By Meghan Hall
There are many advantages to living and working in one of the nation’s top tech hubs, but high housing prices isn’t necessarily one of them. While many tech workers have managed to escape the consequences of rising house prices, a new study released by RentCafe, a real estate news blog, shows that rents are beginning to outpace even IT wages in major tech hubs, including the San Francisco Bay Area and Puget Sound.
In these top markets, said RentCafe, wages in the largest IT hubs are stagnating. RentCafe compiled data from their top markets by looking at the 100 largest metros in the United States and then narrowing down the pool to metros where the number of IT jobs exceeded 20,000.
The metro with the largest share of tech jobs was in San Jose, Calif., where 12.1 percent of jobs are devoted to IT thanks to companies such as eBay and PayPal. Seattle, where 6.8 percent of jobs are IT, ranked third, while San Francisco ranked sixth, with 5.8 percent of jobs in IT.
According to Florentina Sarac, writer for Rent Café and author of the report, the IT employment base values renting over buying, especially in markets such as San Jose and San Francisco, where wealthy renters have recently outpaced homeowners in terms of growth. This, along with increases in demand, have pushed rental rates upward.
“This is mostly due to the nature of the job market, focused primarily on tech that makes IT employees value more the mobility and flexibility that renting offers,” explained Sarac. “As renters, they have the possibility to relocate whenever needed, regardless if it’s a professional or personal decision.”
In San Jose, there are 132,140 jobs in IT, and the metro has been a top destination for multinational companies, startups and developers looking for more affordable prices within the greater San Francisco Bay Area. But as the tech industry has taken off, the average rent in San Jose reached $2,871 this year, an increase a 6.9 percent increase between 2016 and 2019. Additionally, while San Jose has the highest average wage in RentCafe’s list of top metros at $126,200 per year, it also saw a wage decrease of 0.8 percent.
Seattle, with 132,750 IT jobs, fared slightly better than San Jose. While wages did not change at the same rate as rent, wages did at least increase. The average wage in Seattle reached $115,500, an increase of 7.8 percent over the last three years. However, the average rent increased to $1,825, an increase of 11.7 percent.
San Francisco proved to be an exception to the rule. It was the only metro, other than Columbus, Ohio, in which IT wages outpaced rent growth. While San Francisco has the priciest apartment market, with the average asking rent at $3,084 per month, rents only grew 5.8 percent over the last three years. Wages, however, grew 13.9 percent, and the average wage reached $122,600.
The common problem for these metros, according to the report, is that a strong job market, combined with in-migration and limited housing stock, have fueled the acceleration of rent growth and home prices.
“Taking into consideration the high cost of buying a home and maintaining it, along with the fact that it ties you to a certain area, renting will probably continue to appeal to a high number of people, including those that can afford to buy,” said Sarac.
This trend is likely to continue in the future, as metros such as San Jose and San Francisco again topped RentCafe’s list for metros with the highest 3-year increase in IT jobs. San Francisco, which ranked sixth, saw a 19.5 percent increase in IT related jobs, while San Jose, which ranked 13th, saw an increase of 16.6 percent. Job growth often translates to population influxes, which puts pressure on housing availability and drives up rent.
“Santa Clara county upped its population by 7 percent between 2011 and 2017, while the San Jose metro only built 4,533 units in 2018,” said Sarac. “Given the fact that the number of renters is likely to increase in the Bay Area, the multifamily market will need to focus on building more units in order to meet the upcoming demand.”
Competition for housing will remain tight, predicts Sarac, as municipalities struggle to keep up with demand. While tech workers may still be able to afford housing in these metros, many others will be priced out.
“The housing market will need to step up its game and build more multifamily units, with a focus on affordability,” said Sarac. “While tech employees will be able to afford the rising rent prices, the average renter will find it hard to avoid being rent burdened. Looking ahead, we will likely see more tech companies get involved in the community, working together with local stakeholders to find solutions for the areas that they gentrified.