Tesla packs her bags and moves to Texas – and like many former Californians, she’s hoping to find cheaper accommodation in the process.
During Tesla’s TSLA,
annual meeting Thursday, the company’s chief executive, Elon Musk, told investors it was moving its headquarters to Austin, Texas. Musk himself announced in December that he had moved to Texas and was dividing his time between that country and California.
The high cost of housing in California was a major factor behind the decision. “It’s hard for people to afford houses (in the San Francisco Bay Area) and a lot of people have to come from far away” to get to work in the factory and company offices, he said. Musk said. “There are limits to how tall you can get in the Bay Area. “
It’s a decision that will sound familiar to many who have migrated from expensive California coastal markets to more affordable parts of the country. And Texas is often at the top of the list of places these households move.
This is one of the reasons why three of the top five single-family home construction markets – Houston, Dallas and Austin – are located in Texas, said Robert Dietz, chief economist for the National Association of Home Builders.
“Trade moves like this, driven in part by relatively better housing affordability, will increase these gains for Texas,” Dietz said.
Here’s the bad news:
Home prices in Austin have risen more than 45% in the past year, according to a report released in August by the National Association of Realtors. The capital of Texas was the nation’s second-largest home price growth market, behind Pittsfield, Massachusetts, a popular vacation destination in the Berkshires.
So, for existing homeowners in Austin, the influx of people from other parts of Texas and the rest of the country quickly increased their real estate wealth. But for renters and first-time buyers, it has made housing much less affordable. Data from Realtor.com shows the median asking rent in Austin is up 21.7% from a year ago.
Where Californians move
Plus, people who are fed up with expensive housing markets in place like San Francisco and San Jose have generally not gone that far.
“If you look at where people in San Francisco migrate, it’s still very much other parts of California,” said Danielle Hale, chief economist at Realtor.com. The top 10 destinations for people leaving San Francisco are all other cities in California.
For residents of neighboring San Jose, they’re a bit more predisposed to venture out of state for their next move, but even seven of their top 10 destinations are in the Golden State.
But when people in this part of California choose to leave the state, Texas is one of the most frequent landing points, especially cities like Austin and Dallas.
However, emigration from California has not only benefited the Lone Star State. A 2018 report from Trulia found that nearby Las Vegas was the most popular destination. Other popular markets among Californians included Phoenix, Miami and Tucson, Arizona, according to Trulia’s analysis of search traffic to her site.
In recent years, small towns in the western mountain region have benefited from the rising cost of living in California, especially in places like Boise, Idaho and Bozeman, Montana.
Texas is facing another housing crisis
Part of the reason Texas has long been so popular with homebuyers in other parts of the country is that it’s relatively easy to build homes there.
“Texas has lower regulatory costs associated with land development and home construction, which allows for additional housing supply,” Dietz said.
This has helped keep the cost of housing more affordable compared to the more expensive coastal markets. The median home price in Austin in the second quarter of 2021 was $ 515,100, according to the National Association of Realtors. Meanwhile, the median price for San Francisco was $ 1.39 million, and in San Jose it was $ 1.7 million.
Homebuyers who move can find “a huge arbitrage opportunity by moving to Austin,” said Ed Pinto, director of the American Enterprise Institute Housing Center.
What about California? “A square foot of house in Austin can be bought at 30 cents on the dollar,” he said.
Affordability isn’t guaranteed forever, however, and it’s hard to stress how much the migration to Texas has accelerated home price growth in the state’s major housing markets. In Austin, 46% of people buying homes were from elsewhere in the second quarter of 2021, Hale said.
“Whether that’s a boon or a drawback probably depends on your status as a homeowner,” Hale said.
Although housing regulations in Texas make it easier to build housing there than in many other parts of the country, it is only one factor that contributes to the cost of homes.
“Housing affordability has plummeted in areas like Austin due to this increased demand,” Dietz said. “Texas needs more housing, and sorting out supply chains and adding skilled construction workers are key elements needed to achieve that goal.”