As CEO of Redfin, Glenn Kelman keeps a close eye on housing trends and their consequences. He’s convinced that skyrocketing housing costs in thriving coastal cities will lead to a “mass migration” of companies and talent to smaller cities in other parts of the country.
“Silicon Valley is going to leave Silicon Valley,” Kelman said in an interview on CNBC’s Power Lunch show. “That’s already happening. Google employs more engineers outside of Silicon Valley than it does in Silicon Valley and if Google can’t afford Silicon Valley then no one can.”
Amazon is another example of an emerging tech exodus, according to Kelman. The Seattle e-commerce giant’s search for a second corporate headquarters shows an appetite for less expensive cities with room to grow — “and they’re not going to go to Boston; they’re not going to go to New York,” Kelman said.
Update: After publishing, Kelman tweeted to clarify that he expects tech workers to move to Seattle from other thriving coastal regions like the Bay Area, New York, and Boston.
I should have been clearer on this point: more people will move to Seattle, in part driven by tax reform. Many will come from California.
— Glenn Kelman (@glennkelman) December 28, 2017
“The technology companies, the Wall Street companies, they are chasing the talent,” he added. “The talent is chasing affordable housing.”
Kelman believes the new tax code signed into law just before Christmas will accelerate this migration. Going forward, new homebuyers will only be able to deduct interest on the first $750,000 of their mortgage debt. Previously, the threshold was $1 million. That change hits cities with expensive housing markets hardest.
“It used to be that in California we felt like we owned the future,” he said. “We felt like everything was happening here first and now you see that swagger, that confidence in the center of the country. People in Detroit, people in Texas, they think they own the future and I think tax reform has really given a boost to that argument.”
If Kelman were to invest in the housing market in one of these emerging cities, Seattle, San Antonio, Denver, and Houston would be his top picks. He believes the migration will have a mollifying effect on a country experiencing deep divisions between urban and rural dwellers.
“You shouldn’t have that many people making so much money in just a few cities,” he said. “It should spread to the rest of the country. It’ll depolarize us politically and it’ll balance things out financially.”
Kelman isn’t the first tech leader optimistic about injecting coastal economic vitality into smaller communities across the country. That’s the goal of Rise of the Rest, an organization created by AOL co-founder Steve Case and J.D. Vance, author of “Hillbilly Elegy,” to “revolutionize” the U.S. economy. In early December, Rise of the Reset announced a list of high-profile investors, including Amazon CEO Jeff Bezos, Google’s Eric Schmidt, and others. The group is backing a new $150 million fund to invest in startups in so-called “flyover” states.
“We are going to see both businesses and people move to places that are more affordable and it’s going to be good for the country,” Kelman said.
Watch the full interview below:
Redfin CEO Kelman: Here are where the housing markets will be strongest in 2018 from CNBC.
