New York State’s Latin motto may mean “ever upward,” but the relative economic importance of its region is declining in the United States. For the first time ever, six southern states—Florida, Texas, North and South Carolina, Tennessee, and Georgia—are contributing more to the nation’s GDP than the Northeast’s 11 states and Washington D.C., a Bloomberg article reported last week. In 2021, the South gained $100 billion, in part driven by economic activity diverted from firms transplanted from the Northeast, and the region now accounts for more than two-thirds of the nation’s post-pandemic job growth. New York City alone shed an adjusted gross income of $61 billion in 2021, by far the most among large American cities.
Though this competition shouldn’t be mistaken for a zero-sum game, it reveals the extent to which the New York City–Washington D.C.–Boston megalopolis has dulled the Northeast’s economic edge. Regional leaders are largely failing to meet a two-pronged challenge: growth-oriented governance and greater affordability. “We now have more employees in Texas than New York state. It shouldn’t have been that way,” lamented J.P. Morgan CEO Jamie Dimon.
Indeed, it shouldn’t have, but Florida, Texas, and their neighbors aren’t stumbling into success—their policies are bringing it about. For one thing, the tax, regulatory, and bureaucratic systems in places like New York make starting and doing business harder and costlier. Bryan Hipsher, CFO of accounting firm Dun & Bradstreet, said that the firm would not have relocated to Jacksonville, Florida, but for the irresistible combination of a lower cost of living that allows the firm to pay workers less than in the Northeast, $100 million worth of incentives in cash and tax breaks—and, of course, beaches and warm weather.
Every talented individual and firm deciding that a place like New York City is too expensive, too bureaucratized, and too disorderly represents a missed chance to strengthen the Northeast’s most important advantage: agglomeration economies. Urban density enables ready access to new opportunities—jobs, customers, and innovative solutions. Dense cities, therefore, should draw together human capital and firms like gravity, without the need for incentives. But when growing jurisdictions offer more streamlined regulatory environments and throw in incentives, the combination can prove too tempting to pass up, especially when office work doesn’t command the same importance as before the Covid-19 pandemic. Consequently, firms like Dun & Bradstreet leave the metro area, weakening the ties that bind its employees and clients to New York.
High taxes may be tolerable in exchange for the uniquely valuable urban agglomerations facilitated through public investment. But there’s no getting around deteriorating public services and extreme unaffordability in much of the Northeast, particularly New York. The city and state’s biggest impediment to continued economic leadership results from a refusal to build more housing. Case in point: most underutilized office buildings in New York State cannot convert to residential use unless they were constructed before 1977. Worse, in most of the city, zoning restricts convertible offices to those built before 1961. The law thus stands squarely in the way of a no-brainer solution for potentially hundreds of office buildings built over the past six decades.
State and local leaders have also acceded to supply-limiting community controls, expensive building requirements for parking, and the self-serving interests of incumbent homeowners who wish to raise the value of their property by limiting supply instead of expanding the economic pie.
Government ossification and housing affordability aren’t nearly as pronounced in the car-dependent South. There, governments don’t have to build mass-transit systems (for better or worse), and homebuilders can expand supply with relative ease, allowing for new construction with modern finishing at a fraction of the price of a smaller, older Northeastern apartment or home. Despite having the most extensive urban mass-transit infrastructure in the U.S., New York City has some of the longest commutes in the country, thanks partly to the MTA’s longstanding operational woes. Pair that with Americans’ general preference for car-based transportation, and it’s easy to see the appeal of moving to a large, brand new home for less money and the same commute in a private vehicle.
Lots of good economic, social, and environmental reasons favor dense urbanism over suburban sprawl. But city lawmakers must be willing to make it possible to build homes and infrastructure cost effectively within the urban setting, especially now, when they face ever-stiffening competition with the fast-growing South.
This isn’t happening in the megalopolis. The Sun Belt, the area in the U.S. where population growth is strongest, has also seen robust housing-unit growth. In fact, the nationwide correlation between population growth and new housing supply is striking. Regardless of whether housing is moving to where jobs are or vice versa, housing-supply growth, economic opportunity, and domestic migration run in the same direction nationwide. The South’s post-pandemic growth strategy markedly differs from New York City’s after the Great Recession: between 2009 and 2019, the Big Apple grew by 907,600 jobs, or 24.3 percent, attracting 629,057 new residents—yet over that decade, the city constructed just 206,000 net housing units, a mere six percent above 2010’s housing stock.
None of these trends is irreversible. Decades ago, Walter Wriston, the legendary chairman and CEO of Citicorp, said, “Capital goes where it’s welcome and stays where it’s well treated.” Northeastern leaders simply need to start treating capital and talent better. And they’d better hurry.