The Wall Street Journal recently published an article titled Escape From New York City (April 21, 2020). It tells the story of several couples who left the city seemingly for good. This article was written before the recent disruptions.
Speaking about one such family, the article observed:
“They’re hardly the only family spurred by the pandemic to make a fast move, said Alison Bernstein, founder and president of Suburban Jungle, a company that specializes in matching city clients with their ideal suburban town, and helped the Usherenkos find their new home. “This whole thing is catastrophic and petrifying for families in urban areas,” she said. “People want out of the city and now.”
“Ms. Bernstein said demand for her firm’s services is up 40% from the same period last year.”
Of course, similar things were said after 9/11 and New York Apartments continued to rise in price supported by rising rents.
But there is a difference: Other outward pressures are in place now that were not there before, the tax code no longer favors high tax states and cities by offering deductibility for federal income taxes. Furthermore, technological connectivity is vastly better than it was in the ancient days of yore in 2001 in the latter days of the fax era and before Skype, Zoom, and Slack.
This time around some people are finding out just how connected one can be. One particular family decided to get out of the city on a temporary basis, until they saw how well things worked for them working from home.
“Indeed, the experience has the family rethinking its commitment to the city. Until the pandemic, the suburbs didn’t seem practical. But now that her husband, a lawyer, has proven his ability to work from home, they’re hoping his employer will be open to the idea. Last week, Ms. Euretig made her first call to a Hudson Valley real-estate agent.”
The reality is that we don’t yet know what the reality is. Maybe New York metro area will bounce back and continue its real estate price ascent. The question is how much to downplay the risks enough to justify levels of concentration such as this:
(Source: Vident Financial, S&P Global, as of 2/3/2020)
The size of the bars represents the share of money devoted to the apartment sector which a cap-weighted approach would devote to the New York metro area. Cap-weighted means that the money is allocated in the same proportion as the value of the publicly investible real estate of a particular type in a particular place. For example, a prominent cap-weighted real estate index allocates almost 10% of its apartment investment in the New York area. It does this based on a formula which estimates that the publicly traded apartment property in New York amounts to roughly one tenth of all the publicly traded apartment value in the country. This is despite the fact that the economic output of the people who live in the houses and apartments of New York only produce less than 8% of the nation’s output (as measured by GDP, the most common measurement of economic output).
I’m not saying that a New York population exodus is guaranteed. I’m saying that the high allocations common in cap-weighted funds might depend a bit too much on ruling one out.
Jerry Bowyer is a Forbes contributor, contributing editor of AffluentInvestor.com, and Senior Fellow in Business Economics at The Center for Cultural Leadership.
Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.
Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for CNBC.com, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.
Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.
Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.
Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.
Jerry lives in Pennsylvania with his wife, Susan, and the youngest three of their seven children.