Arguably, two aspects of American character in the post-WWII period help explain the rise of the Sunbelt as a potential investment destination. First, the nation is increasingly urban by character and continually urbanizing by virtue of policies that favor geographic concentrations of economic activity. Second, Americans are drawn to warm climates. These affinities characterize the two largest segments of the population—Millennials and Baby Boomers—and they account for one of the most consistent themes in the performance of real estate investments: attractive opportunities tend to concentrate in Southern urban centers.
In our 2022 Best Places to Invest report, for example, 17 of the 20 locations are in the Sunbelt. The region roughly synonymous with the Southern half of the U.S., has benefited from the long-running migration from the Snowbelt. As an investment theme, the Sunbelt continues to feature prominently in our investment approach.
Since World War II, the region has become one of the great success stories in America. According to a 2007 Harvard University Taubman Center policy brief:
- The South's share of the national population has increased from 24% to about 50% since 1950.
- During the same period (1950-2000), the average income in the South increased from 76% of the national average to 94% of the national average, while housing prices rose from 83% to 91% of the national average.
A 2021 Brookings report based on 2020 U.S. Census data estimated that the Sunbelt’s share of the nation’s population reached 62%1. From 2010 to 2019 the southern states of South Carolina, Texas, Florida, North Carolina, Georgia, and Arizona have seen a minimum of 10% population increase2.
Multiple hypotheses have explored the causes of the Sunbelt’s ascendency. The causes discussed in the Taubman Center report (and video presentation3) include the following:
- A favorable climate drives demand. The tremendous growth of the Sunbelt reflects a nationwide correlation between warmth and growth throughout the postwar period.
- Supply attracts demand. The greater Sunbelt tolerance for new residential construction has driven growth.
- Productivity has increased, whether driven by capital accumulation, the region’s transition from agriculture to manufacturing, or decreasing transportation costs.
- The Sunbelt has attracted both high-paying and low-paying jobs, and both older and younger job-seekers.
With these growth drivers, the Sunbelt remains an attractive theme for real estate investors. The Wall Street Journal reported that, of the record $335.3 billion invested in apartments across the country in 2021, nearly a quarter went to just four metro areas in the Sunbelt: Dallas, Atlanta, Phoenix, and Houston4.
The Sunbelt continues to reward investors with superior growth. According to a 2020 report by the Rice Kinder Institute for Urban Research, large Sunbelt metropolitan areas are growing much faster than their counterparts elsewhere*. In 2021, the Sunbelt markets with the strongest year-over-year growth rates were Las Vegas (232%), Houston (191%), and South Florida (179%)5.
A recently published Redfin survey suggests that migration encouraged by remote work policies will continue. Nationwide, the percentage of respondents looking to move to another metro increased from 25.6% in 2019 to 31% in 2021.
The growing migration will continue to disproportionately benefit the Sunbelt, but the resulting demand for real estate will likely continue to push up occupancy rates and prices, reducing housing affordability. Still, as the Motley Fool reported in March 2022, “demand for apartments in the Sunbelt remains red hot.”6
The sustainability of this demand will depend substantially on the decisions of Millenials. As Michael Hendrix points out in governing.com: “Where millennials choose to settle down will define the future of America’s metros. And the future winners look much like the past winners: Sun Belt metros with good job markets and more affordable housing.” Research by SmartAsset supports this hypothesis. In the firm’s fifth annual study of where millennials are moving, five of the top 10 states are in the South.
So, as long as the Sunbelt remains a story of the harmonious dance of supply and demand, the future of the Sunbelt migration seems bright by any measure.
* Rice | Kinder - The Urban Sunbelt: An Overview - June 2020
1. Frey, William H. “Census 2020: First results show near historically low population growth and a first-ever congressional seat loss for California.” Brookings, 26 April 2021, https://www.brookings.edu/research/census-2020-data-release/. Accessed 19 March 2022
2. Brumer, Liz. “The Sun Belt Migration Trend Explained.” Millionacres, 10 June 2021, https://www.millionacres.com/real-estate-market/articles/the-sun-belt-migration-trend-explained/. Accessed 20 March 2022.
3. Rice | Kinder. “The Urban Sun Belt: Setting the Agenda.” YouTube, Rice Kinder Institute for Urban Research, 11 June 2020, https://youtu.be/b8oxTYB904g. Accessed 20 March 2022.
4.Parker, Will. “Real-Estate Investors Head South, Bid Up Sunbelt Apartment Buildings.” Wall Street Journal, 15 February 2022, https://www.wsj.com/articles/real-estate-investors-head-south-bid-up-sunbelt-apartment-buildings-11644930001. Accessed 19 March 2022.
5. 2021 US Investment Volume Hits Record $746 Billion.” CBRE, CBRE, 14 February 2022, https://www.cbre.com/insights/figures/q4-2021-us-capital-markets-figures. Accessed 19 March 2022.
6. DiLallo, Matthew. “Demand for Apartments in the Sun Belt Remains Red Hot.” Nasdaq, The Motley Fool, 7 February 2022, https://www.nasdaq.com/articles/demand-for-apartments-in-the-sun-belt-remains-red-hot. Accessed 20 March 2022.
