Has the Tech Boom Impacted Home Prices?
A new analysis by Trulia chief economist Jed Kolko notes some interesting numbers for the housing market of the top ten “tech hubs” around the United States.
Using Census Data, Kolko created a “tech score” for each of the largest 100 metro areas, averaging “the share of local employment in the software publishing, data processing and hosting, and Internet publishing, broadcasting, and search-portal industries,” as well as the area’s “share of local employees in the computer programmer, software developer, and Web developer occupations” compared with the rest of the population.
San Jose, California; Seattle, Washington; and San Francisco, California, were the top three markets. The list included other markets such as Austin, Texas, and Raleigh, North Carolina.
Kolko notes month-to-month asking prices nationally were up 1.1 percent in January, the largest gain since June 2013. Despite recent protests bemoaning the fate of San Francisco’s rising cost of housing, year-to-year home prices in tech hubs such like the Bay Area remain fairly consistent with the rising national average of 11.4 percent, a 2 percentage point difference from the 13.4 percent gain in the ten largest tech hubs.
The slight increase from the national average is not based on technology businesses in the area, according to Kolko. Rather, tech hubs “had steeper price declines during the bust and have fewer homes stuck in foreclosure today–and both of those factors are driving the current price rebound.”
However, certain conclusions are clear: Homes, on average, are more expensive in tech hubs around the nation. Compared to other areas, the average cost per square foot of a home in the top tech areas is $242. Compared to the rest of the nation’s cost per square foot of $133, homes in the tech hub represent an 82 percent difference in cost.
Qualifying factors must be considered for current cost-per-square foot numbers in relation to pre-bust numbers, writes Kolko. In 1990, home prices in tech hubs were 52 percent higher than the national average.
Major research universities, technically skilled workers, computer manufacturing, and nice climates made certain areas more attractive to technology companies. Tech hubs were more expensive in the pre-Internet age, and the trend continues.
San Francisco is often representative of all technology-centric markets, but San Francisco’s unique geography makes purchasing a home particularly arduous. One factor working against San Francisco is the location of the city. On average, out of 1,000 homes, a mere 117 new homes are new constructions.
Other tech hubs like Raleigh and Austin experienced new home construction at rates ten times and eight times higher than San Francisco, respectively. San Francisco’s location near an ocean, on a bay, and adjacent to steep cliffs severely hampers new housing construction that could lower home prices for a growing workforce.
Kolko notes that home affordability is not a new problem for tech hubs; rather, the rising cost of home ownership stems from low home production coupled with an attractive area.