Tuesday, January 30, 2024

Stanford on CA vs TX, the rationality of cars, Dallas now #2 in finance, both parties are NIMBYs

 A few smaller items this week:

Key Takeaways

  • California’s state and local government revenues and spending are 60 percent higher than Texas on a per-resident basis.
  • On economic performance — both have much to celebrate. Population and employment surged in Texas while California’s per-capita income and GDP have soared in recent years.
  • But both have plenty of room to improve. California stands out for its high rate of homelessness and low air quality. Texas has a larger share of residents without health insurance than any other state.
  • Crime rates and renewable energy production are similar in the two states despite very different policies. And while K-12 spending per student is much higher in California, student outcomes are if anything better in Texas. (point that out next time someone says the solution to Texas' education issues is more money)

This finding runs counter to the narrative that people are behaving irrationally by owning a car because they underestimate the true cost. Instead, we find that people value owning the car high enough to make the private cost worthwhile. Indeed, 58% of this value is in owning the car, compared with 42% in using it, suggesting that the value of the car goes well beyond the trips that it provides.”

This paper sheds some useful light on the failure of decades-long efforts to “get people out of their cars and onto transit” and more recent attempts to greatly increase urban density in the quest for a “15-minute city.”

"Now the country’s fourth-largest metro, Dallas-Fort Worth surpassed Chicago and Los Angeles during the pandemic to become the No. 2 city for finance jobs. It’s home to more than 380,000 who work in the industry, according to data from the Bureau of Labor Statistics. That compares with 323,000 in Chicago, the home of CME Group Inc., Cboe and other derivatives firms that form the backbone of that city’s finance industry. New York is still No. 1, with 809,000 people employed in that sector."

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Monday, January 15, 2024

The social and political ramifications of unaffordable housing

Due to over-zealous NIMBY housing regulations all around the world, housing is becoming increasingly unaffordable to younger generations (graph below, hat tip to Jay). That is leading to more and more young adults living with their parents rather than moving out on their own (2nd graph below, also hat tip to Jay). The NYT has a story today: "‘The Social Contract Has Been Completely Ruptured’: Ireland’s Housing Crisis - Soaring rents have left many struggling to afford homes in Dublin and have created a generational divide. Two-thirds of younger adults in the city live with their parents." (no-paywall link

More anecdotally I've seen the same situation on my visits to California: houses with a half-dozen vehicles parked out front as adult children live with their parents.

A lot of this is well known, but what hasn't been discussed are the third-order impacts. First is a flaky workforce, since they don't have to pay rent. Stories abound in California of young people quitting on a dime or even just not showing up to work or a new job when they don't feel like it (and just wait until people get free universal basic incomes!). It also creates this new political constituency for socialism: if they don't see a path to affording their own home, then their only option is getting the government to give them one. The irony is that it was government in the first place that made the housing unaffordable! It's just a complete cultural disaster unfolding in slow motion with the younger generations. And it could be avoided if we would just allow builders to build the housing the market is asking for! 

(click images to zoom in)

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Friday, January 05, 2024

Texas high-speed rail update

Happy new year everyone! This week we have another excellent analytical guest post from Oscar Slotboom, author of Houston Freeways (reposted from HAIF here). TL;DR: if it was marginal with 2% interest rates before pandemic inflation, it is now *way* underwater economically at current construction costs and interest rates!


On November 17, Texas Central provided the H-GAC TPC a status update about the high-speed rail project between Houston and Dallas. There was no "new" news, but a few tidbits of interest.

* The official status (previously known) is that Texas Central is cooperating with Amtrak "seeking opportunities to advance planning and analysis work associated with the proposed Dallas-Houston 205 mph high-speed rail project to further determine its viability." Texas Central and Amtrak are "evaluating partnerships to further study and potentially advance the project". Transit industry veteran Andy Byford recently joined Amtrak to coordinate high-speed rail initiatives for Amtrak.

* The Texas Central representative mentioned the previously disclosed estimated cost of $30 billion. A TPC member mentioned $40 billion.

* The Texas Central representative says there are 16 million trips per year between Houston and Dallas. (43,800 per day)

* Texas Central has 6 employees and a new CEO Michael Bowie

* There was discussion of who actually owns Texas Central now. The Texas Central representative was vague, but said that FTI consulting group now owns it. According to the FTI website, they seem to do anything and everything, and are not focused on infrastructure.

* There was discussion of the 2019 H-GAC MOU (memorandum or understanding) between H-GAC and Texas Central. The MOU mentions no public funding, and a TPC member mentioned it is obsolete and needs to be reviewed.

* There was discussion about the Environmental Impact Statement, and if it conforms to new flood standards in the Houston area.

* The Texas Central representative said that Amtrak will complete its "due diligence" in about 6 months, and we can expect some more information in that time frame.

In Dallas-Fort Worth, NCTCOG is continuing with its study of the section between Dallas and Fort Worth, and a newsletter was just released.

My observations

* The $30 billion cost number is more than two years old. Highway construction costs are up 56% in the last two years. I think 40+ billion is probably more realistic. In my opinion, an updated cost estimate should be Amtrak's top priority. If they don't get a new cost estimate, then they won't have any credibility because they can't do any analysis without the cost number.

* The entire project was contingent on a very low interest rate. With 30-year treasury bonds at 4.6%, it seems to me that project bonds would need to be at least 7% to get investors. If the project is $40 billion, that's $2.8 billion in interest per year.

* When Texas Central started, the cost was estimated at $12 billion and interest rates were very low. Now it is probably 40+ billion and interest rates are very high. It seems to me that the only conclusion Amtrak's "due diligence" can reach is that this project can only be done with government funding.

* Interstate 45 near Centerville has a traffic count of 39,000 to 41,000 per day. So the Texas Central number of 43,000 per day is realistic. The question is, what percent of those trips could become train trips?

* Just for illustration, let's say 50% of the trips switch to rail. (Of course it will be much less than 50%, but this is an illustrative calculation). $2,800 million in interest divided by 8 million = $350 interest cost for every boarding! Obviously this cannot be a private project at $40 billion construction expense and 7% interest. There would need to be some kind of government-supplied below-market interest rate. Even at 2% interest, the interest cost per boarding is still $100 for the hypothetical 50% traffic capture.

* Andy Byford at Amtrak really has only 2 choices for true high-speed rail in the U.S.: California and Texas. (It will be impossible to build a new high-speed right-of-way in the Northeast corridor.)

* The financial status of the federal government is shockingly bad. There's no recession or emergency or military conflict, but the budget deficit was $1.7 trillion in the recent fiscal year, which is 6.3% of GDP. Interest cost was $659 billion. At some point (probably sooner rather than later), the federal government will need to drastically curtail free money giveaways and wasteful spending.