Thursday, July 17, 2008

Harvard prof on Houston over NYC

Ed Glaeser, the famous (in urban policy circles) Harvard prof, has a great column this week in the NY Sun on Houston over NYC. His analysis covers all the angles. I highly recommend reading the whole thing, but here are my favorite excerpts:
Houston, New York Has a Problem

By EDWARD GLAESER, Special to the Sun | July 16, 2008

The Southern city welcomes the middle class; heavily regulated and expensive Gotham drives it away.

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?

From there, he goes into an excellent analysis of salaries, housing, taxes, transportation, commute times (and "quality"), and construction costs. Bottom line: our salaries are slightly lower, but our cost-of-living - and the higher quality we get for that cost - end up with us way ahead. Really, my excerpts don't do it justice. Please read the whole thing. Continuing:

You thus get much more house in Houston and pay a lot less for it. Small wonder Houston looks so good to middle-class Americans.

...

Big-city boosters may like to think that rising gas prices will end suburban sprawl, but a far more likely response to expensive oil is a large switch to more fuel-efficient cars.

...

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.

Mr. Glaeser, a professor of economics at Harvard University, is a senior fellow at the Manhattan Institute. This article is adapted from the forthcoming issue of City Journal.

As always, comments are open, or you can check out the NYC reaction or the HAIF discussion thread. I like this comment in particular:
The way I have always seen it is that you move to NYC to feel better about yourself. But you move to Houston because you already feel good about yourself.
Thanks to Melissa, Brian, and Chris for the link.

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13 Comments:

At 7:02 PM, July 17, 2008, Blogger dave morris said...

I just wanted to say that as an IT Consultant working in the Houston area, and as the lowest paid consultant in the company, I know for a fact that everyone of the 30 or so employees in our Houston office is well into or above middle class status. Yet for some reason only two of them own property inside the loop, and at least half of the remaining group tells me it's just too expensive to buy anything in the loop.

As a result, most of them live 35+ miles away from our office in the Montrose, and I'm constantly having to juggle meetings around schedules of people who get to work at 6am and leave at 3pm to avoid traffic. I do love Houston, and I agree with this article and I'm a huge fan of your blog, but I'm really curious to find out what all these middle classers who own nice houses (or any house, for that matter) inside the loop do for a living.

I have a friend who is a real estate agent in the Heights, and I don't think she sells anything under 500k. And rent on any decent apartment in Midtown (Post and Rise, in particular) is $1500 dollars a month, plus $150-$200 for utilities. If all these young professionals who live there are really sticking to the 25-30% of "take home pay" rule for monthly rent and utilities, that means they're all taking home about $5000 a month. That puts them at roughly an $85-$95k salary per year. Is that middle class, or are these people spending 50-60% of their take home pay on rent? I don't even think Exxon Mobil starts their college grads out at anything hire than $80k. Sorry to be so wordy, but I've always been curious about things like this, and I'm a numbers guy at heart, and I get upset when I try to be trendy/sustainable by living in a midtown apartment, and the conversation with the leasing agent goes something like this:

"How much do you want to spend?"

"Well, what's your cheapest apartment?"

"Well how much do you have to spend?"

"Less than $800."

"Okay, excellent, I have just the unit for you, it's going to be $1250 a month for 700 square feet, and then it will likely go up after six months, and we'll go from there."

 
At 10:17 PM, July 17, 2008, Blogger Tory Gattis said...

My understanding is that there are relatively new townhomes in the $225K range in the Washington area, as well as north and east of downtown. And, of course, there are cheap houses inside the loop, if you're willing to go east of 45/288. There are affordable homes not that far from the core - the issue tends to be the school districts. But, yes, the nicer areas in the core have rapidly appreciated over the last few years.

 
At 10:24 PM, July 17, 2008, Anonymous Anonymous said...

Dave, I am a young professional who bought a place in midtown and pay well under 25% of take home pay on mortgage, utilities, fees, etc. Unfortunately, I'm definitely not making 85K. I did spend about 10K and a lot of sweat renovating to meet my standards. There are deals in Midtown if you are patient and look hard.

Of course I hope that changes - so I can sell for big bucks and move to a sweet house in the burbs when kids are in the future.

I also really enjoy this blog and agree that Houston is a great place to live. I hope we remain smart enough to keep it that way.

 
At 11:50 PM, July 17, 2008, Anonymous Anonymous said...

Great article, of course we know all this, for many decades now, and the greatest city in the world, our Houston, is only going to get better!!!

I love the post about people come here because they already feel good about themselves.

One thing that these east coast type always overlook is, the shear quantity of, "creative class" we have had here forever, the oil industry is one case in point, with the second most fortune 500 companies in the country, with so many geologists, engineers, financiers, risk takers, deal makers along with the usual fakers, we measure up to the financial sector in that area (energy industry is arguably the 2nd. largest industry in the US), not too mention the medical center, NASA etc.

We are misunderstood because as the writer states, we are also a manufacturing powerhouse, drive down the 225 Frwy. sometime, plus we're no. 2 in exports, slightly behind NYC, at 53Bln?.

Per capita we are the smartest and most productive, and its nothing new for this region, check your stats guys, Galveston, was the richest per capita city in America in 1890.

Go Houston and Texas, HO!!
Mike M.

 
At 6:37 AM, July 18, 2008, Anonymous John Whiteside said...

Comments like "you move to New York to feel better about yourself" are just as dumb as some of the comments from New Yorkers about Houston in the Gawker article you linked to.

Please. I love Houston, but New York is a great city that offers its residents a good quality of life, and a kind of urban life that simply is not available here; believe it or not, many people move there for it because they like it and want it, not to prove anything. Does boosting Houston have to involve putting down other places that are different, but great in their own way? Childish.

Regarding the "no affordable housing inside the loop" comment - it's just nonsense. There are plenty nice houses in my corner of the Heights for under $300K - yes, they are older houses, but often renovated, very charming. Not the cheapest place in the loop, but take a look at neighborhoods like Eastwood, Idylwood, Brookesmith, Timbergrove Manor, and Lindale Park - to name a few - and there are lots and lots of choices. There are also rental homes in all those areas - generally, entire houses for less than Midtown apartments.

 
At 7:19 AM, July 18, 2008, Blogger Brian Shelley said...

Dave,

What surprises me about condos inside the loop is how big they are. I have a co-worker who's 25 and bought a townhome for upper 200's a few blocks south of Allen Parkway. His townhome is actually bigger than my house. I asked him why he needed so much space as a single guy, and he just kind of shrugged and said that's how big they all are.

And Tory, I think it is more than just a school district thing now. That was the root cause, but my biggest obstacle is that there just aren't other kids and parents. There's a dearth of kid friendly restaurants and family oriented churches (format, not theology). Few people can/want to afford the neighborhoods that do.

 
At 8:48 AM, July 18, 2008, Blogger Tory Gattis said...

Brian: yeah, if you live in the core, to get family-oriented stuff, you'll have to drive to the WestU/Bellaire/Meyerland area.

 
At 8:54 AM, July 18, 2008, Anonymous Anonymous said...

Brian Shelley said...

And Tory, I think it is more than just a school district thing now. That was the root cause, but my biggest obstacle is that there just aren't other kids and parents.
-------------------------
Brian there are few kids because the schools are poor so parents choose to live where schools are better.

 
At 8:59 AM, July 18, 2008, Anonymous Neal Meyer said...

Tory,

When I was a teenager, I saw my older brother move to New York to go to graduate school at NYU's Stern business school. You discussed several weeks ago the extreme lengths that young people will go to in order to live in New York, but often decide to move elsewhere after a few years because of the difficulty of making it. Frank Sinatra's words eternally ring true.

I would argue that places like New York attract the elite from all over the world, much as London attracts the best from across the United Kingdom. New York also attracts immigrants in waves.

At the same time, the city has also lost nearly all of its manufacturing jobs and is heavily dependent on finance, insurance, and real estate (aka FIRE) jobs, as well as being the book publishing capital of the world. Meanwhile, our home town is in an entirely different situation.

Glaeser is a fascinating economist to read. I've read about 10 of his papers and here they are. I would especially recommend reading this one, which helps to explain why New York still attracts the poor.

Neal

 
At 12:20 PM, July 18, 2008, Blogger engineering said...

Tory,
I would think as property values and cost of living goes up manufacturing jobs move further away.
Harris County Appraisal District increases values on homestead properties 10% per year thus 10% increase in property taxes every year (compounded).
Two main reason why people live in the burbs 1) housing is less expensive and 2) schools are much better.
The Heights area is popular for young families because the elementary and middle schools are pretty good thanks to their PTAs.
Would be fascinating to do a short survey of Dave Morris coworkers. I am sure he will find out that 1) and 2) above are the key. Also got to pay attention to income stats. I would think most people reading this blog are probably making more than the average family income. See
http://www.houstontx.gov/planning/Demographics/demographics/income_avgs.htm
For 2000 the median family income was $40k.
I would think most commuters live within a 20 mile distance, or 30-minute drive. Even if they commute 30 miles one way it is 300 miles per week x 50 weeks = 15,000 miles per year. Assume 20 MPG at $10 per gallon. The increase of $8 per gallon means their cost of commute by car is and additional $6,000 or $480 per month. Perhaps not enough for them to move in town and reduce living space and quality of schools.
I am sure similar reasoning can be used in NY. There are millions of folks who commute to work in NY.
The fun part about Houston is that Houston could be much better than NY if we only would stop wanting to be like NY and think in terms of our quality of life vs. standard of living. :)

 
At 8:46 PM, July 18, 2008, Anonymous Anonymous said...

I didn't think HISD schools were that bad in the loop. Bellaire and Lamar HS are probably just as good as any HS in the burbs. I'm not too sure about middle and elementary schools. I would agree that the eastern part of the inner loop would have poor performing schools. Does anyone know what HS kids would go to if they lived in the Washington Ave/Heights area?

Also, since Tory mentioned Meyerland (which isn't mentioned often) and I believe he lives there; how do you think the area has come along over the years? I've lived in the Fondren Southwest area (specifically W. Bellfort @ Fondren) for 18 years of my life before going to college. Fondren Southwest, I believe, has gotten better. The Westbury area seems to have improved as well. I believe it's from lower crime and the location.

 
At 10:13 PM, July 18, 2008, Blogger Tory Gattis said...

Meyerland has come a long way in the last decade or so. It was always ok, but it's rapidly becoming premium because it has great access and good schools. West of here can get pretty mixed. I hear Fondren has a TIRZ now, and they're making improvements.

 
At 10:39 PM, July 18, 2008, Anonymous Anonymous said...

dave,

I bought a 2-story detached new-build house in 2006 for 180k. By the way, it's 8 blocks from downtown.

I would guess that if something like this were available half a mile from Midtown Manhattan, it would probably cost 1.8 million. That's a huge difference.

A few of my friends who make a LOT more than me (2.5 times as much) are looking in the Heights/Rice Military/Washington areas, and they could easily afford much nicer houses. But even they can easily find what they want in those areas for less than 300-310.

There are so many options in Houston. If you wanted prices that were similar to even our highest prices in Houston, you'd probably have a round trip commute of 150 miles each in the NYC area.

 

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