Amenities, relative affordability and lower tax liabilities drive buyers to southern states
By V.L. Hendrickson
Over the last few decades, Nashville, Tennessee, has transformed from a sleepy state capital with a music scene to a cosmopolitan city with a diverse economy and the amenities that luxury buyers expect in an urban hub.
“In the late ’90s, early 2000s, the city had a nice downtown, but people only went there to drink and listen to music. Nobody lived downtown,” said George Ratiu, manager of economic research for Realtor.com. “You go to Nashville downtown today, it is sparkling with gleaming, glass skyscrapers, condos, apartments, office buildings. It has an entire host of establishments from stadiums to concert halls. It has grown to resemble much bigger cities over the last decade or two.”
The Tennessee city’s glow-up has contributed to the metro area—which also includes Davidson, Murfreesboro and Franklin—ranking as the top destination for luxury buyers on The Wall Street Journal/Realtor.com Emerging Housing Markets Index for the second quarter of 2022, released Tuesday.
The transformation started in the late 1990s when two professional sports teams came to the city, the NFL’s Tennessee Titans and the Nashville Predators of the NHL, according to Jessica Averbuch, CEO and owner of Zeitlin Sotheby’s International Realty. In addition, a number of corporations have moved to the city over the years, and it now has a diverse economy with a low unemployment rate.
Two other pluses for the city: It’s located in the middle of the country, making commuting easy for executives who need to take meetings in New York or Chicago, and it offers a variety of lifestyles that cater to everyone from equestrians to boat lovers. It’s one of several cities that have seen increased interest since the Covid-19 pandemic began.
“Nashville is part of this Sun Belt city group which has been led by Austin, Texas, for at least the last five to eight years,” Mr. Ratiu said. “This rising group of cities have seen their profile elevated significantly, especially during the pandemic.”
Indeed, six of the top 10 cities on the index are part of the Sun Belt, the southern part of the country that extends from Florida to California. These areas have strong, diversified economies, relative affordability and a high quality of life with warm weather and plenty of opportunity to get outside. Those factors are attracting high-net-worth buyers who are looking to leave high-cost areas in the Northeast or on the West Coast, many of whom can now work remotely from almost anywhere.
Sixty metropolitan areas were reviewed within the luxury segment of the Emerging Housing Markets Index, and housing data for the top 1% of each market was used for the ranking.
For the report, Realtor.com analyzed data on the real estate market and other economic measures from the second quarter of 2022. The index looks at a number of indicators to rank the most active luxury housing markets. Those include growth in housing supply and demand; median listing prices; a cost of living measure; small businesses; local property taxes; amenities; unemployment; wages; and the share of foreign-born residents—who contribute to the economic vitality and diversity of the area
Nashville. Photo: Adina Olteanu / Getty Images
Riding Off Into the Sun Belt
The rise of remote work has fueled one of the biggest housing booms in recent history, and a bulk of those buyers have looked to the Sun Belt, Mr. Ratiu said.
Three factors rise to the top for those looking to relocate, starting with a strong and growing economy. In Nashville, for example, companies like Nissan have relocated to the city, while tech companies such as Amazon have opened offices. There are also a number of financial firms, as well as jobs in healthcare and higher education.
“It has made the city a real magnet for people across the income spectrum and that means not only typical business and service jobs, but also technology companies have moved there,” Mr. Ratiu explained. “We have seen a lot of folks from really high-cost metros like New York, Los Angeles and San Francisco move to Nashville because of this combination of strong economy and affordability.”
Indeed, affordability is the second most important factor for buyers, he added.
Luxury buyers in smaller cities such as Nashville can get a lot more house for their money than in larger cities, according to Ms. Averbuch.
“The price range is very appealing,” she said. “And the [housing options] run the full spectrum …we have everything from penthouses to farms.”
The liveliness of the lifestyle is the third factor pushing people toward the Sun Belt, Mr. Ratiu noted.
Whether it’s golf, boating or access to the arts, buyers want to immerse themselves in a place that caters to their hobbies and their need to be outside.
In addition, Tennessee, Florida, Texas and Nevada famously have no state income tax. Property taxes in these states are also lower than places like Illinois, California or New York and New Jersey, and the savings are significant, especially for high-net-worth buyers.
“When you look at that top 20 list of the luxury index, seven metro areas are in states with no income tax,” Mr. Ratiu noted. Those include cities like Nashville; Dallas and Austin; several Florida destinations; and Reno, Nevada.
“Taxes are a very important consideration, because in many cases, it can mean the difference between keeping tens of thousands of dollars, if not more, in your pocket,” he continued. “Wealthy people are often even more sensitive to tax regulations because the nominal values tend to be a lot larger.”
The Top 10
Florida has seen an influx of migration since the pandemic began, and taxes and lifestyle play a big part in that, according to Mr. Ratiu.
“Florida shines in that it gives you the financial aspect of lower tax bills on property tax and income tax, so there’s more value,” he said. “You also get more house, plus, of course, you get the climate and the lifestyle.”
Three metro areas in the Sunshine State made the index, all three of which are on the Gulf Coast: Sarasota, North Port and Bradenton in the No. 2 spot; Tampa, St. Petersburg and Clearwater at No. 5; and Naples, Immokalee and Marco Island coming in at No. 9, according to the index.
These regions have been in different spots on the index over the last few years, with Naples and Sarasota leading the luxury index in the last quarter of 2022. Both offer a strong cultural scene with museums, music and, of course, access to the water and the outdoors.
“Our boating, fishing and golfing are incredible and…the amenities in our small city are great,” said Terri Moellers, a Douglas Elliman agent based in Naples. “Great performing art venues, great art galleries, traveling Broadway shows…people that live here want those amenities and support them.”
In fact, all of the metro areas ranked in the top 10 of the index are on some body of water, be it the Cumberland River that flows through Nashville, the ocean or Lake Coeur d’Alene in Coeur d’Alene, a city in northwest Idaho that ranked No. 7 on the list. The western town has been another popular pandemic destination, and topped the very first index for the first quarter of 2021.
And although there’s been a lot of talk about families fleeing California for lower-cost states, there are plenty of people who aren’t ready to leave the Golden State.
“San Jose, Sunnyvale and Santa Clara in [California’s] Silicon Valley, was ranked No. 4,” Mr. Ratiu explained. “When I looked at what sort of buyers are driving demand in the market, fascinatingly, 84% were from within California and 51% of that 84% were from the metro area…A lot of people are choosing to stay in California.”
In contrast, about 54% of Realtor.com users looking in Nashville were from out of state, he added.
Another California metro area, including the seaside communities of Santa Maria and Santa Barbara, ranked eighth on the list. Again, a strong economy and the outdoor lifestyle—which, in California, includes everything from surfing to skiing—keep people in the state.
One aspect of California living that is often overlooked is that it is a great state to age in place, Mr. Ratiu added. That’s because of Proposition 13, a 1970s-era legislation that guarantees that property taxes on a residence will not go up more than 2% annually and that a home’s original price will remain its taxable value, unless renovations are made. That means someone who has owned a home in the Silicon Valley for 30 years is still charged on how much the owners paid for it. Furthermore, that base year value can be transferred to another property of equal or lesser value for those over the age of 55.
“There are regions where people, as they age, are being driven out of their homes by tax assessment,” Mr. Ratiu explained. “For a lot of Californians who have been in the state a long time, or plan to live in the state for decades to come, they understand they’re buying a property now will ensure that their assessment won’t go up much higher even as property values rise or increase in the future.”
Rounding out the list are the coastal South Carolina regions of Charleston and North Charleston at No. 3 and Hilton Head Island, Bluffton and Beaufort at No. 6, plus Kahului, Wailuku and Lahaina in Hawaii at No. 10.
(Mansion Global is owned by Dow Jones. Both Dow Jones and Realtor.com are owned by News Corp. The Wall Street Journal is also owned by Dow Jones.)
Via Mansion Global