Covid Has Made Orlando Less Affordable Than San Francisco

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Since the beginning of the pandemic, the price of housing has risen in some relatively cheap places in the U.S. and fallen in some expensive ones. These dynamics were already apparent before Covid-19, as superstar cities in the U.S. and abroad began to price themselves out of reach for many of the workers who kept them going. Then came a contagious disease that (1) temporarily shut down most of the things that make superstar cities attractive and (2) led employers to experiment with remote work on an unprecedented scale, making it easier to disconnect superstar-city jobs from superstar-city real estate prices.

Still, there’s this pesky thing that happens when the price of housing rises a lot in a place where it used to be cheap: The place stops being cheap. Consider Boise, Idaho, which saw the sharpest rent increases over the past year of the 519 U.S. cities for which the economists at Apartment List make monthly rent estimates. Four years ago, renting a two-bedroom apartment or house in Boise cost 25% less than the national average, and even early last year it cost 17% less. As of April, it cost 1% more.

Covid Has Made Orlando Less Affordable Than San Francisco

No, 1% isn’t a lot more, and Boise remains a bargain compared with many of the places people are arriving from. There are 30 California cities in Apartment List’s database with average April two-bedroom rents more than twice Boise’s $1,144. But for those who aren’t earning big-city wages and don’t have bank accounts padded by big-city real estate gains, Boise is getting to be somewhat expensive. For those hoping to buy rather than rent, it has been for a while: According to Zillow’s home value index, the price of the “typical” mid-range house in the Boise metropolitan area passed that of the typical house nationally in 2013, and as of March it cost 53% more.

To get a better sense of the strains that the great pandemic migration may be putting on typical workers’ housing budgets in some of the places where people have been moving, I compared the Bureau of Labor Statistics’ most recent estimates of median wages by metropolitan area (from May 2020) to Apartment List’s April 2021 metro-area rent estimates, which combine findings from the Census Bureau’s annual American Community Survey with monthly data from the company’s own for-rent listings. The National Association of Realtors publishes a similar metro-area housing affordability index on a quarterly basis, but given how much rents have gone up in some places over just the past few months, it seemed worth trying a timelier measure. And yes, I could have done something similar with Zillow’s home-value data, but renters could use some more attention, right?

My exercise revealed that yes, there do seem to be some interesting things going on with housing affordability at the moment. Judging by the number of hours a median-wage worker in a large metropolitan area (population of a million or more) would have to labor to pay the average monthly rent on a two-bedroom apartment, the usual suspects on the West and East coasts are still pretty unaffordable, but so are a few places that might surprise you.

Covid Has Made Orlando Less Affordable Than San Francisco

By this measure, Orlando is less affordable than San Francisco, and Austin and Las Vegas less affordable than San Jose. They’re not more expensive in absolute terms, of course; someone moving from San Francisco or San Jose would still find all those places to be pretty cheap, especially if they were able to keep working at San Francisco or San Jose wages. But most people in Orlando and Austin and Las Vegas don’t have that option.

Sort through all 177 metro areas for which both wage and rent data are available, and nine of the top 15 are in California, mostly smaller metro areas within commuting or at least go-into-the-office-a-couple-of-times-a-week distance from the state’s big coastal metropolises. (Metropolitan Boise comes in 70th place in this ranking, at 60.6 hours.)

Covid Has Made Orlando Less Affordable Than San Francisco

Also relevant is that 12 of these 15 metro areas touch either an ocean or the Gulf of Mexico (and the three that don’t — Riverside-San Bernardino, Napa and Vallejo-Fairfield — aren’t far from the Pacific). Coasts both attract people who can live anywhere and constrain an area’s ability to expand, neither of which is good for housing affordability.

Constraints on expansion of the housing supply are what has driven the real estate crisis in coastal cities. Some are physical: Most of the metropolitan areas in the above charts come in near the top of Massachusetts Institute of Technology economist Albert Saiz’s ranking of metros with the smallest amount of developable land (land that is pretty flat and not underwater) within 50 miles of the core city. California’s Oxnard-Thousand Oaks-Ventura, squeezed between the Pacific Ocean and the Santa Susana and Topatopa Mountains, is both the least developable and least affordable metro area in the country.

Since the 1960s, the East and West Coasts (California in particular) have also experienced what economists Chang-Tai Hsieh of the University of Chicago and Enrico Moretti of the University California at Berkeley term a “property rights revolution” of anti-development activism and regulation that’s made it even harder to build enough new housing to satisfy demand. This revolution coincided, and to some extent collided, with a big increase in agglomeration. That's the economic value created by gathering lots of skilled knowledge workers in the same place —  a phenomenon described by Moretti in his influential 2012 book “The New Geography of Jobs.”

In a paper that was published in the American Economic Review in 2019 but circulated widely for several years before then, Hsieh and Moretti estimated that if land-use restrictions in just the New York, San Jose and San Francisco areas had been the same as that of the median U.S. city from 1964 to 2009, thus enabling them to house more people than they actually did, U.S. gross domestic product would be 3.7% higher. A few weeks ago, George Mason University economist Bryan Caplan discovered that Hsieh and Moretti made a simple mathematical error and that, according to their model, GDP would actually be 14% higher. That’s a lot of lost output!

The sudden move to remote work occasioned by the pandemic seemed to offer a workaround. If knowledge workers could be as productive gathered virtually as crammed into New York high rises or Silicon Valley office complexes, then maybe those development constraints in high-priced cities wouldn’t matter so much. Moretti, in an interview last month with Vox, said he doubted “the economic geography of the U.S. will be profoundly different in the long run” because remote working probably won’t permit companies to access “those particular advantages that come from agglomeration.” But he also acknowledged that the share of remote work will likely remain higher than it was before Covid-19.

I’m not going to try to predict here how many of us will be working from home 10 years from now, but the shift over the past year has already been enough to send rents and home prices spiraling downward in some in-demand cities. If lots of new housing is built in these places, the price pressure could ease. Boise had an earlier stint as a fairly expensive place during the 1990s tech boom (chipmaker Micron Technology is based there), and price increases subsequently slowed to less than the national pace as lots more housing was built.

Still, the characteristics that attract remote workers — most of the metropolitan and micropolitan areas with the highest percentages of remote workers before the pandemic are in the mountains or on the beach — also serve to constrain new development. The remote workers themselves may add to those constraints by bringing new attitudes to town. Boise now has its share of Nimbys, too. In a few smaller, even more scenic metro and micro areas such as Boulder, Colorado; Bozeman, Montana; and Bend, Oregon, the combination of mountains, rising opposition to development and high demand have driven home-purchase prices up to or past the levels of metro Boston and New York, although they’ve still got a ways to go to catch San Jose and San Francisco.

The larger non-Californian-or-Northeastern metro areas on the least-affordable list are generally there for different reasons. In Las Vegas and Phoenix, overbuilding during the housing bubble led to a wipeout from which local home builders are still struggling to recover, with employment in construction still down 40% from its 2006 peak in Las Vegas and 25% in Phoenix compared with less than 2% nationally. It’s down 18% in Florida, which also suffers from chronic housing-affordability issues because wages are so low.

Wages are higher in the big metro areas of Texas, whose wide-open spaces and loose regulatory policies have been the great counterexamples to the constrained cities of the East and West coasts. But even these may finally be reaching the point where their affluence and sprawling size become limitations. This is most obvious in Austin, but neither San Antonio nor Dallas-Fort Worth score particularly well on affordability either, with each requiring almost 62 hours of median-wage work to pay the average monthly rent on a two-bedroom apartment. Again, all these places still look cheap to a coastal Californian. But without coastal-California wages (and in particular San Jose-San Francisco wages), they’re really not so affordable anymore.

Where is housing still affordable even for the locals? I’ll start this time with the most affordable of all metro areas, a list full of places that it’s hard to envision remote workers flocking to anytime soon.

Covid Has Made Orlando Less Affordable Than San Francisco

To me the standout here is Akron, a leafy, centrally located city of about 200,000 with a lively-ish downtown, a big university and a national park less than 10 miles from both. It’s also part of the same combined statistical area — sort of a mega metro area — as the almost-as-affordable Cleveland, a city that’s gotten tolerably good press ever since the construction of Progressive Field and the Rock and Roll Hall of Fame in the mid-1990s but has managed to keep on shrinking at both the city and metro-area level.

Restrict the ranking to metro areas of a million people or more, and there are a lot of such attractive-seeming cities.

Covid Has Made Orlando Less Affordable Than San Francisco

Some of these places are already magnets for skilled younger workers (Pittsburgh, Columbus and Indianapolis stand out, but they’re not the only ones). Others are iconic cities that fell on hard times but have been making a comeback (Detroit and New Orleans). One is my beloved former home (Birmingham). All the ones I’ve spent time in (I’ve yet to visit Milwaukee or Grand Rapids) are pretty nice places to live, and have either excess existing housing or make it easy enough to build that real estate costs aren’t a major hurdle for most residents. I can sort of see why someone with no previous connection to them might not want to pick up and settle there as a remote worker. But for employers trying to navigate the shifting post-pandemic geography of jobs, they may deserve a closer look than they’ve been getting.

Apartment List also publishes overall average rents for cities and metro areas, but I decided to use rents for two-bedroom apartments for consistency's sake, given that overall averages can disguises differences in the housing mix from place to place.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”

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