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Some of the problems that tech hubs like the San Francisco Bay Area, Seattle, Los Angeles, and Boston face are housing markets that are too expensive, fierce competition for a shrinking talent pool, and commutes that are too long.
Some of these places still have a strong pull that brings in venture capital funding and tech talent, but smaller tech companies don’t want to move there because it’s too expensive and hard to keep good employees. Not only are smaller tech companies avoiding the tech scene because it’s too crowded, but larger tech companies that have grown too big for their headquarters are turning their attention to markets they didn’t pay attention to before.
At Zillow, we looked at a lot of data to figure out which markets are the best for startups or tech companies that want to set up their next office.
In addition to using data from the U.S. Census and Bureau of Labor Statistics, we used Zillow’s own data products, partnered with Ookla for internet insights based on Speedtest data, and used LinkedIn’s skills gap data to find out how many tech skills are available. The analysis focuses on things that would make skilled workers want to move there, which means that tech companies looking for talent outside of the usual tech circles have a lot of good options.
We focused on five things that show how ready a market is for tech growth: 1) Demographics and labor market dynamics, which show that the economy is strong; 2) Tech skills, which show that the market has or could have talent; 3) Market “hotness,” which shows that the market could attract people; 4) Housing affordability, which shows how affordable housing is; and 5) Livability, which shows how appealing it is to live in that market.
There are five factors that show how ready a market is for tech growth.
The markets right in the middle of Silicon Prairie may be the ones that startups are most interested in. Rounding out the top 10 are markets in the Midwest and the South that can attract both talented people and tech companies looking to hire them. Also, the traditional tech hubs were at the bottom of the list because their prices and quality of life were getting worse.
“Rising costs of living and soaring housing prices in many major U.S. cities mean that employers need to set up pay structures that allow their employees to live and work in the same city.” “And if they don’t, they might have to pay for it,” said Jenny Ying, a data scientist at LinkedIn who works on the Economic Graph.
“Our data shows that many people will leave the area altogether to find a better quality of life.” This is already happening in many of the country’s biggest tech hubs. New York, Los Angeles, the San Francisco Bay Area, and Seattle have the lowest tech skill scores on the list, which is because the demand for this talent is higher than the supply.
Affordable markets
Oklahoma City and Kansas City are two of the best places for tech companies to set up shop. The average income earner spends a smaller share of their income on housing in these cities. They also rank highly in terms of livability (Kansas City is the best in this category) and the number of tech skills available.
Hot markets
Some southern markets, like Jacksonville, Florida, San Antonio, and Austin, as well as Cincinnati, are also in the top 10 for how hot they are. These places are likely to grow and get more people because rents are going up and/or home values are going up, and more people are looking to move in than to move out.
Tech centers of the past
Even though this study focused on markets like Austin that are already thought to be ready for growth in the tech sector, most of the top 10 markets were not obvious choices. But what about the tech hubs of the past?
In fact, all of the spots at the bottom of the list were taken by traditional tech hubs. Most people don’t think of Chicago as a tech hub, but it was also near the bottom of the list. Lack of affordability is a big problem for tech hubs. In this study, Los Angeles and the SF Bay Area had the worst rankings for the affordability of all the markets that were looked at.
In high-cost-of-living areas where housing is expensive, employers need to be able to pay top dollar to stay competitive. This pressure on pay is made worse by the shrinking number of skilled tech workers.
The lack of skilled tech workers means that New York, Los Angeles, the San Francisco Bay Area, and Seattle have the lowest tech skills scores on the list. Even though tech hubs like the San Francisco Bay Area and Seattle have strong labor market indicators, they are not enough to make up for things like rising prices, a lack of skilled tech workers, a slow housing market, and long commutes.
Methodology
We looked at a number of factors that would attract tech companies and help them keep tech talent to figure out which markets are best for startups:
Population growth and the job market
Job growth (Bureau of Labor Statistics, Current Employment Survey)
Unemployment rate (Bureau of Labor Statistics, Local Area Unemployment Survey)
share of people between 20 and 35 (U.S. Census, American Community Survey)
Tech skills
- Share of the population with a bachelor’s degree, over the age of 25 (U.S. Census, American Community Survey)
- Shortage/surplus headcount of those with Software Development skills
- Shortage/surplus headcount of those with Data Science skills
- Shortage/surplus headcount of those with Artificial Intelligence skills
Market Hotness
- Year-over-year growth in home values
- Year-over-year growth in rent estimates
- Inbound-outbound home search ratio
Housing Affordability
- Share of median income needed to pay the median rent
- Share of median income needed to pay the median mortgage payment
Livability
- Broadband speed, Mbps upload (Ookla)
- Broadband speed, Mbps download (Ookla)
- Mean commute time for workers that do not work from home
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