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Taxes, tariffs, and Texas migration

Josh Roberson

​​​​New data from the U.S. Census Bureau reveal 2018 migration patterns. As usual, top migration inflows into Texas came from either highly populated coastal states such as New York, Florida, and California or adjacent states like Oklahoma and Louisiana.

California remains the top source of Texas net migration, and last year was an exceptional year compared with prior years reported by the Census Bureau (Figure 1). In 2018, just over 86,160 moved to Texas from the Golden State. After accounting for migration outflows from Texas to California, the net migration between the two states still favors Texas by almost 50,000. Migration from Florida was a distant second with about 37,270 making the move to Texas (after adjusting for outflows, the net migration was less than 15,000).

The sudden uptick of California migrants follows the passing of the Tax Cuts and Jobs Act of 2017 (TCJA), which holds many implications for residents living in high tax states. Part of that legislation caps the deduction limits of state and local income taxes at $10,000 where formerly there was no limit.

The TCJA also reduced the mortgage interest deduction limit on new home purchases, which many real estate professionals initially believed would have a negative impact on housing activity, particularly for high-end homes. That does not appear to be the case in Texas as luxury home sales (homes priced at or above $1,000,000)​ expanded greatly in 2017, 2018, and so far into 2019 (Figure 2). Since the uptick in luxury home sales began months before passing TCJA, the tax reform law may instead help explain the sustained growth of high-end home sales.

While high-income homebuyers may miss out some on the mortgage interest deduction, the net effect from other aspects of the bill may have been enough to provide a net positive impact for the luxury housing market. For California buyers, the net impact may have also been enough to overcome even the capital gains bite from selling their homes back on the West Coast.

Finally, migration to Texas from outside the U.S. fell for the second consecutive year after peaking in 2016 (Figure 3). This is largely because of federal policy’s aim to curb both legal and illegal immigration since Texas follows the national trend of decreased foreign immigration.

Latin America has been in the spotlight both nationally and in Texas. Migration from Central and South America to Texas has been on the rise since the start of the decade while migration from Mexico was already in decline since at least 2013.

The newly released Census Bureau data group all foreign migration together, but previously released data are available by country. These older data reveal major immigration growth from countries such as El Salvador, Guatemala, and Honduras (Figure 4). Rapid immigration growth in prior years from this region may also explain the sudden decrease reported for 2018 in relation to immigration policy.

In addition, there has been major immigration growth up to 2017 from China, which has garnered a lot of media attention due to the exchange of tariffs between the U.S. and China. Given the increased friction between these two countries in 2018, Texas could see a decreased flow of Chinese immigrants in upcoming country-level Census Bureau data releases.