Jim McAlister, Forbes
The numbers don’t lie: Since 2000, Texas has created 2.1 million jobs, more than double any other state – that’s 30 percent of all the jobs created in the U.S. of A. Seven of the top 10 cities for projected job growth through 2015 will be in Texas. Analysts predict during the next five years, Texas will record an annual job growth rate of 2.7 percent – the fastest and best in the country. And corporate America likes what it sees in Texas: Apple is hiring nearly 4,000 more workers for its Austin facility, brokerage Charles Schwab is leaving California in droves for Austin and El Paso , and Toyota is packing up its North American headquarters, saying “sayonara” to California, and moving to the Dallas metroplex.
Naturally, Texas has always held a decided geographic advantage of both land (268,820 square miles) and access to the sea (the port of Houston consistently ranks 1st in the United States in foreign waterborne tonnage; 1st in U.S. imports; 1st in U.S. export tonnage and 2nd in the U.S. in total tonnage). Factor in our proximity to Latin America, abundant natural resources (with more than 2 million barrels per day of oil production, Texas could be an OPEC state), a temperate climate, no state income tax and affordable housing, and you have an economic competitive advantage. To use a football comparison, that gives Texas the ball on the 50-yard line.
Meanwhile, on West 43rd Street in Manhattan, the arbiter of economic fact and infallibility, New York Times columnist Paul Krugman is busy calling the lone star economic success “The Texas Unmiracle.” Like a preacher in the old town square, Krugman exhorts “…the Texas miracle is a myth…the Texan experience offers no useful lessons” on how to restore national full employment. Let’s count the ways that’s just wrong.
I can hear the detractors immediately shout that with oil in the $50 per barrel range, Houston’s facing a world of hurt in the months ahead. Not true. The Houston of 2015 will drive Texas’ economic engine through many more industries than oil and gas. Benefitting from one of the most business friendly states in the U.S., Houston is now about economic diversity. Houston today embraces more than 150 companies involved in aircraft or space vehicle manufacturing, space research and technology and their total output ranks as one of modern Houston’s largest internationally traded commodities. Breakthrough research and development is taking place in every key biotech cluster: agricultural, biomedical, oncology, environmental, genomics, medical, devices and nanotechnology.
The Greater Houston Partnership, creator of the “Houston. City With No Limits” campaign, enthusiastically will tell you that once the Great Recession ended, Houston needed only 22 months to recover all the jobs lost. It was the fastest recovery in the nation among the top 25 major markets. Indeed, Houston’s job growth has outpaced that of the nation’s major metros for most of the past four and a half years.
Houston’s job base overall has grown faster than virtually any large metropolitan region in the country over the past decade, a result of the state government’s refusal to over-regulate starting and running a business. Since December 2008, Houston has added 9.8 percent to its job base, the highest percentage of any of the top 25 metros in the country, followed by Dallas at 8.2 percent. New York is only up by 3.5 percent, Los Angeles, 1.2 percent, and Chicago, 0.9 percent. Employment in Philadelphia remains below its 2008 level. With the energy boom and expanding trade, most economists expect Houston’s growth trend to continue, if not accelerate, through 2015.
Houston is one of only two major metros (the other being Seattle) that can boast it has more manufacturing jobs now than prior to the recession. Local manufacturing owes its resurgence to the energy industry. The two sectors directly tied to the industry—fabricated metals products and machinery manufacturing—have added 33,100 jobs, or one in every 10 the region has gained since January ‘10.
Energy and trade growth are setting off a manufacturing boom in the Houston area. “Houston is the Chicago of this era—like the old Chicago,” remarks David Peebles, who runs the Texas office of Odebrecht, a $45 billion engineering firm based in Brazil. “In the sixties you had to go to Chicago, Cleveland and Detroit. Now Houston is the place for new industry.”
As CEO of the only firm specializing in Texas land investments, I have watched Texas’ economic and population growth with equal parts amazement and excitement. The demand for land to provide housing, businesses and infrastructure throughout the state, coupled with a shortage of developed land parcels to meet this demand, has made Texas real estate the optimal investment. The “Texas story” of economic prosperity is playing out now in a way not seen since the California gold rush. In fact, Texas’ economic and population growth has ignited the USA’s first land rush of the 21st century.
At conferences and other industry gatherings, I argue with my “coastal” friends that this Texas phenomenon is making other states obsolete; fully one-third of the jobs in the U.S. are now created in Texas. Considering the quantifiable flight of capital, both intellectual and monetary, fueling Texas’ new knowledge-based economy, is it any surprise the bi-coastal, old-school power brokers are confounded by Texas’ one-two punch of a new economy and a demographic revolution?
To make my case with the non-believers, I point to two economic indicators I watch closely: 1) Building Permits — the City of Houston permitting activity in September ’14 totaled $1.2 billion, the highest monthly total on record and a 161.9 percent increase from the $469.7 million in permits issued in September ’13, and 2) Home Sales— Houston-area realtors sold 90,124 homes in the 12 months ending September ’14, a 4.4 percent increase over the 86,324 homes sold in the comparable period in ’13, according to data released by the Houston Association of Realtors. That’s one home sold every 7.2 minutes since January of 2010.
Business Insider in July of 2014 published an article headlined “18 Facts that make Houston the Best City in America,” noting especially “…the Bayou City is an economic juggernaut. It’s by far the country’s No. 1 job creator and home to 26 Fortune 500 companies. A paycheck goes farther here than anywhere else in the country, and it has a medical center larger than downtown Dallas.” Not long after that, the arbiter of sophisticated exploration, Conde Nast Traveler, asked the question “Is Houston the New ‘It’ City?”
During the recent boom, Forbes ranked Houston as the “Coolest Place to Live in America” and included it among a select few on its list of “America’s New Brainpower Cities.” Site Selection Magazine recognized Houston as the “Top Metro for Relocations and Expansions” two years in a row, and The New York Times labeled Houston as one of the top destinations to visit in ’13 (apparently that research team didn’t consult with “nothing to see here” Paul Krugman).
No less an iconoclast publication than Architectural Digest is taking note of the 713 with an article detailing “How Houston Reinvented Itself as a Cultural Powerhouse,” detailing how, in a few short years, “the Texas city has become an artistic and culinary center, attracting visitors from across the globe.” And if you’re one of those east-west coast gustatory elitists, The New York Times’ food critic Pete Wells wrote that Houston has become “one of the country’s most exciting places to eat.”
In racial and ethnic composition, the greater Houston metro area reflects demographic shifts the migration experts have long forecast. In addition, a report by the Kinder Institute for Urban Research & the Hobby Center for the Study of Texas named Houston the most racially and ethnically diverse large metropolitan area in the U.S. In 2014, the Census Bureau now shows there is no longer a majority ethnic group in Houston. Today’s Houston is 35.3 percent Hispanic, 16.8 percent Black, 6.5 percent Asian, 39.6 percent Anglos and 1.8 percent mixed or unknown race. Among U.S. metro areas, Houston ranks fourth in total Hispanic population, seventh in black population, and ninth in Asian population. International migration represents approximately one-fourth of the region’s total population growth over the past decade.
Rice University Professor Stephen Klineberg Ph.D., shared with me recently that “Houston is the city where the multi-ethnic culture of America is going to be worked out. Right now, Houston is at the forefront of the ethnic transformation going on across the country. The picture demographers give us of what America will look like in 2050 is the picture of Houston today. As America becomes a microcosm of the world, Houston is leading the country in a transformation from its European origins to a true world city, and in the process, supplying our ‘knowledge economy’ with intellectual capital for not only the oil and gas industry, but also in medical research, information technology, aerospace and manufacturing.”
Historically, Houston depended on migrants from rural areas and the rest of the south. But Houston now draws a growing number of newcomers from dense, expensive regions – greater New York, the San Francisco Bay Area, metropolitan Boston, metro Chicago and greater Los Angeles. Between 2000 and 2013, metro Houston’s population expanded 35 percent and Dallas-Ft. Worth’s by nearly 30 percent. In contrast, New York, Los Angeles, Boston, Philadelphia and Chicago grew only in the range of four and seven percent.
Consumer dollars go farther in Houston. 2012 ACCRA Cost of Living Index shows that Houston’s overall after-taxes living costs are 7.8 percent below the nationwide average, largely due to housing costs that are 14.6 percent below the average, not to mention low development regulations. In the context of the 29 metropolitan areas with more than 2 million residents, Houston’s cost of living advantage is even more pronounced. Houston’s housing costs are 33.5 percent below the average for the large metro areas, and its overall costs are 16.8 percent below the average for this group.
In “Opportunity Urbanism: Creating Cities for Upward Mobility,” published by Houstonians for Responsible Growth and the Greater Houston Partnership, author Joel Kotkin notes astutely that “Indeed, increasingly, New York as well as San Francisco, London, Paris and other cities where cost of living has skyrocketed, are no longer places of opportunity for those who lack financial resources. Instead they thrive largely by attracting people who are already successful or living on inherited largesse. They are becoming, as journalist Simon Kuper puts it, ‘the vast gated communities where the one percent reproduces itself.’”
Kotkin puts additional clarity on one of Houston’s secrets to its renaissance with a nod to keeping the price of housing below prices paid in other marquee cities. “This gives the region a built-in advantage—particularly in terms of talent attraction over time compared to major competitors such as New York, the San Francisco Bay Area, greater Los Angeles and Chicago. Lower homes prices and rents allow Houstonians more options about where and how to live. Houston’s ability to nurture both existing and new business has helped expand economic opportunity for its citizens. Personal household income has risen 20 percent since 2005 in Houston compared to 14 percent for New York, 11 percent for Los Angeles and less than 9 percent for Chicago.”
Kotkin also nails it about the great “Texas equals low wages” myth when he writes that “Despite the assertions of Paul Krugman, among others, that the Texas urban economy is based on low wages, the fact is Harris HRS -0.9% County’s average household income is above the national average; close to that of Boston. But once the cost of living is factored in, Houston does far better for its citizens compared to any of the legacy cities. And contrary to assertions of being a low wage ‘race to the bottom’ economy, Houston household income has grown faster since 2000 than virtually any of the country’s major metropolitan areas. Greater Houston has outperformed not only ‘legacy’ cities like New York, Chicago and Boston, which are renowned as centers for high-wage jobs, but other ‘opportunity regions’ such as Atlanta, Dallas-Ft. Worth and Phoenix.”
Don’t get me wrong. With all that’s right with Texas and Houston, I’m also well aware of the major challenges facing this city. Surprisingly, for a metro area nearing seven million residents, crime is not the number one concern: it’s traffic, education and the skills gap in the middle work force that lead the hand wringing. The Greater Houston Partnership launched a Regional Workforce Development Task Force in the summer of 2013. Composed of 79 members, it represents large employers and lays bare their concerns about workforce and economic development, education, and social services. You can read the group’s plans to combat these issues in a report it published in April of 2014.
The formation of this group, and the strides it aims to make in the next five years is symbolic of Houston’s “gritty spirit” and total lack of pretension when it comes to getting dirty to solve problems. As put by Dr. Klineberg, “In the old world, success was predicated on our location near the oil fields of East Texas. Now that the city knows it can’t rely just on oil, it has put into place strategies for success in a new kind of economy. What Houston has is that can-do spirit. People who live in Houston, believe in Houston. This city has grit.”
That, my friends, is why, in the paraphrased words of an American folk hero, “You (non-believers) may go to Hell and I will stay in Houston.”
Jim McAlister is President and CEO of Rockspring Capital, a Houston-based real estate private equity firm whose strategy is to acquire opportunistic real estate, land parcels and residential lots with all-cash in high growth areas within the Texas Triangle – Houston, Austin, San Antonio and Dallas/Ft. Worth.