Population Growth and Housing Costs

Population Growth, Economic and Fiscal Policies and Rental Housing

No question that the driving force for economic development and real estate values is population growth. Of course population growth is also fueled by employment growth, primarily private sector employment growth. 

There are only two sources of population growth: natural increase and net migration. Natural increase is the excess of births over deaths and net migration is the excess of in-migrants over out-migrants. Most of Florida’s growth comes from net migration.

With a population of 21.5 million according to the 2020 census, Florida is the most populous state in the Southeastern United States, and the second-most populous state in the South behind Texas. Within the United States, it contains the highest percentage of people over 65 (17.3%), and the 8th fewest people under 18 (21.9%)

Between 2019 and 2020 the population of Florida grew from 20.9M to 21.2M, a 1.51% increase and its median household income grew from $55,660 to $57,703, a 3.67% increase. 

People move to Florida for different reasons. Low taxes, job opportunities and light regulatory and business friendly government are the most important ones. Other reasons are sunny weather, diverse population, quality of healthcare, excellent gastronomy and exciting attractions and World Class Cultural Events. 

Companies look to move to places where they can develop their business in a friendly environment, where they can hire great talent, have fair competition and fiscal policies and government regulations and achieve the implementation of what their strategic plan calles for. 

It is estimated that Florida has, as of July 1 2022, 10,257,426 housing units (a housing unit is a house, an apartment, a mobile home, a group of rooms, or a single room that is occupied (or if vacant, is intended for occupancy) as separate living quarters. Separate living quarters are those in which the occupants live and eat separately from any other persons in the building and which have direct access from the outside of the building or through a common hall). Of those it is estimated that 33.5% are rental units. 

When companies relocate or new businesses are created in Florida more job opportunities exist for those that are willing to relocate, creating greater demand for goods and services and better economic activity. Better economic activity creates more wealth and income opportunities for all, improving quality of life. More purchasing power results in more demand for good and services and therefore increase in cost, housing being one of them. That is why it is so important the economic policy of the Federal Reserve and the Fiscal Policies of the Federal, State and Local governments. If these policies are not the right ones to create economic activity and wealth, they result in additional unnecessary inflationary pressures that result in greater increase in the cost of goods and services. As we have seen in recent years, inflation rates have been the highest in almost 40 years. Food, supplies and services have increased in cost, also housing and rents and if salaries cannot keep up with these increases individuals and business lose purchasing power and can afford less goods and services and also “less house”. Not only tenants are affected. Landlords see maintenance and repair costs increase, property taxes and operating costs, forcing rents to go higher. In addition in Florida we have a property insurance crises, landlords have seen increases of up to 70% in insurance cost in one year. For the landlord to keep its investments and more importantly to keep investing, the investment has to make sense and be competitive with alternative investments. If Landlords stop investing in rental housing an acute shortfall of available units will take place, pushing rents even higher. Then it will fall in the hands of the government to provide affordable housing for the work force and so on. But this is not how capitalism works. 

Capitalism relies on private investment to fuel the economy, creating jobs, offer and demand for good and services and wealth. Therefore it is very important to maintain a friendly business and investment environment and sound economic and fiscal policies. Otherwise, inflationary forces will occur increases prices for all goods and services and lack of inventory of basic necessary items, including housing. 

If rents increase due to inflation and other market forces, this will not only affect Tenants but also Landlords. Tenants will face higher occupancy costs and landlords will not only face higher operating costs that in many cases cannot be balanced by the increases in rents but may also face higher vacancies and tenant turnover, decreasing profitability and return on the investment, even at higher rents. 

Tenants are facing a difficult situation because they are not seeing their income increase at the pace of the cost of basic items, including rents. This situation is affecting many families and is forcing many people to take two or three jobs, lowering quality of life. On the other hand Landlords want to maintain their return on their investment but are facing a different situation in many cases, even with the huge rent increases we have seen in recent months. 

Until governments really address the problems we have with affordable housing and fine tune their fiscal policies in tandem with a sound economic policy we may continue to see less capital moving into real estate investments and therefore less available housing units to cope with the existing and future rental demand. On the other hand we will continue to see more and more tenants downsizing, lowering quality of life or facing financial hardship. As long as job growth continues to be strong and unemployment low, salaries will continue to grow which will alleviate the pressure of higher costs. If at the same time inflation comes down as it seems is the latest trend, then we can see some offset on the cost of basic goods and services and a return to a more normal situation but it is imperative to have an affordable housing plan in place, as a true partnership between government and private sector.