Posted 13 days ago

The Great COVID-19 Migration

When most financial advisors talk about the pending greatest wealth transfer in history, they are talking about the tidal wave of $68T that is poised to change hands from parents to their children over the next 25 years. I’ll save this topic for another day. I think we’re on the precipice of another massive transition over the next few years that will rival the coming Great Wealth Transfer. I’m calling it the Great COVID-19 Migration and advising my clients to prepare for it.

I think it’s safe to say that COVID-19 has permanently changed us as a society. Some changes are obvious, while some will take a long time to reveal themselves.

Much like 9/11 or the financial collapse of 2008, our society will be permanently altered in ways we can’t fathom. It’s hard to imagine today being able to meet your arriving party at the airport gate these days, but you could easily do that in the 1990s. Can you imagine qualifying for a mortage without documentation for your W2 income in the year 2020? These were both commonplace practices that are now erased from our way of life. Similarly coronavirus is going to alter daily life in the US for years to come. Many of these will benefit the opportunistic investor:

  • Changes in expectations — while the coronavirus has created a lot of emotional and mental havoc for everyone, it’s also given us time to reflect and re-assess ourselves more holistically. We’ve been forced to slow down, remove all external activities and (for many of us, for the first time in years) take stock of our lives. Have we been making healthy choices in lifestyle – diet, career, family? What do we want out of careers? Will my industry even return to it’s former state after COVID-19? How can I simplify and find more balance in my life?

Yoga Pose
  • Changes in the workplace — we’ve already seen a massive, temporary shift in the workforce from office settings to distributed work-from-home scenarios. The upshot to this forced experiment is three-fold.
    1. companies have realized they can get the same amount of work done remotely with little downside. Remote work, under the right conditions, is often hugely productive
    2. if work can be done anywhere, employees too can be sourced anywhere. Why should a Silicon Valley company be forced to hire a single talented programmer within a stone’s throw of their HQ when they can cast a wider net and hire 2 programmers for the price of 1 in Omaha and Salt Lake City, respectively? Higher quality talent at lower cost is a win-win for companies
    3. companies have also modeled the extreme cost-savings afforded by shedding office space. Why have an expensive 400-person headquarters in Manhattan at $80/sq ft when you can shift 300 employees to work-from-home with space for only 100-150 “required” employees at any given time? Voila! You’ve cut your rent P&L expense by 50-80% overnight!

Empty Office
  • Changes in home life — forced quarantine has caused nearly every American to ask themselves fundamental questions about their day-to-day life. More specifically, it has forced us to reconsider our living situations — specifically as it relates to real estate

“Why do I live here – in this specific neighborhood, city, state, even this country?”

“Is my commute on the subway safe?”

“Do I want to raise my kids in the city?”

“Why do I live in a 500 sq foot apartment and pay $3,000/month in rent? I’d love a yard / pool / view….”

“Should I kick out my roommate and turn their bedroom into an office?”

“Or better yet, should I just buy my own house?”

“Should we buy a bigger house? I need a formal home office and so does my wife!”

“If I’m home all the time with my kids, should I buy a house with a yard, pool, etc?”

The intersection of these trends is going to create a massive opportunity for the smart investor. I predict that there is going to be a huge migration from dense city environments to suburban (or at least less dense) housing. New York City, San Francisco and similar cities are going to witness a surge of people fleeing both high living costs and tight, crowded spaces. High-rise housing is particularly vulnerable. While there will always be a segment of the population that wants to be in the “center of it all” in a major city, I forecast that there will be long-term diminished appetite for 1,000 sq ft luxury condos at exorbitant prices in city centers. Those same dollars can stretch further and get you more (yard, trees, safety, pool!) in the ‘burbs.

Condo House

The beneficiaries of this urban flight will be cities like Atlanta, Dallas-Ft. Worth, Phoenix, and Denver. I think this will only accelerate the long-term trend of Sunbelt / Western migration. I also think Midwestern cities (Cleveland, Detroit, Indianapolis, Columbus) that have seen a resurgence in recent years could also benefit from the perfect both affordable housing and a slower pace of life.

I’m advising my clients to look at strategic housing opportunities that lie in the path of this progress. There will be increased demand in these markets which should apply (long-term) upward pressure on rents and downward pressure on available supply. I think there is a fortune to be made by watching these macro trends carefully and acting on them decisively. Happy investing!