Land

Pandemic 'Rise Of The Rest' Gives Tertiary Markets A Mojo Boost

As secondary markets become the new primary markets, and tertiary markets become the new secondary markets, local, time-tested homebuilding operators become targets of opportunity.

John McManus July 14th, 2021

We hear it everywhere.

The pandemic didn't create [name this trend] out of thin air. Rather, its G-force impacts on psyche, behavior, economics, social, health, and business accelerated the trend's trajectory.

So it goes for cities – big, middling, little.

For years, "secondary" and "tertiary" metro-market stakeholders bristled at such labels, shut out of economic bounty and investment that steered instead to primary markets.

The trend – for a decade or more – has seen a resurgence of smaller metropolitan areas, as the futures of family and households, work, technology, and consumer behavior rotate toward valuing time, experience, and connection over physical, durable goods.

That trend, which had a footing prior to the pandemic, sped up.

Now, as people in the business of community development, investment, planning, land acquisition, and construction describe it:

Secondary markets are the new primary markets; tertiary markets are the new secondary markets.

The question of where to invest, to develop, to plan communities takes on higher-stakes, especially when, vis a vis investment and lending, impatient money is the new patient money.

First, start with the notion that people osmose, naturally, constantly. Places become magnets that attract or repulse. Livelihood, availability and access to shelter, and an intrinsic "homing" toward a promise of an ability to flourish run like energies, ruled by  magnetic forces.

Here's Steve Case, who's been making an eloquent case for the "rise of the rest" for some time, talking about how a trend with traction has become turbocharged with momentum.

Many have noted that talent and capital are starting to move out of the nation’s three major tech hubs and into various more affordable cities like Phoenix, Salt Lake City and Tulsa, Okla. But most are missing the more important point: The nation’s tech workers likely won’t work on the same kinds of projects that dominated their time when they were ensconced in their hubs. Entrepreneurs who previously worked in tech bubbles—places that have produced far too many photo-sharing apps—will suddenly be exposed to a wider range of real-world challenges that they likely would never have encountered without the pandemic.
Entrepreneurs are innately curious, looking to bump into ideas and people that can unearth problems to solve and opportunities to seize. But founders are unlikely to stumble into problems in sectors to which they have no exposure. And that is why the geographic diffusion of tech will change the industry at its very core. It is much harder to understand what bedevils the lives of people living in, say, Fayetteville, Ark., if your life rarely exposes you to people living outside the social and commercial networks of places like San Francisco or Cambridge, Mass.

Demographer Joel Kotkin speaks of a basic, unalienable, and hard-to-extinguish lifeforce at our essence that keeps people gravitating – in a free-market sense – to where the opportunity to prosper is greater, as opposed to where it's less so.

For Kotkin, "new geography" is an outward-moving impulse, away from cloying, dysfunctional dense urban cores, toward a still-largely untapped resource, land.

Supporting this growth is the bounty of our land itself. Providence has bequeathed us the most fertile, geographically diverse, resource-rich nation on Earth, with the second-largest expanse of arable land behind India, which has three times as many people to feed and far less efficient agriculture. We have land to accommodate people’s housing dreams and not pack them into ever more crowded cities, as other countries are forced to do.
These three key factors — diversity, entrepreneurship, and resources — suggest that, despite the challenges we face, the optimists are right in betting on a bright future for America.

This U.S. News & World Report Best Places to Live line-up reflects a playing-field tilt, big-time to the "rise of the rest" types of towns people flock to by choice versus by necessity.

  • Boulder, CO
  • Raleigh–Durham, NC
  • Huntsville, AL
  • Fayetteville, AR
  • Austin, TX
  • Colorado Springs, CO
  • Naples, FL
  • Portland, ME
  • Sarasota, FL
  • Portland, OR

Consequences of natural osmosis, especially when it's people with capital wealth incoming and people with less wherewithal currently residing, include displacement and dislocation. When gentrification displaces residents in urban areas, it's widely regarded as local improvement, healthy economic growth, and revitalization.

Not so the current dynamic, which – as Zonda chief economist Ali Wolf notes in this New York Times guest analysis – has mobilized refugees with disproportionately greater means from big expensive downtown job centers to more welcoming, work-from-anywhere destinations, once regarded as secondary or tertiary markets. Dislocation that would be spurred as wealthy newcomers price out incumbents in such towns is regarded as unhealthy and unfair.

All this to say: Relocation buyers have and will continue to fundamentally change the housing landscape across the country. The agglomeration of higher-income individuals is likely to be accompanied by a permanent shift to more expensive housing, a problem that will be exacerbated as mortgage rates rise.
To give locals at risk of being priced out in these relocation hubs a shot at homeownership, officials should incentivize development near public transportation, convert underutilized commercial real estate into housing and spur the construction of more affordable homes via tax incentives. Builders and developers should focus on lower-priced homes. Buyers should be ready to accept a smaller home or more densely populated neighborhood for affordability.

For builders, a reset that projects a structural shift outward from dense, expensive, complicated urban cores focuses a beam of attention on local homebuilding operators:

  • ones that have lived through a housing cycle or two,
  • ones that have defined a sustainable customer segment and product match,
  • and ones that have strong local intel into land-sellers, local construction trades, and have solid operational and production processes

That beam of attention brightens as second-and third-tier markets become a supercharged "rise of the rest" phenomenon in direct correlation to future-of-work and future-of-family trends that are resculpting the landscape.

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ABOUT THE AUTHOR

John McManus

John McManus

President and Founder

John McManus, founder and president of The Builder’s Daily, is an award-winning editorial, programming, and digital content strategist. TBD's purpose is a community capable of constant improvement.

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