Natives of Austin, Texas, know that if you used to stroll down Red River Street, you’d stumble upon a beloved music club called the Red Eyed Fly. It was a hole-in-the-wall establishment — the type of place where you wouldn’t want to walk barefoot, laughs Colin Pope, editor of the Austin Business Journal. Drinks were cheap, songs played on the jukebox until morning and live rock echoed through the backyard.
Pope says Google managers trying to lure hires to Austin often brought them in for an authentic taste of the city. In 2015, the club closed its doors amid rising rents, a sign of a major change that’s been brewing. For a long time, the Texas capital seemed to spur economic development without getting swallowed by rent hikes like other cities across the United States. In fact …
UNTIL A FEW YEARS AGO, AUSTIN WAS THE ONLY MAJOR U.S. CITY WHERE INCOME KEPT PACE WITH RENT HIKES.
But now even the 800,000-strong Austin is slipping, according to Apartment List, an online platform for renters. It analyzed residential rent growth for the top 30 U.S. metro areas by population through census data from 2014, says Igor Popov, a chief economist at Apartment List. Rents kept up with income in places like Las Vegas and Phoenix, but those cities didn’t have income growth relative to other major metros. And in other cities with high-income growth like Washington, D.C., Boston and San Francisco, rents increased nearly twice as fast. Average rent in Austin — roughly $1,300 — has now caught up to that of Boston, but hasn’t yet nipped the heels of Los Angeles and San Francisco at nearly $2,300 and $3,600, according to RENT Café.
For decades, Austin appeared to avoid trends plaguing other cities — until 2016, when rents began outpacing incomes. From 2007-2016, median rents in Austin rose nearly 22 percent, while incomes rose 25 percent. But from 2016-2017, median rent rose 1.1 percent while median income actually decreased by 0.8 percent.
The growing economic divide has stirred local attention. It’s a top priority to be a more affordable city for both owners and renters, says Jeremy Martin, senior vice president of strategy at the Austin Chamber of Commerce. The city is updating the land development code so builders and developers can construct housing of various sizes and price points, and voters approved bond propositions last year to funnel $250 million toward affordable housing projects. There’s also a focus on harnessing local talent, with the city adopting an economic development policy that creates new programs targeting small business. This includes “the hiring of locally trained employees and graduates from different workforce programs,” Martin says.
Austin is a burgeoning tech hub, with Apple as its largest employer. But there’s been high-end job growth across industries, says Joel Kotkin, an urban studies professor at Chapman University. Large financial services companies opening new branches often relocate employees from more expensive coastal cities, says Pope. Despite Austin’s lower cost of living, these “pioneer employees” don’t usually get pay cuts. Though a small segment of total newcomers — most migrate from elsewhere in Texas — these relocating workers move the needle to elevate rental costs, Pope says.
Unlike coastal cities, Austin has plenty of available land, Pope notes. Kotkin links continued development on Austin’s fringes to historically lower housing prices. As the dream of homeownership has slipped beyond reach for many Americans, it remained tenable around Austin compared to other big cities and tech hubs — with the traditional assumption being that renters transition into homeowners when they build enough wealth. But the national homeownership rate declined for 12 consecutive years as of 2017 data, according to the Harvard Joint Center for Housing Studies. And those higher-income, would-be buyers who keep renting crowd out lower earners, says Kotkin.
To be sure, Austin’s $332,700 median property value and 45 percent homeownership rate still fare nicely compared to those of Boston, San Francisco, Los Angeles and New York, where homeownership rates don’t top 36 percent and median property values exceed $500,000, according to Data USA. But the city has reached a tipping point. Companies like Apple can sell Austin to employees in part for the bars, restaurants and nightlife for which the city is known, says Pope, noting a surge in the hospitality sector as the city has grown more popular. “It’s a very yin and yang relationship between the Googles and Apples of the world and our local establishments,” Pope says. “When you have a lot of Google employees now living downtown next to those bars, it [raises] the question: where do the people who work in those bars live now?” The answer? Austin’s outskirts, where construction is cheaper.
Though Austin’s proved sturdy in past downturns, navigating the next recession with major Amazon, Apple and Facebook offices will unearth uncharted terrain. In Pope’s eyes, Austin is a teenager in transition: growing in leaps and bounds, with voice cracks and growing pains. For sure, it could make a comeback to reclaim its former crown that’s slipping out of reach. But if not, the forecast looks bleak — as no other major American city right now retains that dual promise of high-income opportunity and housing security.