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Lone Star Quartet

Podcast

Lone Star Quartet

October 5, 2016
Texas
Economy, finance, and budgets

City Journal editor Brian Anderson and Manhattan Institute senior fellow Aaron Renn discuss how four big metros—Houston, Dallas, Austin, and San Antonio—power the Texas economy. From City Journal’s special issue, Texas Rising.

Audio Transcript

Brian Anderson: The State of Texas has seen spectacular economic and population growth over the past two decades.  The Lone Star State’s pro-development policies have made Texas one of the most attractive places for middle class families to own a good home at a reasonable price.  Texas’s economic success has largely been concentrated in its four major metropolitan areas: Austin, Dallas, Houston, and San Antonio, which make up what is known as the Texas Triangle.  Each city has successfully lured its own mix of businesses and entrepreneurs to relocate or invest in Texas and together they are doing better than almost any region in the country since the Great Recession.  However, no economic boom can last forever and with growth comes significant challenges, many of which are the same challenges faced by other American cities in the past.  Joining us to discuss those challenges and Texas’s future is Aaron Renn.  Aaron is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and a columnist at Governing Magazine.  He’s an expert on urban development and can be found on Twitter @Urbanophile.  Aaron’s latest piece, “Lone Star Quartet,” is featured in Texas Rising, our new special issue of City Journal focused on Texas.  It can be found online at www.city-journal.org.  Aaron, thanks very much for joining us.

Aaron Renn: Thanks for having me in.

Brian Anderson: Now, many people have compared Texas’s explosive growth in the century with the rise of California in the last century.  There are many similarities but California today is one of the most expensive states for middle class families to live while Texas is relatively cheap.  What sets apart the Texas experience and policy choices over the past twenty years in this context from places like California?

Aaron Renn: Well, one thing is success is cyclical.  No one goes up and up and up forever.  So California had a really good run and part of the challenge with them is you know, as you get older in your development pattern you start making, you know, bad choices a lot of times.  You’ve had so much success that you think you’re going to have success forever.  So in California’s case, their taxes got out of control.  They have very high income taxes there.  They do have capped property taxes for some because of Prop 13, but that mostly benefits longstanding homeowners over new homeowners.  They stopped investing in their infrastructure, their highway systems are in very bad shape, and then they also became an incredibly high regulatory state; which may be, you know, far worse than the taxes are the regulations.  Especially in terms of two things, one is the inability to build anything and it’s very…

Brian Anderson: Including housing.

Aaron Renn: …including housing.  And this has sent housing prices through the roof and the second is some of these, you know, toughest environmental mandates in the country around things like greenhouse gas emissions and things like that, that have dramatically raised energy costs in the state, which effectively, or specifically effects low-income households the most.  So you end up with a situation where it’s sort of a high-cost, high-regulation environment, and you combine that with the fact that its successful industries like Hollywood and Silicon Valley tech really are less affected by that.  They are very high-value industries, they are very clean industries, they operate in office parks and things were already existing, studio backlots, and things like that.  So it’s kind of great if you’re one of those people in those industries, but it’s not so great for everybody else.  Texas, by contrast, a no income tax state, low regulatory state, Houston famously has no zoning.  It’s stayed more affordable and it has stayed, you know, more pro-business, not just for high-end business, but for all kinds of other businesses.  That’s the big differences between California.  California is okay if you are a high-end business, as for everybody else, but like California, Texas will run into its own set of problems at some point.  Growth is going to slow down, they are going to make maybe some bad mistakes of their own, so they shouldn’t assume that they are immune to the California’s disease.

Brian Anderson: Well let’s look at some of these cities more specifically.  So Dallas-Fort Worth is now the fourth largest metro area in the country, you note, and it’s poised to take its place above Chicago for the third largest metropolitan area in the country before 2050.  Why is Dallas in particular growing so fast and what have leaders there been doing to prepare for this growth that is, you know, projected to happen over the next few decades?

Aaron Renn: Well, Dallas has sort of become an alternative to Chicago as the premier interior business capital of the United States.  So they have some very similar characteristics.  They are both giant cities with very thick labor markets, so there’s many, many companies hiring, many, many employees there.  You can find a job.  They are very diverse.  They have huge hub airports, central time zone, convenient to travel around the country.  And so what we see is Chicago is still doing well in some respects in terms of its downtown loop economy and the kinds of high-end, global, city-type businesses.  Chicago is actually doing quite well.  But for kind of the mass employers that prefer a more suburban environment like Toyota, which is bringing 5,000 people there, Dallas is really, in a sense, taking over as the preferred interior business capital of the United States.  So that’s a factor.  And Dallas also is just, you know, a fairly productive place to do business.  It is more productive than the average city in the kind of industries that it attracts and so it has been doing well on that basis.

Brian Anderson: Now Houston is also booming, thanks, in large part, to its status as a global center of the energy economy.  But as you warn in your essay, Houston has significant problems looming.  Could you talk a little bit about those?

Aaron Renn: Well, with Houston it’s really been a very, very successful city because of its industry energy – energy industry – and that has led to Houston actually having pretty high incomes.  Not just, you know, cheap housing but also pretty high incomes.  I’ve seen at least one study that argues that Houston actually has the highest standard of living in the United States once you factor in the cost of living and the incomes.  But like anything that is concentrated in one industry, you are vulnerable to cyclical swings.  And now we’ve had, you know, tremendous declines in oil prices and so that has percolated through to the Dallas economy and also – I mean, excuse me, the Houston economy.  Also, like some cities, you know, like Chicago or like some California cities, Houston has acquired some pension issues.

Brian Anderson: Right.

Aaron Renn: And so they have large, unfunded pensions there that they are going to have to deal with.  And the City of Houston itself also has a lot of kind of low-grade, substandard infrastructure.  So, you know, Houston is not immune from challenges.

Brian Anderson: San Antonio, the third of these four metropolitan areas, is unique in many, many respects.  It is also doing very well but its makeup is different.  Could you elaborate a little bit on that?

Aaron Renn: Sure.  Of major metropolitan areas in the U.S. with more than a million people, San Antonio has the highest share of Hispanic population and is the only one of those that is over half Hispanic.  The interesting thing about San Antonio, though, is that this Hispanic population is largely native born.  It has very, very deep-standing roots in the city going back to, really, it’s founding.  So it has been, effectively, a Latino city for a very long time.  San Antonio, in contrast with some of the other cities, has lower educational attainment in terms of college degrees, but it also has a huge military presence.  And so what we have seen is that the military has played a huge role in driving their economy and also helping to integrate Latinos into middle class success in America in a way that necessarily hasn’t happened in a lot of other places.  So Toyota located a major manufacturing plant there not long ago.  So they are actually, you know, they are actually, I think, having a better working class economy, although they are also growing some of their high-end business as well in terms of cybersecurity.  The military has a cybersecurity command there.  The NSA has a facility there.  There are some financial services around the military and medical training.  So, although it doesn’t get quite the cachet of an Austin, they’ve got their own high-tech stuff going but I think the real star of their story is the fact that they’ve been able to give so much good middle-class success to their Latino population.

Brian Anderson: Speaking of Austin, it is undoubtedly the bluest of Texas’s cities.  We’ve just got back from doing a dinner there.  It was quite striking, the kind of mix of people we met.  It’s also becoming one of the least affordable of Texas’s cities, probably the least affordable.  Is there a connection between its increasingly blue politics and its lack of affordability?

Aaron Renn: You know, it’s hard to say precisely but, you know, we see the same things happening in many of these other progressive capitals.  You know there’s just kind of a regulatory mindset that you get when you come with these kind of far-left mentalities.  I wrote a piece called Libertarians of Convenience for City Journal a while ago talking about this, about how many of them are now starting to realize that their regulatory mindset is making it very difficult to build housing and other things that they want and it is pricing even many of, you know, the aspirational progressives, out of the city.  The problem is this regulatory gene, if you will, is very hard to just turn on and off.  And so when your mindset is let’s try to regulate things in order to achieve the outcomes that we want, sort of social engineering, economic engineering, you end up with all kinds of consequences like high housing costs because it’s just more complicated to do things.  Austin is also growing faster than a lot, even the other cities in Texas.  Super, super fast population growth in a place that’s smaller than Houston and Dallas likely plays a role as well.

Brian Anderson: Aaron’s latest piece, again, is called Lone Star Quartet.  It’s featured in our special issue Texas Rising.  Aaron, thanks very much for coming by.  The issue is available online at www.City-Journal.org.  Thanks again, Aaron, for joining us on 10 Blocks.

Aaron Renn: Thank you.

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