Effects of Tax Law Hastening Migration Trends

Residents of coastal states with higher taxes are increasingly moving to more affordable housing markets with lower taxes, according to a new Redfin report.

In fact, one of the main conclusions of the study is that taxes in the 10 most popular destinations for domestic migrants are one-third as expensive as those in the 10 states people are leaving most. Taylor Marr, Redfin senior economist, explains, “Last year’s tax reform poured fuel on the fire. By capping mortgage interest and state and local tax deductions, there is an even greater incentive for homebuyers to consider moving to a lower-tax state.” The share of homebuyers using Redfin's website to search homes in a different metro grew to 24 percent from 21 percent year-over-year in the second quarter of 2018.

Seattle is an interesting case. In the first three quarters of 2017, Seattle drew new residents. In Q4 2017 and Q1 2018 that trend reversed and Seattle joined the list of metro areas with more people looking to leave than move in. In the second quarter, Seattle reversed course again with a net inflow of residents. The fact that Seattle residents don’t pay state income taxes may be one reason Seattle had a net inflow, despite its staggering home price growth, up 58 percent in the past five years. Another reason is the thriving tech sector, with Amazon, Google, Facebook, and others continuing to grow and attract new hires to the region.

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