Virginia’s economy has recovered well from the Covid-19 pandemic, but that rebound hasn’t been evenly distributed across the state.
And Virginia as a whole is lagging behind other states in the post-pandemic economy.
That’s the assessment of Old Dominion University economists in their latest State of the Commonwealth report.
Here are some of the highlights:
Income dropped in Hampton Roads, regional population growth plateaued
Employment reached record highs in Virginia this year,the labor force is expected to grow and the state’s Gross Domestic Product (GDP) is up 4.8% since the end of 2019.
Despite the good news, ODU economists warn of signs under the surface that all is not well.
That GDP gain is lagging behind the nation’s overall economic growth of 5.6%. Neighboring North Carolina is outdoing Virginia substantially, with nearly twice as much economic growth since the end of 2019 compared to Virginia.
"In terms of our relative standing, one can look to the north and say, well, we're not doing as bad as other states (like Maryland and West Virginia)," said Bob McNab, ODU economist and lead author of the report.
"But if one looks to the south, one sort of sees that our growth is paled in comparison. And the question then becomes, if we want to have a growth pattern much like North Carolina or Georgia, Florida, Texas, for example, how do we foster that growth and innovation in the state?"
The economic recovery from Covid-19 hasn’t been evenly distributed across the state. Some areas have come back strong while others have faltered.
McNab says the I-95 corridor between Northern Virginia and Richmond has seen major growth.
"And that has essentially turned Virginia into two commonwealths: One that is relatively prosperous is growing, adding jobs, increasing incomes, and one that is lagging behind," he said.
Slowing population growth and lots of people moving out of the state are also cause for concern, ODU economists say. The overall population increase the state has seen is largely driven by international migration - people moving from other nations to Virginia - while we are losing existing residents to other states in the U.S.
And even though employment was at an all-time high, the report says “not enough Virginians in their prime working age were in the labor force, limiting the ability of employers to hire.”
The report found that despite wages going up, the real value of a household’s income declined in the state due to inflation.
That means even if you got a raise in the last couple years, the growing expense of groceries, housing and just about everything else leaves you economically worse off than you were before the pandemic.
And Hampton Roads is losing ground among the state’s metro areas: It’s one of the metro areas where real median income dropped the most, population growth has plateaued and the economy has grown very little between 2010 and 2021.
"We are just not running at the same pace as Virginia as a whole, as Richmond or Northern Virginia Virginia. And we are lagging considerably behind Raleigh, Charlotte, Nashville, Jacksonville," McNab said.
No relief in sight on home prices, rents
The report says despite actions by the Federal Reserve, the state hasn’t seen a course correction in the prices of home values, which skyrocketed since the start of the pandemic.
The report, citing data from Zillow, says home values jumped 34.1% between February 2020 and August 2023.
“The rise in housing values meant that some Virginians were, in essence, priced out of the single-family housing market,” the report says.
That home value hike has led to higher apartment rents as well.
Expensive houses means fewer people can buy and more people are staying put where they are. That leads to fewer houses on the market. The report says that number - called the vacancy rate - is at a 30-year low right now.
With few houses hitting the market, people who are renting but could afford to buy a house are stuck with no options to purchase. They stay in their apartments, which drives up demand and rents.
And the immediate future doesn’t seem to hold much hope, according to the report. New home construction permits dropped in 2023, in part because higher interest rates cut into builder’s profits.
“With interest rates forecasted to remain well above pre pandemic levels into 2024, the flow of new homes into the market will likely diminish, further constraining the overall supply of houses in Virginia,” the report says.
With a tight supply and strong demand, McNab said people shouldn't hold out hope for a market correction of home prices back to pre-pandemic levels.
"Basic economics tells you that the price will be high, if not higher in the future," he said.
