Monday, August 18, 2008

More Evidence for Freedom

A wonderful article in the New York Sun by Harvard professor Edward Glaeser compares Houston and New York City. Houston, he shows, is much more friendly to the middle-class. An abundance of jobs, affordable housing, and a low cost of living are driving Houston’s economy.

Glaeser compares numerous economic statistics between the two cities. For example, a registered nurse earns about $50,000 in New York and $40,000 in Houston. A retail manager in New York earns about $200 more than one in Houston.

Housing in Manhattan is out of reach for a middle-class family. However, on Staten Island a 2,000 square foot house would cost about $340,000, or about $24,000 per year. A larger home in Houston would cost about $160,000 and cost about $9,200 per year.

The tax burden in Houston is also much lower. While property taxes are about 50% in Houston, the absence of a state or city income tax makes the total tax bill about 35% lower than New York.

Transportation costs are also lower in Houston, both in terms of money and time. The average middle-class commuter in New York spends 120 hours more per year commuting to and from work.

These lower costs make the Houston family significantly better off financially:

If we exclude the areas that our two families have already paid for (housing and
transportation) and average the remaining categories in the index (food,
utilities, health, and miscellaneous), Queens is 24% more expensive than the
average American area and Houston is 6% less expensive. Thus — again, after
housing, taxes, and transportation — the Queens residents' real remainder is a
little less than $21,000; the Houston family's is $32,200. The Houston family is
effectively 53% richer and solidly in the middle class, with plenty of money for
going out to dinner at Applebee's or taking vacations to San Antonio. The family
on Staten Island or in Queens is straining constantly to make ends meet.
Glaeser points to Houston’s relatively free market as the primary explanation for these differences:

Why is it so much more expensive in New York? For one, supplying housing in
New York City costs much, much more — for a 1,500-square-foot apartment, the
construction cost alone is more than $500,000. Also, part of the reason is
geographic: an old port on a narrow island can't grow outward, as Houston has,
and the costs of building up — New York's fate, especially in Manhattan — will
always be higher than those of building out. And the unavoidable fact is that
New York makes it harder to build housing than Chicago does — and a lot harder
than Houston does.

The permitting process in Manhattan is an arduous, unpredictable,
multiyear odyssey involving a dizzying array of regulations, environmental, and
other hosts of agencies. A further obstacle: rent control. When other
municipalities dropped rent control after World War II, New York clung to it,
despite the fact that artificially reduced rents discourage people from building
new housing.

While many are clamoring for tighter land use regulations, Glaeser thinks that this would be a mistake. The middle-class (and indeed all Houstonians) would suffer if Houston tried to emulate highly restrictive cities.
Houston's success shows that a relatively deregulated free-market city,
with a powerful urban growth machine, can do a much better job of taking care of
middle-income Americans than the more "progressive" big governments of the
Northeast and the West Coast.

The right response to Houston's growth is not to stymie it through
regulation that would make the city less affordable. It's for other areas, New
York included, to cut construction costs and start beating the Sunbelt at its
own game.
Houston is a beacon of freedom. The economic benefits we enjoy are a consequence of that freedom. Rather than seek to copy those cities that limit their citizen’s freedom and create economic turmoil, Houston should proudly declare to the world that we will continue to be a shining example of individual rights and personal freedom.

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