Beyond Silicon Valley: High-Paying Tech Hubs, Lower-Cost Housing
Plenty of innovation-intensive cities remain affordable
You’ve no doubt heard of the network effect: The buyers are all on Amazon so that’s where the sellers list their goods. Dating apps with more people on them attract, well, more people because more choice is better.
There is also a network effect in the economies of cities. Places like Silicon Valley and Boston, already giant hubs of technology, are magnets for new tech workers and ventures because of their enormous bases of knowledge and other resources, just as New York came to dominate finance and the Midwest manufacturing.
For decades, one of the great benefits of taking a job in Silicon Valley has been that, if the job didn’t work, there were likely three more waiting for a skilled engineer or other professional. You weren’t moving there just for a job, but for a career, if you liked.
The network effect in technology has been so powerful, according to a recent Brookings Institute report, that cities such as San Diego, San Francisco, San Jose, Seattle and Boston accounted for nine out of every 10 new innovation-sector jobs between 2005 and 2017. Those high-paying positions, of course, pushed home prices in those cities beyond the reach even of many well-paid tech workers, and entirely priced out most service workers who support those local economies, consigning them to brutal commutes.
The good news is that there are many smaller yet very active innovation centers in the U.S., places to move to for a career, not just a job. Brookings proposes a national policy of incentivizing innovation-industry expansion in these secondary hubs as a way to reduce growing income disparity and to even out opportunity. But even absent a federal program, these cities are well positioned for the decades ahead. They are characterized by:
Metro scale, meaning they have at least 500,000 residents.
Innovation capacity, which is measured by regional patent filings; regional university spending per capita on R&D in science, technology, engineering and math; and a workforce for which at least 0.5% are already employed in innovation industries.
Skilled labor force, which is the share of adults in the regional workforce with at least a bachelor’s degree, and the rate of doctoral degrees granted in STEM categories by universities in the surrounding metro area.
Using that criteria, Brookings came up with a list of 35 cities. Of course, it’s one thing to earn a high-skill salary in a high-cost city — income and expenses tend to balance out — but it’s altogether different to earn a high-skill salary in a low-cost city. In that case, quality of life improves.
To that end, we’ve overlaid those 35 cities' housing-cost data from the Census Bureau’s 2018 American Community Survey to determine where the next wave of American job migrants might consider moving to exploit the innovation trend.
It’s little surprise that the cities with the absolute highest potential on the Brookings list tend to already have the highest housing costs, Portland, Oregon, and Salt Lake City among them.
But there are five outliers, cities in which median housing costs are below the national median of roughly $205,000. They are:
Rochester, New York
Ranked #5 of 35 cities
Median home value: $151,800
Per capita university STEM spending on R&D: $370.93
Patents per 100,000 population: 113
Innovation-sector jobs: 2.6%
Ranked #9 of 35 cities
Median home value: $163,300
Per capita university STEM spending on R&D: $539.74
Patents per 100,000 population: 38.1
Innovation-sector jobs: 2.2%
Ranked #11 of 35 cities
Median home value: $186,500
Per capita university STEM spending on R&D: $386.41
Patents per 100,000 population: 21.9
Innovation-sector jobs: 1.7%
Ranked #4 of 35 cities
Median home value: $193,300
Per capita university STEM spending on R&D: $717.60
Patents per 100,000 population: 36.1
Innovation-sector jobs: 1.8%
Ranked #8 of 35 cities
Median home value: $198,100
Per capita university STEM spending on R&D: $593.64
Patents per 100,000 population: 63.5
Innovation-sector jobs: 5.4%
To put these numbers into perspective, university STEM spending on R&D ranges as low as $9.58 among the 35 potential growth-center cities, and average just under $216 across the 35 cities. All five outliers are well above the average.
Patents per 100,000 residents are as low as 9.8 among the growth-center candidates, and average 48.1 overall Some of those five are above that average, a few below.
And with innovation-sector job share, ranges are as low as 0.6% among the 35, with an average of 2.8%. Four of the low-cost five are near or below the national average, while Tucson – home to the University of Arizona and a welter of high-tech startups – far exceeds the average. Indeed, commercial real estate firm CBRE last year ranked Tucson #1 on its list of The Next 25 Markets where tech companies are now seeking opportunities.
Two of the higher-cost cities that stand out as likely innovation growth centers are Madison, Wisconsin, and Albany, New York. As tech, pharma, and other innovation-sector companies go looking for hospitable environments to grow, Madison and Albany are likely to attract attention.
In Madison, STEM R&D spending (nearly $1,700 per capita) and STEM doctoral degrees (nearly 81 per 100,000) are both off the charts. No other city comes even close to matching those statistics.
Innovation-sector jobs, meanwhile, already represent nearly 6% of the local workforce in Madison. As such, it leads the list of 35 potential growth-center cities. Median housing costs in Dane County, where Madison is located, are $252,300, or about 23% above the national average.
As for Albany, once a manufacturing hub during America’s industrialization, patents per 100,000 residents top the list at 124, and innovation jobs at 4.3% of the workforce are well above the national average. Both of those help put Albany at #3 on the list of 35 potential growth-center hubs.
Better yet, for those who see value in chasing the high-income innovation jobs emerging in Albany, the median home price is $224,300, which is only about 9% above the U.S. median.