Silicon Valley executives and engineers have hopped on the exodus train to migrate to the deep heart of Texas, where the stars are big and bright, and the prairie sky is wide and high. Similar to Florida transforming into New York 2.0, Texas is becoming the reincarnation of Silicon Valley, full of intellectual capital, tech behemoths, and soaring real estate valuations. Will the makers of some of the country’s favorite services and platforms also carry their politics? Until Austin turns into a progressive haven in the traditionally red state, a new issue is beginning to form: a possible housing bubble in the state capital.
Goodbye 2020, Hello 2021
The Austin real estate market had a lucrative 2020, making it look immune to the COVID-19 public health crisis. You would not think the city was in the middle of a pandemic, but this is what happens when interest rates are near-zero and some of the wealthiest Americans pick up cowboy hats.
The Austin housing sector put forward incredible gains — from home-sales activity to price growth — including median sales price rising 11% to a record high of $427,116. Zillow, a real estate data firm, forecasts that Austin home values will surge 8.8% in 2021, citing the current supply-and-demand situation in the area. Inventory remains low as the city had a 1.7-month supply of homes, well below what is considered a “balanced” housing market. The demand is intensifying, population growth is increasing, and supplies are being exhausted.
It is not only Zillow predicting a sizzling 2021 housing market. The Texas A&M University Texas Real Estate Center recently published its annual Texas Housing & Economic Outlook, predicting price per square foot would rise by 8.6% in 2021 and again by 7.2% in 2022. Put simply, good luck trying to find properties priced below $300,000 in Austin.
Blowing Bubbles in Austin?
Housing affordability is quickly morphing into one of the city’s most pressing issues. Because of the upward pressure in prices emanating from the capital and tech flight, local residents are being priced out of the market. Does this mean Austin is in the middle of a real estate bubble?
First, what is a bubble? It is generally defined as the fast escalation of market value in the price of assets, fueled by historically low interest rates and new trends. In a low-rate environment, homebuyers have more options at their disposal, possessing the ability to get the best bang for their buck since borrowing costs are cheaper.
Does Austin meet these criteria? While real estate prices are spiking rapidly, demand is stripping supply and eating away at available inventory for detached and semi-detached properties. Local industry observers forecast that it would take at least two years for the market to catch up to current trends.
Moreover, in Austin’s case, more than 100 people arrive in the Texas city per day. The only way for its booming real estate market to retreat from all-time highs is if population growth levels ceased and people fled Austin. And this is what is occurring in California, where home sales and prices are either stagnating or contracting.
Elon Musk, the billionaire CEO of Tesla and the self-proclaimed “destroyer of shorts,” recently relocated to Austin. He also brought his private Musk Foundation to the Lone Star State. He conceded that “West Coast high tech” is declining in relevance, although Tesla Motors and SpaceX will continue to be headquartered in California.
Oracle announced that it is moving its headquarters from Silicon Valley to Austin. Many other businesses are expanding operations or establishing a new presence in the city, such as FedEx, BAE Systems, 8VC, Zynga, and QuestionPro.
But what makes Austin so attractive? Taxes. The state does not maintain a personal income tax, and its franchise levies are minimal. Plus, the state and multiple municipal jurisdictions offer a broad array of economic concessions that serve as tax shelters for short- and long-term gains. Despite Silicon Valley entities championing the various progressive causes, they want to pay Uncle Sam as little as possible.
According to the Democrat Mayor Steve Adler, another aspect is that Austin maintains a culture of tolerance, unlike the political correctness prevalent in the Golden State. He told the Fox Business Network:
“Companies are coming here because the people that they want to have work for them want to live in this city. It’s entrepreneurial and innovative, pro-business. It’s low tax. But most importantly, I think it has a really high tolerance for taking risks.
“There’s a wide sense of views here. I think that’s important.”
COVID Kills the Coast?
New York City and Los Angeles had been some of the most expensive cities in the United States because that is where everybody wanted to be for professional or cultural reasons. The coronavirus pandemic changed consumer behaviors and patterns, allowing the public to question its infatuation with major urban centers. Plus, with more companies adopting work-from-home policies, people have a growing number of options in their back pockets. In the marketplace of mobility and commerce, the beacons of leftism are losing the battle, even among progressives championing those ideas. But how long until these folks California places like Texas and Florida?
Read more from Andrew Moran.