Housing in a certain type of town couldn’t be hotter. And some of them have been getting attention way out of proportion to their importance to the economy for an obvious reason: They’re the places where corporate executives, Wall Street barons, Hollywood stars and more than a few journalists have fled to escape the perceived dangers of crowded cities filled with people who might be carrying the coronavirus.
As well-paid knowledge workers who can do their jobs anywhere now flock to these “Zoom towns,” home prices are surging and housing inventory is dwindling. Normally, high prices and low inventory would lead to a construction boom, but many of these communities tightly regulate new building. The upshot might be a brief boom that gets choked off by unsustainable prices.
The U.S. now is several months into the housing-market recovery and we have early data about where the hot spots are. It’s hardly a surprise that home prices are up 25% from a year ago in the Hamptons, given its proximity to the enormous New York job market and its throngs of knowledge workers,
Out west, mountain towns are seeing their real estate gobbled up, too. Truckee, Calif., near Lake Tahoe, is seeing a boom; housing-analytics firm Altos Research found that list prices for homes are up 50% from their lows this spring. Missoula, Mont., home to the University of Montana and which gets 4 million out-of-state visitors annually, is booming as well. Bend, Ore., a tourism draw famous for its craft breweries and outdoor activities, has less than one month of housing inventory for sale, an unusually low level.
The appeal of beach or mountain towns with built-in cultural amenities is obvious, which is why they’ve historically drawn tourists and college students. But a limiting factor for economic development and home prices has always been that there weren’t many high paying jobs available. Virtual work changes that by allowing people to bring their jobs with them, creating the potential to reshape these communities, making them less reliant on transients.
But if virtual work holds the promise of a new wave of migration the way air conditioning allowed the Sun Belt to boom, a significant constraint is going to be how much these communities are willing or able to grow. Cities such as Atlanta, Dallas and Houston in a matter of a few decades grew to metro areas with more than 5 million residents each. Truckee, Missoula and Bend have populations of 100,000 or less, and lack the infrastructure and perhaps the desire to grow to be major metro areas.
If topography or community resistance constrains the growth of these towns they may simply end up with little population growth and much higher home prices. If this happens, service workers and college students in these communities will be dealing with the same kinds of gentrification and displacement pressures that the working class has come to expect in high-cost coastal cities.
The way this probably will play out is home prices in these communities soar during the next 12 or 24 months as pandemic buyers bid for whatever dwindling housing inventory remains. Think of it as surge pricing in the same way that New Year’s Eve revelers pay a premium for a ride from Uber or Lyft. But inevitably higher prices choke off demand. It’s seems reasonable to assume that the reopening of offices in traditional job hubs will lead to a more subdued vision for the future of virtual work.
Still, at the margin, this shift in housing demand to vacation communities should be welcome news for those who remain in large, high-cost cities. Already, apartment rents are plunging in cities such as San Francisco, Seattle and New York. Combine that with modest increases in the supply of single-family homes in Boston, New York and San Francisco and home prices in those communities could decline, making them more affordable to buyers who may have been priced out of many urban markets in recent years.
These trends probably will become clearer in the next year or two. We have already seen cities such as Portland, Ore., Denver, Austin, Texas, and Nashville, Tenn., benefit from knowledge jobs being pushed out of costly coastal hubs. It now seems likely that there will be a new group of winners such as Truckee and Missoula amid the shift to virtual work, transforming their housing markets and local economies forever. At the same time, shifting some of the housing demand from large cities to these Zoom towns should help relieve housing costs in cities such as New York and San Francisco, even if the daily routine for most office workers eventually comes close to returning to the old normal.
James Greiff is an editor for Bloomberg Opinion. He was Wall Street news team leader at Bloomberg News and senior editor for Bloomberg Markets magazine. He previously reported on banking for the St. Petersburg Times and the Charlotte Observer.
Conor Sen is a Bloomberg Opinion columnist. He has been a contributor to the Atlantic and Business Insider.