Is Des Moines growth really sustainable??

Question

I've been really intrigued by the Des Moines are real estate market for some time now. Cap rates look great, crime is low, and the city itself seems to be booming as of late.  Seems like a great market for cash flow that has some strong appreciation potential.

That being said, I don't quite "get it". Most places in the midwest the population is declining - my immediate concern is whether or not this type of growth is truly sustainable. According to some articles I've read (link to one below), immigration is the cause for most of the population increase. For those of you who see strong appreciation potential in this market - why do you believe it's sustainable? I am planning on making a trip soon but having never visited I couldn't really see myself wanting to live in an area like Des Moines. Interested to hear everyone's thoughts.

Thanks,

Alex

https://www.thegazette.com/IowaIdeas/stories/immig...

Mitch Coluzzi · Answer

@Alexander Sobrado - There isn't a secret sauce but I can tell you as a relatively recent transplant into Des Moines (moved from Chicagoland to Bloomington IN to Davenport IA and have settled in DSM for the last almost 5 years...).  There is a lot to love here that won't be quantified in traditional stats/logic UNTIL you come check out DSM for yourself... I couldn't "see myself" living here either, but now I cannot see myself living anywhere else.

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The city itself emulates the Midwest nice that you hear rumored on the coasts.  The DSM Metro does a nice job of keeping clean and hosting multiple "touristy" events annually... for which the locals EAT UP.   Weekly farmer's market, multiple LARGE cultural festivals, a sufficient music scene draw, some minor league sports arenas (Hockey, Basketball), and a flourishing LGBTQ+ community to boot.   Oh... traffic is a non-issue!  It takes me 15 minutes to get about anywhere and... we have a quote unquote international airport with a less than 20 minute expected wait from car to terminal.  For you fancy folks, we also have a few private airports!

I would agree with some of the previous comments, a significant amount of the DSM growth has been the metro draw from more rural areas of Iowa.  It is ALSO coupled with immigrants coming over through refugee services as we are one of a select number of "cities" elected by the powers-to-be as such.   However!  There is also a ton of out of state folks coming here for the opportunities that exist.  The barriers to entry for success (even out side of real estate) are minimal for people with a dream, which literally echoes the "American Dream" of the former eras.  As a whole, there are less politics involved when trying to making things happen.  Networking is an easy-to-access bonus, both inside and outside of Real Estate with a lot of folks that truly just want to help each other grow.

From a local level, we are conveniently positioned between the arguably two most important spots (per the Iowa natives): Ames and Iowa City.  #GoHawks!

Last but not least in the "why DSM" bucket you have your traditional three motivators: low cost of living/affordable housing, access to well-paying jobs, relatively safe neighborhoods, and decent schools (I recognize, that is technically four and a half but I am rolling with it).

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Is the market sustainable?  I would argue that the City of Des Moines is realistically more sustainable than the coastal tides on any day of the week.  Cash-flow present day surpasses the coasts (dollar for dollar) with a bit of common sense.  Where the argument breaks down for most real estate investors is the "spike" appreciation that they are accustomed to reading about in Guru blogs and seeing on the coasts ALONG with the scale of investments available.  I foresee our markets continuing to move forward, at a gradual and safe pace, but I doubt we will ever see the massive spike that the coasts have, for better or worse.  There is still room to grow here, but it will eventually level off.

Anthony Wick · Answer

Positives: Great jobs. Banking industry. Insurance industry. Agricultural industry (and I don't mean crop picking). Great educational system to raise a family in, and very good colleges. Cost of living much better than San Diego. Much, much, better. People in the Midwest are extremely friendly, especially when compared to the coastal cities (I've lived on the coasts as well). Commuting to your job is easy. Affluent suburbs that don't cost as much as other major metropolitan areas. Entertainment is actually pretty good here. Hamilton touring company came here (only 1 of 13 cities in the nation). Triple A baseball, minor league hockey, concerts, plays, etc. One of the top arts festivals and farmers market in the nation. A 3 hour drive to either Minneapolis, Kansas City, or Omaha. A 5 hour drive to Chicago. Very cheap flights to Denver, CO. Bike trails everywhere. Great areas for hiking. Many very good breweries popping up with some great beer. The food here is incredible, and cheap. The Iowa pork chops are thick, juicy, delicious, and about $2 a pound. Steaks from the local butcher for $7 a lb. If you're vegetarian, I can't help you. Lol.

Negatives: Weather, of course. It's not brutal here, but if you don't like it being 10-20 degrees for a few months, you'll be miserable. On the flip side of that, the change of seasons is pretty nice, and a lot of people here like a change of seasons every few months. Transportation can be difficult if you don't drive or own a car. Many young people question the entertainment choices here, especially when compared to major metropolitan areas in the nation. You don't have the natural habitat views here like the oceans, mountains, etc. that you would have in California or Colorado. Taxes are actually pretty high (but that also goes back to educational system being very good). Both income taxes and property taxes are pretty high when compared to the rest of the cost of living here. Lack of diversity. You go to the suburbs and there is extremely low diversity.

So, that's off the top of my head...

Jim Goebel · Answer

@Alexander Sobrado

@Mitch Coluzzi

@Anthony Wick

OK, I think we just got our answers/resolution to the original question.  I've been trading emails with Liesl Earthington who was the original forum participant cited in the Gazette article that Alexander linked to.  I don't know how to properly do the 'quoting' on this site but here's a few notable ones from Liesl:

Jim,

Thanks for sending the additional context for your question.  There appears to be some confusion about information I shared during the Immigration panel at last year’s Iowa Ideas conference in Cedar Rapids.  I didn’t suggest (or mean to suggest) that immigration was driving most of the growth in the Des Moines area.  To the contrary, the Des Moines metro is one of the few areas in Iowa that’s enjoying strong growth from domestic migration inflows.  The point that I made during the panel is that with only a few exceptions (such as Des Moines) most of Iowa’s overall net population growth can be explained by international in-migration.  This is especially true in Iowa’s non-metro areas, as apparent from the dot density maps I referenced in my last message.

Counties represent the lowest level of geographic detail for Census Bureau data on international migration, domestic migration, and natural population change.  For this reason, most statistics about international migration into Des Moines cited in the news media are probably referring either to Polk County or to the Des Moines metro as a whole (Polk, Dallas, Warren, Madison, Guthrie).  It’s much harder to measure international migration specifically for the city of Des Moines or any particular neighborhood or suburb.  If you’re looking to compare international migration to small geographic areas, you’d have to rely on data from the Census Bureau’s American Community Survey (ACS).  The ACS is a sample-based survey with responses pooled into 5-year data sets.  There are hundreds of different tables available with ACS data.  I’ve included a link below for a table showing the population for cities in Polk County, categorized by a person’s place of residence in the prior year and their citizenship status.  It’s important to note that margins of error can be somewhat high when you’re looking at small population sub-groups or small geographic areas like this.  Even so, the ACS is really the most reliable data source I can think of.

https://factfinder.census.gov/bkmk/table/1.0/en/ACS/16_5YR/B07007/0500000US19153.16000P

If it helps, here’s a link to a table with components of population change in Iowa during this decade.  For the state, you’ll see that international migration contributed an estimated 42,037 new residents, equivalent to 43 percent of the state’s overall gain of 98,842 residents.

https://factfinder.census.gov/bkmk/table/1.0/en/PEP/2017/PEPTCOMP/0400000US19|0400000US19.05000

That was all Liesl, who was the original participant in the forum.  I think it's fair to say that the Gazette writers didn't really capture the nuance of what Liesl was communicating, when it comes to the Des Moines area specifically.  She indicated it was fine for me to copy/quote her on here.

Jim Goebel · Answer

@Alexander Sobrado

Hey Alexander thanks for bringing up this topic.  Full disclosure, I'm in Des Moines and pretty well vested as I moved here 4.5 years ago and we have a nice little portfolio of real estate.

Your question really got me thinking and I've been researching the population growth, and specifically contributors of immigration the last hour or so.  I feel it's a good question because understanding the causal factors may give us a window into more of a predictive world.  I have a high interest in nailing this one as we have made decisions with the confidence in the Des Moines macro picture being solid.

Here's a few observations in speaking to your question:

• I used to volunteer very heavily for an organization that would re-settle refugees, from all around the world.  It was one of the few that would be equipped to handle those transitions and although I didn't have access to the data I was involved enough to make an educated guess on how many were being re-settled.  I'd guess there were perhaps 2-3 resettlements per week, at a family size of 5 on average.  This makes for perhaps 520 - 780 people/year.  I'd honestly say that this organization I volunteered for was one of the few with the mission and resources to execute on this.  However, I'd estimate that perhaps up to 1500 people/year are being resettled in the Des Moines Iowa area per year.  Obviously I'm a believer in the mission if I was volunteering, but I do not know the impact of the national policy changes and press on this inflow.  You asking about the net change seems to me to be more apt than just the numbers.  I can't really speak to this however I am really wondering where some of the speakers in the link you provided are getting their data.  I'm dubious that the contribution is as large as they say it is.  I actually just emailed a professor about this to ask in more detail.
• I'd echo what a lot of the other two individuals said, especially in regards to the intangible observations.  The cost of living is an interesting one - as in my view it supports a decision to move somewhere, or perhaps a business decision to open a satellite office, etc - however it does not typically 'drive' that decision.
• One of the key and most important advantages that Iowa has from a labor perspective, and I believe why the DSM market is a great fit for insurance/finance - is that the typical resident knows central Iowa and is 'content' - this doesn't mean that they are settling, as I do believe the DSM market is a 'special' place once you get to know it - however I'd put a strong bet as compared to other metros that if you polled people, the question 'Do you see yourself moving in the next few decades or do you ever yearn to move?' you'd find a much lower percentage in this metro as compared to others.  It's stable largely because of the people - and the stereotypes of Iowa people being down to earth, and nice - apply.  Great fit for the Insurance industry - especially - largely because when you think about the typical insurance worker, fundamentally you want people that are stable and nice.
• The numbers within real estate on investing have been phenomenal for us.  The rents vs. price points and the general effectiveness of local government have been impressive.  Low cost and accessible labor resources, have also been a big contributor to our success in real estate.  The market has changed a bit and we aren't seeing the deals we used to - but they're out there.  I'd encourage you to think about Des Moines as a possible investment target but I'd also encourage you to think about it as a lot more than that.  I shouldn't assume you wouldn't want to live out here but actually one of our tenants was a lawyer in LA and came back to where he grew up.  He wanted the pace and simplicity and has been very happy since.
• The other big driver in terms of the economy and population that I don't think anyone has touched on has to do with DSM's location.  It sits pretty well on regional transportation hubs (intersection of I-35 and I-80) but more importantly has that 'nexus' feel looking out the next 20-40 years where I can see how Ames/Ankeny sit relative to the DSM area doing a bit like what's going on down on the I-4 corridor in Central Florida.  There's city after city of high population and extremely high economic activity centered between Tampa up to Daytona with Orlando sitting in between.  I think another good example is the RDU area in NC - where you have a really neat mixture of geography, but also the contribution from a few extremely top notch educational institutions that all compliment each other and are in close enough proximity to enjoy each other's spill over effects.  Certainly RDU is a special place and one of the few in the country like that - so not a completely fair comparison - however I feel that I've seen enough of these proximity effects to opine that the proximity of Ames and the quality of its graduates will be a big causal factor to continued DSM area growth - both population and economic.  Ames is about a 45 minute/hour drive up I-35 and Ankeny is right in between the two areas and still has some room to grow.  I'd like to see more emphasis on partnerships between ISU and the DSM area, perhaps technology transfer, etc - with an effort to diversify the economy.  The economy in DSM is very strong however I'd love to see it diversify - and more specifically, I'd like to see a heavier emphasis on technology.  There is a ton of wealth in Iowa and Des Moines specifically and I think the trend continues - however, deploying some of that capital into a home grown innovative technology sector would be preferable to not.

I'll get back to you with any further info on your immigration specific question that I find.

Jim

James Lloyd · Answer

I have family that lives in Dallas County, so what I am about to say comes second hand and anecdotal.

A lot Des Moines's (DM) population growth has been from other Iowans moving to the metropolitan area and not so much people moving into the state.  My understanding is that Iowa has had a population of around 3mm for quite a while, but DM and its suburbs (Waulkee and Ankeny among others) have certainly expanded quite a bit over the past decade or two. At some point the state WILL need immigration from other states in order sustain its growth, but I don't know when this spigot from the other parts of IA is going to run out.

Companies like Amazon have invested quite a bit of money into warehouse space in and around Des Moines for server farms.  That converts to some really nice jobs, but not a ton of them.  Like Anthony mentioned, DM has a thriving banking and insurance industry based around farming operations.

Schools; IA has always prided itself on education.  They have some excellent teachers and excellent schools especially in the suburbs.  But there are some schools in DM proper that are awful (like worst in the nation bad).  Make sure to look at your school district if you're investing in DM.

There is a ton of money being spent on building new units.  A lot of farmland around DM being bought up and then built into condo units and/or developments and strip malls.  I don't know if this is translating to oversupply of rental units or just merely meeting demand.

Anthony Wick · Answer

@James Lloyd  Ankeny is the 4th fastest growing suburb of 50,000 plus population in the nation. And you're right, there are a ton of condo/townhome units being built here. 2/2's are going for $1,450 month and higher. Downtown Des Moines has big growth of new condos as well. Very expensive. I've been buying existing duplexes and getting about $1,400 for 3/2's.

Anthony Wick · Answer

I gave many reasons for why Des Moines is a good place to live. None of which had anything to do with Immigration. Boots on the ground. Not a national trends chart. It's like buying anywhere else. If you buy well, you'll profit. People are not suddenly going to not need a place to live. The stock market has been stagnant this year. Zero gains. What will it do tomorrow? Nobody knows. So you invest wisely and consistently. I recommend the same in real estate. You've talked yourself into buying south and west. You should probably do that.

Prakhar Sharma · Answer

@Jim Goebel @Alexander Sobrado @Mitch Coluzzi thanks for a great discussion. I am a new BP member from SF bay area. I am researching Des Moines metro area to make investments (buy and hold)  in SFR.While researching the area, I am trying to find more about population growth, job growth, median home price, median household income, new constructions in the area, ... The last one (new construction activity) is the hardest one to find on the internet. What kind of new (residential) construction activity is happening the area? Any resources you can point for learning more about the area?

Alexander Sobrado · Answer

@Jim Goebel Thank you very much for all of your thoughtful responses on the subject. Some valuable anecdotal and fact based evidence you've provided.

Your email to the author really clears things up. I'm glad to know that international immigration is not propping up DSM. It's also very interesting to see growth rates broken in terms of percentages and aggregates. I'm suprised to see that aggregate growth of surrounding areas has matched or surpassed that of Des Moines proper.

In any case, this is all good news and would support an investment into Des Moines. Cap rates do not seem to be indicative of a declining population but are certainly not implying a large population growth. It seems as though the city as a whole may be slightly undervalued/fairly valued given that its modest growth seems fairly sustainable.

Jim Goebel · Answer

Check out this image...it Establishes growth rate by city, and Des Moines proper has only been 3%.  Every resettlement I participated in was in Des Moines proper, and if that's representative, then a change (reduction) in immigrant inflows would not impact the surrounding suburbs.  Of course growth of a metro is impacted by both the area proper and surrounding areas...

Is Des Moines growth really sustainable??

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