"The Next Silicon Valley"
Can housing trends predict where the tech industry is going?
Image: Zillow
For years, Silicon Valley was a utopia for the tech industry. Recently, however, both industry stalwarts – like Oracle and Hewlett Packard – and start-ups are relocating away from the Bay Area.
Silicon Valley’s decline has been a long time coming with increasing regulation and rising living costs in California. The COVID-19 pandemic has only accelerated this trend by forcing businesses to go online, thus eliminating the need to be physically present in a particular city.
The so-called “tech exodus” - combined with a trend toward working from home - has many arguing that the new Silicon Valley will be both nowhere and everywhere, located not in a zip code but in the cloud. With so many businesses going remote – possibly for the foreseeable future – it’s quite possible that the tech industry will become more geographically dispersed than ever before. But at a time when most people are working from home, there is one thing start-ups will require in spades: affordable housing.
And this is where it’s worth considering how the real estate market – not just lax regulations and lower taxes – will shape the “next” Silicon Valley (or valleys).
Housing Boom
San Francisco’s housing market has been booming ever since the 2008 crash. The exponential increase in housing prices between 2012 and 2016 was caused by extremely high demand, as job creation – mostly in the tech industry – steadily outpaced available accommodation. With the median cost of a home around $1.3 million in 2021, San Francisco has the most expensive housing market in the United States according to some reports.
Image: Building Industry Association of the Bay Area
Combined with the highest income tax in the country, many tech workers have found it increasingly difficult to find affordable housing close to Silicon Valley – despite having six-figure incomes.
But, while San Francisco is in the midst of a housing crisis that reserves its harshest effects for non-tech workers – many of whom have had to face homelessness – Silicon Valley has produced a class of highly-skilled, well compensated workers who are nevertheless unable to afford a house in the Bay Area.
This means that as a young, upwardly mobile population looks to move out of the Bay Area, a booming U.S. housing market could determine where they - and the tech industry - end up.
Silicon Valleys, not Silicon Valley
If any city stands out as the next U.S. tech hub, it’s Austin, TX. According to CompTIA’s Tech Town Index – a measure to determine “where opportunity meets affordability and quality of life” in the tech industry – Austin boasts a large number of relocated companies (like IBM , Dell, and Amazon), a 38% increase in tech jobs over last year, and comparatively cheaper living than cities like San Francisco or New York.
Image: Screenshot https://builtin.com/tech-hubs
Moreover, with inventor-cum-celebrities like Elon Musk moving to Austin, the Texas city is expected to take over the Bay Area as the world’s new tech hub. No doubt, a less regulated and more tax friendly environment make the Lone Star State an attractive option for both large companies and small start-ups. But to see either a single city or state as the “next Silicon Valley” would overlook where else the tech industry is migrating in terms of both workers and businesses.
Image: Screenshot, CompTIA Tech Town Index 2020
An excellent case study is Boise, ID. Since 2014, the City of Trees has become a tech hub in its own right, attracting new start-ups as well as out-of-state workers. In fact, Boise ranked number five on Surge Cities’ list of 50 best cities to start a business in 2020, and it is by no means alone. Others, including Dallas, Atlanta, Boulder, and Columbus, are becoming increasingly tech friendly as well. What many of these urban areas have in common are strong or stable housing markets that are considerably cheaper to invest in as compared to San Francisco. For instance, with an annual appreciation rate of about 10%, Boise currently has the best housing market in the U.S. – and of the 20 best cities to invest in real estate in 2021 according to the investment firm Norada, 10 appear on CompTIA’s Tech Town Index (excluding Boise).
This overlap suggests that access to affordable housing may, in part, be reshaping the tech industry. Specifically, as tech is leaving California, it is simultaneously becoming more concentrated in specific parts of the U.S. - particularly locations where the housing market is favorable to buyers.
Down but not out
It would be premature to declare that the Bay Area has abdicated its tech throne to a group of smaller cities. After all, many of the industry’s largest firms including Facebook, Google, and Microsoft continue to carry out the bulk of their operations in California. Industry experts, meanwhile, have suggested that emerging tech hubs like Austin are not independent of San Francisco, but rather extensions of it – what some have started to call the “Silicon Hills.” Moreover, California continues to attract start-ups and venture capital, remaining one of the largest economies in the world. Finally, with companies like Facebook and Google pledging to take on the Bay Area’s housing crisis, there is hope San Francisco will become more affordable (for an elite class of workers).
Then there is the fact that Silicon Valley didn’t appear overnight, even though it has grown considerably in the span of a few short years. A history of innovation and urban change has some experts claiming that San Francisco’s success cannot be replicated without first following its development as a city. For instance, Hyejin Youn, an assistant professor in the Kellogg School of Management at Northwestern University, argues that small cities “may not be able to build a strong tech industry because they don’t have enough people in other industries—from public transit to laundry services—to support software engineers.”
In light of this, asking where the “next” Silicon Valley will be is possibly quite passé. Instead, perhaps its worth asking whether access to housing during a pandemic will give rise to a new kind of spatialized industry - one that is driven primarily by an archipelago of smaller cities rather than a single, historically established one.
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Book recommendation for this week:
The Mushroom at the End of the World by Anna Tsing (2015).
An enlightening exploration of late capitalism’s intertwined, climate-addled and terse world, told through the journey of a mushroom.