Austin vs. San Francisco Bay Area — Housing

Part #2 — Housing

Note: (Views expressed in this article are my personal views only and not representative of my current employer)

Introduction and Recap

In of this series, I compared the tech job markets for Austin and the Bay Area. This article is part of a 7 part series on Austin vs. SF Bay Area. Today’s focus will be on housing.

  1. Tech Jobs
  2. Housing
  3. Food
  4. Recreation
  5. Weather
  6. Diversity
  7. Politics

I’ll plan to briefly cover the rental market (which is comparatively uninteresting) and then spend the majority of the time on buying/home ownership with a particular focus on Austin given that based on a very recent , Austin is expected to be hottest housing market in 2021 (not unsurprising given the ongoing great tech migration).

Rental Market

San Francisco (and the greater Bay Area) rents have been notoriously pricey and over the past decade or so, the highest priced market in the US, peaking in SF proper at roughly $3.7K/month for a median one-bedroom in the middle of 2019 but have since fallen to ~$2.6K (though likely lower if you factor in incentives such as free rent) due to the pandemic. Multiple roommate situations, partitioning off living-rooms to create “bedrooms”, group communal housing, and renting mother-in-law units of questionable legality (which I did when I first moved to the city…$~1300 a month for a bedroom underneath a house in the Outer Sunset district) were common arrangements even among high-income tech workers. In addition to interviewing for the job you just obtained a startup in San Francisco, it was common to have to interview to live with roommates. Getting a decent place to live might have been equally as difficult (if not more) than getting a job. That’s all in the past though as everyday people are eagerly looking for any roommates and landlords/property owners going all-in on incentives to try and increase occupancy rates(2 months free rent? gift cards? take it all!).

Austin, OTOH has a median one-bedroom rent of ~$1.2K years and the number has been fairly flat over the recent years even with far more people moving in than out. It’s comparatively easy to build housing in Austin and supply of rental housing continues to grow at a steady clip. Austin did not experience a rapid decline in rents due to COVID despite it being a city of “outsiders”— because:

  1. It was not so outrageously expensive compared to the rest of the US so any potential rent savings from moving to a lower COL location were limited at best (main reason).
  2. Apartments are generally more spacious in Austin vs. SF so people could have more room to WFH which is not really possible if you’re crammed into small quarters with roommates.
  3. Austin (and Texas in general) had one of the least aggressive COVID-19 responses and San Francisco (and the Bay Area in general) had probably the most aggressive response in terms of lockdowns. In Austin, everything is pretty much “open” (though many restaurants have chosen not to open for indoor dining despite being allowed to) while in San Francisco everything is shutdown (though beginning to open up as of last week). No comment as to what policy is more effective/correct, but will point out that San Francisco’s shutdown likely had a minor impact on driving the exodus and Austin’s openness likely had the reverse effect.
Austin vs. SF Rents (Source: Zumper)

Outside of the prices, I will note that San Francisco proper does have some of the most architecturally interesting housing in the US in its Victorian-era builds that gives it a very European feel. While unique in look (and centrally located to the happening areas…), you are likely to give up some modern-day amenities such as in-unit laundry along with living in a very old (100+ year old building) and all the charms that come with it.

Victorian Flats (Source: Curbed SF)

If you aren’t in the mood for a Victorian, SF does offer new apartments mostly in the SOMA/Mission Bay/Rincon Hill area (these are where rents have plummeted the most). Overall, SF proper housing is very extreme in the sense that is typically either very new or very old (with some in-between).

Azure apartments in Mission Bay, SF (Source: Equity Residential). I used to live here.

For 50s-90s era stock of rental housing, the peninsula and the South Bay have plenty of that, the drabness of that era stretching all up and down the 101.

Apartments in Sunnyvale (Source:

The rental housing stock in Austin OTOH is much newer on average but has much less character. Even though Austin has a reputation of being hip, I think apartments generally don’t reflect that character. But hey, people like to live in nice and modern builds with in-unit washer and dryer and can go to the local independent coffee to shop to get the daily dose of hipness.

A typical Austin apartment (Source: Buzz Buzz Home)

There are still some “cooler” housing stock scattered around central Austin, but those are being slowly subsumed by the newer developments promoting the comfortable allure of sameness that stretches across the city core to its suburbs.

If it sounds like I am a bit nostalgic for the old Austin it is because I am. The good part about Austin rental housing is that it is pretty new which is also the bad part. Sigh.

Purchase Market

Now we come to the real meat of the story, purchasing a home! This life milestone is sadly, out of reach for most regular folk in the Bay Area given the incredibly high price of residential real estate but in reach for many in the Austin area (but becoming ever unreachable).

The below shows the median home value (single family homes and condos) for the counties in the Bay Area and the counties in Austin.

Andrew Shi Analysis (Source: Zillow Home Value Index)

While a million dollar house in Austin (or any part of the US, for that matter) is often associated with unfathomable riches and luxuries, in the Bay Area it is barely enough to afford a meager ~1000sqft condo or townhouse and only enough for a single family home in stretch cases in more exurban communities. Austin is much, much more affordable and home ownership is within reach even for middle or even lower-income families.

Let’s take a look at an extreme case study just to give you a sense of the sheer imbalance in home prices between the two areas. We’ll take a pause from the city and move to the suburbs, comparing Round Rock (Dell HQ) with Cupertino (Apple HQ), in a classic Mac vs. PC fight.

Here is a quick snapshot comparing the two housing markets.

Source: Zillow

It is roughly 7x more expensive to purchase a house in Cupertino than it is to purchase one in Round Rock. 7X! And that doesn’t even begin to factor in the size or quality of house you can get at that price point in each area.

Just for fun, I took a look at Redfin and filtered for purchases <$500k in Round Rock and Cupertino over the past 3 months. In Round Rock, there are so many houses that were purchased for less than this price point, look at the map below! When I tried to do a similar search in Cupertino, I was only able to find a delicious mint mojito from Philz and some fancy avocado toast, purchased with Apple Pay.

Source: Redfin

I then flipped around Redfin to take a look at some typical houses sold in each area and picked two examples to compare. In Round Rock, you could get this nice 3000 square foot home built in 2014 for $365K.

Source: Redfin

In Cupertino, for the cool price of $2.2M you can get this nice ~60 year old place that’s half the size.

Source: Redfin

The differences in housing prices between the two areas are truly astronomical. Let’s take a look at the numbers for this humble Cupertino abode when compared to the Round Rock house.

  1. 6x the price
  2. 1/2 the size
  3. 12x $ per square foot
  4. 9x older

You can reverse all those numbers for Round Rock if you want. But what is causing this immense disparity in housing prices? Is it because Macs are more expensive than PCs and people are willing to pay a premium for the UX/UI, operating system, and brand? No — I mean even for a similarly equipped build, a Mac premium is typically only 20–30% not the 1000% + we are seeing in the housing market. On a personal note, I’ve owned 2 Dell XPS 13s and they are some of my favorite PCs (and I’ve owned a lot of PCs as I was a bit obsessed with computers in my younger days…).

PC vs. Mac (Source: Apple and Dell websites)

Is it because Cupertino has some of the best Taiwanese food one can hope to find in the continental US? Nope.

Braised pork rice at Red Hot Wok in Cupertino (Source: Tripadvisor)

The biggest reason is probably wealth (+ inventory). Apple and Dell have similar number of employees (~147k for Apple and ~165k for Dell) but Apple market cap is 41X that of Dell. The wealth accumulated by Apple employees who are shareholders (and that number includes many retail employees who may not be granted shares, so it’s probably understated when comparing relative wealth) is simply much greater than the wealth accumulated for Dell employees, so the ~12x “value difference” that was discussed above isn’t really all that crazy given the much wider gap in market cap between these companies.

Market cap as of 1/24/2021

Oh, we can’t also forget about our good old friend supply either. The inventory of housing in Cupertino has been fairly stagnant while the expansion of suburbs in Round Rock is seemingly never-ending, which also contributes to the exorbitant price difference. High willingness-to-pay combined with low supply is the perfect recipe for a 1500 square foot $2M house.

You can tell the story many ways, but at the end of the day, the general gist is that SF Bay Area home prices $$$$ and Austin $. Which is why Austin is the top destination for migrants from SF according to Redfin.

Source: PR Newsire, Redfin

The Crazy Austin Market

Since Oracle announced their move to Austin the housing market has become hotter than the California wildfires were this summer, hotter than an Austin summer, in short, too hot to handle with not a cool dip into Barton Springs Pool in sight. While low interest rates and increased demand for space has boosted prices across the United States, the great tech migration to Austin has just poured jet fuel on a burning fire. Months of inventory is <1 month for much of the Austin area (or close) creating probably the strongest sellers market the city has ever seen. Barely anyone is selling (and why would you?) while everyone wants to buy, especially those coming from California and New York with $$$ on hand and high-paying remote jobs (or jobs that are moving here…). Investors are also eager to get in on the action, if there are near guarantees of 10% YoY appreciation or more, it’s a juicy opportunity. Here are the latest December stats.

Source: Austin Local

So if you’re thinking about moving to the Austin area so you can buy that great value house I mentioned in the prior section easily, here’s what you can realistically expect (hint, it’s not that easy, in fact it is super duper hard). That house you saw sold in October for $XXXK, well, it probably went up in price by 10%-20%+ if you’re even lucky enough to actually win the bidding war. The people who got in last year were “lucky” in a sense. An often recounted tale by real-estate agents here is one house a few miles from me that received 96 offers (and this isn’t even remotely near central Austin…). Let’s get to the details:

  1. Prices have shot up 10%-20%+ since the last few months so be prepared to pay way more than you would have expected to pay last year. Offering 20% over list will make you “competitive” but in many cases you won’t win.
  2. 20–30 bids for anything $300K-$600k is to be expected. Anything above $600K to the low $1Ms, you can still expect ample competition in the range of ~10 competing offers. Even the is competitive too…
  3. Houses are often on the market for <1 week, you may not even get to see a house due to the crushing demand (if there’s no open house due to COVID).
  4. The bidding wars are not just happening in Austin proper, they’ve made their way out to suburbs even exurbs 20+ miles away from downtown. Some of the suburbs might even have greater interest than Austin proper given the increased value of space with remote work norms and the much lower prices per square foot out there.
  5. If you want to avoid the craziness of buying existing inventory and instead go for a new-build, well that’s not much easier. Be prepared to bid for lots (yes that plot of land), be put on a very long waitlist, and watch the builders raise prices by $10k-$50k every week because the builders can and there will still be demand. Maybe you’ll get the house of your dreams but most likely not and most definitely not at the price you were expecting to pay.

This isn’t even a typical “sellers” market in the sense that market comps and rationality don’t really matter at this point. I’ll call this “Green vs. Red Ball to Orange Star Theory” for lack of a better economic term (there is definitely one I’m sure).

If you think about a typical sellers market, let’s say in San Francisco pre-pandemic while there are a lot of bidders for a house, the willingness-to-pay of each buyer will likely cluster close to each other. Everyone has a similar sense of how to value the asset and the likely winner won’t be too far off the others. Everyone is a “green ball” so to speak.

Green ball situation

The situation in Austin is not like the above. Why? Because people from the Bay Area (and other parts of California or even New York) aren’t looking at comps for the Austin area to make decisions, their frame of reference is that $2M 1500 square foot place in Cupertino that they could not afford. When you take that into account, you can throw the market line of reasoning down the drain. These people enter the market as “red balls” and are willing to bid much higher ($50K? $100K? $200K?), no problem because it’s still a great deal when compared to what they they could have bought (or not even been able to buy for that matter) in the Bay Area. Investors also are taking this approach as they see the potential in the future for Austin and its suburbs to become the next Bay Area and are willing to bet on the future.

Green and red ball situation

It only takes one red ball per house to push the prices way up, and right now, there are a ton of red balls in play driving the valuations way up in a short-period of time.

Not only are there red balls, the severe lack of inventory is driving the red balls to turn into what I call “orange stars”. These are the prospective buyers who despite coming ready-to-bid are constantly losing bidding wars (an inevitability given the severe lack of inventory), so they’ll be increasingly desperate as time goes on and subsequently, start to make more “irrational” bids in an attempt to win a house, especially if they have enough capital. Investors are probably not as likely to become an orange star as they are looking for a targeted IRR vs. a place to live.

Orange stars

Once the orange stars to come out of the woodworks, then the red balls and some green balls start to turn into orange stars as well. Other green balls give up because they don’t have the financial horsepower to compete.

Orange star market

Finally we end up with the orange star market, which is where we are headed. Prices on homes can increase up to 20–25% (perhaps more?) YoY from 2020–2021 and what were once irrational bids are now the norm.

In the end, Californians will get their houses even if they paid more than they anticipated for maybe not the dream house. “Local” people (in the sense that they’ve been here 5–10+ years, to use the broadest sense of a local) looking to buy their first home are more likely to be the losers in this war, even if they have the $$$ to compete it will be hard to mentally turn into a “red ball” and put in “crazy” bids at least in the short-term.

If you’ve been in Austin long enough, you have a good feeling about what’s a desirable neighborhood, what schools are good, and what is a “reasonable” price to pay for XXX house in YYY neighborhood. Even if the realtor tells you to offer $80K over list for a property in Leander (a suburb possibly exurb of Austin) 30 minutes from downtown on a good day without traffic, you’re unlikely to do it because err…who pays that much for a place like that in Leander (people from California who don’t know any better…but actually they do…)?

Leander, Texas (Source: Wikipedia)

It is utterly non-sensical to pay that much when compared to the past but unfortunately that’s entirely the wrong frame of reference in this market. Maybe the schools were just OK before, but if highly educated Californians working in tech jobs are going to be flooding in and putting a lot of emphasis on education for their kids, the schools are going to have to get better.

In the long-run, beyond the schools perspective, Leander will actually not be the “boonies” because in the grand scheme of things it is still relatively accessible to Austin and there is still a ton of retail/commercial development that’s in the works but hasn’t been completed yet. , a realtor from California, recently moved his family to Leander from SoCal and has a great providing information on the area. The past, unfortunately, is a difficult mental hump to escape from. Locals will anchor on the “past” and Bay Area migrants will anchor on the “Bay Area” as their reference points for willingness-to-pay, creating the red/green ball dynamic described above.

So for those looking to move to Austin and buy a house (or for locals too), be prepared for a battle. The buyers from California and New York may not come with “guns” in the most literal sense (Texas wins here), but they’re certainly armed to the teeth with $$$ and jobs that supply that ammo.

The good news is that unlike the Bay Area, there’s actually plenty of free land to build outwards within a 45 min shout of downtown Austin (or the northern tech corridor) in North/South/East areas and zoning laws are relatively lax, so there will more inventory in the future. Will it be enough to meet supply and stabilize prices? Not next year for sure, but maybe there’s hope five years down the line.

Taxes Discussion

While Austin real estate is affordable relative to the Bay Area in terms of purchase price, what many fail to factor in is the property taxes are much higher in Texas to account for the lack of state income tax. How much higher?

In the Bay Area (and California in general), you can expect to pay close to or a little above 1% of your purchase price and that amount doesn’t increase as your property appreciates (at least in the past and for now, who knows if it’s going to change) due to proposition 13. Which is really great if you bought a house in the 80s for $200K and it’s now worth $2M+because you’re only paying taxes on the $200K but not that great if you’re trying to buy the $2M house now.

In Austin (and Texas in general), you can expect to pay 2%-3% of appraised value depending on the county. Not only is the tax rate approximately DOUBLE but it goes up with appraised value so as your home price increases, so do your taxes.

Let’s do some quick modeling off to see just how impactful these differences can be. We can assume the below numbers for tax rate, appreciation, effective state income tax, and inflation (to grow salary by).

Base assumptions

In addition, let’s assume a combined salary of $350k (growing by 2% YoY)for our hypothetical couple, an all cash purchase, and also a 30-year time horizon, after that our couple retires and moves to Florida.

In scenario one, let’s assume the purchase price of a home in Austin is $500k and the purchase price of a home in the SF Bay area is $1.5M. In scenario two let’s assume the purchase price in both areas is $1.5M.

In scenario one, you actually will end up paying MORE in property taxes over the 30 year horizon given all the above assumptions in Austin vs. the SF Bay Area ($830k vs. $562k) due to the higher tax rates and taxes rising with appreciation.

Andrew Shi Analysis: Scenario 1

However, the savings from income tax and the initial price (along with any interest $$$ on a larger loan which aren’t factored into this analysis) balance it out and net-net you save in Austin. But, if we go to our scenario two where the house prices are the same, then you’ll spend close to $1M MORE over 30 years in Austin.

Modeling two scenarios

The morale of the story here is that the houses in Austin aren’t as cheap as they appear given the property tax situation and while there are savings to be had, if you want to push up the purchase price and buy a more “luxury” type home (which is what you’ll get in the $1M+ range in the Austin area — not a shack for renovation in the Bay Area) you may have to pay more in the long-run.


  1. Renting is much cheaper in Austin and on average, you get much “newer” housing although it likely doesn’t have much character/history.
  2. Buying a house is also much cheaper in Austin and is really expensive in the Bay Area, but if you want to buy one in Austin now, it’s a literal bloodbath out there and prices are skyrocketing (not to the moon like Gamestop, but it’s also not going to crash anytime soon) so be prepared.
  3. Property taxes are high in Texas, but it can typically be offset by a much lower housing prices and lack of state income tax, unless you choose to buy a really expensive house.

Next up is food!

Retail, consumer goods, and technology aficionado. Fitness enthusiast. Proud Texas Longhorn and Columbia Biz MBA.