The Millstone Times October 2019

REAL ESTATE The Impact of the Tech. Boom on Housing Combining Census Bureau and Zillow Housing Data Show Rise in Rental Prices and Home Values in Tech-Rich Areas By: EARLENE K.P. DOWELL You’ve heard of the “Amazon Effect.” Now you can see it. By combining U.S. Census Bureau data and their own housing listings, economists from Zillow, an online real estate search engine, have been able to show just how much rental prices and home values have skyrocketed in areas across the country that are experiencing a tech boom. Zillow combines housing data and Census Bureau data to help understand the link between housing prices and the tech boom. During a recent Local Employment Dynamics (LED) Webinar Series, “Housing and the Tech Boom,” Aaron Terrazas, a former Zillow senior economist who is now director of economic research for a Seattle startup, showed how Zillow combines housing data and Census Bureau data to help understand the link between housing prices and the tech boom. The Amazon Effect South Lake Union, once an industrial area adjacent to downtown Seattle, underwent an urban transformation with the development of skyscrapers, fancy restaurants and coffee shops. Although Amazon is the major contributor to the area’s tech rise, Microsoft, Facebook, Google, REI and more also have offices in the same neighborhood. To see how the Amazon headquarters affected Seattle’s housing market, Zillow economists looked at the Census Bureau’s Longitudinal Employer-House- hold Dynamics (LEHD) data, specifically the LEHDOrigin-Destination Employment Statistics (LODES) data set. LODES shows the relationship between where people work and where they live. By merging Zillow rent data with the LODES data, the group found that rent around the Seattle metro area had increased 17 percent from 2011 to 2015, triggering a supply and demand challenge. This housing shortage was dubbed the “Amazon Effect” in an article by Gene Balk, a columnist at The Seattle Times. The IPO Effect Zillow took a similar approach, using LEHD data, to see what happens to housing prices when a tech company goes public, which often creates a wave of instant millionaires. The study by Zillow economist Jeff Tucker, “Post-IPO, Home Values Grew Faster in Areas Home to Lots of Facebook Employees,” shows the impact of Initial Public Offerings (IPOs) on housing in the San Francisco Bay area. Tucker identified 1,360 census tracts as home to Facebook employees within four census blocks of the company’s headquarters. Between March 2012 and 2013, Facebook employees’ home values jumped 21 percent compared to 17 percent in other parts of the Bay Area. According to Tucker’s study, homes appreciated $29,800 in neighborhoods near Facebook headquarters. More IPOs Lyft recently went public, and other tech companies including Uber, Airbnb and Pinterest are also on the verge of going public. Because of that, Zillow decided to look at price elasticity and the California Exodus. California housing has become so expensive that some data suggest people are moving out of California and moving to adjacent metropolitan areas, such as Dallas, Phoenix and Las Vegas where housing is cheaper. Zillow researchers looked into worker reallocation (inflows and outflows), using the LEHD Job-to-Job Flows (J2J) data set. “People moving from one part of the country to another is a very important fundamental concept in real estate economics,” Terrazas said. By connecting J2J and areas adjacent to the state of California, Zillow could study mortgage affordability — the share of household income that goes to pay the mortgage. The study found that during last decade’s housing boom in Southern California, home values increased and other areas became even more affordable by comparison. In 2006, Dallas was 46 percent more affordable and Vegas and Phoenix were 25 percent more affordable then Southern California. By 2014, as more people moved into these more affordable areas, the affordability gap narrowed: 20 percent more affordable in Dallas and 15 percent more affordable in Las Vegas and Phoenix. Zillow continues to use the LEHD data to examine the impact of 50,000 new jobs when Amazon opens a second headquarters in northern Virginia. It is also studying housing costs of homes 15 to 30 minutes of downtown metro areas.

16 The Millstone Times

October 2019