Post-IPO, Home Values Grew Faster in Areas Home to Lots of Facebook Employees

• Every 10 Facebook employees living in a given census tract at the time of Facebook's IPO in May 2012 were associated with an additional 1.6 percentage points of home value increase over that year.
• Between March 2012 and March 2013, home values around likely Facebook employees climbed 21 percent, compared to 17 percent in all other Bay Area census tracts.
• This faster growth translated into an extra $29,800 in appreciation for the typical home in these Facebook-employee-heavy areas compared to homes in the rest of the Bay Area.

 

As a bumper crop of tech firms including Uber, Lyft, Airbnb and Slack prepare to go public this year, it may be useful for executives, city planners and local residents to understand what happened in the local housing market one of the last times a big-name Bay Area tech company went public.

When Facebook had its IPO almost seven years ago, home values in the census tracts where likely Facebook employees lived rose faster than in those not home to Facebook employees. More precisely: Every 10 Facebook employees living in a given census tract at the time of Facebook's IPO in May 2012 were associated with an additional 1.6 percentage points of home value increase over that year.[1]

This year's initial public offerings are likely to yield valuations in the billions of dollars as shares previously granted become much easier to sell, helping raise funds for the parent firm. And in that sense, the IPO itself also represents a breaking dam of sorts. Growing technology firms frequently include shares of company equity in their standard employee compensation, shares that are difficult to cash in while the firm remains privately held. So the IPO is a golden opportunity for early employees to convert equity into cold, hard cash – or a roof over their heads.

Facebook's IPO on May 18, 2012, offers a useful baseline for determining the potential impact of this kind of mega-rich IPO on the local housing market. Using data from the Census Longitudinal Employer-Household Dynamics program, we identified the 1,360 census tracts that were home at the time to employees who worked in the four census blocks containing Facebook's offices in Menlo Park, just south of San Francisco. Because the vast majority of employment in those four census blocks is accounted for by Facebook, it's likely most of these employees were Facebook employees.

We created two time series of home values, indexed to March 2012, when the Facebook IPO was in the late stages of preparation and fundraising. The Facebook employees' home value index is a weighted average across census tracts in which they lived in 2012. [2]  The non-employee index is the average of all other Bay Area census tracts.

Between March 2012 and March 2013, home values around likely Facebook employees climbed 21 percent, compared to 17 percent in all other Bay Area census tracts. This faster growth translated into an extra $29,800 in appreciation for the typical home in these Facebook-employee-heavy areas compared to homes in the rest of the Bay Area.

In 2012, the neighborhoods that were home to the most likely Facebook employees were Redwood Shores in Redwood City, and Midtown and College Terrace/Evergreen Park in Palo Alto.

It's very important to note, here, as always, that correlation is not causation. The relationship found here does not prove that the presence of more Facebook employees alone is what drove home values up over the period analyzed. Indeed, this growth very well could have been caused by other unobserved factors correlated with the likelihood of Facebook employees living there. Facebook’s IPO came at a time when home values were in their trough, and down payments were more attainable. Today, home prices have never been higher, though appreciation is slowing dramatically. Buyers often need exceptionally high incomes, or a sudden windfall that an IPO could provide, to break into the market. While we still expect this year's tech IPOs to impact the local housing market, it may be more about easing the fall than acting as a springboard for accelerated future growth.

Nonetheless, the close relationship might indicate how home values in some neighborhoods could respond to this year's wave of IPOs as the next cohort of tech employees come into their own equity jackpots. To the extent that their homebuying preferences are similar to Facebook employees', these results may have some predictive power of what to expect in 2019. It's also likely there may be more noise in determining the precise impact of the Airbnb, Slack, Uber and Lyft IPOs, if any. As of 2015 (the latest year for which data is available) their headquarters – and areas of high employee concentrations – were located much closer to the dense San Francisco downtown core. This means any observed trends are likely more susceptible to unobserved dynamics that could and probably will impact home value growth.

 

[1] This is based on a census tract-level regression of home value changes from the first quarter of 2012 to first quarter of 2013, controlling for average county-level changes and for the tract-level share of IT workers and household income.

[2] We take the median Zestimate in each home census tract of likely Facebook employees and weight by the number of Facebook employees living there in 2012. For example, the weighting means that tract 06081610303, covering the Redwood Shores neighborhood in Redwood City – home to 49 employees working in Facebook's census blocks in 2012 – has 7 times the weight of tract 06075010400 in the Telegraph Hill neighborhood of San Francisco, which had 7 employees who worked in Facebook's census blocks in 2012.

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