
4Utah2,763,8913,153,5503,205,9581.7%
5Texas25,146,09128,628,66628,995,8811.3%
6South Carolina4,625,3665,084,1565,148,7141.3%
7Washington6,724,5407,523,8697,614,8931.2%
8Colorado5,029,3195,691,2875,758,7361.2%
9Florida18,804,56421,244,31721,477,7371.1%
10North Carolina9,535,75110,381,61510,488,0841.0%

For the most part, these are lower-tax States with lower costs of living.  People flow from high-cost areas to low-cost areas, presuming there is opportunity in those low-cost areas.  It is not unlike the worldwide migration occurring today - largely from South to North.  People are fleeing places in Central America and Africa and looking for a better life in the US and Europe.   To them, though, the "high cost" of living is represented more by limited economic opportunities and violence and warfare in their home countries.

We "migrated" from a high-tax, high-cost-of-living areas (Northern Virginia, New York) to lower-tax, lower-cost-of-living areas (Florida, Georgia) and may migrate again in the future.  The appeal of "cashing out" hundreds of thousands of dollars from a home is only made more appealing by the thought of not having to take care of a home as one gets older.

Government actions always have intended and unintended consequences.  Staggeringly high tax rates eventually force people to do odd things to avoid taxes.  And often these things are either nonproductive or counterproductive.   People will only pay through the nose for so long out of sentimentality, before they wise up.