Glaeser on Houston

Harvard urban economist Ed Glaeser, whose work I often cite, recently touted Houston in a New York Sun column: 

New Yorkers are rightly proud of their city's renaissance over the last two decades, but when it comes to growth, Gotham pales beside Houston. Between 2000 and 2007, the New York region grew by just 2.7%, while greater Houston — the country's sixth-largest metropolitan area — grew by 19.4%, expanding to 5.6 million people from 4.7 million.

...

Houston's great advantage, it turns out, is its ability to provide affordable living for middle-income Americans, something that is increasingly hard to achieve in the Big Apple.  That Houston is a middle-class city is mirrored in the nature of its economy. Both greater Houston and Manhattan have about 2 million employees.

In Manhattan, almost 600,000 of them work in the idea-intensive sectors of finance, insurance, and professional services; only 2% are in manufacturing, and fewer than that in construction. Finance increasingly drives New York City's economy as a whole. By contrast, Houston is a manufacturing powerhouse that makes machinery, food products, and electronics, with a retail sector twice the size of Manhattan's and lots of middle-class jobs.

Housing prices are the most important part of Houston's recipe for middle-class affordability. In Gotham, the extraordinarily high housing costs aren't a problem for the hyper-rich. With enough money, you can live in a spacious aerie overlooking Central Park, shop at Barney's, eat at Le Bernardin, and send your children to Brearley or Dalton.

The abundance of poorer immigrant New Yorkers, in turn, tells us that for people simply seeking a lifestyle that beats rural Brazil, the city's many entry level service-sector jobs, wide array of social services, and extensive public transportation can offset high apartment prices.

But what if, like most Americans, you are neither a partner at Goldman Sachs nor a penniless immigrant? Consider an average American family with skills that put them in the middle of the U.S. income distribution — nurses, sales representatives, retail managers — and aspirations to a middle-class lifestyle. What kind of life will such people lead in Houston and New York City, respectively?

...

The Houston family is effectively 53% richer and solidly in the middle class, with plenty of money for going out to dinner at Applebee's or taking vacations to San Antonio. The family on Staten Island or in Queens is straining constantly to make ends meet.

...

The permitting process in Manhattan is an arduous, unpredictable, multiyear odyssey involving a dizzying array of regulations, environmental, and other hosts of agencies. A further obstacle: rent control. When other municipalities dropped rent control after World War II, New York clung to it, despite the fact that artificially reduced rents discourage people from building new housing.

Houston, by contrast, has always been gung ho about development. Houston's builders have managed — better than in any other American city — to make the case to the public that restrictions on development will make the city less affordable to the less successful.

...

But Houston's success shows that a relatively deregulated free-market city, with a powerful urban growth machine, can do a much better job of taking care of middle-income Americans than the more "progressive" big governments of the Northeast and the West Coast.

The right response to Houston's growth is not to stymie it through regulation that would make the city less affordable. It's for other areas, New York included, to cut construction costs and start beating the Sunbelt at its own game.

I was surprised by the harsh reactions to this column.  Ryan Avent, one of the best urban-economics bloggers around, called the piece "a lazy, wrongheaded, and deeply ideological thumb of the nose to the rest of us urbanists."  (Not all the reactions to Glaeser's piece were negative.  Tory Gattis, not surprisingly, liked it.)

I think the negative responses miss Glaeser's point.

Glaeser was not touting Houston's urban form; he was touting Houston's willingness to accommodate new housing to meet rising demand.  He was saying, "Hey, New York.  You've got a great city.  Share it.  Allow more housing so the middle class can live there, too." 

Here's another way of making Glaeser's point:

One can think of a city as a good.  It offers a package of wages and amenities --museums, parks, restaurants, even other people -- in return for a "price" equal to the cost of housing and commuting.

It is easy to tell when a city is priced right:  its housing prices and population are stable.  Roughly, this means that the "last," or marginal, resident is getting out of the city exactly what she has to pay for housing and transportation.

Now suppose the city's wages or amenities improve, either because of rising productivity, new museums, restaurants, and parks, or declining crime rates.  The city can react in one of two ways.  The first is to allow more housing.  The city ratchets up production to put more copies of itself out into the marketplace.  The city experiences a net influx of migrants -- more people willing to buy what the city has to offer -- until it reaches a new equilibirium.

The other response is to shut off the supply of new housing.  The city limits the number of slots available in the market  -- sort of a "Franklin Mint" marketing strategy -- and forces potential buyers to bid for the limited supply.   Because the old price was below market value, and the city is producing no new "slots," the price must rise until supply equals demand.  The cost of housing must increase, otherwise there would be too many buyers.   

Houston follows the first model.  When Houston sees its wages or amenities rise, the supply of housing slots grows.  Housing prices remain relatively flat, but the number of buyers increases.  We know that Houston's wages and amenities have been rising over the last few years, because it has been growing like gangbusters. 

Places like San Francisco and New York follow the "Franklin Mint" model.  For all practical purposes, they have chosen to limit housing to the existing stock.  We know that, as with Houston, the wages and/or amenities they offer have been rising over the last few years, but for them the rising demand shows up in higher home prices rather than a larger population.  (San Francisco is a wonderful city as long as you make $200,000 or more -- the income necessary to afford a median-priced home.)

There are obvious problems with a city turning itself into a limited edition print.  Perhaps the biggest is equity.  The immediate consequence of a rise in wages or improved amenities in San Francisco or New York is that more middle-class shoppers must go elsewhere.

Another problem is that San Francisco and New York are much smaller than they ought to be.  That lost growth means fewer economies of scale, a less diverse offering of goods and services, lost productivity -- in short, less of everything that makes cities so attractive.  They are great places, but not as great as they could be.

Neither San Francisco nor New York has room for miles of single-family suburbs; neither can nor should try to duplicate Houston's pattern of growth.  But both should be adding tens of thousands of new apartments and condos.  They should be flooding the market with new slots.  That, I think, was Glaeser's real point, and I'm not sure how any serious urbanist can disagree with it.

Comments

[M1EK]

It's disappointing that the whole article went by without also noting that Houston forces sprawl just as much as do the standard metropolitan areas with zoning. Other than that, I agree. But consider that those middle-class folks in Houston may still come out slightly ahead when you factor in their much higher transportation costs; their quality of life is inevitably lower (the TIME they spend transporting themselves by car, for instance; their abyssmal air quality, their lack of other transportation options; etc.)

[Wes Benedict]

M1EK,

What's the status of rail? Do you think it will be on the May 2009 ballot? If so, I might like to run a campaign for Mayor of Austin with a primary goal of defeating rail. Plus, it'd be fun to campaign against Leffingwell, McCracken, and/or the fireman (just drew a blank).

--Wes Benedict

[AC]

Wes, this isn't a public bulletin board for randomly baiting other commenters. Keep it on topic (or at least within a stone's throw of the topic).

[Wes Benedict]

AC: you nailed me! ;-)

[The Overhead Wire]

Part of it has to do with a term I coined a few weeks ago. Regressive progressive. Then there is the NIMBY issue. Geary (A corridor that if it were a subway instead of a bus would carry 100,000 people a day) has a lot of opportunity for growth, yet the shopkeepers are so scared of "density" that they shut ever plan that comes through for BRT, Rail, density anything. It's a culture of "no". Which brings me to the point that Mike makes. Houston's forced sprawl is much easier because you don't have vested interests in the new areas. No one is going to say "no" if no one is there which makes it infinitely easier to build stock in a place like Houston with endless Katy prarie versus the 49 square mile plot thats about the size of Houston inside the 610 loop. I'm not sure how you could regulate out NIMBY.

[AC]

Houston has less of a NIMBY problem inside 610, too, mainly because developers don't have to jump many hoops to build what they want. (There are minimum site area requirements inside 610, but they are pretty generous. My main problem with Houston development regs is the setback and minimum parking requirements.)

[DSK]

I don't know if the transportation costs/time are really that much higher for the average Houston resident vs. the average greater NYC resident. I would expect the average greater NYC resident to have a longer commute time overall. With rising gas prices, the costs are probably cheaper in NYC (more rail options available). But give Houston another few years to build more Metro (so less driving required by more residents), and NYC another few years to let their subways continue to decay, and things may become still more even.

[M1EK]

This is where you have to weight the commute time too - because, yeah, some greater NYC residents have really long commutes, but a lot more people that work in Manhattan live in Manhattan or at least one of the close boroughs than in Connecticut, for instance. Costs are obviously lower because in Houston, every adult driver will have a car; that's obviously not the case in NY - so you can actually benefit from losing the depreciation monkey (like all the bad commute calculators think you do from leaving your car in the driveway).

But I was also going with the implicit idea that spending 30 minutes on a subway is better than spending 30 minutes driving - you can (some do, some don't) read or do other stuff.

[JDT]

Nice post comparing Houston and NYC. To further support your post, I thought I'd share a study that my company conducted recently that compared state economies. The state, rated by C-level executives and location advisors, with the #1 top business climate is TEXAS. On the other hand, NY ranked among the bottom three: http://www.aboutdci.com/WinningStrategies.aspx