Real estate prices are rising everywhere, and yet one category has lagged for a long time and looks to continue to lag: rural real estate. The problems are nothing new. ‘Rural flight’ is becoming more of a concern, replacing the concerns of the past few decades of ‘urban flight’.
“But rural areas are so pretty, and the work from home movement will reverse that trend, right?”
The answer is probably not. The biggest reason is that the infrastructure just isn’t there. Rural locations have been losing population for many years, and you can think of towns like Flagstaff or Sierra Vista, that have just not grown in many years. As far as working from home, not only is there less internet access, but the little available access may not be enough to support video calls and other traffic necessary to support remote work. This problem is widespread enough that it prompted President Biden to add a proposed $100 billion to his infrastructure proposal in order to help establish better rural internet access. However, even if the internet infrastructure is put into place, maintenance that occurs in a day or less in populated areas can take 3 or more days in rural areas. Work from home also generally requires occasional face-to-face contact, be it clients or co-workers, and being in a far-removed rural location can make that difficult.
If, instead of embracing the work from home approach, a large industry wanted to move into a rural location, they would encounter other infrastructure difficulties with things as simple as sewage. Many rural solutions that work on a single-family residence, like septic or a leach field, just won’t work for a building with 100 employees. Land values reflect these realities and make it uneconomical to address these deficiencies. Not only do urban areas offer vastly improved infrastructure, but they also provide a wider array of services. The preference for those services is not just an urban or suburban phenomena. According to the USDA, farmland values grew faster than rural home values, as even farmers preferred to live in areas closer to cities.
On the other hand, urban and suburban values broadly mirror one another over long periods of time, but rural lags. This is because population centers expand outward organically rather than ‘leapfrog’ to new destinations (hence the term ‘sprawl’ rather than something else). This is caused, in part, by the fact that extending existing infrastructure is much cheaper and more feasible than creating it new.
Rural home prices have lagged suburban and urban price increases for many years and given the concerns of infrastructure and distance this trend doesn’t look to change any time soon.
See the change in the foot-print of Las Vegas between 1984 and 2020. Image: Google Landstat.
by David Nielson, Boomerang Capital Partners