Idaho has attracted a steady stream of new residents in recent years. And with good reason: the state and its cities offer excellent job opportunities in a growing range of industries, easy access to stunning natural beauty and outdoor recreation, and lower home prices and shorter commutes than many cities across the nation.
According to the U.S. Census Bureau, net population growth in 2017 was 2.2 percent in Idaho, making it the fastest-growing state in the nation. Though growth is expected to slow somewhat in the next few years, the rate is projected to remain higher than the national average. Taking into consideration birth rates, death rates, and in- and out-migration, the Idaho Department of Labor last year forecast that the state’s population would grow 15.3 percent from 2015 to 2025, to 1.9 million. That corresponds to annual growth of 1.4 percent – three times the national rate.
Idaho businesses should make sure they’re prepared to deal with the consequences of continued rapid growth.
If you’re a business owner, you’re likely embracing this trend, as population growth contributes to a vibrant economy by attracting new people with new ideas, as well as new customers, new potential employees, and new tax revenues to support infrastructure and other improvements. However, as we all know, it is possible to have too much of a good thing, and rapid growth does bring trade-offs.
Following are a few of the growth-related problems that you’ll want to be sure to consider in your business planning.
Labor shortages and higher wage costs. While the idea that population growth can cause labor shortages may seem counterintuitive, supply and demand do not necessarily align perfectly in a rapidly changing labor market. The state already has extremely low unemployment, at 2.9 percent, and, as the most recent Idaho Economic Forecast says, “Idahoans who are engaged in hiring in this and the coming year are likely to be working very hard to find employees.” Certain sectors will struggle more than others to fill available jobs. Construction workers, for example, will be in high demand to address the need for additional housing, and the rising numbers of newly arrived retirees will likely result in increasing demand for workers in health care and related services. Worker scarcity will lead to higher wage costs as employers compete for available employees.
Rising housing costs for employees. In many urban markets in Idaho, housing prices are rising rapidly as demand outstrips supply. Ada and Canyon counties, in particular, have continued to set record home prices. Wages are rising, but not as rapidly as housing costs, leaving many average wage earners priced out of the market. For businesses, this means that some employees may not be able to afford to live close to where they work. Employers in higher-cost areas may find it more difficult to recruit employees that aren’t at the higher end of the wage scale, and existing employees may be vulnerable to poaching by competitors based in lower-cost areas.
Increased expansion costs. Higher land prices, construction costs and rental rates don’t affect only housing, of course, so if your business is planning to ride the growth wave by expanding your physical facilities, you’ll need to be prepared for higher real estate costs as well. At the same time, interest rates on commercial real estate loans – though not directly connected to population growth – are beginning to inch upward from their historical lows as well.
Tax increases. Population growth puts pressure on infrastructure, and if increased economic activity doesn’t generate enough of an increase in tax revenues to compensate, businesses may see their taxes rise to fund new roads, utilities and schools, for example. And because much of Idaho’s population growth is urban, smaller cities will likely begin to grapple more with so-called big-city problems like crime and homelessness, leading to increased costs for prisons, police, and various other services and social programs.
Obviously, the composition of the new population will influence the direction of the growth impact. Take retirees. The Department of Labor’s forecasting model suggests that in-migration of retirees will account for more than one-third of new population growth through 2025 (raising the over-65 population to 17.3 percent of the total, up from 14.7 percent in 2017). While retirees are potential new customers for many types of businesses, they are generally not potential employees, and while they create less pressure on some types of infrastructure (they are responsible for less traffic congestion than commuting workers, and they don’t contribute to overcrowded schools like families with young children do), they do help drive up housing prices.
As you develop your short-, medium- and long-term business plans, you’ll want to keep an eye on the local demographic trends and work closely with your banker and other professional advisors to make sure you’re prepared not only to capitalize on the opportunities created by rapid growth, but also to address the challenges that this growth presents.
Andy Beitia is Washington Trust Bank’s southern Idaho regional president. He has 26 years of banking experience in the agriculture business, commercial and industrial lending, SBA loans, and builder financing. He holds an MBA from Boise State University and a bachelor of finance from the University of Idaho and is a graduate of Pacific Coast Banking School.