Austin, Texas, is the country's fastest-growing city for the second straight year. // © Ben Blankenburg/istockphoto
In the early 1990s, Austin, Texas, was the quintessential see-through city, with empty office towers downtown and vacant subdivisions meandering through the surrounding limestone hills.
No longer. Austin real-estate agent Kevin Elliott says buyers are snapping up houses as companies such as Apple, Progressive Insurance and Whole Foods add hundreds of jobs, and out-of-staters gladly pay up for what, to them, appear to be ridiculously cheap homes.
"My last three listings had multiple offers, and they sold for either full price or more than full price," says Elliott, of Keller Williams Realty. "They were all under contract within 48 hours."
A revived home market is just one side of the boom in Austin, which ranks first on Forbes' list of America's fastest-growing cities for the second year in a row. The Austin metropolitan area — including the northern suburb of Round Rock, home to Dell Inc. — is expected to have an economic-growth rate of 6% a year through 2016, according to Moody's Analytics. That's more than double the U.S. rate. Apple is likely to sign off soon on plans to build a $304 million operations center that will employ as many as 3,600 people. (Bing: What is the economic-growth rate for the U.S.?)
As usual, Texas dominates our list of the fastest-growing cities, with Dallas-Fort Worth, Houston and San Antonio all in the top 10. Seven of the top 10 cities are in the South, supporting the idea that low taxes and inexpensive real estate are still drawing jobs and economic activity from other parts of the country.
Slide show: 5 fastest-growing cities
How the list works
To build the list, we ranked the 100 largest metropolitan statistical areas according to economic and population projections from Moody's. We then factored in median income, unemployment rates and employment growth, to differentiate between cities that are getting larger, such as Austin, and rebounding economies, such as Las Vegas. This also knocked out fast-growing cities such as McAllen, Texas, whose No. 4 rank on economic growth was countered by a bottom-quartile performance on median household income.
Dallas-Fort Worth came in second, with a projected economic-growth rate of 4.9% through 2016 and a population increase of 2.2%. San Jose, Calif., ranks third, thanks to robust projected economic growth of 4.7% and a Silicon Valley-fueled median household income of close to $84,000, the nation's fourth-highest. On raw population growth, San Jose doesn't measure up: Moody's projects a mere 0.9% annual population increase through 2016, as sky-high property values and limited land for expansion hinder the city's ability to grow.
Houston places fourth, as the city's proximity to booming Latin-American economies and cheap real estate promise to continue a decades-long expansion that has seen the Houston area's population climb 65% since 1990 to a current 6.3 million. Moody's projects Houston will add another 484,000 residents — roughly the population of Kansas City, Mo. — by 2016. Houston's economy, powered by energy and health care, is expected to grow by 4.6% a year over the period.
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In sixth place is perennial fastest-cities contender Raleigh, N.C. Raleigh tops the list in terms of raw population growth with a projected rate of 3.8% through 2016, almost four times the national average. The city's economic-growth rate is projected to be a less robust 2.4%. But Raleigh has continued to draw businesses, not to mention retaining high-paying employers such as software merchant Red Hat, which agreed to stay in town and add 540 jobs; Xerox's Affiliated Computer Services unit, which announced plans to add 1,650 jobs; and Biogen Idec, which is hiring another 300.
"We tend to see a lot of relocations, particularly from the Northeast," says James Sauls, Raleigh's director of economic development. "Whether it's cost of living, cost of doing business, overall quality of life, we seem to have an advantage."
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In 1990, the Raleigh area had a population of 332,000, one-third the size of Rochester, N.Y. By 2016 the city is projected to have a population of 1.4 million, making it larger than Rochester by the equivalent of one Omaha, Neb.
More to come for Austin
Austin's advantages foretell a future of steady growth. State capitals nationwide tend to perform better economically then most other cities, and Austin is also home to the prestigious University of Texas. The state also doesn't have an income tax, though the state does ask affluent areas to shift some property-tax revenue to poorer areas. There's also plenty of surrounding land for expansion. And it doesn't hurt that Austin went through a real-estate binge in the 1980s that left it with massive amounts of office and industrial space that U.S. taxpayers helped pay for through the savings-and-loan bailout.
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Austin's population is expected to grow by 2.8% a year through 2016, almost triple the national rate. Since 1990, Austin has added 1 million residents, more than the population of Detroit. Austin pulled in 35 corporate relocations in 2011, adding 6,000 jobs, and the city and state governments this year approved some $30 million in incentives to help Apple build a campus for its Americas Operations unit.
Austin beat out Phoenix for the new operations center, and Apple's filing with the city (PDF) details what a coup that was: The company estimates its jobs will pay an average of $54,000 a year, ranging from $40,000 entry-level positions to $114,000 to $211,000 a year for 270 managers and executives.
The commercial-real-estate market, long suffering from vacant space, is recovering in Austin. Jones Lang LaSalle reports (PDF) that 438,000 square feet of office space was absorbed in the central business district in January. The vacancy rate in the once-empty office towers is still at 17%, but rents increased 3.1% year over year, and some downtown tenants are signing leases at 32% more than in 2011.
Brokers have long bemoaned the lack of international flights out of Austin's airport, which they believe limits the city's attractiveness for corporate relocation. That may change. A Formula One racetrack 15 miles outside of town, boosters say, may finally provide enough traffic for airlines to add Austin to their routes.
Check out photos of the fastest-growing cities on Forbes.com
