Why Central Texas?

A Brief History Lesson (up to 2000)

When Richard Florida, a distinguished author on cultural and demographic trends, wrote that Austin was second only to San Francisco as a “Creative Class” city (click here for the article), he confirmed what most of us that live here have known for many years.

From cocktail parties in Los Angeles, to the slopes in Colorado, to fundraisers in Manhattan, when one hears that his or her new acquaintance lives or invests in Austin, we are inevitably told, “I hear that is a great city, lucky you to live there!”, or “I have never been, but everything I hear is that it’s a truly special place”.

The U.S. was settled largely along and because of economic lines – New York was clearly in a dominant position for growth in its early days with all trade from around the world coming into its ports. As the U.S. spread westward, Chicago made a great transit hub as one of the only links between the Mississippi to the Great Lakes. Chicago’s railroads helped to build a nation.

In the mid 19th century, gold and other minerals inspired young men and women from the East to “Go West” and create riches for themselves. A highly pioneering ethos was thus created in the Western United States, with some of the most independent and ambitious of the settlers landing in Texas.

What we know now to be thriving Southwestern economic hubs of Houston and Dallas are still excellent examples of this “get rich mentality” that has lasted long after the cities were settled. Oil trading and exploration, as well as finance, telecommunications, and real estate have remained vital components to these two cities.

(Perhaps) luckily for the Central Texas and Austin areas, Austin was crowned “the Capital of Texas”, and for many years served mostly as a bucolic and relatively small outpost for state lawmakers and an internationally renowned University (today, the University of Texas is considered by some to be the largest in the United States at over 55,000 students, and there are another 75,000 students attending one of many other local educational institutions). Our quiet little outpost designation was not destined to last forever, however.

Beginning in the 1970’s, some forward-thinking men and women, both from politics (in the interest of economic development) as well as technology (both from East and West Coast centers like New York and a still-in-its-infancy Silicon Valley), began to plant the seeds for an incredible transformation from a college and government town to one of the most significant hotbeds of marketing, design, and creative energy in the United States, a reputation the city appears to be adding to each year.

Sematech is best known of the research consortiums of technology firms, government agencies, and politicians that came together during the 1970’s in the hope of making Austin a center for technological development.

Soon after, Motorola, Intel, Tracor, AMD, Applied Materials, as well as hundreds of other firms that support the activities of these firms opened offices in Austin. Austin began attracting engineers and other top technical talent from the around the country (and the World – visas are regularly granted to Chinese and Indian engineers to come work in the city).

Technology firms appreciated Texas’ low business taxes, no state income tax, and other incentives that spurred business instead of restricting it.

Meanwhile, those firms’ employees appreciate Austin’s excellent quality of life with a very mild climate (albeit two very hot summer months), rolling hills, hike and bike trails, and first rate education and cultural amenities. What Richard Florida is alluding to in his book is a fundamental concept, a bit of a “no brainer” if you think about it:

The industrial age is over. The United States must and will utilize its comparative advantage as a leader in technological innovation. Knowledge work – not manufacturing - is the real capital of the United States. Most importantly, knowledge workers can work ANYWHERE (Detroit? Pittsburgh? No Thanks!) – and that “anywhere” is increasingly attractive cities with warm clients, low costs of living, and a great future – cities like Austin.

By 1995, there was no mistaking it, as practically every major magazine from Forbes (Best City to Start a Business) to Money (Best City to Raise a Family) raised the red flag on Austin’s desirability.

In addition to all this new media attention, the technology wave had begun, and the investments made in years prior were beginning to bear fruit as software companies (all of the majors from Microsoft to SAP), hardware firms (Cisco to Samsung), began moving tens of thousands of employees to Austin and the city saw a remarkable real estate boom.

Austin was considered the third most active dotcom market during the boom, behind only Silicon Valley and the Boston area in overall venture capital-backed economic funding of startups.

Actual rental rates raised from an average of $.50 per sq ft in 1995 to about $1.00 or more during the peak and landlords saw their values escalating quickly. This own firm’s owner purchased a home in 1998 in Austin’s Central area for the amazing price of $98,000 (it was definitely a fixer), but by the time he sold it in 2001, received a $215,000 purchase price.

Next Page: A Temporary “Bug” in the Software (2001 to 2003)