A Historical Perspective
Historically, two primary sectors, state government and the university, have fueled the Austin economy. However, calls for diversification came as early as the 1950s. Over the next twenty years, the city's economic base broadened. Manufacturing, long considered an economic stepchild, had become a vital contributor to the late 1970s economy of the metropolitan area. Moreover, half of the area's ten largest manufacturing plants—Eagle Signal, Texas Instruments, Tracor, Motorola, and Westinghouse Electric—were engaged in the production of electronic or high-technology equipment and systems. In the early 1980s, Austin was ranked among the top five urban areas in the Southwest with above-average levels of industrial R&D.
In 2007, the top 10 private employers in Austin were: Dell, Seton Hospitals, Freescale Semiconductor, H.E.Butt Grocery Store, IBM, St. David's Healthcare, Wal-Mart, Advanced Micro Devices (AMD), Applied Materials, and National Instruments.
Today’s Economy
Today the high-technology industry in Austin accounts for 15 percent of total employment in the city, and it is highly specialized in three core clusters—computers, semiconductors, and software—and two emerging clusters—biosciences and film-music. However, three "old" economic sectors--government, retail, and hotels/restaurants--continue to generate most of the employment in the city, accounting for 36 percent of total employment.
Austin was hit hard by the high-tech bust that occurred in 2001. Since mid-2003, however, Austin's index suggests its economy has turned the corner and is once again one of the fastest-growing in the state. High-tech, a booming film industry and the University of Texas all helped propel Austin to the top of Forbes' 2008 list of America's Fastest Growing Metros. The magazine ranked Austin No. 1 among the nation's 100 largest metropolitan areas. The list sorted cities by their anticipated gross domestic product growth between 2007 and 2012. Austin's GMP, or the value of goods and services produced in the area, is expected to climb 32 percent over the five-year period.
Faced with a decline in the housing market and the threat of a national recession, the growth of the Austin economy will likely slow this year (2008) before ramping back up in 2009, according to a forecast from one of the region's leading economists. (Angelos Angelou, AngelouEconomics)
The metropolitan area will add about 17,000 new jobs in 2008, about 9,300 fewer than were added in 2007. But a focus on emerging sectors like clean technology and other high-growth industries such as creative media and software will help boost job creation in 2009 to about 24,000 new positions, Angelou forecasts.
In the next two years, "job creation will slow down, but not stop," Angelou told a gathering of several hundred professionals at an economic forecasting breakfast in January, 2008. He says the Austin economy will take a six to eight-month "breather" but will continue to expand, with 2.3 percent and 3.2 percent job growth in 2008 and 2009 respectively.
Angelou's forecast shows there are likely to be slight job losses in the construction and financial services sectors in 2008, though both should rebound in 2009.
The somewhat sobering outlook follows on the heels of a tremendous year when Austin "arrived on the national scene as a major U.S. city," Angelou says. The region saw the first major infusion of high-end retail in 2007, just as new toll roads dramatically increased the transportation connectivity of Central Texas. Austin's 4 percent job growth also outpaced Dallas and Houston, which grew at 2.9 percent and 3 percent respectively, as well as other tech cities such as Seattle (2.8 percent job growth), Raleigh, N.C. (2.7 percent) and Boston (1.7 percent).
Many of the new jobs created in 2007 came from the expansion of small and medium-sized businesses. Angelou says he is somewhat concerned that relatively little of the job growth came from Austin's major employers.
Angelou is optimistic on the long term outlook for Austin's economy, but he says it's dependent on the community concentrating its efforts on creating clusters around key industries. Those include: cleantech, life sciences and biotech, creative media, information technology, export-oriented merchandise and warehouse and distribution.
Angelou says the potential of cleantech in particular is significant, as evidenced by the decision of homegrown solar panel manufacturing firm HelioVolt to build its first plant in Austin. He says Texas is in the best position of any state to capitalize on the emergence of the $300 billion cleantech sector.
Regarding residential real estate, Angelou says Austin saw a 31 percent drop in new home starts in 2007 as the market reeled from the subprime mortgage crisis. But he says while sales of homes priced under $180,000 has fallen significantly, sales of homes priced over that threshold continue to grow, indicating demand still exists.
On the commercial front, Angelou says the office market has suffered from a lower rate of absorption in recent months, but he doesn't foresee a drop in rental rates primarily because of high construction costs and the sale prices of existing properties. The forecast calls for absorption of 1.6 million square feet of office space in the next two years. Industrial and retail absorption for the 24 month-period is anticipated at 2.3 million square feet and 1.4 million square feet, respectively.
Last year was also a big one for venture capital. According to Angelou, 72 Austin companies received a total of $673 million in venture capital funding in 2007. That's up from $612 million in 2006, but still far below the $2.1 billion infused into local companies in 2000.
Innovation & Competitiveness
The number of patents per capita is a frequently used measure of a city’s innovation. Since 1998, Austin consistently files 12 patents per 10,000 inhabitants annually (a nearly 70% increase compared to the early 1990s). In comparison, Boston registers 5 and the Research Triangle registers 8 per capita. Silicon Valley, however, remains the leader at 22.
In the past couple of years, Austin was ranked No. 9 in a new ranking of "Hot Cities" for entrepreneurs by Entrepreneur.com and the National Policy Research Council. Austin took the No. 8 spot for "young companies" and the No. 10 spot for companies experiencing "rapid growth."
Affordable Housing
From 1993 to 2003, the median home price in Austin rose from $91,300 to $156,700, a 71% increase. In comparison to other high-tech meccas, the median home price in 2003 in Boston was $412,800 (representing a 128% increase in the previous 10 years), Raleigh was $174,900 (a 59% increase) and San Francisco was $558,100 (a 119% rise).
With the economic recession of recent years (2002 through 2004), the annual rise in average home prices has decreased. Austin, in particular, was a great buy for home investors. In those 3 years, the home values in Austin appreciated an average of 1.6% annually. In comparison, homes in Boston saw an average 10.6% appreciation. The rate for Raleigh was 3% and San Jose was 2.9%.
Then, in 2005, real estate revved up again, with investors from the West coast flocking in. Median home prices rose approximately 20% in the period from 2004 ($154,100) to 2007 ($184,200).
Even with the national real estate woes in the second half of 2007 (due to the subprime mortgage industry collapse), Austin homes saw an average increase in sales price of 8%. We do have more inventory available than we'd like (5-6 months of inventory in early 2008, with all Austin areas averaged), so the sales cycle has slowed, but we are relatively healthy in comparison with other areas of the country.
- NUMBER1EXPERT™ 
