The Lone Star State has long been attractive to businesses of all kinds. The combination of warm weather, lots of space to build and the lack of a state income tax has been drawing companies for years. But this year, with tech companies and tech workers fleeing traditional tech hubs in droves, the trend has only accelerated, especially in the state’s capital, Austin.
Silicon Hills
Austin, Texas, dubbed “Silicon Hills,” is already home to tech companies like IBM, Dell, Google, Facebook and Apple. Texas Gov. Greg Abbott said tech companies were flocking to Texas in “an absolute tidal wave.”
On Friday, computer technology company Oracle announced in a filing with the Securities and Exchange Commission that it would be relocating its headquarters to Austin, where it already has a sizable campus. The filing said that the company believes “these moves best position Oracle for growth and provide our personnel with more flexibility about where and how they work….this means that many of our employees can choose their office location as well as continue to work from home part time or all of the time.”
The number of tech and tech-adjacent companies moving to Austin just keeps growing. Over the summer, car manufacturer Tesla announced plans to open a $1.1 billion factory in Austin, claiming it could hire 5,000 people over time. And just last week, Tesla CEO Elon Musk confirmed to The Wall Street Journal that he had relocated to Texas, too.
Austin is ranked the No. 4 metro by net inflow of users and their top origins by Redfin– meaning 39.5% of users who search for homes in Austin are from outside the metro area. The top out-of-state origin location is San Francisco.
Throughout the course of the pandemic, more companies have been allowing employees to work from home, therefore allowing them to live anywhere and still get work done. In addition to the more affordable cost of living Texas has to offer, the state also has zero income taxes.
“Austin’s rank as one of the best places to live, work, and thrive in the country is evident by not only the growth of our housing market, but also by the growth of our local economy,” Laura Huffman, president and CEO of the Austin Chamber of Commerce, said in a report from the Austin Board of Realtors.
“Our region has a lower year-over-year job loss than any other major metro, and despite the pandemic, a record number of businesses have chosen to relocate to or expand in the region this year,” Huffman said. “We expect this growth — attributed to Texas’ business-friendly environment paired with Austin’s deep talent pool — will continue through 2021. Despite this, in 2021 the region needs to address housing affordability to help people from being priced out of the market, even as salary and job growth continues.”
Indeed, during the third quarter this year, the homeownership rate in Texas rose to an all-time high of 70%, exceeding the national metric for the first time since 2012, according to a report from the Texas A&M Real Estate Center.
Another reason more buyers are coming to Austin? Romeo Manzanilla, 2020 president of the Austin Board of Realtors, told HousingWire that might be due to low-interest rates and its stable economy.
“Austin is much more recession-proof, at least, from the pandemic than a lot of [cities] not just in our state but across the nation, because our economy is much more of a tech-based economy, versus a service industry economy, or oil and gas like in the Houston area,” Manzanilla said. “I think we’ve seen fewer people affected by unemployment here in the Austin area than in other major metros.”
Home prices
The median home sale price in Austin went up 13% year over year in October, making the average home price $441,250, according to the Austin Board of Realtors. Additionally, residential sales increased 22.7% while the number of pending sales had outpaced new listings – 29.8% to 19.7%, respectively.
For comparison, Redfin says that the median home sale price in San Francisco was $1.43 million as of October.
Kevin Burns, CEO of Urbanspace Real Estate + Interiors, said that he’s been working the mass exodus from the West Coast and even New York, with buyers coming for tech jobs or to avoid state income taxes. Burns, who has been selling real estate in Austin since 1997, said that this is the hottest market he’s ever sold in.
“It’s a Zoom phenomenon,” Burns said. “Why live in San Francisco, when you can work a San Francisco job, get paid San Francisco wages and live in Austin?”
Over the last 10 years, Jason Berknopf, a Realtor at austinrealty.com, said that home prices have just risen consistently and that it’s not new to this market.
“People will call in and be like ‘oh I just heard an Apple campus is in this area, must be really hot,’” Berknopf said. “Well, that area’s been coming hot for the last 10 years.”
Sal Silva, a Realtor at Realty Austin has two clients in California – one in San Francisco and one in Los Angeles. He said his client from San Francisco was so floored with how affordable homes are in Austin, that now is he not only seeking out a home for himself but also seeking one to purchase and rent out.
“Several times he’s told me like ‘man, I can’t believe this house would be, you know, $750,000 [in Austin],” Silva said. “In San Francisco, this home would be like $2.5 million, easily.”
Low inventory
Berknopf said that COVID-19 multiplied the demand for homes and that it’s extremely hard to find properties right now. The popularity of Austin combined with COVID-19 are two factors that have created the gap in inventory, he said.
“People come in from out of state to look..there’s nothing to show them,” Bernknopf said. “It’s very, very slim pickings and possibly due to a combination of, maybe some owners that were hesitant about selling this year for COVID reasons, on top of the economy and the business is still moving forward, increasing the demand and the popularity. That didn’t stop.”
According to the Austin Board of Realtors, Austin inventory currently sits at 1.3 months. However, Burns said that the shortage of inventory is nothing new.
“We’ve been experiencing the shortages in housing in Austin since the great recession of 2007, 2008, 2009,” Burns said. “Well, reality is, we had population growth and job growth every single quarter during the last great recession…lending stopped on new construction, so we found ourselves in a huge supply shortage coming out of that and we never caught up.”
New home starts in the Austin metropolitan statistical area started dropping in Q4 2006 from 17,784 and didn’t hit a number like that again until Q3 2019, when there were 17,447 new home starts, according to data from research firm Zonda.
At the end of Q3 this year, there was a 17% year-over-year increase in housing starts in the Austin metro area, jumping from 17,447 to 20,395 new home starts – but it’s a 1% dip from the 20,576 new home starts in Q2 this year.
Last week, Silva said he had a listing go on the market at 9 a.m. and already had a showing scheduled five minutes later. By 11 a.m., he had received the first offer on that house.
Silva said that he’s had agents ask him what it would take to place a winning offer on a home.
“The shortage of inventory right now is just kind of making it really competitive, everybody is wanting to outdo each other, especially when they find a home that they love,” Silva said. “That’s what I’m seeing today with this particular listing. It’s incredible.”
