Why Texas Is So Appealing to Business Owners — and Their Employees
Certainly, the strong talent pool and constant stream of highly educated graduates from Austin, Houston, Dallas, and beyond are appealing for any firm looking to grow, Jacobson pointed out; and the state's central location has its advantages for business travel and distribution. But it's no secret that Californians who have made Texas home have done so largely because of the lower cost of doing business and fewer regulations. Texas is one of seven US states that does not have a state income tax, whereas top earners pay a 13.3% state income tax in California. In terms of business-friendly taxation systems, the Tax Foundation’s State Business Tax Climate Index for 2021 ranked California 49 out of the 50 states, while Texas came in at 11. Making a move to Texas can save businesses as much as 20% on overall costs, including taxes, payroll, and operating costs.
However, access to much less costly real estate in Texas is also a big draw for Californians. Ben Wright, a senior economist at California Economic Forecast, pointed out that California's lack of affordable housing and high real estate costs, both commercial and residential, are the main reasons businesses are heading to Texas and other states like Florida and Arizona.
“Taxes and regulations are certainly a factor, but salaries are often the largest cost for professional services firms, so finding ways to reduce salary expenses is the primary reason that companies relocate out of California. Reducing salary expenses is the main draw, and a lower tax rate is the cherry on top,” Wright explained.
After Hawaii, California is the country's second most expensive state for purchasing real estate.
In an October 2020 report released by the California Association of Realtors, the state’s median home price was forecast to rise 1.3% to $648,760 in 2021. According to Zillow, San Francisco still takes the top prize for the most expensive city in the state to live in, with the average home valued at $1.41 million. San Jose is a close second, with the average home price at $1.06 million. These numbers only continue to rise each month, with RenoFi projecting that by 2030, homes in both cities will average $2.61 and $2.25 million, respectively. However, apartment rental prices in these two major tech hubs have been driven down in the last year by the shift of newly remote employees moving out into the suburbs — and out of state.
On the other hand, the average cost of a home in the city of Austin is valued at $482,766 as of February 2021 — up 15.1% since January 2020 — although the current housing supply is having a hard time keeping up with the growing demand driven by the flood of corporate relocation.
“We’re still very much in a sellers’ market [in Austin]. Across the region, a high quantity of offers, cash offers and requests to waive appraisals or option fees are increasingly commonplace,” said Job Hammond, 2021 secretary/treasurer of the Austin Board of Realtors.
Growth of Remote Work Culture Allows for Relocation
Aside from more obvious financial motives, the success of remote work during the pandemic opened up a world of possibilities for employers and employees. A study from Upwork in October 2020 found that between 14 to 23 million Americans planned to relocate due to the newfound flexibility offered by remote work. And between February and May 2020, apartment search websites like Apartments.com and Zumper.com both reported a sizable spike in searches from the San Francisco Bay area for housing in Austin. Because companies are finding that it's business as usual even without in-office meetings, they are offering employees the chance to work from home permanently or relocate to a more affordable city — which has led to many tech employees bidding farewell to California's skyrocketing real estate prices and embracing the lower cost of living in places like Austin. In filing its corporate headquarters relocation decision in December 2020, Oracle stated that its move meant “many of our employees can choose their office location as well as continue to work from home part-time or all of the time.”
Jacobson is excited about the people moving in to grow, nurture, invest in and give back to the startup ecosystem of Austin and the region but admitted that “we never want to become Silicon Valley because of the things that have happened there, the cost of living, and we do have our challenges as [Austin] grows, like affordability and traffic.”
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About the Author
Suchi Rudra is a freelance writer who is passionate about covering emerging tech, entrepreneurship, and real estate. Her work has appeared in The New York Times, Fast Company, VICE, EdTech Magazine, and many other publications.