Tesla packs its bags and moves to Texas – and hopes, like many former Californians, to find cheaper apartments.
On Thursday, the company's CEO Elon Musk announced to investors that it would be relocating its headquarters to Austin, Texas. Musk himself announced in December that he had moved to Texas and was splitting his time there and in California.
The main reason for the decision was the high housing costs in California. "It's hard for people to afford houses (in the San Francisco Bay Area), and a lot of people have to come from afar," said Musk. "There are limits to how big you can scale in the Bay Area."
This move will look familiar to many people who have migrated from California's expensive coastal markets to cheaper parts of the country. And Texas is often at the top of the list of where those households are moving.
It's one of the reasons three of the top five single-family home construction markets – Houston, Dallas, and Austin – are 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 those profits for Texas," Dietz said.
Here's the bad news:
Austin real estate prices rose more than 45% over the past year, according to a report by the National Association of Realtors released in August. The Texas capital was the second largest market in the country in terms of home price growth, behind Pittsfield, Massachusetts, a popular vacation destination in the Berkshires.
For existing Austin homeowners, the influx of people from other parts of Texas and the rest of the country has rapidly increased their housing wealth. But for renters and first-time home buyers, it has made living much less affordable. Realtor.com data shows the median asking rent in Austin is up 21.7% year over year.
Where Californians move
Additionally, people who are tired of the expensive housing markets like San Francisco and San Jose have generally not gone that far.
"If you look at where people are migrating from San Francisco, it's still mostly other areas in California," said Danielle Hale, chief economist at Realtor.com. The top 10 travel destinations for people leaving San Francisco are all other cities in California.
Folks in nearby San Jose are more inclined to venture out of state for their next move, but seven of their top 10 travel destinations are still in the Golden State.
But when the people of this part of California decide to move out of a state, Texas is one of the most common landing spots – especially cities like Austin and Dallas.
The exodus from California has not only benefited the Lone Star State, however. A 2018 report by Trulia found that nearby Las Vegas was the most popular travel destination. Other popular markets with the Californians were Phoenix, Miami, and Tucson, Arizona, according to Trulia's search traffic analysis on its website.
In recent years, smaller towns in the country's Mountain West region have benefited from the pissed off people of California from the expensive cost of living, including places like Boise, Idaho and Bozeman, Montana.
Texas is experiencing a new housing crisis
One reason Texas has long been so popular with home buyers from other parts of the country is that it is relatively easy to build homes there.
"Texas has lower regulatory costs associated with land development and housing construction, and this enables additional housing supply," said Dietz.
This has helped keep housing costs more affordable compared to more expensive coastal markets. The average home price in Austin was $ 515,100 for the second quarter of 2021, according to the National Association of Realtors. Meanwhile, the median price was $ 1.39 million for San Francisco and $ 1.7 million for San Jose.
Moving to Austin can be "a huge arbitrage opportunity," said Ed Pinto, director of the American Enterprise Institute Housing Center.
And compared to California? "A square foot house in Austin can be bought for 30 cents a dollar," he said.
Affordability isn't guaranteed forever, however, and it's hard to underline just how much migration to Texas has accelerated home price growth in the state's major housing markets. In Austin, 46% of people who bought a home in the second quarter of 2021 came from elsewhere, Hale said.
"Whether this is a blessing or a hassle will likely depend on your ownership status," Hale said.
While Texas housing regulations make housing easier to build than many other parts of the country, it's just one factor that adds to the cost of homes.
“In areas like Austin, the affordability of housing has declined due to this increased demand,” said Dietz. "Texas needs more housing, and the reorganization of supply chains and the provision of a skilled workforce for the construction sector are key elements required to achieve this goal."