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Rental Demand ShiftBy Brian Davis

A record 1 in 3 U.S. counties is now experiencing "natural decrease," or a death rate that exceeds its birth rate, according to new U.S. Census data released yesterday.

With jobs starting to reappear, and not in rural or rust belt counties, young people of child-rearing age are increasingly moving to follow the jobs, which largely means south and west.  A full 1,135 of the 3,143 counties in America are seeing this demographic shift towards population decline, and the trend is growing.  In 2009, the number of counties with natural decrease sat at 880, or roughly 1 in 4 counties.

This proves a serious problem for local economies and housing markets, as counties with natural decrease experience a cyclical economic decline.  It starts because more jobs are available elsewhere (not to mention warmer weather and more sunny days/year), so young people leave.  As young people leave (taking their fertility and unborn children with them), population growth slows or reverses, so fewer people are earning money, paying taxes, spending money, buying homes and starting companies.  The remaining population of older people are less healthy, spend less, cost the government more money in social entitlement programs (e.g. Social Security and Medicare), and are less likely to start their own companies and create jobs.  Companies and local governments see less revenue, and are forced to cut payrolls and jobs, and young people are even more incentivized to migrate for greener pastures… a self-perpetuating cycle of decline.

So where are they going?

In brief, to the Sun Belt and Mountain West, where most of the 20 fastest-growing metro areas sit.  San Francisco, San Jose, Oakland, Austin, Houston, Dallas, Phoenix, Las Vegas and Orlando all saw large gains in young adults in 2012, and many are seeing subsequent spikes in rents.  To put the regional perspective to numbers, the Midwest's population growth in 2012 was 0.25%, and the Northeast 0.3%, compared to the West's 1.04% and the South's 1.1%.

Nor is the trend only regional: the shift moved decisively away from rural areas and towards a handful of brimming cities.  Rural areas saw a population decline of 0.1% in 2012, compared a 1% growth rate in large metropolitan areas.

In some cities, vacancy rates have dropped and rents jumped so precipitously that a new industry has arisen to service young professionals moving to the city.  "Rental concierges" help these migrant professionals find new apartments and homes in extremely competitive rental markets, with their intimate knowledge of local property management firms, apartment complexes and city neighborhoods.  In San Francisco, rents have leapt 5.1% in the last year to an average of $1,901, and the vacancy rate sits at a paltry 3.1%.  Neighboring San Jose has an even lower vacancy rate of 2.6%, and saw rents jump 4.3% in the last year.

Rental Market FrenzyAn early rental concierge in San Francisco, Wendy Willbanks explains the market need: "Ask anyone how they found their apartment in San Francisco, and they will have a grueling story.  I'm getting them a town car and rolling around the city with them as if I am their best friend who knows the area."

And need there is.  With an influx of high-paying tech jobs boosting demand, and the City of San Francisco's heavy housing regulations all but preventing construction of new homes, desperate rental applicants arrive an hour early for open house showings and overwhelm landlords.  One landlord reported it felt “a little bit, uncomfortably, like speed dating.”

There is opportunity, nonetheless, for entrepreneurial employers to set up shop in many of today's underemployed zones in the Midwest and Northeast.  As unemployment rises, savvy entrepreneurs may recognize opportunities to acquire qualified employees and exceptional real estate at affordable rates.  But until then, 1 in 3 counties in the U.S. will have a hard time coping with negative growth, low birth rates and aging populations.

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