Population Growth Around Your Dental Practice is Overrated - Here's Why

Population Growth Around Your Dental Practice is Overrated - Here's Why

Growth is a frequent subject of this blog - and for good reason. Among the most common questions that dentists ask when thinking about where to practice is “Where is the most growth going to happen over the next five to ten years?”. While there are some indicators that we can use to help make those kinds of predictions, it’s our feeling that too much emphasis is generally placed on future growth. This is not to say that we recommend ignoring it completely. In fact, we have published several (1, 2, 3, 4, 5) posts examining the various aspects of growth. But this definitely isn’t the only factor that you should consider, and we’ve explain why below.

What are the risks of overemphasizing growth?

1. The Unknowns of New Competition: The case for going to a community where growth is planned has some pretty obvious reasoning. Residents who recently moved create new demand and are also likely to be seeking a new provider. But, along with new potential patients usually come new dentists. If you have realized that an area seems to be growing a lot, it is certainly possible or even likely that other dentists have also taken note. Unfortunately, it's not possible to know how many practices will be competing for the same patient base in the future. Especially for sites which are difficult to access, new practices opening nearby could drastically affect the site’s favorability.
2. Postponed or Cancelled Development: While new practices are maybe the most commonly considered risk in high growth areas, they are not the only hazard. Imagine starting a practice in 2007 or 2008 in an area with major growth plans. During and after the financial crisis, a lot of developments sat empty, scaled back their plans or were never even built at all. For a more recent example, consider Amazon’s plans for a new corporate headquarters in Long Island City. At the time, interest in the market among dentists was understandably high. Everyone wanted to be one of the first new practices to serve the area. Thankfully, Amazon reversed their plans quickly enough that most dentists had not wasted a lot of time or money.
3. Biased Sources: Lastly, remember who is telling you how great your market is going to be in the future. From real estate agents to practice brokers and landlords to city officials, most of the people you interact with along the way have an interest in selling you on a particular location. The vast majority have good intentions but they are certainly not unbiased.

Strategies for the Unknown

1. Exclusivity Agreements: To best protect yourself against the future competition, exclusivity agreements are a common solution. However, they may have limited power if your landlord controls only a relatively small area. You may also want to analyze local zoning maps (often available via city websites) and development plans. If most of the parcels nearby will accommodate residential development, risk of new competition is obviously going to be low.
2. Prioritize Existing Conditions: Don't over rely on planned growth. Ask if you practice could be supported today. We can say with certainty what a market currently looks like but all future development has some chance of not being completed. Larger projects with longer timelines are inherently more difficult for developers to complete, rely the most on the continuation of favorable market conditions and, thus, carry the highest risk. Of course they also bring the biggest potential rewards.
3. Hire an Unbiased Expert: Third party consultants are the best source for unbiased information. They don't care whether they tell you if your location is great or terrible. You're paying them to give you their opinions and, subsequently, the best chance at success.

But what about stagnant and shrinking markets, those have to be dangerous - right?

It’s a common misconception that you should avoid all areas that aren’t growing. While we prefer population growth, there are a few reasons why not every growing market is more opportune than every stagnant or shrinking market.

1. Areas That Aren’t Growing Still Need Dentists: First, population growth says nothing about the existing level of competition (or any other market considerations for that matter). For instance, both Chicago and its metro area have recently been losing residents. Yet there remain over nine million people living in the region. If there weren’t any dental practices there, would a slightly negative population growth scare you away?
2. Character of Competition: Because a lot of high growth markets have recently seen an explosion of new practices, the competition in these areas tends to be younger. Newer practices are more likely to run aggressive marketing campaigns and to be around for a long time. After all, younger doctors are more likely to have both student and practice loans to pay off. They have a greater incentive to get every single patient through the door that they can. According to the a study entitled Supply & Profile of Dentists conducted by the ADA’s Health Policy Institute, only 12.2% of dentists in New Jersey were under the age of thirty-five in 2016. In Texas, that number was 20.9%.

What Else to Consider and Methodology

For the above data sets, “growth” is referring exclusively to the increase or decrease in a given area’s population. We aren't taking into account any measurements of economic productivity, another common way of thinking of the same term. Of course, the two are often (but not always) correlated. People may decide to move to a new area for any number of reasons, better economic opportunities are just one of them.  

Lastly, not all growth is created equal. There are three separate components of population change, each with their own distinct impacts on demographic conditions. The number of people living in a given area is affected by natural population growth (births minus deaths), domestic migration and international migration. Depending on your market, population growth (or decline) may be occurring primarily due to any of those three causes. Cleveland, San Antonio and Seattle are all different places experiencing their respective population changes for different reasons. The same goes for these central cities and their respective suburban areas. The most recent Census Bureau publications show that central counties are losing residents to suburban markets through domestic migration. However, international migration often makes up for these losses in a number of those large markets.

If you'd like to dig deeper into domestic migration, the Census Bureau has a really interesting tool showing domestic migration between any selected county and all others. Just remember, this is only one of the three components of population change.

 

Conclusion

Population growth is absolutely a factor to consider when thinking about where to locate your practice. But, don't make it the only factor. While it works out sometimes, there are a lot of unknowns when trying to literally predict the future. Plans for new development are just that - plans. Everyone is guilty of changing those once in a while and relying on others to show up to an area where you have invested hundreds of thousands of dollars (if not over a million) could be a risky proposition.