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| Why Tech Companies Are Leaving California? Source: Tesla.com |
The idea of a tech company moving out of such an idyllic
setting might have seemed crazy a few years ago. But not anymore. Tech
companies are exiting California at lightning speed, relocating to Texas,
Nevada, Arizona, Colorado, Oregon, and Washington.
There used to be a competitive advantage to having brilliant
minds concentrated in one giant epicenter. But social distancing has changed
the game. Returning to the office full-time might never again be the norm.
Twitter, Facebook, and DropBox have already offered their employees the option
of permanently working remotely.
No surprise then that 135,000 more people recently left
California than moved in – opting to go where the cost of living is lower.
Without employees in the office, companies are reconsidering their own futures
in the state. HP Enterprise, a spin-off of Hewlett Packard that literally
started Silicon Valley out of a garage in Palo Alto, California in the 30smoved
its headquarters to Houston, believing it’s an easier place to attract talent.
And it’s pretty clear why. California’s personal income tax rate for those
earning a million dollars or more is 13.3%. In Texas – it’s 0%. And money goes
much further down south. A $2.5 million dollar home in Houston gets you this.
In Palo Alto, it gets you this.
Let’s just say it’s a little less luxurious. Homes are so
unaffordable in California, some people have been forced to camp out in RVs.
The problem is that the state hasn’t been building enough to keep up with
demand. Critics blame strict land-use regulations for limiting the number of
homes being built. But officials blame the tech sector for flooding the region
with jobs.
Soaring housing prices mean businesses have to pay workers
more to match the higher cost of livingAccording to one estimate, the average
tech salary in the San Francisco Bay Area is $155,000 whereas in Austin, it’s
$137,000. Not to mention if a business were to buy a couple acres of land, it’s
a lot cheaper to do so in the Lonestar state. And then, there are all the
regulations that come with operating in a blue state like California.
For example, the cap-and-trade program sets limits on
emissions for companies. Although proponents applaud this as environmentally
friendly, critics see it as unfriendly to business. Execs also complain about
the state being outright hostile to the tech industry. The Bay Area city of
Mountain View banned Facebook and others from serving free food – a major
company perk – in an effort to help out local restaurants.
A couple of years ago, San Francisco banned delivery robots
on most city sidewalks. And ride-hailing services Lyft and Uber threatened to
shut down in the state last year over a law requiring them to classify drivers
as employeesrather than independent contractors.
Elon Musk once suggested California is acting like an
arrogant sports team in an interview with the Wall Street Journal. If a team
has been winning for too long, they do tend to get a little complacent, a
little entitled, and then they don’t win the championship anymore.
He himself has had run-ins with officials. When Tesla’s
Fremont, California factory was forced to close to comply with lockdown rules,
and the local county suggested it should remain closed,the company sued and
Musk tweeted he would move its headquarters out of the state.
That didn’t sit well with state politician Lorena Gonzalez
who was quick to tweet her response. Bleep Elon Musk. He apparently got the
message. Tesla is building a massive manufacturing plant on the outskirts of
Austin. In fact, all of his companies now have a footprint in Texas, including
SpaceX, which is developing Starship in Boca Chica, in south Texas,to prepare
for future missions to Mars. Musk has personally moved to Texas – one of many
high profile people to leave California.
They include: Tim Ferriss, Ben Shapiro, and Joe Roganwho
scored a $100 million dollar Spotify deal and moved his empire to Texas. People
are just bailing. There’s a mass exodus out of California right now.
I don’t particularly like the way things are run here.
Business leaders who packed their bags include Dropbox CEO Drew Houston, tech
investor Keith Rabois, Oracle founder Larry Ellison,who makes his home in
Hawaii while the software giant shifted its headquarters to Austin.
The Texas capital has become a hot relocation spot – earning
the nickname “Silicon Hills” for the tech hub on the hilly west side. Although
Texas is known for being conservative, Austin is considered a blue city in a
red state – more liberal and therefore more similar to Silicon Valley. Not that
everyone is welcoming the new exiles with open arms as evidenced by this
saying.
Plenty of other cities are also landing spots. Denver
welcomed data analytics specialist Palantir. Tempe, in Arizona, opened its
doors to Align Technology, the maker of the Invisalign. Miami is another up and
comer. Its mayor set off a Twitter storm when somebody suggested turning the
Magic City into the next Silicon Valley and he eagerly responded “How can I help?”
The Japanese conglomerate SoftBank recently invested $100
million into Miami startups. With all these cities reaping the rewards from the
mass exodus, what will happen to Silicon Valley? As people vacated the area,
there are indications rents are starting to fall, plunging 30% in some cases in
San Francisco.
It could also impact California’s bottom line – and therefore the amount of investment in infrastructure, research, and education. Although the state hasn’t lost all its superstars – Apple remains in Cupertino, Google in Mountain View the golden state, once the envy of the tech world, appears to be losing some of its shine. Companies are realizing people can be just as productive working remotely. Yet there is a potential downside.
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