METRO | Roger Baker : The rise and rise of Austin, Texas

Suburbs experience growth explosion while Austin’s tech bubble could be the next to explode.

Austin Growth Monster? Image from Nickelodeon.

By Roger Baker | The Rag Blog | June 3, 2014

AUSTIN — According to Forbes, as reported by KVUE-TV, Austin is the fastest growing city in the country.

According to city of Austin demographer Ryan Robinson, approximately 110 new people move here every day. That’s a net number, including those moving in and moving out. “About 150 come in and 40 leave,” Robinson told KVUE. That number includes all five counties in the greater metropolitan area: Williamson, Travis, Hays, Bastrop and Caldwell.

The U.S. census bureau quite agrees with this perspective.

Austin has been the capital of Texas since 1839, and in 2013 the area became the nation’s capital for population growth, according to U.S. Census Bureau estimates released today [May 22, 2014].

Austin growth slows while its suburbs boom

There is actually a widening economic gap between Austin and its surrounding communities. The census data shows that the City of Austin’s population grew faster than most U.S. cities, but only by about half as fast as its surrounding suburbs and their fast-growing satellite cities. Austin itself grew about 2.4% from mid-2012 to 2013, increasing from 21,000 to 885,000.

A recent 2.4% rate of Austin population growth, a number commonly used as a gauge of urban success, sounds impressive. It is, but it actually means that Austin growth has slowed down, decreasing from about 3.2 percent per year, or 9.7 from 2010 to 2013, assuming the census numbers are accurate.

Meanwhile, three of Austin’s major satellite cities, San Marcos, Cedar Park, and Georgetown, are all in the top 10 for growth in the entire USA for cities of 50,000 or more! They grew at a rate of 8%, 5.6% and 4.5% respectively, in the last year.  Fast growing satellite cities, like those surrounding Austin, seem to be part of a national demographic trend.

Many of the fastest-growing cities are urbanizing smaller towns: While the growth of Austin, Texas, slowed in 2013, three surrounding smaller cities were among the top 15 fastest-growing cities in the country.

As another interesting example, Round Rock, a historical star performer as an Austin area growth city of over 100,000, only grew about 3.3% year from 2010-2013, a slowdown trailing the top three.

According to Austin demographer Ryan Robinson, these Austin sprawl trends are going to continue no matter what.

The Austin region will continue to experience intense urban sprawl… Although there is an enormous amount of residential development currently underway within the urban core and in downtown Austin, the thousands of new units being created there will be only a drop in the regional bucket of total residential units created. There simply are very few land availability constraints in the territory surrounding Austin.

Could it be that very fast suburban growth sows the seeds of its own demise?

Could it be that very fast suburban growth sows the seeds of its own demise? Perhaps even the suburban areas which until recently were growing fastest, like Round Rock, tend to slow down due to the accumulated costs of a long-sustained maximum growth policy, much like an accumulation of barnacles slows down a ship.

If there is a natural tendency for very high growth to slow over time, you will not hear it from Austin area politicians in the midst of the current Austin area growth boom. Texas politicians, as a class, generally deny growth limits. That applies whether the limits are tied to the current “fracking” boom, population and job growth based on in-migration, climate science predictions of water limits, global warming, or building new roads to serve sprawl development.
Austin is competing with its suburbs and losing

In many ways, Austin is still competing for growth with its surrounding suburban areas without a lot of regional cooperation.  As I have described previously, CAMPO’s political domination by the counties surrounding Travis is a mind-blowing example of irrational and unworkable planning leading to a $32 billion water-oblivious, car-centric transportation plan that would surround Austin with a huge demographic tilt toward suburban sprawl growth.

Without much in the way of regional cooperation in its growth planning, and as economic growth in the core city of Austin slows further, the suburbs and satellite cities, essentially new development that feeds from the same regional economic trough, will tend to rise and fall with the economic health of the core city. Few would probably choose to migrate to a suburb of Detroit.

Even in Austin’s lower living cost suburbs, there must be a rising per capita debt burden for providing basic infrastructure like water, roads, and schools. The suburbs face their own growth debt problems if regional growth slows down.

Meanwhile, the ultimate growth challenge facing all of Central Texas is water.

Meanwhile, the ultimate growth challenge facing all of Central Texas is water. This is a problem that confronts the suburbs as much as Austin itself, a problem that could even kill most regional growth within a few years. Nobody knows how to handle this problem very well, largely due to past denial. We can see that climate change will probably have an increasingly severe impact by reducing the Central Texas water supply.

As one result, Austin residents may already be caught up in a water debt trap. The more Austin residents conserve in response to the increasingly strict drought regulations mandated by the LCRA, the more the water cost must rise to repay Austin’s water bond debt.
The Austin growth strategy

A lot of the top-down impetus for Texas growth, including Austin’s, has been encouraged by Texas Gov. Rick Perry, who travels the nation promoting low Texas business costs, to encourage job relocations and expansions away from more expensive areas like California.

Here is a video clip of Perry’s Texas low cost business pitch  (which incidentally paints a highly optimistic picture of the Eagle Ford “fracking” boom).

Daily population growth in Austin. Chart from City of Austin. Image from Austin Business Journal.

While Texas may be a relatively cheap state to do business overall, this is rapidly becoming untrue of Austin. As the Austin American-Statesman recently reported, Austin’s rapid gentrification is indicated by about a 50% increase in housing cost in the last decade, while average wages have only increased about 10%. Austin’s high-paid jobs are concentrated in the core city. This is great if you have a good job, but existing Austin homeowners struggle to pay a steady increase in urban fees and taxes.

At the same time, rapid unregulated developer-centric suburban sprawl growth is generating intolerable levels of rush hour traffic congestion for regional commuters.  You can live and work cheaper and still hold a job in Austin if you are willing to put up with an increasingly unpleasant daily commute.

As we see here Austin’s historically low labor costs are no longer much cheaper than the national average.  Austin is clearly becoming less and less affordable.

With Austin’s living costs soaring and its traffic stressful, Austin’s gentrification encourages the relocation of growth into the surrounding suburbs.

With Austin’s living costs soaring and its traffic stressful, Austin’s gentrification encourages the relocation of growth into the surrounding suburbs. These satellite city areas have less local traffic, while still having easy access to local amenities like paved streets, major retailers, groceries, schools and garbage collection, and a reliable water distribution system (assuming the water is there).
Austin tech bubble storm clouds

One lesson of using tech as a basis for regional growth is that this sector of the economy is distinctly prone to booms and busts (a somewhat broader designation is to call these STEM jobs; science, technology, engineering and mathematics-related jobs). The high tech industry in general has characteristics that make it more inclined to boom and bust than other sectors of the economy.

“Now there is a clear consensus that we are witnessing our second tech bubble in 15 years,” Greenlight Capital said in an investor letter Tuesday. “What is uncertain is how much further the bubble can expand, and what might pop it.”

Low interest rates tend to generate asset bubbles looking for high returns. You can see this reflected on the Nasdaq chart here.

After the Austin area Dotcom bubble burst in 2000, Austin was temporarily blessed with a sudden abundance of unemployed tech talent, a situation conducive to the subsequent revival of tech job growth. In order to remain attractive to high tech industry, it is vital to have held down Austin’s tech industry labor costs by recruiting a share of a limited national supply of talented labor.

One important way that Austin has done this is by promoting Austin as the best possible city for talented young millennials to move to. With South by Southwest, Austin City Limits, social tolerance, live music, sailing in our used-to-be lake, what’s not to like about Austin?

Assuming that 150 people arrive and about 40 leave the Austin area every day, what do these numbers mean and how much could they change? What is the likelihood of this ratio shifting increasingly toward one to one, with as as many leaving as are coming?

Because the “cool city” factor is vital to attracting the people that help keep tech costs down, Austin has has to compete harder with areas like Denver and Seattle, even New Orleans, where you can still get around easier, to attract a talented millennial work force. Nowadays they may rent rather than buy a home in the Hill Country, and they tend to change tech jobs pretty often. High tech is increasingly about job hopping because those talented at generating software solutions and solving marketing problems can find good jobs anywhere, much as a master machinist could do in our past.

Austin is for now perhaps the nation’s top draw for young millennial workers.

Austin is for now perhaps the nation’s top draw for young millennial workers, which constitute about 16% of the Austin population (p. 18).

It is often said that compared to the year 2000 Dotcom bubble, the current tech boom is based on proven products rather than hopeful concepts. What is cause for concern now is that so much investment is supported by private venture capital, basically a bunch of rich guys in a good news echo chamber, who these days tend to nurture start-ups for long periods, hoping for eventual big money dollar buyouts.

This investment psychology is as much subject to a speculative bubble as the Dotcom days, but with a different class of investors and for different reasons; “Who’s to Blame for the Tech Bubble? Silicon Valley Insiders.”

Tech companies are putting off their IPOs for so long that venture capitalists and other private investors are playing the role of the moms and pops and buying in at hugely inflated prices. The New York Times recently reported that the average size of a “late-stage” round of funding for private tech companies was over $44 million this year, up 77 percent from 2013.

Are the Austin growth boom trends sustainable? Probably not for much longer. Government and higher education jobs have been reliable historical drivers of Austin growth for many decades, but these kinds of job increases have stagnated in recent years. Go here and click on the dinosaur icon links for recent charts of the various Austin area employment categories.

How can anyone predict if a tech industry slowdown is coming to Austin?

How can anyone predict if a tech industry slowdown is coming to Austin? This is a function of the psychology of investment, the tipping point for which is as unpredictable as it was during the Dotcom bubble. Perhaps San Francisco’s apparent current slowdown can serve as an advance warning, for both Austin and the nation’s still high-flying high tech industry.
Postscript

What comes next? Looking forward, the author anticipates writing about how Austin arrived at its current status as the world-known, tech boom they sometimes call Silicon Hills. Austin has an interesting history of transition from the staid and sleepy state capital and college town of the 1950’s when it had a longtime mayor (Tom Miller) who supported slow and cautious growth based solidly on education and government.

How did Austin make the transition to its current status as a city with an aggressive industrial recruitment policy, determined to be a leading alternative to Silicon Valley? Who were the major players, what were their policies, and who (besides obviously Gov. Rick Perry) are the leading players now?

Those in charge of Austin growth recruitment can easily seem like industrial policy geniuses so long as the Austin economy booms. However, as Kenneth Boulding famously observed, the only ones who believe in exponential growth in a finite world are madmen and economists.

When the Austin growth bubble finally bursts, where does the buck stop?

Read more Rag Blog articles by Roger Baker — including his highly acclaimed series on the Texas drought and his recent analysis of Austin’s proposed light rail plan.

[Roger Baker is a long time transportation-oriented environmental activist, an amateur energy-oriented economist, an amateur scientist and science writer, and a founding member of and an advisor to the Association for the Study of Peak Oil-USA. He is active in the Green Party and the ACLU, and is a director of the Save Our Springs Alliance and the Save Barton Creek Association in Austin. Mostly he enjoys being an irreverent policy wonk and writing irreverent wonkish articles for The Rag Blog. ]