Because The Woodlands is thirty miles from Houston’s downtown towers, you might think that its residents face horrendous commutes. MapQuest gives the driving time from The Woodlands to Houston as thirty-seven minutes, and that optimistic estimate is based on light traffic, not a normal rush hour. Yet for 2006-2008, the Census Bureau gave the average commute time in The Woodlands as 28.5 minutes because so many people there aren’t commuting into Houston at all. According to The Woodlands’ management, about a third of its residents work in The Woodlands itself. The community has its own research park, which houses the corporate towers of a number of energy companies. If companies had remained rooted in city centers, then suburbanization would have been limited by lengthy commutes, but America’s highways enabled the suburbanization of companies as well as families. Fifty-six percent of the jobs in Houston are more than ten miles from the city center. Businesses have naturally relocated to be close to the vast number of potential employees living in Houston’s northern suburbs.
According to Woodlands’ management, a lot of their residents are also commuting to the airport, which is only fifteen minutes away. Many suburban communities have grown up around airports, like Chicago’s O’Hare. This pattern is, in a way, no different from the earlier tendency of people and companies to locate near wharves and rail yards.
To all but the most ardent urbanist, The Woodlands is an attractive place. It has won numerous awards, and it attracts plenty of residents. The community offers a combination of high-quality construction, pleasant amenities, and costs that are far lower than those in suburban New York or coastal California. The Woodlands’ success helps explain why so many people are moving to Houston and places like it.
Accounting for Tastes: Why a Million People Moved to Houston
Houston generates strong emotions. Its boosters, Texan to the core, love the place. Many coastal and European urbanists seem to view the city as Satan’s earthly home. The anti-Texans hate the politics, the cars, the weather, the culture (or alleged lack thereof), the hunting, the oil industry, and pretty much anything else that goes on in America’s fourth-largest city. Obviously, these people should not move to Houston.
But more than a million other people have moved to the area since the 2000 Census. Houston has much in common with other Sunbelt cities like Atlanta, Dallas, and Phoenix, the other fastest-growing metropolitan areas in the United States. If the advocates of older cities want to actually help their cities, they should try to understand Houston rather than criticizing it.
What is Houston giving its millions of inhabitants that older places, like New York or Detroit, are not? Houston’s chief advantage over the Rust Belt is earnings. In Wayne County, Michigan, which surrounds Detroit, the median household in 2008 earned $53,000 a year; median household income in Harris County, Texas, which surrounds Houston, is $60,000. In June 2010, the unemployment rate in Texas was 8.2 percent; the unemployment rate in Michigan was 13.2 percent. For the Rust Belt to compete more effectively against Texas, it would need to find its way to a more robust economy. As the crosscity statistics suggest, that would involve more skill accumulation.
But New York is better educated than Houston, and its wages are higher, yet Houston is attracting many more people. Houston is not luring people who could choose to live in San Francisco or New York because its economy is stronger or its climate is better than those cities. After all, Houston averages ninety-eight days each year when the temperature rises above 90 degrees. Yet its scorching summers aside, Houston succeeds by providing an affordable, attractive lifestyle for middle-class people.
It’s hard to imagine anywhere better to be a Master of the Universe than New York. Manhattan is a great place to get rich and a great place to spend your wealth. With enough cash, you can live in a spacious aerie overlooking Central Park, shop at Barney’s, eat at Le Bernardin, and send your children to some of the best private schools in the world. New York is also a pretty good place for poorer people, like the immigrants who cram into small apartments in the outer boroughs. Mass transit means that they don’t need cars. The city has reasonable social services, and there are plenty of entry-level service-sector jobs with wages that beat those in Ghana or Guatemala.
But what if you are neither a partner at Goldman Sachs nor a poor immigrant? What if you’re an average American family with two children, skills that put you in the middle of the U.S. income distribution, and aspirations toward a middle-class lifestyle? It’s telling to work through the economic facts of life for a middle-income family deciding between New York and Houston, so that’s what we’ll do for the next couple of pages.
The average American family earned about $60,000 in 2006. Both members of the family were likely to work, although one spouse often works only part-time. Most middle-income people are in the service sector, working as nurses or sales representatives or store managers. In the 2000 Census, the average registered nurse earned $40,000 in Houston and $50,000 in New York. The average retail manager earned $27,800 in Houston and $28,000 in New York. People working in less idea-intensive industries don’t get the same economic kick from Manhattan as financiers and publishers. To reflect the higher incomes in New York, I’ll assume that our middle-income family earns $60,000 in Houston and $70,000 in New York.
What kind of housing will that money buy in the two areas? According to the U.S. Census, the average owner-occupied housing unit in the Houston area was worth about $120,000 in 2007. More than three quarters of the homes in the city were valued by their residents at less than $200,000. The National Association of Realtors gives $161,000 as the median price of a Houston home sold in the third quarter of 2009. When I did some Internet shopping for homes in the spring of 2007, I found that there were plenty of homes in Houston selling for less than $200,000 that are relatively new and often have four bedrooms or more. Some have more than three thousand square feet of living space, and others have pools. Some of them are in gated communities, and almost all of them seem to be in pleasant neighborhoods.
For the first thirty-seven years of my generally East Coast life, I lived in homes that are much less luxurious than what you get for $160,000 in Houston, even when I paid many times that cost. When I insured my first house in Cambridge, the agent, a Texan, laughed at the absurdly high price I’d paid for such a modest residence. When I sold the home, Boston magazine ran a photo of it to illustrate how even mediocre housing had become expensive. In 2006, the Census gave the average home price in Los Angeles as $614,000 and the average home price in New York City as $496,000.
These average homes are way out of reach for a family earning $70,000 in New York. Unless the family wins the housing lottery and gets a subsidized unit, Manhattan is pretty much out of the question. They could buy a perfectly pleasant home with three bedrooms and two baths on Staten Island for about $340,000. For example, New Brighton, the hometown of Tess McGill, Melanie Griffith’s character in Working Girl, offers a number of older homes for about $375,000. These houses don’t have the amenities of the new Houston houses, but they do offer about two thousand square feet of living space. Or a middle-income family could buy a condominium with two or three bedrooms in Queens, say in Howard Beach or Far Rockaway.
If the family can muster about $35,000 as a down payment, the basic annual housing costs, like interest payments, will run about $24,000 in New York (for a $340,000 home) and about $9,700 in Houston (for a $160,000 home). You get much more house in Houston, and you pay a lot less for it. This gap would be just as big if I compared Houston with coastal California. More than anything else, cheap housing explains why Houston looks so good to so many middle-income Americans.
The Texas State Constitution of 1876, written as a renunciation of big government during Reconstruction, creates a number of roadblocks against any state income tax. As a result, Texas has no state or city income taxes. Houston residents will have to pay property taxes, which would come to around $4,800 for a $160,000 home. In New York City, this family would have to pay local prope
rty taxes, probably around $3,400, plus maybe another $3,400 in state income and city income taxes. The state and local tax difference therefore adds about $2,000 more to the burden of living in New York rather than Texas. These tax differences are real, but for middle-income Americans, housing costs are far more important. After paying for housing and federal and local taxes, the Houston family is left with about $37,000. The New York family, which started with $10,000 more, is left with closer to $30,000.
Now the Texans do need a car for each adult; there’s no other way to get around. On average, American families earning $60,000 spent up to $8,500 per year on transportation. That amount could, barely, cover the payments on two relatively cheap cars, gas, and insurance in Texas. The New Yorkers could save by giving up on cars altogether, but in Staten Island or outlying Queens, they would likely want one car to buy groceries and move kids around, even if they took mass transit to work. It’s likely that the New Yorkers will end up spending at least $3,000 less per year than the Texans on transportation.
The New Yorkers would spend less to get around, but they’d offset this financial gain in lost time. In the most recent Census data (2008), the average Houston commute is 26.4 minutes. In Queens, the average commute is 42.7 minutes. In Staten Island, the average commute is 42.1 minutes, and it is something of a multimode marathon. First, you’ve got to get from your home to the ferry, either walking or taking a bus. The ferry ride itself is only 25 minutes, but then you’ve got to get to your final Manhattan destination. A commute to Wall Street might be only 45 minutes; a commute to Midtown could be easily over an hour. All told, each adult working in Manhattan is spending between 125 and 250 extra hours per year riding on mass transit. This time loss is the equivalent of losing between three and seven weeks of work in travel.
Public-transit aficionados will argue that it’s a lot more pleasant than driving. This is sometimes true, but a packed Manhattan subway can be a lot closer to hell than heaven. In a car, the driver can control the temperature and listen to CDs of Saul Bellow or Bruce Springsteen with less background noise than in a subway. Research on commuters’ tastes shows that people dislike time spent on mass transit more than time spent driving.
After cars and houses and taxes, the Texans have $28,500 left, and the New Yorkers have $24,500 left, but those dollars will go further in Houston. The American Chamber of Commerce Research Association (ACCRA) produces local price indices for different areas of the country, including Houston and Queens (but not Staten Island). Apart from housing, the biggest price gaps are in groceries, which are, according to ACCRA, about 50 percent more expensive in Queens than in Houston. A T-bone steak costs over $3 more in Queens; chicken is 50 percent more expensive in New York. Correcting for these price differences, the after-tax, after-housing, after-transport real income of the Queens residents is a little less than $19,750. The same figure for Houston residents, who start off earning $10,000 less, is $31,250. In real dollars, the Houston family is 58 percent richer.
What about public services, like education? Ordinary public schools would be pretty comparable for a family in Houston and in Staten Island. If the New York family’s kids got into one of the city’s superstar public schools, like Stuyvesant, they would be getting a superb education for free. But even without a brilliant child, the Houston resident has the option of paying a little bit more and moving into a slightly more expensive school district, like Spring Branch, where SAT scores averaged 1058, in 2008, which is higher than in many New York suburbs. The New Yorkers could also get better schools by moving to the suburbs, but the price and commuting costs are going to be a lot more than the $225,000 it costs to buy a decent home in Spring Branch.
All told, the Houston residents are solidly in the middle class, with plenty of money for eating first-rate Tex-Mex at Pappasito’s and shopping at the Galleria. They have decent options for schools, and relatively fast, comfortable commutes. The family in Staten Island or Queens is straining to make ends meet, constantly reminded that life is a struggle. For millions of Americans, the decision to move to Houston makes clear economic sense. If the expensive cities on America’s coasts want to compete more effectively with Texas, then they must figure out how to become more accessible to ordinary people. For middle-income people, the biggest economic advantage of Texas is not lower taxes or higher earnings, but affordable housing.
Why Is Housing So Cheap in the Sunbelt?
Why are Houston, and Atlanta and Dallas and Phoenix, so much cheaper than the cities on America’s coasts? During brief periods of irrational exuberance, housing prices can become almost unfathomable. The bizarre doubling of home prices in Las Vegas between 2002 and 2006, which was followed by an equally severe price collapse, is beyond this economist’s ken. But over longer time periods, housing prices generally conform to the laws of conventional economics. These laws may bend briefly, as they did in Las Vegas, but they then furiously reassert themselves.
Prices reflect the interaction of demand and supply. High prices, for housing or anything else, can only persist when demand is high and supply is limited. Low prices can result from either weak demand or abundant supply. The demand for water is vast, but glasses of it are often given away for free because there’s so much of it. My dreadful sketches of bears, drawn for the captive audience of my children, could never command a high price, no matter how short their supply. Poor quality ensures low demand and low prices.
The demand for housing in a particular metropolitan area reflects the wages that can be earned in that area and the other pleasures the place offers. Almost two thirds of the variation in metropolitan prices can be explained by per capita income and two temperature variables. On average, if an area has family incomes that are 1 percent higher, its housing prices increase by 1.35 percent. If an area has January temperatures that are 5 degrees warmer, its prices go up by 3 percent. For every $1.00 that a metropolitan area’s income rose between 1980 and 2000, housing prices increased by $1.20.
In the expensive areas on America’s coasts, demand is robust, because of high incomes and pleasures like those discussed in chapter 5. California’s Santa Clara County, Silicon Valley, has a splendid Mediterranean climate and incomes that are 60 percent above the U.S. average. Unsurprisingly, people will pay plenty to live there. Between 2005 and 2007, average housing prices in the county were close to $800,000, more than four times the U.S. average. Prices have dropped since then, but according to recent sales data, the San Jose metropolitan area, which includes Santa Clara County, remained the most expensive place in the continental United States in the second quarter of 2009.
Yet Santa Clara’s high prices reflect more than just good weather and high incomes. During the eight years between 2001 and 2008, Santa Clara permitted only about sixteen thousand new single-family homes, or one new home for every fifty acres of land. Despite booming demand, the area’s stock of single-family homes increased by less than 5 percent, less than one third of the U.S. average building rate over that time period. If Silicon Valley had built two hundred thousand more homes over those eight years, then standard housing statistics suggests that housing prices would be about 40 percent lower, despite the good weather and high incomes.
Between 2001 and 2008, Harris County, Texas, which includes Houston, did permit more than two hundred thousand new single-family homes, or almost one new home for every five acres. That abundance of construction helps explain why Houston is so affordable. Certainly, a Houston home will never be as expensive as a home in Silicon Valley, at least as long as Californians earn more and enjoy nicer summers. Yet Houston’s economy is much stronger than most of the Rust Belt’s economies, and many Americans do seem to prefer a hot, humid climate to the cold of the Midwest. A lot of people want to live in Houston, but prices stay low because building is so easy.
Not every place with low prices is kept cheap through abundant new construction. The combination of economic collapse and cold weather limits the demand for living in Detroit, and that’s why prices ther
e are so low. Average household income in Detroit is 48 percent below the U.S. norm, and an average home is valued at $90,000, half the U.S. average. Detroit’s freezing winters make the city’s prices even lower than the area’s incomes would predict. Indeed, Detroit’s housing prices are below the cost of building new homes, which ensures that there will continue to be almost no private development and consequently continued population loss. When prices aren’t high enough to support new construction, there will be no new homes and no new people. In places like Detroit, we can tell that prices are held down because of low demand because there is also little construction in the city. In places like Houston, we can tell that prices are held down by abundant supply, not low demand, because there is so much new construction in the city.
Plentiful housing doesn’t just make prices lower, it also reduces price swings, such as those that have recently rocked the American economy. Between May 2002 and May 2006, the peak of the recent bubble, American housing prices rose by 64 percent, according to Case-Shiller housing price data, which covers twenty large metropolitan areas and which, by looking at repeated sales of the same homes, tries to eliminate the impact of changes in housing quality. That data excludes Houston but includes Dallas, which has a similar housing market. In Dallas, prices rose by only 8 percent over those four boom years, less than the rate of inflation. During the three years that followed the bubble’s peak, prices in general dropped by an average of 32 percent, but prices in Dallas fell by only 5.5 percent. As prices in much of America dropped off a cliff, National Association of Realtors data shows that prices in Houston have stayed remarkably constant. The average sale price was $152,500 in 2007, $151,600 in 2008, and $153,100 in 2009.
Triumph of the City Page 23