Monday, October 19, 2020

A new strategy for securing Houston's economic future

Talk has been growing in recent years about Houston's future in a less carbon-intensive energy world.  Will we still be the world's energy capital in the coming decades, and what does that mean? The Greater Houston Partnership and Center for Houston's Future have taken the lead on this challenge with their Energy 2.0 and energy transition work, and I hope they're getting traction with it (despite pandemic distractions).  We certainly have a lot of expertise here that can work on big problems like carbon capture with the right economic incentives.

Another strategy is growing our innovation and startup ecosystem to build the companies of tomorrow - especially in energy, space, and biotech - and I think there has been great progress made in recent years, including Rice's building of the Ion in Midtown.  One area that has not been as successful is trying to attract tech companies building new offices.  To be brutally honest, we can't out-Austin Austin.

The energy transition and innovation ecosystem are both great initiatives to help secure Houston's economic future, but I think there's a third opportunity we're overlooking. It plays perfectly to our strengths:

  • America's most affordable global city (vs. NYC, LA, Chicago, SF, Miami)
  • Being more attractive to global migrants than domestic ones (which seem to be more interested in places like Austin, Denver, and Nashville)
  • Large expat communities from countries all over the world
  • 92 foreign consular offices, the third-largest set in the US after NYC and LA
  • One of the largest ports in the country
  • A friendly and welcoming local culture
  • A huge United hub at IAH with nonstops covering all of the Americas in addition to European, Asian, Middle Eastern, and ANZ connections.

IAH nonstops on United

Put all those strengths together and what's the opportunity? To be the location of choice for foreign companies establishing their branch office for the Americas.  There are thousands of fast-growing companies around the world that will need to establish a presence in the Americas at some point, and Houston is really the ideal place for them to put it for all the reasons listed above.

I think we already compete for these to some extent, but there's an opportunity to do it much more aggressively with a formal, well-funded program that cooperates closely with all our foreign consulates to identify their up-and-coming companies and start wooing them as early as possible. Without outside influence, they probably tend to end up in the cities that are more obvious and well-known to them like NYC, LA, and Miami.  But if we intervene early and show them how much better Houston will ultimately be for both their business and their employees, I think we can win over a substantial number of them.  Their expat employees used to small flats and public transport in crowded cities will be blown away by the equivalent home and car they can buy in Houston, Sugar Land, or The Woodlands!

These foreign branch offices aren't as sexy as green energy, tech, or entrepreneurial startups, but over time they could provide a very strong foundational component to Houston's economy with a whole lot less uncertainty and volatility.  Even better, we won't have that much competition - it's an opportunity ignored by most cities as they chase the hot tech companies and try to cultivate their own startup scenes.  Foreign corporate offices should definitely be the third strategy to secure Houston's economic future in a world increasingly hostile to oil and gas.

Would love to hear additional thoughts and feedback in the comments...

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Sunday, October 11, 2020

HTX top five global city in America, big SWA increase at Hobby, Dilbert vs. city red tape, big growth, and more

 Lots of interesting items this week:

But mainly I expect everything to (eventually) get more affordable under covid (see previous item). It will certainly free up a lot of workers from service industries for construction, which has been a major issue for builders. And people being free from commutes reduces price premium of close-in properties and opens up exurban ones.
#12. Houston-The Woodlands-Sugar Land, TX
3-year population growth (percent): 5.11%
3-year population growth (total): 340,438
Cost of living (compared to national average): +1.8%
Median home price: $221,426
Average 2-bedroom rent: $1,096 per month

Finally, ending on a humorous note, Dilbert takes on development over-regulation and corruption! I'm sure many developers are familiar with the 'false hope phase', at least outside of Houston!

Click to enlarge

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Tuesday, October 06, 2020

Food deserts aren't real, energy transition, tourism surprise, NYC's anemic recovery, and HTX pandemic response failure

 Just a few items this week:

  • Bloomberg Businessweek: Houston Had an All-American Pandemic Response: Ignore Until It’s Too Late - The city knows about disasters. It’s got a world-renowned medical center. It saw what happened in New York. And it still couldn’t stop Covid-19. I know I still shake my head every time I see a full pedal party in Midtown (close proximity + heavy breathing!). Hat tip George. Sad conclusion:

Crisis is brewing from every direction, and we’re as ready as we ever were. It’s as Hidalgo says: “We’re right on the edge of disaster. It’s almost become our way of business.”

“But a number of civic and business leaders say New York’s reliance on mass transit—and concerns that the new coronavirus could spread through subways, buses or regional trains—has kept many people working from home. Cities that have more driving commuters have seen a higher percentage of workers return.” 
“New Yorkers’ slow return to the workplace is the latest blow to the nation’s biggest city, which has also suffered from homeowners fleeing Manhattan for larger spaces, rises in murders and homelessness, and the shutting or partial closings of Broadway theaters, museums and other popular attractions.” 
“But for some New Yorkers who recall the early weeks of the pandemic, when the rates of sickness and death were among the highest in the world, complimentary parking might not be enough to bring them back to midtown and the prospect of mixing with crowds. Many were traumatized, said Chris Jones, senior vice president of the Regional Plan Association, an urban policy organization.” 
And here’s the top rated comment: 
“Let's be real.  There is no social distancing in NYC whatsoever when the buildings and streets are full.   Zero.  None whatsoever.  Source: a person who's worked in NYC every day for 25 years. “
"We study the causes of “nutritional inequality”: why the wealthy tend to eat more healthfully than the poor in the U.S. Using event study designs exploiting supermarket entry and households’ moves to healthier neighborhoods, we reject that neighborhood environments have meaningful effects on healthy eating. Using a structural demand model, we find that exposing low-income households to the same availability and prices experienced by high-income households reduces nutritional inequality by only 9%, while the remaining 91% is driven by differences in demand. These findings contrast with discussions of nutritional inequality that emphasize supply-side factors such as food deserts."

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Monday, September 28, 2020

Is historic preservation zoning? Houstonians support each other during flooding, HTX relative economic and physical size, and more

 Lots of smaller items this week:

"So the three policies I propose to define the “neoliberal agenda” for the 2020s are YIMBYism (support for more housing), support for more immigration, and support for a carbon tax... A “neoliberal agenda” focused on these things would be a club, not a party: you can be a neoliberal Republican, a neoliberal Labourite, a neoliberal priest, a neoliberal Green, or whatever. There are loads of other issues that I think are incredibly important that don’t fit here, but these three policy priorities would get you a huge amount of the potential economic and social progress we can make with public policy besides those. Not only are these, in my view, the core of what modern neoliberals really do care about, they are some of the most powerful of all possible policies we could enact to improve the lives of people around the world."

"a recent study by epidemiologists from Johns Hopkins University has concluded that, even after “adjusting for social distancing,” “public transit use . . . remained significantly associated with SARS-CoV-2 infection.” The study found that “NPIs” (non-pharmaceutical interventions, e.g., masks & social distancing) “while visiting indoor and outdoor venues helps reduce SARS-CoV-2 transmission.” However, the two exceptions were public transport and places of worship. “Even NPIs may not be possible or sufficient” to prevent the virus’ spread on public transit, the study concludes."
Video: This is how we Houston after the storm. Love this! We may be susceptible to crazy weather, but we have an incredibly supportive and resilient culture. Hat tip to George.

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Sunday, September 20, 2020

Dangerous HCTRA toll revenue diversions, Ike Dike, rail vs road forecasts, LA transit may go fareless, HTX and the energy transition, and more

A lot of smaller items to catch up on this week after our little diversion into aviation last week.

My lead this week is on Harris County playing games with HCTRA toll road revenue to spend it on things other than transportation, which is super dicey. The state is already in trouble with transportation because they diverted the gas tax to nontransportation needs. Now the county is making the same mistake... trading long-term prudence for short-term pet projects.  "For flood control" is PR spin, since they won't have any obligation to spend it on that. Toll money moves into the general fund where they can spend it on anything they like.  Oscar made a nice chart to show why HCTRA's money pot is such a tempting target, although he expects it may drop up to a third this year with the pandemic.

On to other items:
"Texas: Number 2 in Net Domestic Migration (just behind FL)
Texas, the nation’s second most populous state had the second largest gain in net domestic migration, at just below 2 million. During the two decades, the two largest Texas metropolitan areas, Dallas-Fort Worth and Houston moved from below the top five to positions four and five respectively."
"And it makes no difference if the analysis includes other potential explanatory factors such as population density, age, ethnicity, prevalence of nursing homes, general health or temperature. The only factor that seems to make a demonstrable difference is the intensity of mass-transit use."
"The article’s real bias is shown in a paragraph about Bent Flyvbjerg’s well-known study on transportation megaprojects. The 2007 study (of a large global database of highway and transit megaprojects) found that average traffic on highway megaprojects was 9.5% more than forecast, while the average rail megaproject ridership was overestimated by 106%. In other words, for every 100 drivers forecast to use a given highway project, 110 did, and for every 100 rail passengers forecast to use a rail megaproject, only 47 did. If anything, the forecasting problem seems to be far worse with rail than with highways but the piece only mentions highways:

And here the problem is partly political; in order to receive federal funding, transit proponents have learned to game their forecasts, inflating ridership by one-third and deflating cost estimates by one-third. This is a well-known trick, and, unfortunately, the article fails to mention it or provide any way to solve this problem."
"The problem with light rail (and the reason it is popular with government officials) is that it is an upper middle class boondoggle.  There can be no higher use of transit than to provide mobility to poorer people who can't afford reliable automobiles.  Buses fulfill this goal better than any mode of transit.  They are flexible and can reach into many corners of the city.  The problem with buses, from the perspective of government officials, is that upper middle class people don't like to ride on them.  They like trains.  So the government builds hugely expensive trains for these influential, wealthier voters. Since the trains are so expensive, the government can only build a few routes, so those routes end up being down upper middle class commuting corridors.  As the costs mount for the trains, the bus routes that serve the poor and their dispersed commuting destinations are steadily cut."

Finally, ending with a fun short video with the "top ten" places to visit in Houston. I've never even heard of #1 before, lol, so see if you agree. Hat tip to George.

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Tuesday, September 08, 2020

Where United Airlines should establish a new hub...

This week's post has nothing to do with Houston other than United has its second-largest hub here, and what's healthy for United tends to be healthy for Houston (barring a monopoly ;-).  I'm a bit of an amateur aviation nerd going back to my McKinsey days, and I had a random crazy thought this week: United has a ton of planes and crews sitting around doing nothing right now during the pandemic - they could literally create an instant hub somewhere if they wanted to (assuming they could get the gates). But where?

United actually has well-positioned hubs covering most major domestic and international regions. But they do lack good coverage in the southeastern US like Delta does from Atlanta (world's largest hub) and American does from Charlotte. Additionally, Houston serves as a great United hub to Latin America for the central and western US, but is not geographically well-positioned for serving the eastern US the way American is with its hub in Miami.  Is there somewhere United could establish a hub that does some combination of what Charlotte and Miami do for American?

The pandemic has made this even more important, as the rise of remote work is driving a huge migration from the north to Florida and even the Caribbean.  United sensed this migration early and quickly established a wide range of non-hub flights to better serve Florida.  And no matter what you think about the future of the pandemic, remote work has now been absolutely normalized.

But where should they go if they want to take this first step to the next level and actually establish a new hub?  A few options can be quickly eliminated:
  • Atlanta and Charlotte are already taken by Delta and American respectively
  • Raleigh-Durham is too close to IAD Washington DC Dulles (already a United hub)
  • Miami is already an AA hub facing increasing competition from Delta and Southwest
  • Fort Lauderdale and Orlando have incredible amounts of low-fare competition from Southwest, JetBlue, Spirit, Frontier, and others.
  • Fort Myers is too small to support a hub (679,000 MSA population) as is Jacksonville (1.5m)
The really intriguing alternative that remains: Tampa.  The Tampa Bay metro area has a population of 3.2 million, the 18th-largest metro in the country - larger than Denver, Charlotte, or Salt Lake City which all support substantial hubs.  It's also one of the fastest-growing (nearby Lakeland as well), and has manageable low-fare competition.  The housing is far more affordable than the Miami area.  It's also about an hour from Walt Disney World, the largest tourist attraction in the country (soon to be connected by the Brightline train).  And it's not just tourists - there are plenty of business travelers as well (United's core market).  Tampa has been steadily growing its corporate presence - especially financial - and it's the center of Florida's High Tech Corridor.

A friend of mine threw together some potential United route maps from a Tampa hub (hat tip to Daniel!).

Potential Domestic

Potential International

Potential United Latin America coverage IAH+TPA

As you can see, it's much better geographically from the eastern US to the Caribbean and Latin America than Houston is.  Would it cannibalize traffic from IAH?  Based on American's service to the same region from DFW and Miami (the equivalent of United's IAH and Tampa), we don't think so.  DFW has Latin service nearly as comprehensive as IAH despite American's Miami hub. The two hubs actually reinforce and support each other and give American a dominant position in Latin America.  United could challenge that dominance with a combination of Houston, Tampa, and Newark/NYC.

Florida is the third-largest state in the country at 22 million and growing fast. United needs a strong presence there to match its strength in other top five states like California (38m), Texas (28m), New York (20m), and Illinois (13m).  A hub (or at least a strong focus city) in Tampa is the best strategic option for them to tap that market. This pandemic will reshuffle the airline pecking order - why play defense when they can seize the initiative and fill a long-standing and growing gap in their route network while also putting more planes and crews to work?

UPDATE: discussion in the forums


Monday, August 31, 2020

Houston held up as a model of land-use and affordable housing reform for the country, plus fleeing cities and Journey in Houston

Some pretty cool Houston items this week:
"For a proven reform, look at Houston, arguably the most pro-housing city in the country. It doesn’t have use-zoning, which means that housing — including apartments and other multifamily housing — is permitted anywhere private covenants don’t restrict it. In 1998, Houston policy makers reduced the minimum-required lot size for a house from 5,000 square feet down to 1,400 square feet on all of the land within the city’s I-610 loop. This made it possible to replace a single-family house with three. In 2013, the 1,400-square-foot minimum lot size requirement was expanded to cover the entire city. 
Thousands of townhouses have since been built that wouldn’t have been permitted before. Houston now boasts a median home price below the national median in spite of decades of rapid job growth and increasing population. A typical house in Houston costs less than $200,000, compared with nearly $300,000 in Atlanta or a staggering $680,000 in San Diego. In other booming cities, more jobs and new residents have led to skyrocketing prices but few new homes. 
On paper, Houston’s decision to reduce minimum lot sizes seems similar to eliminating single-family zoning and allowing more than one unit per lot. The difference is that Houston’s other flexible land-use regulations allow homebuilders to deliver those new units in a cost-effective and desirable way. Houston’s rules ensure that three new units can be spacious, useful and an improvement on the detached houses they replace."
"The experience of Houston reaffirms much of what researchers already know: minimum-lot-size regulations limit urban development, driving up lot sizes and thereby increasing housing prices. By liberalizing these rules, the 1998 subdivision reforms allowed developers to meet a large and growing demand among Houstonians for smaller houses closer to major job centers
But the reforms also chart new territory: a key element of their success involved allowing homeowners with the most extreme lot-size preferences to opt out of reform, thereby mitigating opposition to the broader reform. Even accounting for this concession, postreform subdivision has been heavily concentrated in neighborhoods that were either middle class or sparsely populated, without imposing an undue burden on traditionally marginalized communities. As planners and policymakers across the country wrestle with the complicated politics of land use liberalization, the case of Houston thus offers an instructive example."
“The suburban demand, driven in part by New York City residents who are able to work remotely while offices are closed, raises unsettling questions about how fast the city will be able to recover from the pandemic. It is an exodus that analysts say is reminiscent of the one that fueled the suburbanization of America in the second half of the 20th century.”
"I’ve been fortunate to live in many different cities across the U.S. and Latin America, and I can honestly say that none of them were as friendly, as empathetic, or as inviting as Houston. It’s why I fell in love with this town. People genuinely believe in looking out for each other here."
Finally, a pretty cool random discovery: Journey's official live video for 'Don't Stop Believin'' was performed in Houston. They even tweaked the lyrics to include Houston!

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Monday, August 24, 2020

Houston #3 global city of the future, explaining the 'evil developer' trope, Energy 2.0, and more

This week's items:
"Houston comes third in the overall ranking. The Texan city is a reputable talent hub and, according to the 2019 Academic Ranking of World Universities, is home to five of the global top 500 universities, as well as over 30 international baccalaureate schools. This contributed to its achieving third place in the Human Capital and Lifestyle category.

Houston also placed sixth in the Business Friendliness category. The city’s welcoming business environment is clearly a hit with investors, as it recorded 53 expansion or co-location projects between May 2015 and April 2020, representing more than a quarter of its total inward FDI and the second highest out of all locations analysed."
"Yet, under any circumstances, I believe that the state of our understanding is at least sufficient to provide some basic principles for guiding efforts to improve the prospects of dying cities. First, officials of cities hoping to be successful must be seen as dedicated to managing their municipal enterprise in more honest, efficient, and business-friendly ways. Too many cities have experiences similar to Baltimore’s, whose last two mayors and a recent police chief have gone to prison for corruption. One reason, as I’ve argued, is that many big city mayors no longer have business backgrounds. As a result, few know how to manage complex municipal organizations, including the challenge of minimizing opportunities for graft. Corruption-free cities where mayors and city councils are experienced in working the intersection of business and citizen interests, which are most often coincident, experience faster growth rates... 
Second, mayors and other urban leaders must focus on developing productive entrepreneurship that will make cities more competitive in the future. My research shows that after two decades of betting on entrepreneurs to generate new economies, few cities appear to have benefited from their investment. Mayors should rethink their expectations of local entrepreneurs and the resources they provide to the town’s efforts to encourage new firms. Emphasis should be focused instead on building partnerships with local engineering schools and firms. My research also shows that persons with engineering educations and experience are responsible for starting the majority of new firms that survive and create demand for new jobs. 
Third, cities also need to create incentives for residents, especially racial and ethnic minorities, to become owners of local business."
Finally, another great episode of Pop Culture Urbanism with really good insights on how tight zoning regulation forced development to be synonymous with evil gentrification and displacement, instead of a good thing of providing more housing for more people. Highly recommended.

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