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Connecticut Bet Big on the Suburbs. That Might Finally Pay Off.

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07/12/2020 | 09:19am EDT

By Joseph De Avila and Jon Kamp | Photographs by Natalie Keyssar for The Wall Street Journal

WESTON, Conn. -- It took a global pandemic and a severe economic downturn to do what once seemed impossible: make the Connecticut suburbs cool again.

Connecticut stumbled in recent decades on a backfiring bet that people wanted to live in small towns. Instead, young families and professionals rushed to cities like nearby New York and Boston. Early this year, Connecticut found itself sliding into a new recession having never recovered from the last one. No state fared worse during the post-2009 economic expansion.

Now New Yorkers are fleeing a city hard-hit by Covid-19, including for Connecticut's pastoral towns, giving one of the nation's most troubled states a glimmer of hope.

Moves from New York City to Connecticut have more than doubled from the prior year since the city's shutdown began in March, according to moving company FlatRate Moving. Home-rental searches have surged, and private schools say they have been inundated with applications from New York parents making exit plans. Real-estate professionals say they are also hearing of increased interest in commercial office space from New York-based firms.

Local officials cautiously welcome the change in attitude after the state's suburban focus held it back for so long.

"Those weaknesses now might be our strengths," said Chris Spaulding, first selectman in Weston, a southern Connecticut town of about 10,000 known for its top-tier schools and its requirement that most residential property be at least 2 acres.

"You see these cars with New York plates going 15 miles an hour, stopping at houses with 'for sale' signs," Mr. Spaulding said. "Before Covid we were kind of moribund."

Connecticut lost $12 billion in GDP from 2007 to 2019 -- more than any other U.S. state. This malaise fueled chronic budget problems even before the pandemic sent state revenue into a free fall. The state is currently projecting a $2.5 billion budget hole for the fiscal year that began in July, and about $3 billion in the next year.

Connecticut shed more than 288,000 jobs in March and April, after never fully regaining the jobs it lost in the 2007-09 downturn.

No state's real-estate market struggled more to rebuild home value after the financial crisis. By the end of last year, typical home values were stuck at about 20% below their pre-crisis peak, according to estimates from real-estate company Zillow, compared with a nationwide climb of nearly 15%. Population declines over the past five years haven't helped.

Those depressed suburbs -- especially in Fairfield County, across from the New York border -- are now getting a fresh look. Barbara Rosati left her home on Manhattan's Upper West Side to rent in Wilton this spring. She said she had been enamored with New York City's energy, abundance of restaurants and chance encounters on the subways, but has quickly become a suburban convert.

"I'm out in nature. I'm just doing the complete opposite of what I thought I loved," Ms. Rosati said. "I'm not going back to the city."

After renting in Wilton, the 55-year-old signed a contract for a four-bedroom home on 3 acres in the town of Easton.

Connecticut's suburbs have long had a seesaw relationship with the nation's largest city, benefiting from New York's problems, then losing out when the city rebounded.

The last time Connecticut reaped significant rewards was the mid- to late-20th century, when New York City suffered from a surging murder rate and fiscal troubles. Connecticut beckoned to businesses and employees with safe towns, good schools and -- until the early 1990s -- no personal income tax.

Many major New York companies decamped to Fairfield County in the late 1960s and 1970s, including industrial conglomerate General Electric Co., energy firm Conoco Inc., smokeless-tobacco maker U.S. Tobacco and Chesebrough-Pond's, the maker of Vaseline before a later acquisition.

Connecticut added 196,700 jobs during the 1980s, a 14% jump, many in the insurance and finance sectors. In 1986, pharmaceutical company Bristol-Myers opened a sprawling new research lab in Wallingford, Conn., that would eventually employ 1,300 people pursuing treatments for HIV, heart disease and cancer.

The economic winds began shifting in the early 1990s, when a tough recession hit the state hard.

Political leaders "believed their suburban economic strategy, which had been very successful in the '70s and '80s, would always carry the state through," said Joseph J. McGee, who was commissioner of the state's economic-development agency in the early 1990s. "And when that strategy changed abruptly because people wanted to live more in the cities, they were not prepared."

Connecticut found itself sandwiched between two major metropolitan areas, but without a big city of its own. To the northeast, Boston has grown 21% since 1990, buoyed by its position as a life-science boomtown. General Electric, after more than four decades in suburban Fairfield, Conn., moved its headquarters to Boston in 2016.

Two years later, Wallingford lost its largest taxpayer when Bristol-Myers Squibb Co. shut down its lab, as part of a larger move that included shifting cancer research to an expensive neighborhood filled with biotechnology firms in Cambridge, Mass.

The state's leaders aren't sure if New York transplants are there to stay or just riding out the storm, but they want to keep them, said David Lehman, Gov. Ned Lamont's top economic-development official.

"We are going to market ourselves more to those individuals as opposed to marketing ourselves to the company," he said, regarding efforts to lure businesses. Commercial real-estate experts believe the trend of people steering clear of crowded offices and working from home could long outlast the pandemic.

If this new craving for suburban living leads to just a 5% increase to the state's labor force, including people working from home, that would be a huge boost in tax revenue, Mr. Lehman said.

The newfound demand for Connecticut's suburbs has potential for the entire state, but particularly for Fairfield County, which still puts residents within commuting reach of New York, Mr. Lehman said. The state isn't giving up trying to revitalize its own cities, which will remain important in the post-pandemic world, he said.

The state's poor economic performance after the last recession will continue to dog Connecticut as it tries to rebound from the current crisis, said Don Klepper-Smith, chief economist at consulting firm DataCore Partners.

"Connecticut has dug itself into a hole here," he said. "I think the state economy is going to underperform for the next several years."

A long-running challenge for Connecticut is its reputation for high taxes. The Tax Foundation, a conservative-leaning think tank, ranks Connecticut 47th on its state business tax climate index.

The tax argument holds less sway for New Yorkers. Connecticut's top income-tax rate is lower than New York state's, plus New York City also collects an additional income tax.

New Yorker Stacie Black, 38, said lower property taxes on the Connecticut side of the border are a draw in her continuing search for a house there and in New York's Westchester County. She and her fiancé recently listed their home on Manhattan's Upper East Side.

"The homes that we can afford in Connecticut are probably $100,000 more than the homes we can afford in Westchester just because of the taxes," she said.

Ms. Black, who sells event space in the hospitality industry, has been weighing Connecticut's relative affordability against longer commute times. She isn't interested in long, daily trips to the city, but is more willing if she sticks at least partially to a work-from-home schedule. "I could manage it for two days a week," she said.

Commercial real-estate experts say New York City-based businesses have been scouting suburban offices, including in Connecticut, as they contemplate bringing at least some workers back to cubicles. Citigroup Inc. confirmed it is contemplating leasing office space in Connecticut, among other areas in the greater New York region.

Darin Buelow, global location strategy leader at Deloitte Consulting, said he has heard more broadly of financial firms "that are looking at space in suburban markets, including Connecticut, or they're going to." Suburban offices may prove easier to access in a protracted pandemic than city high-rises reached by congested trains and elevators, he said.

"I think companies are starting to hedge their bets a bit and look around," he said.

Before the pandemic hit, Felix Charney and his partners Crestline Investors Inc. were in the midst of a commercial and residential redevelopment of the nearly empty former headquarters of Union Carbide Corp., which fled New York City for the futuristic-looking Danbury office in the early 1980s.

Bought for $17 million, Mr. Charney and his partners were betting they could turn around the flagging 1.2 million-square-foot space, which is about 60 miles north of Manhattan. They now hope the wind is at their back.

"The perception now is that the suburbs are shinier," said Mr. Charney, president of Summit Development. "We aren't complaining."

Connecticut issued more than 1,900 permits for new housing units this year through May, marking the highest figure in five years.

In Westport, New Yorkers have driven a surge in applications at the private Greens Farms Academy, Head of School Bob Whelan said. The school received 65 applications between mid-March and early July, up from 29 in the same period last year, along with nearly 70 inquiries.

In neighboring Weston, many homes are tucked far back from the road behind the low stone walls familiar throughout New England. Real-estate agent Vickie Kelley recently sold a $1.2 million home, still under construction, to a family relocating from Brooklyn. Their need, she said: two home offices.

(MORE TO FOLLOW) Dow Jones Newswires

07-12-20 0918ET

Stocks mentioned in the article
ChangeLast1st jan.
ASPEN TECHNOLOGY, INC. -0.01% 102.07 Delayed Quote.-15.59%
CITIGROUP INC. -0.42% 50.67 Delayed Quote.-36.30%
GENERAL ELECTRIC COMPANY -0.22% 6.33 Delayed Quote.-43.28%
ZILLOW GROUP, INC. 16.59% 83.1 Delayed Quote.56.47%
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