When automation-software company executive David Nichols and his wife were preparing to start a family last year, he learned that the rent on his San Francisco office was set to jump 50 percent. So he picked up and moved to Portland, Oregon.
The technology-jobs boom that’s made San Francisco one of the most expensive places to live in the U.S. is starting to taper off as it becomes too pricey for the workers. That’s led some companies to open offices in places like Seattle, Portland and Los Angeles to draw in-demand software engineers who want a similar quality of life at a lower price.
“When you look elsewhere, the cost of living is totally different,” said Nichols, the 34-year-old chief executive officer of Automation Resources Group who is expecting a daughter this month. “We bought a beautiful Craftsman home in an awesome neighborhood and that just would not have been possible in San Francisco.”
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California’s fourth-largest city has transformed into a tech startup and social-media mecca that’s home to Twitter Inc., Uber Technologies Inc. and Airbnb Inc. Their highly paid workers fill the city of more than 800,000, driving housing prices to levels out of reach for even those with six-figure salaries. San Francisco’s median home value was $1.1 million and the median monthly rent was $4,547 in February, the highest among the 50 largest U.S. cities, according to Zillow data.
“We see re-locations out of San Francisco increasingly,” said Mehul Patel, CEO at Hired Inc., a San Francisco startup that connects job seekers to employers. “If you actually factor in cost of living, there are much better places to live.”
In the last year, there’s been a constant flow of workers moving from San Francisco to Seattle, Denver, Austin and the Los Angeles area, Patel said. Many tech workers start out in San Francisco to boost salary and establish themselves before moving to more affordable markets, he added.
“They’ve become tech hubs in their own right in a way that they weren’t three to five years ago,” he said. “It’s a lower cost of living, high quality of life and a great tech ecosystem there.”
Tech employment, which includes Internet, software-publishing and data-hosting companies, grew 5 percent in San Francisco in the year ending in February, down from a 10.3 percent increase the year before, according to Bureau of Labor Statistics data. In smaller markets, job growth is accelerating: 7.6 percent in Portland, 7.8 percent in Seattle and 4.6 percent in Los Angeles, the data show.
Home prices in those cities are at least half of those in San Francisco, with median values at $351,700 in Portland, $536,700 in Seattle and $569,500 in Los Angeles, Zillow data show.
A software engineer in Austin earning $110,000 would need to make $195,000 in San Francisco to maintain the same quality of life, according to a Hired report. Tech workers’ annual salaries average $118,243 in San Francisco and Silicon Valley, according to data from Dice.com, a technology-jobs website based in San Jose.
“A lot of companies are opening shops outside of the Bay Area because of the candidate shortage for the skill set that they need,” said Megan Slabinski, a Seattle-based district president managing Northern California, Washington and Oregon at Robert Half Technology, a tech-staffing firm. “Looking at Seattle and Portland, you’ve got large tech hubs of candidates. There’s a great pool of talent.”
Twitter has offices in Seattle, Los Angeles and Boulder, Colorado. Airbnb opened an office in Portland in December 2014.
Technology-job postings for San Francisco and Silicon Valley listed on Dice.com declined 6 percent in the year ended in March, said Dice.com president Bob Melk. They’ve increased 38 percent in Seattle, 12 percent in Austin and 6 percent in Phoenix.
More scrutiny and a drop in investments from venture capitalists following recent stock market declines also is spurring San Francisco startups to rein in hiring to boost profits.
“The investment community has moved from the mindset of growth at all costs to wanting to see companies move quickly to profitability,” said Greg Schott, CEO of MuleSoft Inc., a San Francisco-based application network company. “They’re going to be less aggressive with how quickly they want to hire.”
San Francisco’s tech firms are still growing. Salesforce.com Inc., the largest publicly traded San Francisco-based company in the sector by market capitalization, will increase its workforce by an estimated 24 percent this year, said Ana Recio, senior vice president of global recruiting.
“The big picture is it’s still growing, albeit at a slower pace,” said Enrico Moretti, an economics professor at the University of California at Berkeley. “Prices are high because people can afford it and want to live here.”
And people are still drawn to the area despite the costs, said Huey Lin, chief operating officer at Affirm Inc., a San Francisco-based lending startup.
“While they may be potentially paying higher rents to live in smaller homes, this is a sacrifice they are willing to make to work in a highly innovative environment, be surrounded by nature and enjoy pristine weather year round,” she said.