Tesla’s packing its bags and moving to Texas — and much like many former Californians, it’s hoping to find cheaper housing in the process.
During Tesla’s TSLA, -1.02% annual meeting Thursday, the company’s chief executive, Elon Musk, told investors that it was relocating its headquarters to Austin, Texas. Musk himself announced back in December that he had moved to Texas and was splitting his time between there and California.
The high cost of housing in California was a major factor behind the decision. “It’s tough for people to afford houses (in the San Francisco Bay Area) and lots of people have to come from far away” to get to work at the company’s factory and offices, Musk said. “There’s limits on how big you can scale in the Bay Area.”
It’s move that will feel familiar to a lot of people who have migrated from California’s pricey coastal markets to more affordable parts of the country. And Texas is often at the top of the list for where these households relocate.
It’s one reason why three of the top five markets for single-family home-building — Houston, Dallas and Austin — are located in Texas, said Robert Dietz, chief economist for the National Association of Home Builders.
“Business 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% over the past year, according to a report released in August by the National Association of Realtors. The capital of Texas was the No. 2 market in the country in terms of home-price growth, behind only Pittsfield, Mass., a popular vacation destination in the Berkshires.
So for existing home-owners in Austin, the influx of people from other parts of Texas and the rest of the country has quickly grown their housing wealth. But for renters and first-time home buyers, it has made housing much less affordable. Realtor.com data shows that the median asking rent in Austin was up 21.7% compared to a year ago.
Where Californians are moving
What’s more, people who have tired of the expensive housing markets in place like San Francisco and San Jose generally haven’t gone that far.
“If you look at where folks from San Francisco are migrating, it’s still overwhelmingly other areas in 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 folks in nearby San Jose, they are a bit more predisposed to venture out of state for their next move, but even still seven of their top 10 destinations are in the Golden State.
But when people in this part of California do choose to move out of state, Texas is one of the most frequent landing spots — particularly cities like Austin and Dallas.
Out-migration from California hasn’t only benefitted the Lone Star State, though. 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, Ariz., according to Trulia’s analysis of search traffic on its site.
In more recent years, smaller cities in the Mountain West region of the country have come to benefit from people souring on the expensive cost-of-living in California, including places like Boise, Idaho, and Bozeman, Montana.
Texas sees a new housing crunch
Part of why Texas had long been so popular among home buyers from other parts of the country is that it’s relatively easy to build homes there.
“Texas does have lower regulatory costs associated with land development and home construction, and this enables additional housing supply,” Dietz said.
That’s helped keep the cost of housing more affordable compared to more expensive coastal markets. The median home price in Austin as of 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.
Move-up buyers can find “a huge arbitrage opportunity in moving to Austin,” said Ed Pinto, director of the American Enterprise Institute Housing Center.
And compared to California? “A square foot of home in Austin can be purchased at 30 cents on the dollar,” he said.
Affordability isn’t guaranteed forever though, and it’s tough to underscore just how much migration into Texas has accelerated home-price growth in the state’s major housing markets. In Austin, 46% of people shopping for a home were from elsewhere as of the second quarter of 2021, Hale said.
“Whether that’s a boon or a bother likely depends on your ownership status,” Hale said.
While housing regulations in Texas make it easier to build housing there than in many other parts of the country, that’s just one factor that contributes to the cost of homes.
“Housing affordability has fallen in areas like Austin as a result of this increased demand,” Dietz said. “Texas needs more housing, and sorting out the supply-chains and adding skilled labor to the construction sector are key items necessary to accomplish this goal.”