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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

What Texas Can Teach Affluent Coastal Regions



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Among pro-urbanists, i.e., devotees of Edward Glaeser who rail against restrictive zoning laws and the mortgage interest deduction, tout the economic and social and environmental virtues of density, etc., Wendell Cox is not a popular man, due to his (often — but not always — reasonable) hostility to fixed-rail transit, among other things. But the following passage in his recent City Journal essay on Texas’s economic success reminded me that there is room for convergence between the pro-urbanist and urban-skeptic factions:

In 2011, the U.S. Bureau of Economic Analysis put Texas’s “regional price parity,” a measurement of the price level of goods in an area, at 97.1, a bit lower than the national level of 100 and far lower than the California level of 114.8. Adjusted for cost of living, Texas’s per-capita income is higher than California’s and nearly as high as New York’s. Factor in state and local taxes, and Texas pulls ahead of New York.

More than three-quarters of the cost-of-living difference between Texas and California can be explained by housing costs. As Figure Six shows, Texas mostly dodged the real-estate bubble of the 2000s: the affordability of houses in large metro areas spiked in America as a whole but rose only modestly in Texas. A major reason that Texas real estate is so affordable is that the state lacks the draconian land-use restrictions that drive California housing prices into the stratosphere. The affordable housing attracts both people and businesses. Since 2000, 1 million more people have moved to Texas from other states than have left.

This would have been a good opportunity for Cox to reference Ryan Avent’s excellent book The Gated City, which argues that the U.S. would yield significant economic benefits if its highest-productivity regions had a lower cost of living. But because many high-productivity regions have a high cost of living, many households, particularly less-educated and less-affluent households, have migrated to low-cost regions — some of them in Texas — that have a lower level of productivity than, say, the San Francisco Bay Area and the New York city region. 

And this is why those of us in the pro-urbanist camp favor density in high-productivity, high-amenity, high-cost regions. By building more housing units in currently capacity-constrained regions like southern California and Boston and New York, we can reduce the cost of living. This in turn will mean that less-skilled workers will be more likely to remain in these regions, and to find more lucrative service sector work than if they migrated to (relatively) low-productivity regions.

I should add that Texas’s leading metropolitan regions are becoming more productive, and there is every reason to believe that they will converge on the productivity leaders over time. But that doesn’t change the fact that affluent coastal regions can learn a lot from the Texas model, which I take to be Cox’s basic point. It’s just that expanding outward is not as viable an option in these regions as expanding upward.

P.S. One reason why this outmigration from high-cost, high-amenity regions might matter is that it contributes to well-being inequality, as Rebecca Diamond suggests in a new job market paper:

An increase in labor demand for college relative to non-college workers increases a city’s college employment share, which then endogenously raises the local productivity of all workers and improves local amenities. Local wage and amenity growth generates in-migration, driving up rents. My estimates show that low skill workers are less willing to pay high housing costs to live in high-amenity cities, leading them to elect more affordable, low-amenity cities. I find that the combined effects of changes in cities’ wages, rents, and endogenous amenities increased well-being inequality between high school and college graduates by a significantly larger amount than would be suggested by the increase in the college wage gap alone.

To be sure, it is possible that as a city’s college employment share increases, the city also becomes more annoying — a disamenity that Diamond doesn’t necessarily take into account. 



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