Brutally expensive housing markets, fierce competition over a shrinking talent pool and unbearably long commutes: these are some of the challenges plaguing typical tech hubs like the San Francisco Bay Area, Seattle, Los Angeles and Boston.
While some of these areas continue to have the gravitational pull that draws venture capital funding and tech talent, downside factors including high costs and difficulty retaining talent deter smaller tech companies from locating in these markets. Not only are smaller tech companies shying away from a crowded tech scene, but larger tech companies that have outgrown their headquarters are shifting their gaze to markets that have previously flown under their radar.
At Zillow, we analyzed data to determine the best markets that provide fertile environments for startups or tech companies looking to put down stakes for their next office. In additional to tapping the U.S. Census and Bureau of Labor Statistics, we leveraged our own data products at Zillow, partnered with Ookla for internet insights based on Speedtest data as well as LinkedIn for the availability of tech skills based on their skills gap data. The analysis focuses on factors that would entice skilled workers and therefore present strong opportunities for tech companies looking for talent outside the usual tech orbits.
We zeroed in on five categories that determine how ripe markets are for tech growth: 1) demographics and labor market dynamics — factors that indicate a robust economy; 2) tech skills — factors that indicate the market has ready or potential talent; 3) market “hotness” — factors that indicate that the market has the potential to attract people; 4) housing affordability — factors that indicate how affordable housing is; and 5) livability — factors that indicate the appeal of living in that market.
Topping the list of markets that may beckon to startups are those smack in the middle of Silicon Prairie. Rounding out the top 10 are markets in the Midwest and the South that have the ability to draw talent and the tech companies looking to hire them. What’s more, the traditional tech hubs occupied the bottom of the rankings because of eroding affordability and quality of life.
“Rising costs of living and soaring housing prices in many major U.S. cities means that employers need to build pay structures that allow their employees to live and work in the same city. And if they don’t, they may end up paying the price,” said Jenny Ying, Data Scientist, Economic Graph at LinkedIn. “Our data shows that many people will choose to leave the area altogether in search of a better quality of life, a trend we already see starting to manifest in many of the country’s biggest tech hubs; New York, Los Angeles, the San Francisco Bay Area and Seattle have the lowest tech skills scores on the list, driven by demand for this talent outpacing available supply.”
Oklahoma City and Kansas City lead the list of markets where tech companies should consider locating. These cities rank high in affordability — where typical income earners are spending a relatively smaller share of their income on housing, livability (Kansas City tops the list in this category) and the availability of tech skills.