How A Wave Of Tech Expansion Could Further Strain Affordability In Austin

Apr 5, 2019

If you were relieved by last year’s announcement that Amazon’s HQ2 would go elsewhere – along with its potential 50,000 employees over 15 years – know this: Expansion efforts by Amazon, Apple and Google could produce a near-equivalent wave of folks coming to Austin – and sooner than any HQ2.

The influx could come so quick, it surprised some of the tech companies' own employees. Kristina Raspe, Apple's vice president of global real estate, drew gasps in December when she announced a new North Austin campus would have its first employees within 36 months.

Apple is planning to bring 5,000 employees by the end of 2021. When complete by the middle of the next decade, the campus will host 15,000 workers.

Last month, Amazon announced it will hire 800 people – primarily software and hardware engineers – when construction is complete as soon as next year on a new building in the Domain.

Meanwhile, it has been widely reported that Google leased an entire 35-story, 735,000-square-foot building under construction on Cesar Chavez Street. Using commercial real estate estimates, that means Google could have 5,000 employees in the tower when it's complete in a few years.

“We don’t want to say, ‘No, we don’t want those jobs here.’ We need the jobs here," said Nora Linares-Moeller, executive director of HousingWorks Austin, an advocacy group looking to increase the supply of affordable housing in Austin.

Linares-Moeller said new jobs are great, but they will complicate the city's affordability puzzle.

“We’re not saying we’re not happy that we are going to have new people in town, but we really do want to be mindful that it’s a domino effect,” she said. "As more people come in, it increases some of our people that have to move out.”

All told, more than 5,000 new well-paid employees will be in the Austin area in 2021 – and perhaps more than 20,000 by 2024. That's more than Amazon initially promised with its H2Q in that timeframe, and doesn’t include the roughly 4,000 tech jobs organically created every year in the area.

A Tipping Point

Austin has been feeling growing pains in the housing market for two decades, but the 2010s have been particularly painful from an affordability perspective.

In February 2011, about 53 percent of homes in the Austin area were priced below $200,000, according to Luis Torres, a research economist at Texas A&M University's Real Estate Center. Right now, he said, only 8.6 percent of homes are selling for less than $200,000.

"That's impressive," he said.

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Let that sink in: Eight years ago, more than half the homes in the Austin area sold for less than $200,000. Now, less than 9 percent do. And while the economy is good in Austin, things could be reaching a tipping point.

“We’re losing that competitive edge we’ve always had,” Torres said. People think it's cheaper to live in Texas – compared to California, New York or the Boston area – "but we’re starting to lose that.”

Low- and middle-income families looking for housing in the Austin area are the first affected in this economic tug of war.

People looking for homes that cost less than $200,000 are being left out of the housing market, Torres said, especially first-time homebuyers who are not in the tech industry.

The story is not too different for renters. Apartment rents rose more than 3 percent year-over-year, according to March 2019 data released this month from Apartment List. It said Austin ranks the highest in Texas and fourth highest in the nation for rent growth.

All this pushes folks farther out to cheaper land, driving an even bigger reliance on cars to get around. Then gas and maintenance compound the affordability problem by cutting deeper into strained budgets.

A Relaxation Of Rules

Torres said one thing the city could do to help is lift zoning restrictions; strict regulations limit housing supply, he said, and that means higher prices.  

The city tried to incorporate some zoning changes in its failed bid to rewrite the building code, also known as CodeNEXT.

Linares-Moeller agrees that relaxing some rules would add to supply.

“If you allow for more height, you can add one more story than before you had the restriction on,” she said. The city could also lower the number of parking spaces per housing unit.

City Council Member Greg Casar included those tweaks in an initiative members approved in February called "Affordability Unlocked." The program calls for denser development and would clear the path to better spend the $250 million affordable-housing bond money voters approved in November. As part of the plan, the city would like to see 60,000 affordable units built within 10 years.

It's a nice plan, Linares-Moeller said, but the city can't quite get there with the resources it currently has.

“If you just take the housing bonds and you took all the normal pieces of adding more affordability, it doesn’t give you 60,000 units,” she said. "So, we have to be innovative. We have to start thinking about new ways to do this.”

She said that could include a mix of things like more public-private partnerships, employer-housing stipends, tax incentives and loans around the entire city.

"It can’t all happen in East Austin,” she said. "It can’t all happen in South Austin. It really needs to be where people live and work."

The city’s plan could get unlocked with a final council vote on the density initiative in May.