theTEXASeconomy O’NEIL CENTER FOR GLOBAL MARKETS AND FREEDOM H SMU COX SCHOOL OF BUSINESS H SECOND QUARTER 2017 Cities v. Suburbs in Texas Job Growth

By W. Michael Cox and Richard Alm been decidedly suburban. The state isn’t unusual. Core The state isn’t unusual. Core cities he yardstick for nations’ economic cities all over the country are all over the country are struggling to performance is usually total compete with their suburbs in creating, struggling to compete with their output of goods and services, or attracting and holding onto jobs. Since T GDP. Statisticians do measure suburbs in creating, attracting 2000, only two of the nation’s 37 GDP for metropolitan areas, but the and holding onto jobs. largest MSAs saw core cities generate economic health of urban America usually more than 60 percent of their region’s centers on jobs. the one within metropolitan areas, employment growth—financial-services Mayors of both big cities and suburbs between core cities and their suburbs. powerhouse New York City (69 percent) often crow about their successes in Dallas itself accounted for only 7 percent and tech-driven San Jose (61 percent). growing employment—and few states of DFW’s new jobs since 2000 (see Next comes San Antonio’s 50 percent. have more to crow about than Texas. It has chart below). Add in Fort Worth as a From there, it falls off quickly: 28 of the created 2.9 million jobs since 2000, more second central city, and the DFW figure core cities failed to gain even a third of than any other state by a wide margin. more than doubles to about 15 percent. their MSAs’ new jobs, with 17 of them Most of Texas’ employment growth Houston proper added just 21 percent of joining DFW at below 15 percent (see took place in the state’s major its MSA’s net employment gains. chart, next page). New Orleans and five metropolitan statistical areas (MSAs). In the Austin area, the city captured 43 core cities in the Rust Belt, including From January 2000 to January 2017, percent of the MSA’s new jobs. For the Chicago and St. Louis, employed fewer the Dallas-Fort Worth (DFW) region San Antonio MSA, the split of employment workers in 2016 than they did in 2000. increased total employment by 854,000 gains has been virtually even between the America’s core cities can’t afford to be jobs, a gain of 31 percent. The Houston core city and its suburbs. Overall, it’s not indifferent to the suburbanization of job area did nearly as well by adding more too much to say that recent employment growth. Increasing employment means than 845,000 jobs, an increase of 37 growth in the biggest Texas MSAs has a growing population, more investment percent. Among Texas’ four largest MSAs, Austin had the biggest relative HOW TEXAS’ 4 LARGEST MSAs STACK UP IN JOB GAINS increase—55 percent, representing an Net Employment Increase, 2000-16 900,000 increase of about 384,000 jobs. San Antonio managed a gain of 40 percent, 800,000 or about 312,000 jobs. The O’Neil Suburbs Center’s “Wealth of Cities” report linked 700,000 Fort Worth City high MSA employment growth to greater Principal City economic freedom. 600,000 The state’s Big Four MSAs accounted 658,591 664,670 for nearly 84 percent of Texas’ overall 500,000 employment growth from 2000 to 2016. 400,000 Their dominance in job creation points to a prosperity gap between the state’s 300,000 booming urban centers, roughly aligned 218,601 155,327 in a triangle formed by Interstates 35, 45 200,000 and 10, and the small towns and rural 134,769 areas of the rest of the state. 100,000 180,664 165,072 156,871 This issue of The Texas Economy 60,887 focuses on another employment gap— 0 Dallas Houston Austin San Antonio Continued on page 2 H theTEXASeconomy Page 2 in housing and new business facilities, Decaying neighborhoods, rising crime rising retail sales and greater tax Over the next few decades, and deteriorating schools became revenue. Suburbs and central cities are middle-class American households national crises by the 1970s, convincing competing for these benefits. With a few more families to forsake core cities for exceptions, the data show the suburbs moved to the suburbs in droves, the suburbs. have been winning—both in Texas and hollowing out parts of the inner These “push” factors making the core across the nation. cities and eroding their tax bases. cities less attractive combined with “pull” factors making the suburbs more Moving to the suburbs attractive to American families. Smaller right off the new highways. communities outside the urban core America’s exodus to suburbia began Suburbanization began with a relatively typically offered more affordable housing in earnest after the long, lean years of strict division between core cities and and better schools than inner cities. the Depression and World War II. The their surrounding municipalities. The Crime rates were lower. In many places, 1950s return to prosperity meant jobs, cities were where people worked and suburbs even developed the kind of rising incomes, the Baby Boom and shopped during the day. Suburbs were amenities once found only in big cities— households on buying sprees. where the workers lived, raised families sports, dining, shopping, entertainment More families could afford cars, and slept at night—hence the dismissive and recreation. reducing the need to live close to work. nickname “bedroom communities.” As places to do business, core cities’ More cars meant a demand for more Over the next few decades, middle- traditional advantage—particularly in roads and highways, many of them class American households moved to the age of making things—was easy heading out of town. By the end of the the suburbs in droves, hollowing out access to workers, suppliers, shipping 1950s, home builders in Texas and the parts of the inner cities and eroding networks and other inputs. A typical rest of the country were catering to their tax bases. Bureaucratic and manufacturer’s labor force was blue families disenchanted with the hubbub cash-strapped, cities found it harder collar, with little formal education beyond of the cities, creating acres of affordable to maintain services and infrastructure. elementary or high school. Wages started single-family homes in quiet subdivisions, Tax and regulatory burdens increased. low but eventually rose high enough to

SUBURBS DOMINATE JOB GROWTH IN MOST U.S. MSAs

Jobs Added by MSA, 2000-16 900,000

800,000

700,000 Suburbs

600,000 Sister City Core City

500,000

400,000

300,000

200,000

100,000

0

Miami Austin Atlanta Seattle Orlando Denver Tampa Boston Raleigh Houston Phoenix Riverside Charlotte Nashville Portland San Jose Las Vegas San DiegoBaltimore Charleston Pittsburgh Los Angeles San Antonio Philadelphia Sacramento Kansas City New York City San Francisco Dallas-Fort Worth Washington D.C. Minneapolis-St. Paul Continued on page 3 H theTEXASeconomy Page 3 buy a Ford or Chevy sedan—the very automobiles that started the stampede to the suburbs. In today’s post-industrial economy, the labor force has become increasingly college-educated, producing services rather than goods. Workers are mobile, willing to commute long distances and stay connected on their laptops and and location of suburbs, the layouts of neighbors for jobs. Houston proper phones. For many companies in the highways and roads, and the possibilities hasn’t been encircled by suburbs— digital age, being near suppliers and for annexation to bring outlying job so opportunities remain to expand by shipping routes no longer carries the creation into the city limits. annexation, particularly to the west. weight it once did. The four maps on the next two pages Austin MSA. The smallest core city Just as important, suburbs have their show the distribution of job gains for among the Big Four, Austin had until own “pull” factors for businesses. They each Texas MSA from 2000 to 2015—the recent decades kept most new jobs often offer an edge in cost, starting with 2016 data for many smaller suburbs isn’t within the city limits. Employment has cheaper real estate. Local taxes are likely out yet. Reds indicate places with the begun to move to the suburbs, centered to be lower, too. Suburban governments fastest job growth; blues denote places along the Interstate 35 corridor, both to may be more business-friendly, eager to with below-average employment gains. the north and south. bend over backwards to accommodate Dallas-Fort Worth MSA. Job growth Round Rock, the largest suburb new employers by cutting red tape and pushed toward the north, with Prosper, in terms of jobs, continued strong offering financial incentives. Office parks Frisco, McKinney, Allen and nearby employment growth but didn’t keep pace may locate near airports. Highways are suburbs more than doubling employment. with its smaller neighbors in the northern newer. Buildings and digital capacity may Above-average performance stretches suburbs—Cedar Park, Leander and be state-of-the-art. Some companies into Tarrant and Denton counties to the Pflugerville. To the south, Kyle boomed, might even give weight to where their west. Mansfield and Midlothian led a increasing jobs by more than 500 percent workers prefer to live. cluster of fast-growing suburbs southwest and closing the gap between San Marcos Today’s suburbs are a far cry from of Dallas and southeast of Fort Worth. and Austin. The core city could expand in bedroom communities of the 1950s and Dallas itself lagged over the 2000-15 all directions except north. 1960s. Shopping malls and office parks period. However, the city made significant San Antonio MSA. Like Houston comingle with housing developments— strides in recent years in revitalizing proper, San Antonio itself sprawls all connected by roads and highways downtown and its environs. Since 2011, over a vast area, with even fewer that don’t necessarily lead to the MSAs it has matched the suburban job-growth established suburbs to compete for urban core. The suburbs have grown rate, ending two decades of being a drag jobs. As employers, the MSA’s suburbs up, becoming cities in their own right, on overall MSA employment. are relatively small, with only five capable of competing with their larger Fort Worth’s job creation has been exceeding 10,000 jobs, led by New neighbors as a place for doing business helped by a push northward along Braunfels (33,677) and Schertz (!6,867). and creating jobs. Interstate 35 West, where the city has By contrast, at least two dozen DFW annexed land for such enterprises suburbs employ more than 20,000 Geography of Texas jobs as Alliance Airport and Texas Motor workers, topped by Arlington’s 191,898 Speedway. Existing suburbs border Dallas and Plano’s 147,871. From higher living standards to changes on all sides, preventing it from capturing at Since 2000, the San Antonio MSA’s in the way we work, interconnected least some of the suburban job growth by suburban job growth has thrust to the forces contributed to the rise of American annexing unincorporated land. north and east, toward Austin. Three suburbs in the second half of the 20th Houston MSA. Conroe and The suburbs stood out—Cibolo at 675 Century. The migration from core to Woodlands, just off Interstate 45 to the percent, Timberwood Park at 370 periphery unfolded in more or less the north, are large suburbs that doubled percent and Boerne at 112 percent. The same way all across America, and Texas’ employment since 2000. To the south city’s footprint has room to grow. big cities didn’t buck the trend. and east, Pearland and League City stood In today’s economy, where companies Tectonic shifts in the broad economy out among a cluster of suburbs with job can do business just as well in core affected the state’s Big Four MSAs— gains well above the MSA average. city or suburb, the competition for jobs but each has its own story. The split The Houston MSA doesn’t have as will remain intense. In most places, the of job growth between core city and many suburbs as the DFW area. The suburbs have been winning. The urban suburbs has been shaped by the timing sprawling core city’s outsized footprint centers can help their cause by making of the suburban push, the size, number has meant less competition from smaller it easier and more affordable to do

Continued on page 6 H theTEXASeconomy Page 4

DFW: NORTHERN SUBURBS STAND OUT IN ADDING JOBS

HOUSTON: HOT SPOTS NORTH, SOUTH OF CORE CITY H theTEXASeconomy Page 5

AUSTIN: PUSHING NORTH, WITH SOUTHERN TAIL ALONG I-35

SAN ANTONIO: RELATIVELY FEW FAST-GROWING SUBURBS H theTEXASeconomy Page 6

business within the city limits. They also Employment data: U.S. Department Fort Worth area’s prospects for need to address urban ills, perceived or of Commerce, Bureau of Labor technology-led growth, taken from the real, that push families and businesses Statistics. Available at bea.gov. O’Neil Center’s Texas Economic Forum toward the suburbs. Next issue: A report on the Dallas- on “The Innovation Economy.” About the Authors References Michael Cox Richard Alm Cox, W. Michael and Alm, Richard, W. Michael Cox is founding Richard Alm is writer in “The Secret Behind DFW’s Job-Creating director of the William J. O’Neil residence at the William Machine.” D CEO, July/August 2015. Center for Global Markets and J. O’Neil Center for Global Cox, W. Michael and Alm, Richard, Freedom at Southern Methodist Markets and Freedom “The Wealth of Cities,” O’Neil Center University’s Cox School of at Southern Methodist Annual Report, 2014-15. Business. He is economic advisor University’s Cox School to MPACT Financial Group. of Business.

CHARTING THE TEXAS ECONOMY

With Technology Improving, Texas Oil Production Turns Up—Without Big Price Increases

Texas oil production had been falling Daily Output in 1,000s of Barrels Inflation-Adjusted Oil Prices 4,000 $160 for decades when a Texas-developed technology turned the industry around. Hydraulic fracturing, or “fracking,” helped 3,500 $140 increase the state’s output from around Oil Prices (WTI) 1.1 million barrels a day in 2009 to more than 3.5 million in 2015 (black line). 3,000 $120 Global oil prices then plunged by more than 50 percent (red line). Many feared 2,500 $100 the low prices would put an end to the Texas Oil Production fracking-driven oil boom. That’s not how it played out. Texas 2,000 $80 production fell, of course, but it remained above 3.2 million barrels. So far this year, 1,500 $60 the state’s oil output has shown signs of rebounding (circled area )—even though crude prices have remained relatively low. 1,000 $40 The fracking revolution has been more resilient than expected in the face of low oil prices. Efficiency gains have allowed 500 $20 the industry to make a profit at $50-60 a barrel, down from $70 or more just a few 0 $0 years ago. 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

ABOUT THE TEXAS ECONOMY AND THE O’NEIL CENTER

The Texas Economy is an electronic publication of the William J. The center’s programs promote understanding of how capitalism O’Neil Center for Global Markets and Freedom, a research institute works among the general public, policy makers, business managers in the SMU Cox School of Business. and the next generation of business leaders. To these ends, the The center was founded in 2008 with an initial grant from William O’Neil Center teaches SMU Cox students, conducts economic J. O’Neil, a 1955 SMU business school graduate, and his wife Fay C. research, publishes economic reports, sponsors conferences and O’Neil. Its broad mission is the study of why some economies prosper educates the public through the media and speeches. and others do poorly, focusing on two critical issues for the 21st Century For more information, see our web site at www.oneilcenter.org, economic environment—globalization and economic freedom. e-mail us at [email protected], or call 214-768-4210.