Apple’s $1 billion bet imperils a tech hub’s rare bargain homes

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Updated: December 23, 2018 6:51:34 PM

That could leave him in the situation of the narrator in his song “Goodbye City.”

The most recent figure puts Austin’s population at just shy of 1 million people — a stretch for a town with just two major north-to-south highways.

For Austin singer-songwriter James Steinle, the longing for a place of his own that no one can take away runs right through his music.

“In the box, one final letter, state claims eminent domain,” he sings. “I don’t go to town no more because the town is coming to me.”

In real life, it’s not an expansionist government that threatens Steinle’s dream of homeownership. It’s Apple Inc.

The tech giant announced this month it’s opening new offices in Austin, investing $1 billion and bringing as many as 15,000 jobs to a city that was already the fastest growing in the nation for three years running — with a thriving music and arts scene, an established technology industry, a rising national profile and a booming real estate market. And just like that, the neighborhoods Steinle had been eyeing in South and East Austin started slipping out of reach.

Mellow Mushroom
At 26, Steinle has spent seven years in Austin, starting at an open mic night at the Mellow Mushroom, moving up to opening act at college venues, then Friday night headliner at local institutions like the Saxon Pub. Even as he gets a taste of musical success, Steinle, who shares a house with three roommates, hankers for his first real home. He’s been working a second job upholstering furniture, and he recently inherited enough cash for a small down payment from a close family friend.

While Apple’s announcement lacked the months-long drama of Inc.’s search for a second headquarters, the news is triggering the same fears of soaring rents and home prices that Amazon’s decision sparked in the Queens neighborhood of Long Island City and to a lesser extent in Northern Virginia.

But Austin is different. It’s already a tech hub — home to more than 6,000 Apple employees, about 13,000 Dell Technologies Inc. workers and another 3,000-plus at Oracle Corp. and Amazon combined — but it’s also all about the arts and live music — an endeavor pursued by hard-working, though rarely rich, artists striving to be the next Willie Nelson or Townes van Zandt.

The city’s evolution is reflected in the growth of the annual South by Southwest festival, which began in 1987 as a late-winter gathering for the music industry and gradually morphed into a celebration of the marriage of art, tech, commerce and branding excess.

Austin’s population surged almost 20 percent from 2010 to 2017, according to U.S. Census Bureau estimates. The most recent figure puts Austin’s population at just shy of 1 million people — a stretch for a town with just two major north-to-south highways.

Probably the only thing you’ll hear residents complain about more than traffic is how much rents have gone up. The median rent in Austin has climbed more than 30 percent over the past eight years, according to Zillow, compared with a more-modest 15 percent increase across the rest of the country.

“Austin, when it comes to the housing market, is one of the most expensive Texas cities, but one of the least expensive tech cities,” said Aaron Terrazas, senior economist at Zillow. In Austin, the median rent is $1,685 a month. That compares with $2,378 in New York City and $3,506 in San Jose, which includes Silicon Valley.

The median sales price is $300,000, up about 50 percent in the past six years, according to Texas A&M University’s Real Estate Center.

“The main driver there is the tech boom,” said Connor Harris, a policy analyst at the Manhattan Institute, a New York-based conservative think tank. “You have this massive growth in population combined with most of the city is in a zoning code that’s more appropriate for a small town.”

Austin Transplants
The lack of detail on the types of jobs Apple expects to add at its Austin expansion makes it difficult to predict whether new employees will opt to buy or rent. According to Elton Rude, principal of Austin-based 360 Real Estate Analytics, it’s safe to say a high percentage will be transplants.

“If in three years our economy is anywhere near where it is now in terms of job growth and the unemployment rate, many of those positions that will be filled by Apple in that new facility, those people have to move here from somewhere else,” he said. “And they will have to live somewhere.”

An Apple representative declined to comment on the company’s plans.

An influx of millennials, many in the tech industry, has already pushed out some long-term residents and turned neighborhoods such as East Austin’s Montopolis whiter and richer, said Fred McGhee, a community activist and 13-year Montopolis resident.

“Gentrification has already pushed the knife in 6 inches — Apple is probably about another inch in the back,” said McGhee, who’s also authored a book about Montopolis.

Single Mom
“This is pitched as jobs and so forth and so on,” he said. “What it’s going to do for a single mom with four kids and no high school diploma is a different kind of story.”

Austin’s tech growth has also included a strong startup culture, which could be squeezed by the arrival of so many Apple jobs, said Stephen Huerta, chief executive officer of Workify, a 12-person company that offers a platform for employee feedback and analysis to customers including Yeti, the Boston Beer Co. and Alamo Drafthouse.

“As more and more companies move here, the cost of living is going to increase — everything is going to increase — and to attract talent, you’re going to have to pay higher salaries,” Huerta said. “I still think we’re in a boom phase for Austin,” he said, while Ryan Bingham played in the lounge room of an office space he shares with his co-founder’s software company, Headspring. “It’s still a really low-cost alternative to California and the East Coast.”

Apple’s Austin pick makes sense. The University of Texas provides a steady stream of college graduates seeking jobs, and tech companies have been scrambling to find homes in more livable cities as Silicon Valley becomes overcrowded.

“Austin, as any city, is always changing, and with change comes challenges,” said David Pruitt, Central Texas district manager for Coldwell Banker United Realtors, who’s lived in Austin since he enrolled at the University of Texas in 1981. “At the end of the day, I don’t think growth is bad. I think it’s an opportunity, actually.”

Still, Steinle’s search for a home continues to come up short, and he’s realizing it may be time to look at more affordable towns like Lockhart, about 35 miles outside Austin, or Buda, about 15 miles away.

That could leave him in the situation of the narrator in his song “Goodbye City.”

“I’m letting go, it’s a gosh darn pity,” he sings. “Hammer down and goodbye city. I never should have stayed so long.”

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