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Higher-Paying STEM Jobs Could Help Apartment Performance

By Louis Rosenthal | Friday, February 24, 2017

 

Demand for apartments is generally a product of job growth; but are all jobs equally good for the apartment market? Economic growth in the 21st century is increasingly driven by scientific and technological innovations. Those at the forefront of the technological frontier are individuals employed in science, technology, engineering and mathematics (STEM) occupations.

STEM employees are concentrated within metro areas, as metros promote specialization and clustering of like-minded talent. As a result, the presence of STEM employees within a given metro area is likely to impact local housing markets – including apartments – either directly (through higher wages in STEM jobs) or indirectly (through higher metro-level Gross Domestic Product and job growth).

The fact is, STEM workers tend to earn higher wages than service-industry or manufacturing employees. Therefore, they have a higher demand for more expensive apartments. 

 


Sources: Axiometrics, BLS, OES, Census

To investigate the relationship between housing markets and STEM employment, we used detailed data from the Occupational Employment Statistics (OES) program to identify the metro areas with the highest share of STEM employment (as defined by the Census Bureau). STEM occupations include diverse jobs such as computer systems analysts, petroleum engineers, economists and registered nurses.

 
Sources: Axiometrics, BLS, OES, Census

Washington, DC has the highest percentage of STEM employment per capita, at 8.1%. Economists are the most represented of the STEM professions in DC compared to the rest of the nation, followed by social science researchers and statisticians, according to OES data. Not only are these individuals employed by the government and policymaking institutions, but DC also features numerous jobs in science and technology.

Durham, NC and Ann Arbor, MI are both known for their research universities, which explains why life scientists and computer and information research scientists, respectively, have a higher representation in these metros compared to the rest of the country. Durham also stands out for its medical technology sector and its “Research Triangle.”

San Jose, while fourth on the list in terms of STEM employment per capita, is generally considered a (if not the) STEM capital of the U.S. because of the Silicon Valley. Indeed, computer hardware engineers are overrepresented in San Jose compared to the U.S. as a whole; but, in general, computing and coding employment dominates the San Francisco (ranked sixth on the list above) and San Jose metro areas.

Other, more obscure, entries in the top 10 STEM markets are Huntsville, AL; Boulder, CO; Madison, WI; Trenton, NJ; and Dayton, OH.

Huntsville is a strong market for STEM college graduates because of a number of large aerospace, telecommunications and defense corporate offices at Cummings Research Park — to say nothing of the U.S. Army and NASA’s presence in the area.

In Boulder, one can find plenty of opportunities in the atmospheric and space sciences, much of it within the orbit of the federal government.

Madison, WI, which the University of Wisconsin calls home, is dominated by agricultural engineering employment among all the STEM occupations.

Trenton is on the list because of scientific research at Princeton University, and survey researchers have the highest location quotient among STEM occupations.

Finally, Dayton is included primarily because of high-tech manufacturing — which complicates the narrative of Rust Belt decline. 


Sources: Axiometrics, BLS, OES, Census

 STEM employment is associated with broader metro-level economic impacts in terms of productivity, unemployment and median incomes. The unemployment rate, for example, features a relatively strong (negative) correlation with STEM employment per capita: increases in metro-level STEM employment are associated with decreases in the unemployment rate.

Local housing markets (and apartment markets, in particular) stand to benefit from the concentration of STEM employment and the diffuse benefits that result. Because STEM employment is associated with more innovations and productivity (patents), lower unemployment rates, and higher median household incomes, STEM employment should also impact local housing markets insofar as innovativeness/productivity, employment and incomes are all determinative of housing market conditions. 

 
Source: Axiometrics

Since 1998, apartment rent growth in the top 5 STEM markets has, until recently, outperformed the national average. At times the gap was considerable, with the top five markets seeing double-digit rent growth in 2000 (compared to only 4.5% rent growth for the nation).

Since 2013, however, the national rent growth average has outpaced the top five STEM markets. In 2016 alone, the top five STEM markets saw rents grow, on average, by 2.1% -- but nationally, rents grew by 3.3%.

Looking over the long-run (1998-2016), the top five STEM markets recorded an average annual rent growth of 3.0%; with national rent growth of 2.3% over the same time period — though much of this divergence is likely due to the fact that three of the top five STEM markets are smaller markets with less volatility in rents over time.

Metro areas differ in key respects, one of which is the differential concentration of occupations. Some metro areas may be dominated by manufacturing employment, low-wage service employment or high-skilled science and technology employment explored here. The single strongest predictor of apartment market performance is job growth. But this leaves the unanswered question: What sort of job growth is best for the apartment market? Jobs created in construction or food service employment, for example, may support the apartment market in the sense that more jobs equal more demand for apartments. 

But the preliminary analysis shown here suggests that high-quality employment in science, technology, engineering and math is associated with broader metro-level gains in income, employment levels and, ultimately, rent growth, as those with higher-paying jobs can afford more expensive, Class A apartments.

 

Louis Rosenthal

Louis Rosenthal

Real Estate Analyst

Louis Rosenthal researches and analyzes current apartment trends in the United States and correlates them with economic indicators. He also studies the urban landscape and other metrics to develop in-depth reports and presentations for clients. Louis recently earned his Master of Science in Public Policy, focusing on housing, landuse patterns, real-estate dynamics and economic development. He combines that knowledge with his four years of practical experience in tax analysis, regression analysis and presentations to develop insightful analysis. An accomplished writer, Louis’ work has appeared on Forbes.com and Axiometrics’ blogs, among others.

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