#165 - Big Growth in Small Cities

"When examining 48 core counties in the nation’s major metropolitan areas, 39 showed lower population growth in 2019-20 than in 2018-19, and 31 of these registered their lowest annual population growth of the previous decade. While domestic out-migration contributed much to these recent county downturns, in only a few urban cores was the 2019-20 growth decline especially pronounced in comparison to recent years. Among these are Suffolk County, Mass. (where Boston is located), Philadelphia, County, Pa., Alameda County, Calif. (where Oakland is located), Ramsey County, Minn. (where St. Paul is located), Franklin County, Ohio (where Columbus is located), and Orleans Parish, LS." - Brookings

Population growth in a county, a city, state or nation is a great thing.

Population growth begets economic growth which begets more tax revenues which beget better public services and amenities which begets more economic opportunity which begets yet more population growth. The cycle can be a positive one that lasts for decades.

Right now, there are a subset of people on the margin (younger families and couples as well as older retirees) that are choosing to live in smaller cities that offer lifestyles comparable to larger urban centers, but with a smaller feel and are more affordable. The reason the larger cities haven't felt this effect much over the past couple of years is because the share of people that left NYC or LA or San Francisco or Chicago or Boston (etc.) is a mere decimal point relative to the size of each overall market.

But these very people on the margin may well flood the likes of a smaller southern city.

In fact, I spoke with a banker today about what type of real estate he is lending on the most at the moment. Without hesitation he responded that he is lending on single family subdivisions down in Wilmington, NC who are being scooped up by retiring firefighters, law enforcement, teachers, and other members of the Northeastern middle class leaving their expensive cities behind. Most are purchasing these houses with cash offers.

As I wrote a couple weeks ago, I believe we are living in a golden age for smaller cities and more rural counties who are willing to offer tax incentives for businesses, are friendly to developers, and are forward-thinking in their economic development and infrastructure plans. The cost to live in large cities has begun to price many of their middle class citizens out and covid-19 reminded everyone that there's more to the world than living in a crowded city - especially when knowledge work can be done from the beach, the ski slopes, or the country.

I am bullish on smaller cities and adjacent rural counties as their starting population and economic base is much lower than the gateway cities who are shedding citizens on the margin to these lower-cost towns in the Southeast and Southwest. Find me a city with the following characteristics and I'll show you a city I'm bullish on:

- population above 50,000 and exhibiting net growth through the pandemic

- within 45 minutes of a mid-sized urban metropolitan area experiencing rapid growth (2.5% annual or greater)

- cost of living at least 25% less than the nearest urban metropolitan center

- job opportunities are close to commensurate with nearest urban metro center

- amenities that can easily be integrated into a resident's lifestyle (vibrant downtown, restaurants, breweries, bars, night life, events, concerts, trails, parks, coasts, mountains, etc.)

- low tax rates & low cost of doing business

What are your thoughts on the smaller city vs. big city life? On Suburban vs. Urban living? What matters most to you about where you live?

Links:

China's Merry-Go-Round of Debt (Council on Foreign Relations)

The great bifurcation (Stratechery)

Time to raise rates (Roger Lowenstein)

3Q 2021 GMO Quarterly Letter (GMO)

Complexity investing (NZS Capital)

Bitcoin mining could be heating homes in North Vancouver next year (Van Couver Sun)

I'm helping to start a new college because higher Ed is broken (Niall Ferguson)

We can't wait for universities to fix themselves, so we are starting a new one (Pano Kanelos)

Crazy until it's not: New Story charity's bitcoin-based mortgages, NFTs and 3D-printed homes (NfX)