Every year the IRS releases data on the number of returns filed by county in the United States and the total income associated with those returns.

The data was recently published for the 2020-2021 tax years. We combed through the data and picked out three key findings for businesses to be monitoring as they consider expansion and new market opportunity.

1. The rise of the Northeast “super-suburb”

2. Sunbelt growth began its acceleration

3. Money moved into Florida and out of California

While the data isn’t current, it gives us data-backed insights into the migration of households in early COVID and validates early trends that have continued to play out today.

The Rise of the Northeast “Super-Suburb”

In remote work’s early phases, much was said about its impact on people leaving cities and moving to areas that otherwise wouldn’t have been accessible with fully in-person employment.

This theme is prominent in the data, and most notably in the Northeast and Mid-Atlantic, which has 4 of the largest employment hubs in the country.

We looked at the change in net tax filings by county and found:

• The counties containing Boston, NYC, Philadelphia, and DC all had net negative change in filings

• The counties immediately surrounding these cities largely held flat

• The areas 1-2 counties removed (~45-90 miles away) largely saw net positive change in filings

In other words - people didn’t move to the suburbs, they moved past the suburb to places that are only practical when enabled by remote work.

Sunbelt Growth Began its Acceleration

One of the biggest migration themes to emerge from COVID is the movement of people from traditional coastal hubs to Sunbelt cities. This data provides a point of validation for that theme.

We zoomed out and looked at the nationwide view of net tax filings change by county (a proxy for household migration) and found strong concentrations of growth in central Texas (Dallas and Austin), most of the state of Florida, and the Carolinas to Tennessee.

We saw flat or declining activity in most of California, the Mid-Atlantic, and the urban Midwest (Chicago, Detroit, Minneapolis).

Take a minute to look through the map below. Counties colored Blue had net growth (more households migrated in than out based on tax filings), Gray was flat, and Yellow was decreasing (more households migrated out than in).

The regional themes above emerged to us, in addition to some interesting pockets of growth like Idaho, Nevada, Bend OR, and central New Hampshire. These were regions that may not have previously been able to support more households with local employment opportunities, but with remote work benefitted from people seeking the outdoors, more space, and a less urban lifestyle.

That said, these areas are at risk as employment shifts back toward hybrid or fully in-person arrangements.

Money Moved into Florida and out of California

We know that people moved into Florida from the above graphic, but we also found outsize migration of money into Florida.

We looked at the net percentage change in adjusted gross income (AGI) by looking at the money that migrated in, money that migrated out, and money that stayed in the region.

In the below map, look for areas that have larger circles. This indicates higher growth in AGI (more income flowed in relative to their current level of AGI).

We found that nearly the whole state of Florida saw meaningful income increases. Other areas with sizable growth included Dallas, Austin, Las Vegas, Nashville, and Myrtle Beach.

Of note as well was the lackluster performance of large urban counties. San Francisco lost money on net, and Los Angeles, Portland, Seattle, Chicago, NYC, and DC are all nonexistent on the map.

One last data point to consider:

• Households that moved into Florida had an average income of $105,000. Households that left had an average income of $65,000.

• Households that moved into California had an average income of $93,000. Households that left had an average income of $108,000.

The directional difference in who was moving into and leaving these states is substantial. California lost high-income households. Florida gained high-income households.

Our Crystal Ball

These findings are retrospective. Tax year 2021 represents calendar year 2020, leaving a two year gap between this information and the current state. Based on trends in the housing market, Census data, and other indicators, we expect next year’s data to show:

• Growth accelerating in Phoenix, Miami, and Central Texas.

• Urban environments shift from net-losers to flat.

• The “super suburbs” that benefitted from remote work will decline in popularity.

Surprisingly, this data showed Miami had a small negative outflow and Phoenix didn’t yet grow. We know that 2021-present had high in-migration to these places, and this should be reflected in next year’s data.

Employment trends shifting back to hybrid and in-person arrangements will likely stabilize the out-migration from urban counties at the expense of the “super-suburbs”. Some households will find a home in their new further-out counties, but many may make the trek back to the cities or suburbs to be closer to places of work for more frequent in-person attendance.

Takeaway for Expanding Businesses

Urban hubs are not the only place to look for growth. There may still be an early mover advantage when looking at counties with sustainable growth like Raleigh and Charlotte, NC, Nashville, TN, coastal Florida, and Phoenix-Scottsdale.

It’s important to understand who’s moving into the region, how many people there are, and whether the demographic composition of the people moving into the area have product-market fit for what you offer.

We wouldn’t go running for the “super-suburbs” that could regress over the coming years, but we do recommend businesses take a look at metro areas that 5 years ago might not have made sense for their business but today show promising signs of long-term sustainability and growth.

In particular, we see opportunity for:

• Businesses in healthcare and home services that benefit from more favorable population ratios.

• Concepts that are new to the region that historically reached a more urban target market. People are moving from core markets (Boston, NYC, DC) to secondary markets (Raleigh, Charlotte, Nashville) and want similar urban experiences that may not exist today.

Interested in this topic? Get in touch with me here or by email at jordan@jordanbean.com.