U.S. Population Shift - De-Urbanization and What It Means to Insurers

March 25, 2021| By Lonnie Van Houten | General Liability, Property | English

Region: North America

We are now more than a year into the COVID‑19 pandemic, and social distancing, masks and hand sanitizers are still the norm. Many workers, such as those in the service and hospitality industries, don’t have the luxury of working remotely, causing significant disruptions in employment patterns that may not return to pre‑COVID levels for a long time, if ever. However, for the average office worker who can access the Internet and cell service anywhere, working from home (WFH) has become commonplace. Nearly 20% of office space around the country now stands vacant and will likely remain so until most people are vaccinated and herd immunity is achieved.1 Where does this leave us?

For decades, urbanization has been a global real estate trend, established well before coronavirus became part of our vocabulary. “Since 2007 more people have lived in cities than outside them, with the margin between the two increasing steadily each year,” according to PERE.2 In the U.S., 82% of the population resided in urban centers, at least until COVID‑19 turned the urban growth model on its head.

The trend in the early 2010s was for young people to migrate to large cities, such as New York City, San Francisco and Chicago, in search of job opportunities and a vibrant social life. Around 2016, that shift began to slow and then reverse. Now, faced with less economic opportunity and potential health risks, many young people are opting for smaller cities that present similar work and lifestyle benefits without the density and expense downsides.

Pandemic Migration

Since the beginning of the pandemic, cities have accounted for 90% of infections, and the lure of those urban centers has diminished. Although a post-pandemic economic resurgence is likely, it is unclear to what degree. As businesses and schools continue adapting to online environments, the appeal of larger cities is now in question. Simply put, many workers have found that with the WFH phenomenon, they can work from just about anywhere with a good Internet connection.

While a regression to rural living is unlikely, the ongoing crisis has accelerated a shift in focus from big cities to medium-sized alternatives. From a regional standpoint, “the West and South are weathering the COVID storm better than the East and Midwest,” according to the National Council of Real Estate Investors.3 Partly driven by the pandemic, other factors benefitting the West and South include more favorable tax environments, warmer climates, home affordability, quality of life factors, and increased economic opportunity.

Much of the conversation about de‑urbanization in the U.S. has focused on San Francisco and New York City. A review of spending activity of 100,000 credit cardholders suggests 45% of Manhattan residents and 55% of San Francisco residents left their cities for some amount of time last year. Manhattanites appear to have gone to the suburbs, though many went farther to Florida, Arizona, Colorado, and Southern California. Departures from San Francisco reached Texas and Florida. It is too early to know how many will return.4

LinkedIn has tracked a similar trend. New York, San Francisco, Seattle, and Boston experienced substantial net declines in the number of users claiming those cities as their home markets.5 In another analysis, Oxford Economics’ review of the U.S. Postal Service change of address information said San Francisco’s population decline may have reached 27,000, the fourth largest decline in the nation.6

Meanwhile, cities such as Jacksonville, Salt Lake City, Sacramento, Milwaukee, and Kansas City have seen a large uptick of residents. The population shift from large cities to medium-sized cities, as well as suburban areas, that began before COVID is continuing.

Image 1

Political Motivators

The long-term viability of large cities is dependent on the political action that will be taken in the years ahead. After COVID‑19 “brought economic activity to a halt, governments supported by big cities are barreling toward budget crises.” PERE wrote, “New York City is projecting a $9 billion shortfall over the next two years, and New York State projects tax collection will fall $14.5 billion short of initial expectations this year alone.”7 Elected officials are considering tax hikes on the wealthy to offset these costs, but that plan may not succeed if many leave the city for lower tax locations. COVID-driven budget deficits are the reality for most cities and states, even in the stronger economic regions, albeit not as extreme.8

Many states - such as Texas, Tennessee, and Florida - have benefited from companies relocating headquarters and workforces away from higher regulation and living costs. Examples include Toyota Motor Corp., Hewlett Packard, Mitsubishi, and Oracle, along with other Silicon Valley companies. Tesla is in the process of building a large manufacturing facility in Austin, Texas.9 With the growth in these cities, insurance companies are presented with opportunities to expand their customer base - but run the risk of increases in potential exposure to hurricanes, wind, and hail.

A New Insurance Map

The next several years will determine if de‑urbanization builds steam or if we experience a snapback consistent with historical norms.

  • Work from home means fewer miles driven for commuters in cities lacking mass transit.
  • Population growth in Sun Belt cities more exposed to hurricanes, tornados, and hail will increase exposure for insurers writing in those states.
  • The continuing migration to coastlines - up 16% since 2000 - puts 30% of the U.S. population (and property) at greater risk.
  • Workers’ Compensation, General Liability, and even Cyber lines are also influenced by the WFH model.
  • Commercial Property insurance will go through radical changes as buildings are repurposed for other uses, and some may never recover. Shopping malls have continued their long-term decline due to the seemingly permanent shift of retail commerce to online platforms that require more logistics-type business models than traditional brick and mortar stores.
  • The depopulation of urban workplace neighborhoods affects many of the small service businesses that catered to those workers, like delis, dry cleaners, retail stores, etc.

Even how insurers manage their own physical footprint is in flux. Do they need a large headquarters or many local service centers?

Population shift has occurred throughout U.S. history for various reasons. The pandemic has accelerated what was already becoming a trend, but the “new normal” in the workplace environment is beginning to take shape. There are still plenty of unknowns from COVID, let alone future events that may trigger new migratory patterns, but right now, demographic shifts are making an impact on our companies, our people and our business - and we all need to take note.

  3. Ibid.
  4. Ibid.
  5. Ibid.
  7. Id at note 3.


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