What Tech Offices Really Mean For Local Housing Prices

Openings of tech offices are associated with “strong and long-lasting” impacts on local housing prices, according to a new analysis by UCLA’s Benjamin Freyd.

His research found that within two years of an office opening, housing prices rose 11% within 1 kilometer o the new office relative to matched areas between 1 and 3 kilometers away.  The difference persists, he says, at around 8% five years later. And the effects are “substantially larger” than those found when supermarkets or coffee shops open in a neighborhood.

“An agglomeration explanation seems to be the most compelling mechanism,” he says. ” The new office attracts similar firms in its neighborhood, such that the number of high-skill, affluent residents substantially increases.”

To fuel his analysis, Freyd examined data on a number of major tech office openings, including their exact address and the year of opening, and then statistically assessed the impacts on house prices using transaction-level data. His analysis spanned 14 years and more than 25,000 property transactions.

Those rising home prices are a “ key ingredient” in the gentrification process, Freyd notes, with effects that are “strong and long-lasting.” He makes the policy recommendation that to protect local renters and preserve housing affordability, “openings of large tech offices should be accompanied by appropriate increases in housing supply.”

A new crop of tech hubs has emerged during the course of the pandemic, led by markets like Ventura, Buffalo, Greensboro, Miami, Greenville, Knoxville, New Orleans, Norfolk, San Bernardino, Nashville, Lexington and Wichita. 

“With skilled labor relocating beyond the bounds of established tech hubs and fleeing the lofty rents and wages within them, larger tech firms may rethink their roots,” Moody’s analysts noted in a report earlier this summer. “Silicon Valley, Seattle or Boston will likely remain top tech hubs, but there is movement towards tech sector balance spreading throughout the country.”

Tech leasing accounted for 22% of all office leasing in the last quarter, but demand has slowed as of late as many companies continue reconfiguring their WFH policies. And the pullback in tech demand “really takes the leg out of the stool for growth” for some office REITs, according to BMO Capital Markets analyst John Kim, who spoke about the impact of the slowdown on office REITs with CNBC’s ‘Squawk on the Street’.