What's the matter with Miami?

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For a couple of years after the pandemic struck, there was considerable buzz to the effect that much of the financial industry might leave New York for Miami. After all, state and local taxes on the richest 1% are much lower in Florida than in New York — about nine points lower as a percentage of income, according to the most recent report of the Institute on Taxation and Economic Policy (and taxes on the rich are even higher in New York City than in the state as a whole).

With COVID disrupting normal urban life, it seemed as if much of the big money might focus on the financial advantages and leave the Big Apple.

Some wealthy finance types did, in fact, move. But the buzz around finance moving to Miami seems to have died down. In fact, the population of Miami-Dade County actually fell between 2019 and 2022.

What happened? Part of the answer is that, while New York has lost some population, it is not, despite what many non-New Yorkers appear to believe, a dystopian hellhole. Its homicide rate is only half as high as Miami's, while it has other advantages, such as an extensive mass transit system that Miami lacks.

And as the city's life has returned to normal, it has regained its special status as a place for the very affluent to enjoy their affluence. I know I'm being petty, but I've always loved what one asset manager told Bloomberg: "The main problem with moving to Florida is that you have to live in Florida."

Furthermore, decisions by the wealthy about where to live aren't all that sensitive to tax rates. Indeed, California — where taxes on high incomes are higher than New York's — is currently seeing rapid growth in the number of taxpayers making more than $1 million, and explosive growth in those making more than $50 million.

Now, Florida as a whole is still rapidly gaining population, and I'll talk about why in a bit. First, though, let's talk about how Miami's sudden stagnation bears on a long-running debate about why so many Americans from the Northeast and California have moved to the Sun Belt — a movement that is very real, even if Miami's dreams of becoming the new New York increasingly look like a mirage.

One story, the one that conservatives prefer, stresses the importance of a "business-friendly environment," especially low taxes on "job creators," that is, rich people. An alternative story, however, focuses on housing affordability.

Thanks mainly to rampant NIMBYism, the Northeast and especially California have been building very little housing, and as a result the cost of housing there, whether purchased or rented, is extremely high. So middle- and lower-income Americans move to metropolitan areas such as Atlanta or Houston, where wages may be lower than they are in Northern cities but, thanks to permissive zoning, housing is vastly cheaper.

The thing about the Miami area is that, although it offers red-state-style low taxes on the rich, it appears to have blue-state-style limits on housing construction, building around the same (low) number of new residential units per capita as greater New York. As a result, housing is extremely expensive — for example, rents are far higher than in other big Sun Belt cities, and not much below levels in New York. Because Florida wages are relatively low, the ratio of median home prices to median income is actually higher in Miami than in New York.

And Miami's relative population stagnation — even before the recent stumble, the Miami metropolitan area was lagging other big Sun Belt metros — suggests that keeping housing affordable, not being nice to the rich, is the secret of the Sun Belt's growth.

As I said, however, Florida as a whole is still gaining population. Why? For one thing, the rest of the state isn't nearly as expensive as Miami. But what are all those new Floridians doing for a living?

Well, a significant number are retired. Retirees have been moving to Florida for the warm winters for a long time, ever since Groucho Marx told potential buyers: "You can get any kind of a home you want. You can even get stucco. Oh, how you can get stucco!" But there are a lot more potential retired migrants now than in the past: between 2010 and 2020 the overall U.S. population grew only 7.4%, but the population 65 and older grew 38.6%. And since retirees spend money on local services, the influx of seniors creates jobs for younger adults as well.

Surely this is only part of the story of Florida's continuing growth. And with the climate changing, we'll have to see whether the lure of warm winters will be increasingly offset by the prospect of intolerable summers. We'll also have to see how the state is affected by its growing home insurance crisis. But the influx of retirees does help explain why Florida's population is still growing fast even though its biggest metro has become increasingly unaffordable.

For all the evidence suggests that affordable housing, not low taxes on the rich, is the main driver of growth in the rest of the Sun Belt. And if blue states want to slow or reverse their relative decline, allowing more housing construction — not cutting taxes at the top — should be their main priority.