We keep hearing that wealthy people increasingly want to live in cities like Miami. The weather is warm and taxes are lower. But it's important to keep in mind that this is part of a larger trend. In 2024, it was estimated that approximately 128,000 millionaires would relocate abroad. Last year, the number was more than 140,000. And this year, the number is expected to top 165,000. According to Henley & Partners, this represents "the largest voluntary transfer of private capital in modern history."

People and their capital are now more mobile than ever. And the result is that from Miami to Milan, something interesting has happened: cities have become consumer products that compete based on what they can offer their customers. Up until this year, Dubai seemed to have the strongest offering for millionaires, but we'll see how the Iran war impacts that going forward. As another example, the US remains a magnet for talent and capital, but:

...the biggest shift is in America—home to more than a third of the world’s people worth $30m or more, according to Knight Frank, a property firm. “The US has gone from a blip to the primary market,” says Ronald Klasko, a lawyer in Philadelphia.

He says that most clients are interested in moving to Europe, because they are concerned about America’s political direction, want an alternative residency or want to be able to travel without an American passport.

Anecdotally, I can also say that I was speaking with a luxury real estate agent in Toronto last week and she told me that her biggest client segment by far right now is wealthy Canadians who have been living in the US for many years or even decades and have now decided to move back home. Take that for what it's worth.

Of course, treating cities as transactional consumer products as opposed to deeply rooted places has its drawbacks. Global wealth migration can detach real estate values from the local economy and create banal districts for people with weak local connections. But I don't think these two things need to be mutually exclusive. Cities can and should be both global and local.

The reality today is that cities cannot take their tax bases for granted. Talent and capital are more mobile than ever before. If they don't like your product, they'll shop around for another one.

Cover photo by Avi Werde on Unsplash

Capital flight chart from The Economist

Aziz Sunderji of Home Economics has come up with an interesting way of measuring luxury home sales. He starts by identifying the top-decile price in 2019 for a collection of metro areas (i.e., the top 10% of all home sales in a given market).

This means that if the top 10% of homes in a city sold for $1 million or more, then $1 million is the threshold for a home to be considered "luxury."

But to prevent general market inflation from skewing things over time, he then adjusts this luxury threshold according to how the entire market performed. For instance, if average home prices have increased by 30% since 2019, then the luxury threshold also increases by 30%. In our example, it is now $1.3 million.

Now what?

By definition, in 2019, exactly 10% of sales in a given market were deemed to be luxury. But because the luxury threshold moves in tandem with the general market, Aziz is then able to see if the luxury segment grew or shrank in a particular market.

If, for example, only 4% of home sales are now above the new trended luxury benchmark, well then this indicates a shift toward affordability, as opposed to luxury. To be considered luxury today, a home's value has to have grown faster than the average home in that market.

The result is the above chart, which shows three luxury outliers, and two in particular: San Jose and Miami. This illustrates that so-called "K-shaped" economy.

Cover photo by Charlie Lederer on Unsplash

Charts from Home Economics

I was recently debating with a friend about climate risk in Florida. He is less concerned about climate risk than I am and part of his argument was, "Why would the world's elite move to Florida only to get pushed out by sea-level rise in the near future?"

My view is that we shouldn't necessarily view the migration of high-net-worth individuals to the state as clear confirmation that they all believe everything will be fine (though I'm sure some or many do). Instead, I see it as rational consumer and economic behavior.

If you're a wealthy individual and have the means to be highly mobile, Florida offers two obvious benefits: warm winters and lower taxes (including little to no risk of something like a California wealth tax).

Let's look at some numbers.

If you had a $100 million capital gain from your private placement in SpaceX and you switched your tax residency from New York City to Miami, you would save 14.776% in state (10.9%) and city (3.876%) taxes, equaling about $14.8 million at t = 0 (definitely not tax advice!).

You could then use these tax savings to buy a waterfront home and get this benefit for all future income streams. In addition, you would get the benefit of warm winters going forward and the optionality of bottle service at LIV whenever you want to see David Guetta. I'm personally not an EDM fan. I prefer house and techno, but to each their own.

So in a total doomsday scenario, if the market started pricing in climate risk and your $14.8M waterfront property went to $0 at t = 10 years, it would still be a rational lifestyle and economic decision. And if the value destruction happened at t = 25 years, it would matter even less. It's probably outside of the forecasting period.

For wealthy people, the value of their personal residence generally makes up a much smaller percentage of their net worth compared to that of the middle class. And my assumption is that the wealthy are making self-serving economic decisions and/or they really want to live in Florida for lifestyle reasons.

The greater concern is for less-wealthy people for whom an erosion in principal residence value would have a more meaningful impact on their financial health. At a certain point, the tax benefits and lifestyle benefits may not outweigh the climate risks, assuming you believe this is a risk in the foreseeable future.

Cover photo by Alex Guillaume on Unsplash