This conversation has been lightly edited for clarity in a written format.
Kelly Kenoyer: Well, welcome, Mouhcine Guettabi, thank you so much for joining us.
Mouhcine Guettabi: Thanks for having me.
KK: So let's go back a couple of years first, and then project into the future. Can you tell me a little bit about how COVID-19 impacted the regional economy?
MG: Yeah, well, the region, broadly speaking, has been a beneficiary of COVID, as weird as there is to say, because a lot of people voted with their feet. When COVID happened, they wanted space, they wanted to live by the beach, they wanted to move southeast. And so Wilmington, broadly speaking, has received an influx of individuals. And that's translated into a bunch of money entering the area, that meant a lot of people working remotely from here.
KK: I know that our region hasn't really expected this growth, and there are certain areas that are still kind of catching up. Do you think we've kind of recovered or we've come to accept and be prepared for this influx of people?
MG: Well, it was a, a once in a lifetime shock, hopefully. So the region has more jobs, more people than it did before the pandemic, right? And so now, whether or not the infrastructure has kept up as a slightly different question, right? Because whenever you receive that many people in such a short period of time, clearly you find yourself at times unprepared for what that means. And then there is also the question about how much of the shock is permanent, and how much of it is potentially temporary. Because we know that, for example, for the sub segment that moved here to work remotely, a bunch of companies have already started calling employees back, and we don't quite have an understanding about how many of those people have moved in and have since moved out.
KK: So are you projecting that our population growth might slow in that case?
MG: Yeah, I've been telling people whenever I get asked this question that I think it would be a mistake to take the growth rate of the last couple of years and extrapolate forward. Meaning that to me, it makes a lot more sense to go back to 2018, 2019 and say, I think we're going to revert back to pre-pandemic growth rates, just because the migration driven growth is unsustainable and was driven by factors that I don't think are going to be replicated going forward. This is not saying that there is going to be a recession or that all of a sudden people are going to be leaving in droves. It just means that the growth was so fast, and so many people moved in and I just don't think that sustainable.
KK: Gotcha. So you mentioned that we have more jobs now, do you think that the type of economy we have has shifted at all? Or is it very similar to what we had pre-pandemic?
MG: It's been shifting even before the pandemic, right. And so if you were to ask the average person walking down the street, they would say, oh, it's probably a leisure and hospitality driven economy. I think to a large extent, that's still true. However, the composition of jobs has started shifting a little bit more towards professional and business services, higher paying jobs, we are even seeing some tech jobs that are starting to pop up here. And so, I think that there has been this gradual move towards different types of jobs, a different type of economy, the pandemic potentially has accelerated a little bit of that. And that may be an artifact of the data just because sectors that are consumer facing, we're struggling to hire. So they were shrinking for a portion of the pandemic, because there were shortages of workers in a lot of those sectors.
KK: I want to ask about recruitment. When I saw you speak at the conference in October, I sat with a couple of small business owners, and they were talking about how difficult recruitment has been for them. I've heard that anecdotally from the restaurant industry as well. So we've seen perhaps that medium and large sized companies aren't struggling with recruitment as much as smaller businesses. Is this just anecdotal? Or are you seeing this in the numbers?
MG: Well, talking about recruitment is always tricky, because you know, it's a function of the pay your pay and what other potential options the individual has. But we do know that there were shortages of employment or off of workers in sectors that were consumer facing. So that's hotels, that's restaurants. And one of the things that was interesting during the pandemic is that there emerged these wage differentials where some sectors were responding to the shortages.
Economists like to joke that whenever there is a shortage, the quickest way to fix it is to raise wages. Now, clearly, a small business may not have the capacity to raise wages may not have the margins to raise wages. And so there are some times these things that happen, where you see, for example, the private sector face a shortage immediately raised wages. Government has much stickier wages, and is considerably less flexible in its ability to respond to market conditions, and therefore experience these shortages for longer. And the comparison could also be made between large and small, right. And so if I have a lot of money, or I can reclassify a job, I may be able to provide a little bit of a higher wage. And that may simplify the the ability to recruit.
KK: Makes sense. You're kind of gesturing at our shortage of employees in the government right now. Is that looking to get worse in the short term?
MG: Well, it's really, really tough because I always tell people to think about it is what alternatives does the potential employee have. And if there is a job at a gas station that's offering $30 an hour, and then there is the government job that's offering $22 or requires you to be in an office is much stricter in terms of the type of qualifications that you may have, then you're now not only just competing with the same type of jobs that would have been available in the private sector, but a much broader set of potential jobs. And so I think that there needs to be some soul searching and some potential attempts to think about what are the margins that the government can potentially tweak in order to recruit and retain. Those may be wage related, but they also may be non wage related, and that may be thinking about remote work, and that may be thinking about the type of work environment that they offer.
KK: I want to zoom out a little bit to the broader region and look at some of our rural areas. I know much of the growth that we've talked about has been in Brunswick, New Hanover and Pender counties. I know Brunswick and Pender are some of the fastest growing counties in the country, let alone in the state. What about some of the further flung from the actual Cape Fear? What about some of the other rural areas a little bit further out from Wilmington like Columbus and Robeson and Onslow counties, are you seeing similar population growth and economic growth in those areas?
MG: I like to talk about it in terms of almost the haves and have nots, right? And so you think about North Carolina and it's been getting a lot of attention, because it's been growing really fast. But then once you dig in, you find that there is a lot of variation in growth across the state, even over the last couple of years, about half of the counties in the state actually lost population. So it's not this even growth story. And one of the things that's been fairly clear, especially in North Carolina is that the triangle area has grown a lot. You see the the coastal areas have grown a lot. But then once you move away from them, you see that relationship between the pandemic and growth start to weaken, right? And they have obviously completely different economic profiles as well. And so I would say that it's certainly not a homogenous story, and that there is considerable variation and rural areas, in general, unless you're close to the water, or you're close to the Triangle or close to the mountains have not really benefited.
KK: How can some of these rural counties capitalize on the growth from their neighbors?
MG: I think that one of the things that I've been thinking about a lot, and I'm sure you have, as well as the cost of housing has obviously exploded. And because of this in migration, the willingness ability to pay for homes in some of these growth centers has increased quite a bit. And the thing that we typically see is that growth happens outward, right? And so people are in search of affordable housing. And so potentially, if there are these differentials in housing prices, play that up. Quality of life is a really big determinant of where people want to live. And so having space, having walkable neighborhoods, having downtown's that are revitalized are all ways in which now rural communities are competing for individuals. Just making sure that you're you have a strategy that is clear. Some communities have invested resources in attracting and retaining older people. So what are the amenities that those people want? Some are looking for the younger crowd. And so the "hipster-ization" of downtowns. It's something that a lot of communities have spent a lot of money on. And so I think, but I really genuinely think that the the housing differential is an asset to some of these places. And we do know that commuting is a big part of the story for New Hanover for Brunswick, meaning people that work here don't necessarily live here. And in fact, some almost 50% of New Hanover County employees actually commute from elsewhere. And so So I think that there is potential clearly to benefit or to grow alongside some of these growth centers.
KK: So 50% of workers in New Hanover County commute in?
MG: Yeah! In New Hanover County, we do have to we have both things happening. We have a non-negligible share of people that work here and live elsewhere. But we also have people who live here and work elsewhere, right. So I think about that in terms of leakage. So how much of the money that's potentially made here, is spent elsewhere.
KK: That really brings me to the housing crisis. You talked about how the population growth we saw during the pandemic might flatten a little bit might go down. And I know that a lot of projections around housing need are based on expected population growth. Can you just talk about what we're looking at in terms of the shortage, and whether you think it'll get better or worse in the coming years?
MG: Yeah, well, I think that one of the things that gives me hope is that we're seeing a lot of construction, right. And I know, people are ambivalent about seeing construction. But to me, the fastest way to solve a housing crisis is to build your way out of it. And the way you build your way out of it is to build up and to potentially remove restrictions or facilitate construction as much as possible.
So does it get better? That's a question that is obviously complicated, because there is the the wage to housing cost ratio. And then there is the migration component and who's potentially moving here. And so, to your point, we've seen housing prices flatten, but they're still holding on to the pandemic gains. And so, right now we're in this weird space where inventory has gone down and we because nobody wants to sell, nobody wants to buy. And the question about, you know, if you're a would-be migrant, does Wilmington still hold the appeal?
The way I typically think about it is, so there are two groups here that we need to think about there is the current resident, and do housing prices, potentially push them out, right? Who's the beneficiary of this price increase? So there is the person that has a ton of equity and already lives here. And they're very happy with that. There is the renter would be buyer who's potentially not very happy with that, right> And so, so does Wilmington, potentially appeal to them, now is a function of what happens to their wages, and we see housing prices come down.
And then there is the question of who's potentially moving to Wilmington, and is the, what I refer to as the "affordability gap" disappearing. What I mean by that is, people with that will move in from New Jersey, or from Oregon or from wherever, were experiencing really high house price appreciation. Now, if our housing price growth exceeds theirs, then all of a sudden, it's no longer, quote unquote, cheap to move to Wilmington, that puts potentially downward pressure on prices here, which may in turn, help the current residents.
So it's a really messy situation. And unfortunately, there is no silver bullet, there is nothing that's going to happen in the next year or six months, that's going to resolve the housing issue. I think that building a lot and removing zoning restrictions, to me, are the fastest ways to potentially make a dent on this question. And then there is the question about you talked about the economy, what kind of jobs are being created, and are the jobs that are being created going to residents of this area, in order to make life a little more affordable for them.
KK: So there's definitely been a lot of discussion for renters, about the fact that this is kind of a hospitality economy. And those are low wage jobs. There's a lot of those jobs in this community. And the people who make those wages, maybe $15, or $16, or $20 an hour, can't necessarily afford what the average rent now is here. So that gentrification concern, which I've heard thrown around in pretty much every neighborhood in Wilmington — is the solution really, just to build more and more and more?
MG: So, I think it works in phases, right? And so yes, whenever you see, "luxury apartments" go up, that are potentially appealing to individuals who can afford those high wages, and may push out the hospitality workers, that clearly a concern, right. And so, and there is no debating, however, what tends to happen is that as that supply increases, you should see downward pressure on these apartments, that should make it a little bit easier for individuals who are not making these high wages and are struggling right now.
I think that the challenge in this community and just coming back to the migration and to the pandemic, is that the growth happened so fast. And I think that the story that's a little bit untold is that the demographic profile earning potential of the migrants was so different than the one of the residents.
So that willingness to pay for apartments, for homes just increased quite substantially in a really short period of time. And it creates winners and losers. And so and this is why with policy, you kind of have to step back and think, who are the beneficiaries? I'm really curious as to how the next 12 months play out because a on the one hand, I don't want us to overreact to again, what is hopefully a once in a lifetime shock and build policy that is driven by that but at the same time I completely get the concerns around a place that is very, very quickly becoming unaffordable for a significant chunk of the population.
KK: Well, is there anything else that we haven't touched on that you think folks should know about?
MG: I think that the last thing is that we're still, even though we talk about Wilmington is, you know, this community that's kind of operating on its own, we're still moving alongside the macro economy. And I think the backdrop of interest rates of inflation are gonna guide, at least to a certain extent, what the trajectory of the next 12 months will look like.
KK: So, the Federal Reserve.
MG: Exactly. Yeah, it was there. I mean, interest rates have been so good. I mean, we talked about affordability of housing. Clearly, there are local factors that determine affordability. But the fact that mortgage rates went from 2% to 8%, in a really short period of time, has clearly affected demand for housing, and has pushed a lot of people out of the housing market. I'm not predicting that they're gonna start cutting rates anytime soon. But hopefully, as we get into a normalization period, and they start cutting, again, that's gonna make hopefully a dent in this affordability question. Because, you know, housing payments on a typical $300,000 homes basically doubled in the span of a year and a half. And, you know, the New York Times had this interesting map, it's not perfect, that renting is cheaper than buying now in something like 96% of counties in the country. So again, yes, there are local factors. But the fact that the cost of living has increased the fact that mortgage rates have increased, are not Wilmington specific things, and we are moving partially because of our specific factors, but partially because of the national economy. And if the national economy were too slow, given that we depend so much on spending by people that come in, even from rural areas, that makes us potentially susceptible to whatever is going on nationally and in other places. So we're kind of vulnerable to recession, I really think that we benefited a ton from the the excesses the the revenge spending that we've been doing. But at the same time, that potentially makes us susceptible to the slowdown in spending. We've already seen a deceleration in growth. And so every talk that I've given over the last few months has been the theme is deceleration. We've gotten used to growth, growth, growth, but there is a clear sign in the data that a bunch of sectors are slowing, some of them have gone negative. Leisure and Hospitality is one of them. And to me, that indicates that maybe the consumer is getting a little bit tired, right? And so and they've exhausted some of those savings, and because our economy is not just dependent on what you and I do, it's dependent on what people that are driving in from rural communities are flying in from the Northeast are doing and if those people are changing their consumer habits, we're going to feel it.
KK: With all the holiday shopping. I definitely get being an exhausted consumer! Well, thank you so much for your time, Mr. Guettabi. This was really interesting.
MG: Thank you for having me.
