Despite some encouraging growth, issues with the region’s economy persist — and the housing market is one of the major drags.
That is the message of this year’s State of the Region report, unveiled Tuesday by Old Dominion University economists Bob McNab and Vinod Agarwal.
The latest annual report highlights some of the best macroeconomic news for the region in more than a decade: a few consecutive years of consistent, if modest, annual growth. That’s a far cry from the stagnation that characterized the area’s economy between the 2008 market crash and the start of the COVID-19 pandemic, McNab told members of the Hampton Roads Chamber on Tuesday.
“We are seeing the Hampton Roads economy grow in a way we haven’t seen it grow like in 15 years,” said McNab.
Otherwise, the report doesn’t tread much new ground, underlining many of the concerns economists at ODU, business leaders and government officials across the region have had for years.
There’s a housing crunch locking new families out of homeownership, worries about the young workforce fleeing the region and an economy that is plugging along but pales in comparison to the region’s peers like Charlotte and Jacksonville, Fla.
“We are running faster than before, but still not as fast as we need to win the economic race,” the report warns.
The Overall Good and the Bad
Many elements of Hampton Roads' economy are on an upward trajectory.
A record number of people are working in the region and there are more jobs here than ever. Hampton Roads’ Gross Domestic Product, the measure of the value of goods and services produced in the area, has caught up with the national growth figure coming out of the COVID-19 pandemic. Wage growth, similarly, has outpaced national wage growth since 2020.
After struggling to grow in the decade after the 2008 market crash, McNab said Hampton Roads has come out of the pandemic finally gaining some ground.
“We’re in the middle of the pack. We’re not at the top, but we’re not at the bottom anymore,” he said.
The brightest spots are the three primary pillars of the regional economy:
- Federal defense spending has been rising and is expected to keep doing so, bolstering the region’s huge defense industry.
- The Port of Virginia has emerged from the pandemic as a stronger competitor than before. Though the cargo numbers were down in 2023 from record years in 2021 and 2022, it’s still faring better than most U.S. ports, which have seen even steeper declines in cargo.
- The hotel industry is outperforming the state and nation in terms of revenues and occupancy, an indicator of the strength of the region’s tourism.
But those successes come with a caveat: the regional economy overall continues to lag behind comparable metro areas in the state and elsewhere.
Data shows in virtually every metric, Hampton Roads’ gains are anemic compared to places like Richmond, Raleigh, Charlotte and Jacksonville.
One of the biggest concerns cited in the report — one that’s captured the attention of decision makers across the region over the last few years — is minimal population growth and outmigration of working-age residents.
“While population growth continued in 2023, domestic outmigration also showed that residents were voting with their feet about economic opportunities elsewhere,” the report says. “Without concerted, collaborative action, there is a strong likelihood that the resident population in Hampton Roads will decline over the next decade.”
A report on outmigration released a few months ago by nonprofit GO Virginia lays out several of the reasons young workers are leaving. Chief among them were the cost of living and housing accessibility.
Housing costs are part of a larger problem
The new ODU report says while rising home values are a boon for existing owners, the region’s current housing market is creating a major drag on economic growth.
Skyrocketing housing costs and wages that haven’t kept up means more Hampton Roads households than ever are burdened by housing costs, according to the report.
ODU researchers say it's a simple failure of supply to keep up with demand as more millennials start their own households. That mismatch has left the region short tens of thousands of housing units, which in turn has led to another important discrepancy between housing costs and regional wages.
The average home in Hampton Roads was nearly 57% more expensive at the end of 2023 than it was in 2015. Multifamily rents were 52.6% higher in Hampton Roads over that same time period.
Meanwhile, the region’s weekly wages only increased by 36.4% since 2015, trailing both home values and rents by a wide margin.
The cost of entry for new buyers is preventing families from moving out of multifamily rentals and into single family homes in the region.
“For many residents of the region, the idea of ‘home’ is increasingly out of reach,” the report says.
And that has a wide-reaching ripple effect on the region’s economy.
“Economic development officials continued to cite the low inventory of workforce housing as a deciding factor by firms opting not to locate in the region,” the report continues.
There’s no silver bullet to kickstart the development of more housing, but the report says local governments should wield the one thing they have at their immediate disposal: regulation.
By strategically changing restrictions, local leaders can influence developers to build new housing stock.
“If we can think of ways to increase housing supply, we can liberate some of the growth that is currency underground in Hampton Roads,” McNab said at Tuesday’s event. “We can’t keep college graduates here, because they’re looking for opportunities and they’re looking for housing.”
The primary recommendation from the report is for city and county governments to permit higher density development, which enables more housing units at a lower cost than exclusively building single-family homes, which has been the standard for many communities for decades.
The report says communities should do that preemptively even if a proposal isn’t on the table to encourage that development.
It also proposes streamlining the regulatory and approval process to help make it less onerous and expensive for developers. That preemptive zoning is one such way to do so, since a developer wouldn’t have to seek a rezoning from the city in addition to all the other regulatory requirements.
“We must adopt a new municipal paradigm around land use, moving away from the ‘gatekeeper of growth’ model and toward acceptance of the responsibility to allow enough housing to be built,” researchers wrote.
State and regional advocates have called for similar measures for years now, even publishing tools to help governments take action.
“We can choose to learn from other cities that have succeeded in increasing housing supply or we can remain ‘stuck’ in a market characterized by limited supply and increasing prices,” the report says. “If we want to run faster in the economic growth race, now is the time to embrace increasing housing supply.”
