Key Takeaways: As we prepare to roll out best ideas in the residential REIT subsector (apartments + single-family rentals), it is important to build and understand a macro framework around which to select shorter- and longer-term ideas. On the demand side for rental resi, among the key macro drivers are job growth, population growth and migration patterns, household formation and the relative affordability of renting vs. owning on a market-by-market basis (the REITs tend to narrow focus to a few target markets). Today we are taking a look at population growth and migration patterns (see Figure 1 below), with the thought being that these patterns are also generally reflective of affordability, business / tax policy and where the jobs are moving over time. The blue heat map shows which states have experienced the highest / lowest compounded population growth over the past decade through 2020, while the green / red bubbles show the net population change in key MSAs between 2017-2019. The MSA data is obviously pre-COVID as the Census Bureau has not yet posted official 2020 MSA figures, however we highly suspect the data will show that the trends were just accelerated and pulled forward.
The data largely validates the narrative that the Sunbelt is winning over time - a combination of lower cost of living, lower taxes, better quality of life, better weather and potentially better job growth favors MAA, CPT, AMH and INVH over a Tail duration. The question, however, is whether they are the right stocks to own right now as the Coastal Gateway cities reopen and there is a return to the office in some form in the late-summer / early-fall. AVB, EQR, ESS and UDR could be more interesting on the Trade / Trend, with ridiculously easy comps this year and the ROC improving. AVB and EQR are also exploring new markets with more favorable long-term growth characteristics. Just a few things to think on before our presentation, more to come!
Figure 1:
