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Another day, another set of announcements about large companies and rich people moving to lower cost US states. Yesterday it was announced that Oracle will move its corporate headquarters from Silicon Valley to Austin, Texas. (If you remember, Elon Musk also recently announced that he had moved himself to Austin from California.) The company has said that the move puts Oracle in the best position to grow and to give its employees greater flexibility about where and how they work.
While these sorts of moves are making headlines right now, it's important to keep in mind that this is not necessarily a new phenomenon. In fact, depending on how you look at it, you could argue that these headlines are a lagging indicator for trends that have been underway for some time. Below is a chart from New Geography showing the top 50 state-to-state moves last year. Number one is the move from California to Texas with 45,172 net movers. And number two is the move from New York to Florida with 38,512 net movers.
According to New Geography, California saw a net domestic migration loss of 912,000 people from 2010 to 2019. And the most popular receiving states are what you would expect: Florida (1,230,000 people) and Texas (1,146,000 people). A big part of this story obviously has to do with housing affordability and the search for an overall lower cost of living. As well, since companies are always in need of young and smart talent, it makes since for them to locate in places where young and smart people want to live.
But urbanists like Richard Florida have also pointed out at this relocation of companies could be a leading indicator for something else: the decline of innovation in America. Here, he argues that in the nascent stages of a new invention, there tends to be a tight clustering phenomenon. Think steel in Pittsburgh, cars in Detroit, and computing in Silicon Valley. However, as the industry matures, the tendency to centralize seems to decline and companies then start moving around.
I'm not yet convinced that this is what's happening. Because there seems to be a pile on happening in specific cities like Austin (which, by the way, I hear is terrific). Even before this pandemic, there was a growing sense (from the outside, mind you) that the Bay Area had simply gotten too expensive, both for individuals and for companies. It would seem that when you greatly restrict the supply of new housing and make it unattainable for many, people go find housing somewhere else. Sometimes in other states.
Photo by Tomek Baginski on Unsplash
Bloomberg recently published a good summary of Zillow's business and their move into algorithm home buying and flipping. (They are trying to avoid the "flipping" moniker because of the negative connotations associated with it.) Zillow started buying homes directly from owners last spring. They charge the seller between 6-9%, so more than using a typical agent, but inline with their competitors. There's clearly a segment of the market willing to pay a premium for the added convenience. The thinking used to be that discount brokerages were the way to disrupt the housing market. This is the opposite strategy. Interestingly enough, Zillow felt that they needed to make this pivot with their business model. It used to be about selling ads. They were definitive in that they were not a disruptor of real estate agents. But now:
If getting an offer from an iBuyer became a crucial step in the selling process, they worried, Zillow could lose its audience and its advertising base. What’s more, market researchers kept finding that consumers said they’d pay a modest premium to get a cash offer. “People expect to press a button and have magic happen,” says Rascoff, a 43-year-old former Expedia executive who’d earlier started the travel search engine Hotwire, which he sold to Expedia for $700 million. Getting into the business of buying homes directly, Rascoff says, was “the only way to remain in a leadership position.”
Here is a map of the companies in this particular space and the cities in which they operate:
Another day, another set of announcements about large companies and rich people moving to lower cost US states. Yesterday it was announced that Oracle will move its corporate headquarters from Silicon Valley to Austin, Texas. (If you remember, Elon Musk also recently announced that he had moved himself to Austin from California.) The company has said that the move puts Oracle in the best position to grow and to give its employees greater flexibility about where and how they work.
While these sorts of moves are making headlines right now, it's important to keep in mind that this is not necessarily a new phenomenon. In fact, depending on how you look at it, you could argue that these headlines are a lagging indicator for trends that have been underway for some time. Below is a chart from New Geography showing the top 50 state-to-state moves last year. Number one is the move from California to Texas with 45,172 net movers. And number two is the move from New York to Florida with 38,512 net movers.
According to New Geography, California saw a net domestic migration loss of 912,000 people from 2010 to 2019. And the most popular receiving states are what you would expect: Florida (1,230,000 people) and Texas (1,146,000 people). A big part of this story obviously has to do with housing affordability and the search for an overall lower cost of living. As well, since companies are always in need of young and smart talent, it makes since for them to locate in places where young and smart people want to live.
But urbanists like Richard Florida have also pointed out at this relocation of companies could be a leading indicator for something else: the decline of innovation in America. Here, he argues that in the nascent stages of a new invention, there tends to be a tight clustering phenomenon. Think steel in Pittsburgh, cars in Detroit, and computing in Silicon Valley. However, as the industry matures, the tendency to centralize seems to decline and companies then start moving around.
I'm not yet convinced that this is what's happening. Because there seems to be a pile on happening in specific cities like Austin (which, by the way, I hear is terrific). Even before this pandemic, there was a growing sense (from the outside, mind you) that the Bay Area had simply gotten too expensive, both for individuals and for companies. It would seem that when you greatly restrict the supply of new housing and make it unattainable for many, people go find housing somewhere else. Sometimes in other states.
Photo by Tomek Baginski on Unsplash
Bloomberg recently published a good summary of Zillow's business and their move into algorithm home buying and flipping. (They are trying to avoid the "flipping" moniker because of the negative connotations associated with it.) Zillow started buying homes directly from owners last spring. They charge the seller between 6-9%, so more than using a typical agent, but inline with their competitors. There's clearly a segment of the market willing to pay a premium for the added convenience. The thinking used to be that discount brokerages were the way to disrupt the housing market. This is the opposite strategy. Interestingly enough, Zillow felt that they needed to make this pivot with their business model. It used to be about selling ads. They were definitive in that they were not a disruptor of real estate agents. But now:
If getting an offer from an iBuyer became a crucial step in the selling process, they worried, Zillow could lose its audience and its advertising base. What’s more, market researchers kept finding that consumers said they’d pay a modest premium to get a cash offer. “People expect to press a button and have magic happen,” says Rascoff, a 43-year-old former Expedia executive who’d earlier started the travel search engine Hotwire, which he sold to Expedia for $700 million. Getting into the business of buying homes directly, Rascoff says, was “the only way to remain in a leadership position.”
Here is a map of the companies in this particular space and the cities in which they operate:
Robert C. Ellickson's recent paper, titled Zoning and the Cost of Housing: Evidence from Silicon Valley, Greater New Haven, and Greater Austin, really holds back when it comes to the shortcomings of zoning ordinances. Here's an excerpt:
Zoning, as practiced in much of the nation, gravely misallocates resources. Some distortions are micro, such as the mediocre siting of Anton Menlo housing [a project by Facebook], and the lack of walkable neighborhoods in New Haven suburbs. Others are macro. If Silicon Valley were more populous, it would be a world tech center even more attractive to IT workers. The misuse of zoning squanders land, adds to the nation’s carbon footprint, warps interstate migrants’ choices about where to reside, and helps price poor households out of wealthier neighborhoods that would offer better life prospects for their children.
The paper focuses on three metropolitan areas: Austin, Silicon Valley, and New Haven. Of these three, Austin is the most permissive in terms of allowing new and denser housing. Silicon Valley and New Haven, by contrast, have done a great deal to limit intensification by adopting exclusionary policies.
In 1970, home prices in Silicon Valley were only slightly above the national average. Today, they are by far the highest in the United States, which is, of course, partially a result of high demand (tech salaries) and low supply (zoning ordinances). Ellickson's paper examines the effects of the latter.
If you'd like to download a copy, click here.
Photo by Carlos Delgado on Unsplash
Some investors aren't sold on this strategy and have begun short selling Zillow (according to the Bloomberg article). I keep getting the sense that there's a greater end game in the cards here. It is about building up A (algorithmic home buying and flipping) in order to unlock B. But what's B -- a new end-to-end transactional model for the housing market?
Robert C. Ellickson's recent paper, titled Zoning and the Cost of Housing: Evidence from Silicon Valley, Greater New Haven, and Greater Austin, really holds back when it comes to the shortcomings of zoning ordinances. Here's an excerpt:
Zoning, as practiced in much of the nation, gravely misallocates resources. Some distortions are micro, such as the mediocre siting of Anton Menlo housing [a project by Facebook], and the lack of walkable neighborhoods in New Haven suburbs. Others are macro. If Silicon Valley were more populous, it would be a world tech center even more attractive to IT workers. The misuse of zoning squanders land, adds to the nation’s carbon footprint, warps interstate migrants’ choices about where to reside, and helps price poor households out of wealthier neighborhoods that would offer better life prospects for their children.
The paper focuses on three metropolitan areas: Austin, Silicon Valley, and New Haven. Of these three, Austin is the most permissive in terms of allowing new and denser housing. Silicon Valley and New Haven, by contrast, have done a great deal to limit intensification by adopting exclusionary policies.
In 1970, home prices in Silicon Valley were only slightly above the national average. Today, they are by far the highest in the United States, which is, of course, partially a result of high demand (tech salaries) and low supply (zoning ordinances). Ellickson's paper examines the effects of the latter.
If you'd like to download a copy, click here.
Photo by Carlos Delgado on Unsplash
Some investors aren't sold on this strategy and have begun short selling Zillow (according to the Bloomberg article). I keep getting the sense that there's a greater end game in the cards here. It is about building up A (algorithmic home buying and flipping) in order to unlock B. But what's B -- a new end-to-end transactional model for the housing market?
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