A new report from business social media company LinkedIn is the latest to find that escalating housing costs are making workers reconsider moving to the Bay Area, and its findings are staggering. Just since February of 2017, the number of people relocating to San Francisco has plummeted 41.7 percent, said the report, which was released in early April.
Long the country’s No. 1 technology employer, the Bay Area is now losing potential employees to Seattle, which has become the top destination for workers who move away, according to LinkedIn’s report. Bay Area employees are also departing for Portland and Sacramento, the report said.
People and businesses are moving out in greater numbers than any time since 2002
LinkedIn’s data analysis—which is not scientific—is based on information that its members have posted on their work profile pages. However, other studies have confirmed this out-migration trend, which comes as large tech firms have launched from the Bay Area to establish beachheads in other regions of the country, taking jobs with them.
A recent Wall Street Journal analysis of U.S. Census data showed that 24,000 more people moved out of the Bay Area in 2016 and 2017 than moved into the region from other parts of California or the U.S. That’s roughly double the loss experienced the previous year, as well as a sharp reversal from net annual gains of about 15,000 as recently as 2013-14, the Wall Street Journal reported.
Even so, contributions from foreign immigration and more births than deaths helped the San Francisco metropolitan area’s population overall grow 0.6 percent last year, a rate that’s slightly below the national population growth rate of 0.7 percent for that year, the newspaper said. The publication’s analysis included the year that ended July 1, 2017.
LinkedIn economist Guy Berger said the San Francisco Bay Area is gaining workers from cities including New York City, Boston, Washington, D.C., Chicago, Detroit, Houston and Los Angeles. However, rival cities that offer professional opportunities coupled with a lower cost of living are siphoning San Francisco workers away, Berger said. Those communities include Denver, Seattle, Portland and Austin. Las Vegas and Phoenix are also destinations.
According to a tally from the National Association of Realtors, the Bay Area is the most expensive metro region in the United States in which to buy a home, and that’s pushing some people out.
“Most likely, any slowing in inbound population is more strongly related to sky-high home prices [in the Bay Area]. Financing costs do play into this to a degree, but to a far lesser degree,” said Keith Gumbinger, vice president at HSH.com, which tracks the mortgage market.
The San Francisco metropolitan area reported a median house price of $920,000, which would require the homeowner to earn $209,272.69 annually, Gumbinger said. However, the median family income in the area totals $98,647 he said, citing U.S. Census figures.
Since the median income is way below the amount needed to buy a median home, Gumbinger said, “folks that aren’t making low-to mid-six figures really can’t afford to buy.” He added that rents, too, are high and rising, “as a result of strong competition for rentals.”
Despite its housing pressures, the Bay Area maintains its hefty cachet. San Francisco’s Paragon Real Estate Group found that more people are coming to live in the Bay Area than are leaving, when including those who migrate in from other states, along with those who move to the region from foreign countries.
“It is true than in the past two years, domestic net migration has shifted to a net loss, but that deficit is still overcome by the large positive in foreign immigration,” said Patrick Carlisle, chief market analyst at Paragon. “People and businesses are moving out in greater numbers than any time since 2002. At the same time, start-ups continue to start up by the hundreds, local business continue to expand, and the Bay Area undoubtedly remains one of the most innovative and dynamic economies in the world,” Carlisle said.
Another housing trend is the rise of San Francisco’s ‘exurbs,’ Berger said. That collection of smaller cities with easier-to-afford living costs includes Sacramento, which Berger said has become the Number 3 destination to lure away San Francisco’s workforce talent.
“Some folks are moving there ‘root and branch,’ while others are keeping their Bay Area jobs and taking on a lengthy commute,” Berger noted. Others who leave greater San Francisco are migrating to smaller ‘exurbs’ including Stockton, Modesto and Salinas, all about a 90-minute drive from San Francisco. Even Fresno, a three-hour drive away, remains a popular residential destination for San Francisco workers who are eager to find more reasonably-priced living.
Retirees remain among those retreating from the Bay Area, continuing a long-standing trend. Some seniors are choosing to cash out on high home prices and move to less expensive locales that include other counties in California, as well as Nevada, Arizona and Oregon, says Paragon’s April research report. “This is not a new phenomenon, as it has been going on for decades, though it may have accelerated in recent years, since cashing out has become so much more lucrative,” the company said.
The rising cost of housing is particularly problematic for the lower-wage employees that all companies depend on, including janitorial staff and other support workers, said Bob Staedler, principal executive with the land-use planning and consulting firm Silicon Valley Synergy.
The lack of housing for those workers is “a really bad thing for employers. It’s extremely dire,” Staedler said. “Companies aren’t all looking for C-suite, top-level employees. When you look at the ecosystem of what keeps…companies running, it’s at all levels of employment and salaries.” The lack of affordable housing near San Francisco’s growing companies means blue-collar workers may be “commuting multiple hours in each direction” to get to their jobs, said Staedler, placing “a strain on them, their families and their productivity. It does have a huge impact.”
When it comes to housing costs, Seattle maintains a significant edge over the Bay Area. Seattle is the second best tech market in the nation, behind only San Francisco, according to a July 2017 report from real estate company CBRE. The average rent in Seattle remains more than $1,100 per month less than San Francisco, according to CBRE. Seattle’s office rents are also more affordable, amounting to about half of San Francisco’s going rate. At the same time, Washington does not collect personal income tax, allowing the income earned by those employees to go further than it does in the Bay Area.
Despite San Francisco’s high housing costs and population growth slowdown, Gumbinger said to look at the bright side. At least the situation is easing the “torrid pace” of population growth of recent years that’s left the Bay Area “bursting at the seams from growth without concomitant improvements in housing supply and infrastructure,” Gumbinger said.