Silicon Valley has long had a unique formula for innovation and funding that other aspiring startups hubs around the globe are eager to copy. But it now appears the Valley's luster is coming off just a bit.

That's according to the Silicon Valley Competitiveness and Innovation Project, whose recent economic report suggests the area's extremely high costs, significant opportunity gap for minorities, and increasing quality-of-life issues are starting to drag on the region, making other innovation hubs look more appealing.

The project is a collaboration between the Silicon Valley Leadership Group, a business advocacy organization, and the Silicon Valley Community Foundation, a non-profit community group.

More than 7,600 U.S. residents left Silicon Valley in 2015, the first negative outflow since 2011, according to the report. (The outflows were more than offset, however, by people from other countries, who moved in at a rate of about 2,500 net new residents per month.)

By contrast, Seattle experienced average monthly inflows of 1,450 new U.S. residents during 2015. Austin had a more modest gain of 720 U.S. residents for the year. 

A closer look at the data suggests some reasons why people are leaving. Chief among them is costs: The median home value in Silicon Valley for 2015 was $870,000, compared with $376,000 in New York City, and $236,000 in Austin. Meanwhile, rentals in the area are matching the high rents in New York, with a median of $2,900 per month, compared with $3,400 per month in New York. The Silicon Valley sale and rental prices for 2015 represent a 13 percent and 12 percent increase respectively compared with 2014.

Meanwhile, people in the region are spending more time on tiresome tasks like commuting. The report found commuters spent nearly 70 hours stuck in traffic in 2015, an increase of nearly 14 percent from 2010.

Perhaps more importantly, there's a growing opportunity gap felt along racial lines among younger residents. While nearly 80 percent of Asian and about two-thirds of white 8th graders were proficient in math, only about 20 percent of their African-American and Hispanic peers tested at proficiency levels. (Eighth grade aptitude is considered a significant predictor of college preparedness, according to the report.) Those numbers are potentially important for the local workforce, especially because nearly 60 percent of Silicon Valley's high-skilled workers are born outside of the U.S., the report says.

Still, Silicon Valley remains the preeminent place for investment capital, with nearly $4 billion in angel, seed, and series A rounds between the third quarter of 2014 and the third quarter of 2015, the report found. That's roughly twice the amount raised by New York City startups over the same time period. New York City comes in second to Silicon Valley for such investments.

"We are trying to look at the warning signs," says John Melville, a co-chief executive of Collaborative Economics, a research group in Burlingame, California, that produced the report. "But Silicon Valley is still a pretty powerful innovation engine."

Published on: Mar 7, 2016