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Are High Housing Costs Forcing Talent to Flee Silicon Valley?

The pull of opportunity, not the push of expensive real estate, drives migration from California.
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Silicon Valley from above. (Photo: Patrick Nouhailler/Flickr)

Silicon Valley from above. (Photo: Patrick Nouhailler/Flickr)

New York City wasn't cheap and cool anymore, as it was in the 1970s. Someone who should know, Patti Smith suggested moving to Detroit or Poughkeepsie. David Byrne, another musician, expanded on the lament for the Guardian. The rent was too damn high, pushing out the Creative Class. Where would they go? "The Rust Belt," I told myself.

San Francisco isn't cheap and cool anymore, as it was in the 1960s. However, high housing costs push out more than the Creative Class. According to the CEO of Redfin, tech talent also must flee:

Folks are leaving Silicon Valley, mostly because they can't afford to stay. For the first time ever, the median price for a Silicon Valley home just exceeded $1 million. That's about double what it is in other tech cities, like Boston or Seattle, and triple what it is in aspiring technology hubs, like Portland, Denver or Austin.

Advocates for deregulation and greater housing supply as a solution to the affordability crisis ate it up. I want to eat it up, for a different reason. I'm on record as claiming the tech industry is converging economically as manufacturing did in the Rust Belt. The wages are too damn high, pushing companies to the places producing the talent. Redfin's analysis supports my analysis. Redfin is wrong and so was I.

"For the first time ever, the median price for a Silicon Valley home just exceeded $1 million." The rent isn't too damn high. The median price for a Silicon Valley home is too damn high? That doesn't make any sense, save to keep first-time home buyers priced out the market. The only reasons a homeowner couldn't afford to stay would be loss of income or a dramatic rise in property tax.

Thanks to Proposition 13, tenured homeowners needn't worry about property tax. In effect, California property taxes lag behind the value of real estate. In effect, Prop 13 hinders geographic mobility and inflates property wealth. High housing costs encourage homeowners to stay put, not flee to Portland, Oregon.

Tech workers toil in a global labor market. Does your company want talent? Get in line with companies everywhere, not just in your region. Yet salaries for software engineers do vary from place to place. Concerning relocation, most people are risk adverse. The graduate apple doesn't fall far from the university tree and will depress wages in Pittsburgh, where Carnegie Mellon University produces the talent.

Plenty of CMU grads end up in Silicon Valley where Prop 13 will help build up home equity faster than in the rest of the United States, however.. At some point, the CMU grad can cash out and take a job in Boulder, Colorado. The reduction in salary doesn't seem so bad when your house gets twice as big at half the cost.

On the other hand, fellow employees who did not cut their tech teeth in California can't count on the Prop 13 dividend. Wherever Californication goes, neighborhoods gentrify and locals suffer. Residents in other states are forced to pick up the tab for the 1978 tax revolt. Praise be, Howard Jarvis. Thank anti-tax advocates for unaffordable housing.

Jim Russell, a geographer studying the relationship between migration and economic development, writes regularly for Pacific Standard.