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Lone Star Quartet

from the magazine

Lone Star Quartet

How four big metros—Houston, Dallas, Austin, and San Antonio—power the Texas economy Texas Rising 2016
Texas
Economy, finance, and budgets

Texas’s spectacular growth is largely a story of its cities—especially of Austin, Dallas–Fort Worth, Houston, and San Antonio. These Big Four metropolitan areas, arranged in a layout known as the “Texas Triangle,” contain two-thirds of the state’s population and an even higher share of its jobs. Nationally, the four metros, which combined make up less than 6 percent of the American population, posted job growth equivalent to 30 percent of the United States’ total since the financial crash in 2007. Within Texas, they’ve accounted for almost 80 percent of the state’s population growth since 2000 and over 75 percent of its job growth. Meantime, a third of Texas counties, mostly rural, have actually been losing population.

Texas is sometimes described as the new California, an apt parallel in terms of the states’ respective urban geographies. Neither state is dominated by a single large city; each has four urban areas of more than 1 million people, with two of these among the largest regions in the United States. In both states, these major regions are demographically and economically distinct.

But unlike California, whose cities have refocused on elite priorities at the expense of middle-class occupations, Texas offers a complete spectrum of economic activities in its metros. Another key difference is that Texas cities have mostly embraced pro-development policies that have kept them affordable by allowing housing supply to expand with population, while California’s housing prices blasted into the stratosphere due to severe development restrictions. Texas cities also benefit from favorable state policies, such as the absence of a state income tax and a reasonable regulatory and litigation environment. These factors make Texas cities today what California’s used to be: places to go in search of the American dream.

In Texas, the major metros also have the advantage of being in a fairly compact region. San Antonio and Austin are separated by an 80-mile drive, almost entirely filled in with development along the I-35 corridor, with significant future opportunities in towns near enough to serve both markets, such as San Marcos. The other regions are all within a three- to three-and-a-half-hour drive of one another—not much different from the Acela train connections linking New York, Boston, and Washington.

This proximity makes the Texas Triangle one of the premier emerging American mega-regions. All four cities rank in the top ten for percentage population growth since 2000 among major metro areas (those with more than 1 million people). Three of the four rank in the top ten for percentage job growth during that time. (Dallas just misses, with a rank of 11th.) Houston, San Antonio, and Austin are in the top ten metro areas for growth in residents with college degrees and in the top five for growth in millennials (ages 25–34) with degrees since 2000. But while these successful cities have much in common, they’ve each done it their own way.

Dallas–Fort Worth doesn’t usually come to mind when one thinks about America’s largest cities. But with a population topping 7 million, Dallas is now the fourth-largest metropolitan area in the country. If current growth rates continue, Dallas would pass Chicago and move into third place in regional population before 2050.

Chicago and Dallas have much in common. Both lie within the central time zone, with large airports that serve as ideal hubs for air travel around the United States. Both cities boast large, diversified corporate centers not reliant on a single industry, with deep talent pools and thick labor markets. Both are key national logistics hubs. Both are home to diverse populations, with Dallas now exceeding Chicago in its share of foreign-born residents. Chicago retains some advantages: the Loop remains America’s second-largest business district and is currently booming. And the Windy City’s downtown beat out Dallas in a competition to lure Boeing’s headquarters back in 2001.

Dallas is perhaps the most multipolar urban region in America, with two distinct cities in Dallas and Fort Worth.

But while Chicago remains dominant in urbanity and global-city functions, Dallas increasingly prevails in everything else. If Chicago is downtown-dominated, Dallas is perhaps the most multipolar urban region in America, with two distinct cities in Dallas and Fort Worth, as well as premier suburban business centers in Plano and Richardson. Firms can choose from a range of environments. While America’s elite urban centers increasingly attract niche, if high-value, employers, Dallas remains a place where companies can afford to hire thousands of people—or relocate them, as Toyota decided to do in 2014, when it announced that it would move 5,000 employees and contractors from Southern California to the Dallas area, settling them into a new campus in Plano. The Japanese automaker joins other large-scale employers in the area, including American Airlines (25,000 employees), Lockheed Martin (13,700), and Texas Instruments (13,000).

Dallas strives to be not only a welcoming place for commerce but also a high-quality place to live. The city is spending big to fulfill that goal. Fort Worth’s cultural district was already home to the renowned Kimbell Art Museum and the Modern Art Museum. Dallas, which has seen a boom in its urban core, particularly its Uptown district, recently invested in a $1 billion downtown performing-arts district that includes a concert hall, opera house, and other buildings designed by prominent architects.

Generous philanthropic communities are Texas’s secret weapon. Donations—including 134 separate donations of $1 million or more—provided almost all the performing-arts center’s financing and also helped pay for the new Klyde Warren Park, built on a deck over a freeway, and a signature bridge design by Santiago Calatrava. Like northern capitalists of the great industrial age, wealthy Texans are willing to spend big to put their hometowns on the map. High-quality urban amenities cost money, and a robust Texas private sector made these kinds of investments possible. But it was the philanthropic culture of the Texas money men that led them to put their cash to work to expand the area’s cultural offerings.

Not all the money has been well spent. Dallas built the longest light-rail system in the United States, at 90 miles, but the DART rail system carries only about 100,000 passengers per day, a drop in the bucket for the region. DART cost billions to build and requires about $75 million per year in subsidies to operate, and unlike the cost of the performing-arts center, these costs are financed by tax dollars.

Can-Do City

“The American dream is alive in Houston”—I’ve heard that over and over in my two and a half years of living in this city. Word seems to be spreading. About 570,000 people have moved to Houston over the past half-decade. United Van Lines moved 2,568 shipments to Houston last year, making it the most popular destination in Texas. And the new residents come from all over, increasingly including the three core groups that every marketing firm longs to corner: millennials, immigrants, and families.

So why Houston? Jobs and affordable housing are key factors. As the Midwest has stagnated and coastal cities have become ever more expensive, Houston has emerged as an attractive alternative, especially for the middle class. The environment welcomes entrepreneurs, and not just those in the energy industry. The technology sector is booming, the restaurants and museums have garnered international respect, and bustling immigrant businesses stretch on for miles into the suburbs.

Ask people what their experience of the city has been like, and you’ll hear an enthusiasm that the economic data don’t capture. “What originally attracted me here were the professional opportunities,” says Joe Rausch, a former New Orleans resident working in the oil industry. He came to Houston expecting to stay one year; he’s going on six. “What’s kept us around is the people and the culture. It’s a sort of Gulf Coast meets international city, very welcoming and open,” observes Rausch. “It’s a can-do environment where, if you work hard, if you are talented, and maybe you get a little luck, you can achieve great things.” Longtime resident Kathryn Hooper, a retired school principal, agrees. “It’s always been a city where if you put your shoulder to the wheel, you can be and do anything you want.”

That openness is reflected in Houston’s very form. The first thing that visitors notice when they drive in from Bush International Airport is the city’s endless sprawl. Freeways spaghetti over and around one another. Once you get to a semblance of a city center, it’s hard to tell which downtown is Downtown: multiple high-rise clusters and a mash-up of architectural styles command the view. Everything about Houston screams spontaneous, including the famous “zoning lite” policy that lets developers slap up buildings in quick response to demand rather than procedural obedience to central planning. This market-driven approach doesn’t make for a particularly beautiful city, but it does help forge a dynamic one, where ease and adaptability of building lead to cheaper building—and cheaper housing, which means more housing and commute options. According to the National Association of Home Builders, more than 60 percent of homes in the Houston metro area are considered affordable for median-income families, compared, for example, with 15 percent in Los Angeles.

Tory Gattis at the Center for Opportunity Urbanism calls this “affordable proximity” a core urban challenge of our time: How can ever larger numbers of people live and interact economically with one another while keeping the cost of living—especially housing—affordable? Between 2010 and 2014, Houston’s population expanded by 6.7 percent, but instead of housing prices skyrocketing, they simply diversified. Houston’s light regulatory touch allowed developers to expand the housing stock swiftly enough to accommodate the new residents, issuing construction permits for 189,634 new units, more than any other city in the U.S.

The resulting low cost of housing, adds Gattis, “increases discretionary incomes flowing through the city to improve vibrancy, opportunity, and a sense of prosperity.” Just ask Ann Vo, who moved to Houston from Toronto in 2010. When she arrived, she had nothing but a few suitcases and a dental degree. “I had no credit history, so everything was purchased with cash,” she recalls. “I worked diligently and saved up. I was also extremely lucky that the cost of living is so affordable compared with Toronto.” It proved much easier for her to get established than it was for her Toronto friends. “Now, five and a half years later,” she says, “I find myself deliriously happy with a husband, baby, house, and a community of friends.”

Andrew Khoi Nguyen, one of the last of the boat people fleeing the Vietnam War, is now 42 and works at a big Houston tech firm. Like Vo, he sees Houston’s affordability as a remarkable comparative advantage, especially in the freedom it offers in choosing a way of life. “Cities like New York or San Francisco may still represent better opportunities to become wealthy, to earn status or fame, but Houston’s low cost of living allows people I know to live comfortably in the manner they desire.” Whether high- or low-income, whatever their age bracket, and however different their conceptions of the good life, Houstonians can find a niche.

Houston is proud of its rich ethnic diversity: 145 languages are spoken in residents’ homes, and one in five Houstonians is foreign-born. Take a walk through Houston’s version of Central Park—Hermann Park—and it’s like looking through a kaleidoscope, with headscarves, tai chi, Filipino a cappella groups, and Mexican piñatas swirling into view. A socially egalitarian city that features regular encounters with the Other, Houston embraces a kind of creative friction that grants permission to fail, both commercially and socially. Ann Vo’s husband, John Tran, an attorney who grew up in Sugarland, a Houston suburb flush with Vietnamese and Indian-American families, enthuses: “Houston may be synonymous with cowboys, barbecue, and NASA, but it also harbors a secret identity as a place for you to steadily steer your own desires into a bona fide American dream.”

—Anne Snyder

Anne Snyder is a fellow at the Center for Opportunity Urbanism and a freelance writer in Houston who directs the Character Initiative at the Philanthropy Roundtable.

With a population of 6.5 million, Houston is the fifth-largest metro area in the United States, giving Texas two of the five largest regions in the country. Unlike diversified Dallas, Houston is known for being the global center of the energy industry.

Powered by the energy sector, Houston has added more than 700,000 jobs since 2000, despite two recessions.

Houston is such an energy magnet that even companies with headquarters elsewhere have a huge presence there. Headquartered in Dallas, ExxonMobil is building a new Houston campus that will employ 10,000. Chevron is based in the Bay Area but has more employees (8,000) in Houston and has been shifting more jobs there. International energy firms with a Houston presence include Total, BP, Shell, Repsol, and Petrobras. Houston dominates oil services, with firms like Schlumberger and Halliburton.

Powered by the energy sector, Houston has added more than 700,000 jobs since 2000, despite two recessions. Recent declines in oil prices will no doubt be a drag on Houston’s economy in the near term, just as federal retrenchment has affected Washington, D.C. But like Washington’s, Houston’s long-term fundamentals remain strong. Economically, the city is not a one-horse town. It boasts one of America’s largest ports. It has the nation’s largest petrochemical manufacturing complex (which benefits from low oil prices). Houston is home to NASA’s Johnson Space Center and the Texas Medical Center, the world’s largest, serving thousands of international patients each year. Philanthropy has played a substantial role in supporting the medical center.

Houston famously has no zoning inside city limits, though the city’s building code imposes some zoning-like restrictions, and many private developments utilize deed restrictions that mimic zoning. Houston’s physical development pattern is not unlike that of most other sprawling American cities. But the lack of use-based zoning illustrates the city’s pro-development and pro-business mind-set. For example, the city of Houston issued permits for more apartment construction in the year ending May 2015 than anywhere else except New York City.

Coastal dwellers portray Texas as culturally retrograde, but Houston, where one of America’s best opera companies performs, was the first of America’s biggest cities to elect an openly homosexual mayor, pro-market Democrat Annise Parker. The area is 23.1 percent foreign-born, ranking seventh in the country among major metros in its share of such residents; and 91 consulates, trade offices, or other foreign missions operate there. The Houston area’s Asian population, half a million strong, has more than doubled since 2000. The city also famously opened its doors to thousands of mostly black New Orleans residents displaced by Hurricane Katrina. Many chose to stay in Houston, attracted by its economic opportunities.

Like Dallas, Houston built a dubious light-rail system. More astutely, it recently reengineered its bus service to focus on high-frequency routes, without adding costs. It’s also investing substantially in parks, such as the ten-mile-long Buffalo Bayou Park. So Houston, too, is focusing on getting better, not just bigger.

The oldest major city in Texas, San Antonio was for decades its largest city. Demographically, it is a Latino stronghold. It has the highest share of its population of Hispanic origin of any region over 1 million people in the U.S.—even more than Miami—and it’s the only one where over half the population is Hispanic. San Antonio’s Hispanics have long-standing roots in the community, however: only 12 percent of the metro area is foreign-born, simultaneously the smallest foreign-born and smallest Anglo population among major Texas cities.

With its long history, San Antonio enjoys a thriving tourism industry. More than 30 million visitors each year come to see the city’s historic sites, such as old Spanish missions, including the famed Alamo. San Antonio’s Riverwalk is widely known around the country, with many cities trying to replicate it.

The real engine driving the city’s economy, though, is a strong military presence, including such installations as Fort Sam Houston and Lackland Air Force Base. Though the military has downsized, San Antonio has benefited from consolidation. Much of its military presence is high-value, such as its Medical Education and Training Campus. Home to the Air Force’s Cyber Command and a National Security Agency cryptography center, among other related operations, San Antonio has also become an unlikely center for cyber-security, with the city’s University of Texas campus offering the nation’s top-rated program in that discipline. The military presence has also spawned related private-sector businesses, such as financial-services giant USAA, which serves military members, veterans, and their families.

Military life has lured many permanent residents to the area. Every year, 4,200 people get discharged from the service in San Antonio, and many decide to stay in the city. This high-quality, reasonably priced labor force has attracted firms like Accenture, which employs 1,200 at a service center in the region.

The military has also served as a vehicle for integrating Hispanics into the city’s middle class. City leaders boast of excellent relations between ethnic groups. For example, though not known as a black population center, San Antonio has one of the nation’s largest Martin Luther King Day parades. These ethnic connections go back a long way. A stronghold of Latinos and German immigrants, San Antonio was a pro-Union city during the Civil War.

While San Antonio excels in middle- and working-class job growth—Toyota recently built a truck plant there—its educational attainment rates rank third from the bottom among major metros. Only 26.3 percent of its adults hold college degrees. Unlike elite coastal cities, San Antonio continues to attract the less educated, though the region is growing its number of people with degrees at one of the fastest rates in the country.

Home, Away from Home

Dominated by working-class families who’ve lived in the city for generations, San Antonio has long maintained stable demographics. Many Anglos descend from Texas’s early European settlers, while, contrary to public perception of the city as an immigrant hub, many Hispanics are Tejanos—native Texans of Mexican descent—who were born in the city or in the Rio Grande Valley. But as Texas undergoes rapid urbanization, San Antonio is starting to feel like a big city—one that’s more dense, transient, global, and cosmopolitan.

Mexican nationals are a key force in driving this change. Though the term “Mexican national” is unscientific, it describes educated, professional-class Mexican immigrants who have recently fled from major cities like Guadalajara and Monterrey. Their homeland has seen rising violence, making them, because of their wealth, vulnerable to kidnappings. Mexican nationals can effectively navigate U.S. immigration laws, paying several thousand dollars for lawyers, visas, and plane tickets. They have flooded into U.S. cities, parking their assets in local banks and in real estate. They favor cities with a Latino flair—which explains their attraction to San Antonio, effectively the Mexican-American capital: it feels culturally familiar while providing greater safety and opportunity.

Roughly 50,000 Mexican nationals live in San Antonio and likely tens of thousands more throughout the metro area, according to a 2013 Los Angeles Times report. Many have settled on the north side—territory historically reserved for the Anglo elite—inside gated communities and newly built, town-center-style developments. They work in white-collar professions, infusing the city with new expertise in technology, architecture, and finance. Former San Antonio mayor Henry Cisneros, who sought to enhance the city’s Mexican-American business presence, cheers this influx of wealth. San Antonio has become one of the nation’s best-performing cities economically, and the metro area’s population growth rates rank among the nation’s highest since 2000.

But perhaps the Mexican nationals’ most notable imprint has been on the city’s culture, via their lavish consumption. One of the recently built north-side country clubs, Sonterra, serves so many Monterrey expatriates that some call it Sonterrey. Just down the road, Mexican nationals frequent La Cantera, a luxurious mall. On a typical Saturday, parking can be found only on the outskirts of the mall’s huge lot, beyond numerous luxury cars. Inside, shoppers splurge at stores like Nordstrom and Hugo Boss, with much of the business conducted in Spanish. The city also boasts greater diversity in restaurants, nightlife, and arts and entertainment. As Cisneros puts it, it’s “almost as if a new culture has emerged.”

It’s not just Mexican nationals flocking to San Antonio. Millennials, African-Americans, and Asians from around the country—most notably, Southern California—are coming to San Antonio for the jobs, low cost of living, and easygoing lifestyle. They, too, might concur with Mark Twain’s judgment, a century ago, that America has only four unique cities: San Francisco, New Orleans, Boston—and San Antonio.

—Scott Beyer

Scott Beyer is traveling the country to write a book about reviving U.S. cities. He is an editor at MarketUrbanism.com, and his blog is BigCitySparkplug.com.

If one Texas city can boast “street cred” among coastal elites, it’s Austin, the state capital and home to the flagship campus of the University of Texas, giving it many attributes of a college town. This includes its live music scene, nationally known thanks to PBS’s Austin City Limits, the longest-running music program in television history, which has developed into one of the country’s largest annual music festivals and a permanent music venue in downtown Austin. The city also hosts the global SXSW festival, originally a music event and now arguably the hippest technology conference in the country, drawing talent from around the globe.

Austin has one of the fastest-growing tech sectors, with start-ups and offices from a who’s who of Silicon Valley firms.

Austin is a city of distinct neighborhoods and districts. A campaign to preserve local small businesses spawned the slogan “Keep Austin Weird,” now copied by cities like Portland and Louisville. Austin ranks as the sixth-most educated region in the country, with 41.5 percent of its adults having college degrees. It’s regularly listed as among America’s most physically fit cities.

Austin’s technology industry has roots in the city going back to the 1960s, when IBM and Texas Instruments opened up shop. Motorola arrived in the 1970s, while the 1980s saw the arrival of chip-industry consortium Sematech and the founding of Dell Computer. Today, Austin has one of the country’s fastest-growing tech sectors, with a flurry of start-ups as well as offices from a who’s who of Silicon Valley firms, including Apple (approaching 7,000 local employees), Oracle, Facebook, Google (which is bringing its Google Fiber product to the city), and Intel.

With its big-government and university heritage, Austin unsurprisingly has the blue politics amenable to coastal dwellers and its many public employees—and it shows some signs of emulating the negatives of California and Silicon

Valley. Its median home-price multiple—the price of the median home divided by the regional median income—has crept up to 4.0, the highest of the Texas urban quartet. The city of Austin’s share of children is declining. Already the least diverse major Texas metro, Austin is seeing its share of blacks decrease. And the city has failed to invest in infrastructure to keep up with its rapid growth. As Ryan Streeter at the University of Texas put it: “Austin thought that if the city didn’t build it, they wouldn’t come—but they came anyway.”

While all four Texas metro areas rank among the most booming cities in America, they face threats to future prosperity. When their growth cycles inevitably come to an end, they will have to prove themselves again, as Chicago, Detroit, Los Angeles, and New York once did. Time will tell whether they can renew themselves across economic cycles, as New York has done—or fall, like Detroit. The Texas metros also must demonstrate that they can grow their per-capita incomes over time, not just add lots of jobs. Their record here is mixed, with only the Houston region significantly outperforming the national average. Austin and Dallas have lost ground versus the country as a whole since 2000. San Antonio did better but still trails the U.S. average.

The cities face short-term risks, too, especially poor municipal balance sheets. The Hoover Institution ranked Dallas and Houston among the worst cities for their unfunded pension liabilities as a percent of government revenues. Houston’s unfunded pension liability, including pension obligation bonds, stands at $5.9 billion, and the city faces a budget crunch. Dallas’s estimated pension shortfall is between $3 billion and $5 billion, depending on how one calculates it. Last fall, S&P and Moody’s downgraded the city’s credit rating. Other risks include failing to expand infrastructure in line with growth—as may have happened in Austin already—and potentially unsustainable development patterns in Dallas and Houston.

Investment in buses, cycling, and sidewalks is important but no substitute for core highway infrastructure.

But perhaps the most serious near-term concern is that these cities might forget what made them successful. Dallas passed a plastic-bag fee (since repealed), and Austin banned plastic bags altogether. Denton, in north suburban Dallas, banned fracking within city limits, though the state overturned the ban. Texas already faces an external threat from environmental activists who would destroy its energy business and suburban-oriented development model if they could. As the fracking ban shows, a regulatory mind-set has begun to creep in, one that could eventually undermine the Texas economy.

Antidevelopment advocates have also targeted highway construction. Houston’s new mayor, Sylvester Turner, has said, “We need a paradigm shift [away from roads and single-occupancy vehicles] in order to achieve the kind of mobility outcomes we desire. . . . We need greater focus on intercity rail, regional rail, High Occupancy Vehicle facilities, Park and Rides, Transit Centers, and robust local transit.” But in regions adding more than 1 million new residents per decade, roadway expansion is critical. If Los Angeles can’t increase transit ridership with billions of dollars’ worth of new rail lines, there’s no prospect that Texas cities can do so. Investment in buses, cycling, and sidewalks is important but no substitute for core highway infrastructure. Yes, the urban cores of these cities should become more dense and walkable, but that shouldn’t mean becoming hostile to suburbs.

Texas isn’t California. Many people are willing to pay a lot to live in gorgeous, transit-friendly San Francisco or Southern California’s perfect climate. But no one will pay a premium to live in flat, sweltering Texas. To continue succeeding, Texas cities need to become the best possible version of what they already are—not a poor man’s substitute for something that they can never be.

Illustrations by The Heads of State

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