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.
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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?
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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.
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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.
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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.
