Columbia, South Carolina
“Famously Hot” for Decades, City Remains a “Southern Hot Spot”
By Carole Vansickle Ellis
Columbia, South Carolina, has considered itself “Famously Hot” since 2008, when the state capital officially swapped its former slogan, “Where Friendliness Flows,” for the simpler description referencing, among other things, the city’s summer high temperatures of around 94°F. Unlike most city slogans that tend to last no more than four years, “Famously Hot” lasted nearly a decade before evolving to the longform “The Real Southern Hot Spot,” which the city adopted in 2017 and has retained since. Regardless of which slogan you prefer, the takeaway should be that the city’s real estate sector is certainly boasting serious heat, particularly for real estate investors prioritizing residential rental strategies.
“Both the city and the surrounding suburbs have posted impressive population gains over the last 10 years,” observed Roofstock analyst Jeff Rohde at the end of March 2022. With just over half of the city’s population renting instead of buying, WalletHub listed Columbia as one of its “best cities for renters” in mid-2021 and, in Q1 2022, Redfin rated the Columbia housing “very competitive” for its multiple offers, waived contingencies, and sales for about 3% over list price and within as few as three days.
Columbia, unlike many other metro areas, actually saw a slightly “cooling” in late 2021 as year-over-year metrics indicated slightly fewer homes (-5%) sold in September 2021 than did in September 2020. However, this cooling was likely more closely related to skyrocketing home prices and plummeting inventory than an actual decrease in value or demand. According to the South Carolina Realtors (SCR), median sales prices in Columbia climbed by more than 11% in 2021 while new listings volumes fell. By the start of 2022, Realtor.com had announced it expected Columbia home prices would rise about 12% in the coming year, which will likely increase demand for affordable rentals as more and more households elect to wait on a market shift to purchase a home.
SCR president and ERA Wilder Realty broker Morris Lyles recalled a recent transaction that demonstrated just how difficult it can be to land a home in the area at present. “I have had one house listed [with] 19 offers on it,” Lyles said. “I literally put them all on my floor here in my office and was trying to sort through them.”
Chris Winston, chief communications officer at the South Carolina State Housing Finance and Development Authority, warned that a serious dearth of affordable housing in Columbia and in the state at large is coming. “We know that across the state there are challenges because of lack of inventory,” he said. “There just are not enough affordable houses, whether that is apartments or homes.” Real estate investors are already moving in to help fill that gap, but it can be difficult to acquire properties due to the limited inventory available.
“Willingness to Serve” Could be the Key to Residential Expansion
One contributing factor to Columbia’s low housing inventory is its geographic location and municipal layout, which many developers found challenging early in the COVID-19 pandemic when buyers and renters both preferred single-family residential properties to multifamily properties that they feared might expose them to contagion. “It is kind of tough in the city because you do not just have large tracts of land where you can build single-family houses,” explained Columbia’s director of economic development, Ryan Coleman, in the fall of last year. Fortunately, as the general population has achieved a degree of clarity on the transmission of COVID and means of effective protection, the single-family preference is waning in favor of longer-established preferences for trendy living in business districts and downtown metro areas, making multifamily a good investment in the “famously hot” city.
Investors should note that Columbia’s population is growing, but not as fast as other South Carolina cities on the state’s coast. However, Coleman said he sees “good trends” in the city with “a couple thousand people living on or around Main Street, down here in the BID (business improvement district) right now.” He added, “You did not have that 10 years ago.”
The University of South Carolina (USC), with its flagship campus in Columbia, also plays a role in drawing in new residents over the long term, and investors providing student housing find a consistent demand for this unique asset class. However, USC does not just bring in students for four years; the school boasts nationally ranked research centers including the Center for GIS and Remote Sensing, the Center for Colon Cancer Research, and the Center for Digital Humanities as well as the Darla Moore School of Business, which is the top-ranked program nationally for its undergraduate program for international business, and the USC College of Engineering, which boasts undergraduate and graduate degrees in aerospace engineering and research opportunities funded by NASA at its McNair Aerospace Center. Roughly 40% of the Columbia population holds a bachelor’s degree or higher, and USC and other higher education institutions attract a combined 50,000 students in the area each year, many of whom remain in the area after graduation to work in the city’s thriving insurance and technology, software and IT, bio/life sciences, and transportation and logistics sectors. Columbia is also home to Fort Jackson, the largest military basic training installation in the country, and thousands of military veterans.
The city supports this steady influx of desirable present and future professionals and employees by working hard to attract their employers to the area through tax credit and incentive programs, access to much-needed acreage for new development, and economic development grants awarded based on job creation, capital investment, and targeted industries. For investors seeking “crystal ball” insights into the area, watching Richland County’s designated “Willingness to Serve” reports indicating where developments may be pre-cleared for sewer services and other municipal services can provide insight into areas that may emerge as attractive residential areas in the near future. Columbia’s public transit agency, The COMET (Central Midlands Regional Transit Authority), announced this past February that it will begin adding buses to busy routes and “creating new trips into rural areas” as part of a 10-year plan to increase ridership and make public transit a “more attractive option” for residents in Columbia and the suburbs. As more residents opt to spend a larger portion of their working time engaged remotely, the appeal of transit-based access to the metro area will likely increase the value of neighborhoods farther and farther out from the city center.
The system has recently added an additional bus transfer hub outside downtown Columbia in a bid to reduce congestion and expand ridership. The National Association of Realtors (NAR) tracks property values and the variable “transit premium” that access to public transportation creates when homes are located in proximity to transit lines and stations. “The [premium] amount depends largely on the local regulatory environment,” noted one NAR analyst, adding that the premium may range from “as little as a few percent increase to over 150%.” In Columbia, the benefits of tracking planned transit expansion may also provide an investor with insight into areas of the suburbs and outer metro where the city has expressed an early “willingness to serve” that may benefit residents, investors, developers, and business owners.
Rising Rental Demand, Relative Affordability to Boost Columbia’s 2022 “Heat”
Columbia, like many southeastern cities, benefits from the southeast’s relative affordability compared to other areas of the country. As a result, although rents in the area had increased 12% year-over-year as of December 2021 and showed no indication of a change in trajectory, rental property owners can expect solid rental rate increases in 2022 and a steady demand for their product. WalletHub placed Columbia in the top 50 cities for renters based on affordability, activity in the rental market, and quality of life. Columbia’s renting population is also quite diverse as the city attracts young professionals, retirees, veterans, and more established heads of households. In 2021, WalletHub also placed Columbia 11th on its list of top cities for retirees (out of 180).
Because the Columbia market remains so competitive, it may be difficult for investors new to the area to acquire rental properties. However, according to information released by ATTOM Data in mid-March 2022, the inventory pinch could ease in the next 12 months as the rate of foreclosures in the city inches upward. ATTOM analysts reported Columbia ranked third for foreclosures in metros with populations of at least 200,000 and South Carolina as a whole ranked fourth of all 50 states. This rate may not rise exponentially over the remainder of 2022, but it is likely to hold steady, predicted executive vice president of RealtyTrac Rick Sharga. “February foreclosure activity looks a lot like what we can expect to see for at least the next six months – double-digit month-over-month growth and triple-digit year-over-year increases,” Sharga said. He added, “This is not an indication of economic turmoil or weakness in the housing market; it is simply the gradual return to normal levels of foreclosure activity after two years of artificially low numbers due to government and industry efforts to protect financially impacted homeowners from defaulting.”
Investors with the ability to reach homeowners in pre-foreclosure or who are concerned about selling a property before entering the foreclosure process may benefit from this advantage in the Columbia area. However, warned hard-money lender Andrew McDannels, whose business model revolves around financing rentals, flips, Airbnb projects, and “wholetail” deals, 2022 may not be the best year for fix-and-flip deals unless investors have alternative strategies in place. “During the next year, do not buy a house to flip,” he said bluntly. “Make sure it can cash flow as a rental [and] have a backup plan.” This could be difficult advice to swallow for Columbia flippers. In 2021, Columbia was named by 24/7 Wall St. and Realtor.com as the “best city in America to flip a house” due to median profits of more than $60,000 and migration of many households toward inland metros with good proximity to coastal locations (Columbia is less than two hours from coastal Charleston and far more affordable). However, with interest rates rising and the real estate market showing signs of volatility although not, as Sharga emphasized, necessarily instability, fix-and-flip strategists will be best served by acquiring assets offering multiple routes to positive returns.
With advantages like these, Columbia is likely to remain “famously hot” for real estate investors for quite some time yet – as long as those investors are willing to think creatively and flexibly about ongoing issues in housing.
SIDE BAR 1
Columbia by the Numbers
4 Number of four-year colleges in the area including USC, a nationally ranked research university with law and medical schools
30 Number of international companies based in Columbia
3 Workforce Digital Skill The Brookings Institution
16 Minute Average Daily commute
5 Top 10 U.S. Markets in 2020 Realtor.com
5% Corporate tax rates — South Carolina has one of the lowest
0 Rate at which the state taxes inventory and property
SIDEBAR 2
The Storm Factor: How Columbia Weathers the East Coast’s Notorious Natural Disasters When you think of South Carolina weather, you probably simultaneously think of the pleasant, sunny days associated with southern states and named storms like Hurricane Hugo (1989), Hurricane Irma (2017), and Tropical Storm Florence (2018), all of which wreaked havoc on South Carolina’s popular coastal cities. It is easy to assume that the treacherous weather associated with coastal living in the relatively small state (only 10 states are smaller by square mileage) would reach all the way to the borders, but the reality is much more positive.
