Some 168 years ago, John Babsone Lane Soule was quoted as saying “Go west young man, go west,” inspiring generations from the East coast to migrate west and test the Pacific waters for a better life. But today, the migration has shifted and California businesses and residents are beginning to pay a heavy price. But for Arizonans, the silver lining keeps shining brighter. We are one of four states who are primary recipients of the Golden State’s loss. To better understand why California transplants affect commercial property vacancy and value within our borders, let’s begin with an overview of what led to today’s real estate circumstances.
The Shrinking Middle Class Can Breathe in Arizona
Between the tax rates and rising costs of housing in California, many people are not only rethinking their quality of life there but realizing that the sought after California lifestyle is long gone. While residents of the state to our west battle whether Northern is better than Southern in terms of overall living, for those of us outside their borders don’t see the benefits in either half of the state.
California has the highest income taxes in the country; yes, they exceed New York and New Jersey. In addition, with the changes in the U.S. tax codes, homeowners in high property tax states are not able to write off their exorbitant taxes, increasing their tax liability. Some would argue that for the people who can afford to live in California and purchase those high-dollar homes, they can certainly pay more of their fair share in taxes. But it isn’t that simple.
Business Can’t Survive Without a Local Workforce
Capitalism is great. Just ask any business owner who’s made it. Chances are, there are middle- and lower-income individuals churning the wheels of progress for them. One of the reasons behind the growing migration of California residents to Arizona, Nevada, Texas and Tennessee is the irrational ratios of income and cost of living. Most people cannot afford to stay there as personal debt rises without any relief in sight.
Finding a case in point isn’t difficult. Go to an income query site and search for a salaried position in California, perhaps San Francisco or Los Angeles. Jot the salary down. Now, do the search again and change the location for any metro Phoenix area city, or check out Las Vegas or Nashville. You’ll notice that the salary rates aren’t that different from what California employers are offering. In addition, California state income taxes are near double of what they are in Arizona, so workers’ take home pay is much less, comparatively speaking.
Add the salary component to the disparaging housing costs and California migration is a no-brainer. In fact, the median price for a home in California compared to Arizona is 60 percent higher. More than the cost to purchase a property, and the associated property taxes, increasing interest rates take a toll on affordability factors.
But if middle-income earners are effectively priced out of the housing market, then how can businesses meet their workforce demand? They can’t.
Cities near Los Angeles Close to Agriculture Hit Hard
The beautiful beaches in Ventura County California easily mask the ugliness of what’s happening to local businesses there. Their financial landscape has grown progressively bleak in recent years. For the reasons noted earlier in this article, the people of this laid-back region are experiencing a loss of vibrancy that was unexpected. The recent wildfires and SOAR haven’t helped either.
Ventura County is one of many areas in California that have adopted commercial and residential development restrictions in an effort to maintain preservation of its natural resources and open land, which some view as scarce.
SOAR, Save Open Space and Agricultural Resources, puts heavy restrictions on agricultural land development, something that Ventura County wants to open up to so that they can keep their residents and businesses from leaving and heading to Arizona. In fact some local experts say that the California housing shortage would require several million units to adequately meet demand.
Until that happens, the land of rugged beaches and environmental protectors may find itself teeming with the wealthy and vying for the attention of mainstream America.
California Might Be for the Few, But Arizona Is Happy Being Mainstream
Massive enterprises are finding refuge in Arizona. Companies such as Caterpillar, Raytheon, Amazon, and IAC Industries are either relocating here or expanding their presence, perhaps as a precautionary method, to the changing tide of California.
Although Arizona doesn’t have the ocean as a border, we do have easy access transportation arteries for manufacturing and industrial businesses. As businesses move more towards enhancing their digital footprint, the need for physical space has changed. What was once essential to retail, brick-and-mortar, a boutique real estate presence or smaller-scale headquarters means that these business owners can be pickier about where they hub their brand and the price they’re willing to pay to do it well.
Phoenix, Scottsdale, Tempe, Gilbert and Mesa also provide California transplants a vision of what once was prevalent in Los Angeles and the Bay Area, now gone: the freedom to grow at a price they can live with.
As Arizona continues to reap the rewards of this massive exodus from California, vacancy rates in commercial property could tighten, and new development will become evident. This will also spur an increased need for multi-family units, already stressed to meet demand. Together, the recent hiccup in property values should be short-lived as the migration will continue throughout 2019.
Lessons Learned from California Should Be Heeded in Phoenix and Surrounding Cities
Residential and commercial property owners who had to succumb to the perils of 2008 and the real estate crash can lay testament to the phrase, “What goes up…” you know the rest. Arizona is not, nor will it ever be, California. However, we can consider this take away: Enjoy what is today and plan for the unexpected tomorrow.
Know a California Transplant Looking to Invest in Commercial Real Estate? We Have Property
