- The Suburbanization trend we identified a year ago has continued.
- The scale is larger than expected.
- The impact on oil demand and other knock-on effects are greater.
The COVID-19 pandemic has accelerated the trend of migration from urban neighborhoods to suburban ones. In our first Suburbanization white paper, we analyzed evidence of this trend, calculated the size of the trend, and estimated the effect on oil demand from the higher-oil-consumption suburban lifestyle. Since then, data from the Federal Reserve and census tract has shown that more people moved than we originally estimated. As a result, there may be a further structural increase in oil consumption and global oil demand. Suburbanization is under-appreciated as an incremental global oil demand driver.
New Data on Migration Patterns
Data from Equifax Consumer Credit Panel and the Federal Reserve Bank of New York allows us to track moves during the pandemic accurately. The data comes from lenders reporting their borrowers' current addresses to Equifax each month, and the CCP reporting each borrower's census tract. This allows us to observe moves into and out of urban neighborhoods with more precision than from real estate listings, movers-for-hire data, or cellular tracking data.
Source: Federal Reserve of Cleveland
The table above shows the estimated number of people leaving urban neighborhoods during the pandemic. The largest cities have experienced higher-than-normal amounts of outflows to most destination types except for moves to other high-cost, large metro areas. According to the Federal Reserve of Cleveland, "moves from the urban neighborhoods of high-cost, large metro areas to lower-cost, large metros were up 5-25 percent in 10 of the 14 high-cost, large metro areas. Moves to mid sized metros are up by even more, with gains of more than 10 percent among departures from NYC, LA, Miami, SF, etc... Departures for small metro areas, towns, and rural areas are up more than 20 percent from NYC, Washington, SF, Philadelphia, Houston, and San Antonio." This accounts for about 1.5 million people leaving urban neighborhoods for suburbs, exurbs, and smaller towns and metros surrounding those cities.
This population movement outward is also apparent in the hot U.S. housing market we've seen this past year. Fueled by record-low interest rates and demand for individual space, the monthly supply of houses in the United States is at its lowest levels in decades (seen in the below chart from the St. Louis Fed). The booming housing industry reflects in the price performance of BlueLinx Holdings (BXC), the S&P Homebuilders ETF (XHB) and iShares U.S. Home Construction ETF (ITB) as well. We use these as public market proxies for the home building industry in the US. Since our first post on suburbanization in August 2020, BXC has increased by another 160%, with XHB up 47.5% and ITB up 37.5%. In the last 1 year, BlueLinx's price has increased 1,089%, XHB increased 130% and ITB is up 123.5%.
Sources: St. Louis Fed & Yahoo Finance
Updated Oil-Use Estimates
Using the more granular data from the Federal Reserve, we updated our estimates for possible incremental oil use due to suburbanization. Our original migration estimates for metros like NYC and LA turned out to be similar to actual numbers; however, we under-estimated the number of cities experiencing this phenomenon and as well as the amount of movement to other large-sized urban metros.
In this update we've expanded our scope to look at data from the top 12 cities affected by pandemic moves (measured by higher net outflows than previous years). We also limited this to people who left urban centers to mid-sized metros, suburbs, and rural areas. We see that we initially underestimated the additional amount of people moving during the pandemic last year and that the total estimated number of people leaving urban centers is closer to 1.5 million. From these 12 cities alone, we can estimate that the movement outwards increases oil consumption in the US by 660+ million gallons per year - or nearly 16 million barrels.
Source: Bison Interests Analysis
The oil consumption we see from suburbanization is likely more sustainable compared to demand factors like work-from-home and reduced air travel. Additionally, oil consumption numbers estimated may be substantially understated. Similar suburbanization trends exist in other parts of the world and using a multiplier effect on our US-only demand figures, we could see the oil consumption impact potentially being 3x-10x larger.
Source: Businessweek Instagram Post
However, our view is not consensus. A Businessweek article published recently had a headline that read, "more people headed to New York City than moved out during the Covid-era". This article looked at cellular tracking data to show which markets people moved to from NYC, LA and San Francisco. This could potentially be interesting, but there was no clear explanation of the tracking methodology or the sample size of their data. Additionally, the article did not provide any numbers, statistics or estimates from their data, leaving the article void of analysis. In Bison's white paper estimates, we accounted for this by removing people who left urban areas for high-cost, large metro areas (>2 million people) from the scope of our analysis. We continue to evaluate analyses like this to better understand narratives forming in the space.
Despite growing coverage of the pandemic-related suburbanization, there has been little conversation around the impact this movement may have as an oil demand driver. The current wave of suburbanization is supported by census tract data and our analysis again identifies that this may have an appreciable impact on oil demand. This remains relevant as we enter a tighter supply-demand market in 2H 2021, since the effects of increased consumption could amplify price movements (similar to Jan 2021's surging Asian LNG spot prices). Suburbanization is currently underappreciated as an oil demand driver. NYSEARCA:USO is the United States Oil ETF.
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