Suburban migration, due to pandemic, could be permanent

Byron Carlock/PwC U.S. Real Estate Leader and Sarah Paynter, Yahoo Finance real estate reporter discuss the suburban boom and the findings of The Urban Land Institute (ULI) and PwC US Emerging Trends in Real Estate® 2021 that highlights the evolving trends shaping the real estate industry.

Video Transcript

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ADAM SHAPIRO: Welcome back to Yahoo Finance. We have a new twice monthly segment here at YFi, and that is the "Real Estate Report." Everybody somehow or another tied to real estate. You've got to live somewhere, right?

BYRON CARLOCK: [LAUGHTER]

ADAM SHAPIRO: So inviting that into the stream to talk about this we've got our real estate correspondent, Sarah Paynter, but we also have Byron Carlock. He is PwC's US real estate leader. It's good to have you both here.

And just a feel-- a little metrics before we start this discussion. Housing starts increased 1.9% to a seasonally adjusted annual rate of 1.4 million units, according to the Commerce Department. We're watching a need for housing outside of big cities. So, Byron, let me start with you. This migration back to the suburbs-- what do you think goes forward in what you folk are looking at that data? Is this going to be a permanent I'm going to the suburbs and I ain't coming back to big cities?

BYRON CARLOCK: So the trend had started actually before the pandemic, and it has certainly accelerated as a result. It looks like in New York City, about 5,000 households a week have been vacating since July 1, and that's largely millennials that have decided to move to the suburbs for more space. And so that seems to be the bulk of those.

Then you have those that have the permission to work from home for a longer period of time that have decided to go to even more remote locations, first for affordability and then convenience or perhaps a return to families. And many of the young analysts that were crammed two to four people in an apartment have gone home until they're told to come back to work. So the urban exodus does appear to be real, but out in the home-purchasing community, we see inventory is very low right now.

SARAH PAYNTER: Thanks. Byron, question for you-- in these new markets that are booming because of this shift, are we already seeing changes in the pricing and you mentioned inventory? Is this shift going to be sustainable over a long period of time with all the people looking for these types of homes with yards and extra office space?

BYRON CARLOCK: Great question. I heard that the national homebuilders have learned that the two new amenities that are being most requested for new construction are greater home offices and home classrooms, which we-- I don't think we've ever seen before. Is it sustainable? So you look at this pivot right now of millennials going into homeownership, and we thought that they were going to stay in the cities. And they are choosing to go to the suburbs.

You look at the extreme examples like Dallas, Texas, where I am right now, where last month it had record home sales. And the big question is is it sustainable with inventories at such a low? And the answer is we'll need to build more and certainly relevant product, and you see homebuilders trying to accomplish that in the stats that you started the program with today.

Cities like Austin, Dallas, even Atlanta, Denver-- Boise, Idaho, was a surprise in our Emerging Trends 2021 survey that we just completed and released last week-- as tech outlets for folks that are not only given the permission to work from home, but also are able to use technology to do their jobs even if their jobs are domiciled in New York or San Francisco. Those markets are clear beneficiaries, and frankly, the homebuilders have great opportunity to go into those markets where there's still buildable land.

JULIE HYMAN: Byron, what's going to happen on the affordability question though as you look at this migration rate because we have seen prices starting to go up in these various places? And yes, interest rates are still very, very low, but how is that affordability going to evolve, and how is it going to affect who can buy a home?

BYRON CARLOCK: Very good question. You know, I think-- (SIGHING) I'm really proud of the real-estate industry for taking a leadership role in trying to resolve some of the social issues around racial equity and home affordability. I think we're seeing it with situations like the Turner Impact fund going in and buying land and then contributing it to homebuilders to be able to take that land cost or much of the land cost out of that affordable building equation. I'm watching new technologies emerge-- panel construction, modular housing, quicker build-on-site, robotic resin. There are some interesting things that are happening in the construction industry that are driving down costs, and that's very attractive. And then there is a group in Washington called Up for Growth that's trying to educate city councils, zoning commissions on overcoming some of the NIMBY movement that has stifled construction in certain markets.

And so the answer is new and affordable housing. The question is how do we get there efficiently. And I'm pleased to see the industry taking leadership roles to try to do that.

SARAH PAYNTER: Byron, I'm wondering, in this study you identified some of the main markets that are benefiting from this shift. What are-- I know you mentioned affordability. What are some of the other factors that have attracted especially young workers and all of the new suburbanites to these locations?

BYRON CARLOCK: So there has been a clear shift from the high-tax states and municipalities to lower-tax domiciles. You've seen that growth in Tennessee with the growth in Nashville, in Texas with the growth in frankly all four major cities-- Dallas, Houston, Austin, and San Antonio. You've seen it in Salt Lake City. And so there seems to be a movement not only to affordability or relative affordability, but also for lower taxation opportunities and business friendly environments. And those are the ones benefiting from the migration.

ADAM SHAPIRO: Byron Carlock is PwC US real estate practice leader. It's good to have you here. We look forward to you coming back to keep talking about real estate because as I said at the beginning, we are all tied one way or another to it.

BYRON CARLOCK: [LAUGHTER]

ADAM SHAPIRO: All the best to you.