Austin Letter

Trusted Insights and Perspectives Since 1979

December 8, 2017

Volume 39, Number 36

In a national presentation closed to the news media, Austin mayor Steve Adler outlined Austins actions preserving the environment as it relates to the citys transportation policy.  As he put it:  “Preserving our environment is a big priority in Austin.  Its huge.  But most Austinites, stuck in rush hour traffic every day, will tell you traffic is the most immediate, inyourface challenge.”  Lets look at some quotes he made available.

First of all, the mayor said “we’re going to need to reduce our transportation carbon footprint if we’re going to make a big difference fighting climate change.”  He ticked off a number of steps already taken, including passing “the biggest bond in city history.  It was bigger in fact than all the mobility bonds in the previous 20 years.  And it passed with 60% of the vote.”

He continued:  “We’re making better use of our existing roads, making them more efficient and safer.  Were putting scores of millions of dollars into active transportation; bikes, trails and sidewalks.  We’re managing demand by accurately recognizing the cost of parking and dynamically pricing toll lanes, paid for by automobiles and free for transit.”

“The lessons we’re learning are clear,” he told the C40 Climate Summit.  “Where we offer multiple, diverse transportation options, Austinites get out of their cars and ride bikes, take buses, and even walk.”

Where we dont offer those choices where we dont have protected bike lanes, frequent bus service, even sidewalks people stay in their cars, Adler said.  So, mayor, what is in Austin’s mobility future?  “Our challenge is to expand choices.”

For a picture of what he’s talking about, you need to look no further than the proposal announced Tuesday for the area known as The Drag, adjacent to UTAustin.  It will reduce car travel to one lane in each direction, while adding busonly and bike lanes with expanded sidewalks, eliminating parking along one-mile of Guadalupe St.  At a cost of $33.7 million.  To be sure, this is a unique area with tens of thousands of students within walking distance of UTAustin and shuttle buses bringing in others from greater distances.  But it is an example of the move to allocate city tax dollars to implement the overall plan to curtail car traffic. Read more →

December 1, 2017

Volume 39, Number 35

An ordinance that would require Austin businesses to provide paid sick days is headed to the Austin City Council next week.  If it stays on the Councils planned action track, it could become law early next year.  City staff has been working on the draft measure, gathering input from a variety of sources.  And, as you would expect in Austin, there is disagreement on the proposal.

Of course, many Austin businesses provide paid sick leave for their employees, even though neither Texas nor federal law requires private employers to do so.  As of last count, more than 30 US cities have enacted such a mandate.  And, the feds have dictated that if a private employer has at least 50 workers, it must provide unpaid sick leave.

So, which categories of workers are pushing for this ordinance?  Backers of the proposal argue many local service, retail, construction and maintenance jobs do not get paid sick leave.  As one spokesman put it:  you should not have to choose between taking care of a sick kid and paying the rent.

However, it is more nuanced that that.  Tech companies, for example, maintain a onesizefitsall city reg would cause administrative nightmares, even if the tech company offers some form of paid sick leave.  And, some small business reps complain such an ordinance would raise costs.

When you step back and try to anticipate what is likely to happen, you have to analyze the makeup of this 10-person City Council.  Such an analysis would lead you to believe some form of a paid sick leave mandate is likely to be passed.  The initial content will start to become clear within the next few days when the staff presents its recommendations.

Assuming it does pass, it will not likely be the last word.  A lobbying group for small business indicated it will probably go to the Texas Legislature to put a stop to such an ordinance.  If actions of the previous legislature are any indication of what might happen, the odds are that any action by the Austin City Council will likely be overturned by a bill that would have statewide application.

While this is an educated assessment, nothing should be taken for granted.  The first public step should come this next week and will continue into 2018.  Stay tuned. Read more →

November 24, 2017

Volume 39, Number 34

As the Austin area hurtles headlong into the holiday selling/buying season you may have noticed a plethora of Now Hiring/Help Wanted signs plastered all over the area.  This is getting to be a serious situation that could affect the shopping experience of many, not to mention the overall service/retail economy environment.  Just how serious is this situation?  The metro unemployment situation is the tightest it has been in almost 17 years.  Let this sink in for a moment.

Central Texas retailers are moving into their make-or-break time of year.  The yearend selling period is critical to most retailers annual sales success.  And, shoppers also have an impact on eating/drinking establishments, grocers, entertainment venues, and various other establishments that enjoy the spillover of more bodies trudging around the area.  And now, there will be a shortage of workers to assist them

Unemployment figures are not always current, because it takes time to tabulate the results.  But, the most current numbers from October 2017 are close enough to track trends.  Check this impressive unemployment Austin metro trend:  October, 2017, 2.6% … September 2017, 2.9% … October 2016, 3.3%.  This is the best Austin area unemployment percentage since December 2000 when it hit 2.3%.

Although a tight labor market negatively impacts retail, the flip side of the unemployment numbers mean more Austinites have money in their jeans, and given past history, they will spend it, rather than save it.  So, it is up to retailers to overcome staffing problems to service those spenders who come walking into their establishments.  The next six weeks are critical to the Austin retail economy.

The Austin metro is not alone in having a tight labor market in Texas.  In fact, it is not even the best.  The Amarillo and Midland metro areas had the lowest October percentage, 2.4%.  Even College Station/Bryan bested the Austin metro, chalking up 2.5% unemployment, and Lubbock’s metro tied Austin with a 2.6% October rate.

There’s more.  The State of Texas recorded its lowest unemployment rate in four decades, with 3.9% in October 2017.  On top of this, Texas marked 90 consecutive months of annual growth.  The Texas economy is the envy of the nation right now.  And, the Austin metro area is benefitting from what is happening to other Texas metros.  All is good, so far. Read more →

November 17, 2017

Volume 39, Number 33

The unprecedented housing crisis in California is worsening.  And, there is a genuine grass roots uprising gaining strength there to combat rising costs and lack of affordable living units.  In fact, more than $1 million has been raised to change California regs they feel are contributing to the crisis.  At the same time, Central Texas home sales were up 2.2% in October.  The local median sales price increased 4.3%.  Same song, umpteenth verse.  Is Austin heading down the same path that is hammering California?

We wrote in detail about the beginnings of this California housing uprising four months ago (click “Archives” for the 7.21.17 edition).  The effort was generally composed of leftleaning leaders going against leftleaning state and city governments that installed restrictive development regs.  Now it has expanded, and it has picked up steam.

The YIMBY’s are a network of pro-development “Yes-in-my-backyard” organizations.  They are fighting the sentiment against building more homes in existing neighborhoods.

They are led by millennials, who have been frozen out of the housing market and slammed by California’s skyrocketing rents.  And now, tech companies are funding the effort.

YIMBY’s do not buy into the theory that an influx of new wellpaid tech workers and other young people moving into a booming area are the main culprits for runaway housing costs and the displacement of working class residents.

They argue that a shortage of housing is primarily the problem – namely zoning restrictions keeping apartments out of single-family home neighborhoods, or dis-allowing granny flats on lots, etc.

Austin is nowhere near the dire straits Californians find themselves in today.  But, concerning signs are emerging such as sales inside Austins city limits dropped 1.7% in October, as the median price jumped almost 10%.  So far, we’ve seen no signs of YIMBY moves in the Austin area.  But, the City is in the midst of its years-long effort to re-write its land development code.  It is called CodeNEXT.  It’s controversial so far, and likely to continue that way.  But, its work is vital to the area’s growth plans.  Stay tuned. Read more →

November 10, 2017

Volume 39, Number 32

One of the worstkept secrets about living in the Austin area is the rising cost of homes.  It seems as if every residential real estate report that came out over the last few years highlighted higherandhigher median sales prices for homes.  The current numbers continue this trend.  In fact, for the year through September, the median sales price was up 7% over the same time frame a year ago.  But, wait.  The September 2017 median sales price was down by 1.8% from the previous month, August.  Whats happening here?

The population of the Austin area is still exploding.  The pace of sales in the metro area continues to rise.  The number of houses on the market (inventory) is still low.  And, the dollar volume of sales is up.  Let’s drill a little deeper with the help of economist Beverly Kerr, the VP/Research for the Austin Chamber of Commerce.

First of all, let’s examine whether Austin is an anomaly.  Kerr points out the National Association of Realtors (NAR) crunches price data numbers every quarter for existing single family homes for about 180 US metros.  Breaking it out to the 50 largest markets, it found Austin was the 17th most expensive major metro in the last quarter and the last calendar year.

 But, the NAR numbers also showed that while Austin was in the Top Ten for price appreciation between 2014 and 2016, over the last year, 36 major metros saw faster growth than Austin.  As an example, Austin’s price growth was 4.4% to rank 37th.  The highest, 16.5% was San Jose in California’s Silicon Valley.

As you know, the decision makers at Amazon in Seattle are trying to decide where to locate the giant company’s 2nd headquarters (it calls it Amazon HQ2).  One of the factors they will use to select a site is the cost of housing.  (Some Austin naysayers downgrade Austin’s chances due to rising housing costs.)  But, everything is relative.  Seattle has the nations 2nd fastest home price growth during the past year 13.4%.  Austin looks pretty good by comparison, with its 4.4% and 37th rank.  Just another factor to weigh.

So it does appear, at least for the time being, Austins residential housing market is slowing a tad.  Kerr notes September’s housing inventory was at 3.0 months (six months being an equal buying/selling benchmark).  But up until this June, Austin had less than three months inventory on the market since November 2012.  Yeah, slowing a bit.  But still robust. Read more →

November 3, 2017

Volume 39, Number 31

The future of job expansion/job growth in the Austin area will strongly lie in the field of healthcarethe many facets of healthcare.  The exploding healthcare economy includes all manner of jobs, not just doctors and nurses.  The breadth is impressive.  There are a number of contributing factors, not the least of which is UTAustins Dell Med School and associated development.  But, theres more, much more.  In fact, this is part of a national trend, strongly bolstered by the Austin areas alreadyestablished economic leadership.

Healthcare growth is here and on a fast track, both at the upper and lower ends of the pay scale.  It’s happening.  Bank on it.  (Sure, if Amazon HQ2 picks Austin, it will have a dramatic job impact.  But Amazon HQ2 is not a certainty – healthcare growth in all its facets is a near certainty).  The strong tech job base in the Austin area is a contributor, as is higher education.  Look below at these national trends, keeping in mind Austin’s economic strengths.

Nationally, the US Bureau of Labor Statistics (BLS) projects health care and social assistance is expected to become the largest major sector by 2026.”  This sector will account for about one-third of all new jobs.

Want detail?  BLS notes “healthcare support occupations will grow more than 23%.  Healthcare practitioners and technical occupations will increase more than 15%.  This is what we mean when we mention the breadth of healthcare. Other examples include personal care aides, home health aides, etc.

Auxiliary jobs will expand exponentially in the Austin area because of the core healthcare emphasis here.  Remember, Dell Med did not exist a couple of years ago, admitting its first students in 2016.  It is fledgling in its existence and will only grow in impact.

As we’ve reported many times in the past, the Austin area enjoys major advantages by being in Texas.  But, according to the Texas Medical Association, Texas ranks 47th in physician to patient ratio.  In fact, the state has often recruited foreign medical graduates to fill shortages.  So the need is great, and the opportunity to expand to meet the need is almost limitless.  Austin and Texas have a big advantage to attract med students:  becoming a doctor here is a financial bargain.  We’ll examine this aspect, as well as other supporting info behind the claim that healthcare jobs are the wave of Austin’s future, in the next item. Read more →

October 27, 2017

Volume 39, Number 30

You often hear some Austin oldtimers lament the many changes theyve seen.  Even those whove lived in the Austin area for only 5to10 years sing much the same tune about changes theyve witnessed.  Of course, most US cities have experienced at least some degree of change, whether for better or worse.  But where does Austin rank in a thorough study of the 50 largest US metros?  Using nine elements of data not just the number of construction cranes Austin has changed the most over the past decade.  One element may surprise you.

 MagnifyMoney, a subsidiary of LendingTree, analyzed home prices, crime rates, building permits, commute times and other elements to identify areas of high metropolitan change, and gave each city a “Change Score” of zero to 100.  The highest change score was 90.4 (Austin) and the lowest of the 50 metros was 61.1 (Birmingham, AL).  Let’s examine some highlights.

Austin is a magnet for change, with the fastest job growth in the nation (+40% since 2006), 60% of residents moving since 2010 and a 54% rise in house prices since 2006, the most of the 50 metros ranked,” reported MagnifyMoney.  None of these high percentages should come as a surprise to those who have been paying attention.  So which cities follow Austin’s top “Change Score” ranking?

“#2 DallasFort Worth (89.7 score) is in the top ten for five of the change categories:  employment, recent moves, building permits, house prices and crime rate.”  D/FW’s crime rate is down 43% from 2006.

#3 Houston (86.2) rounds out the trio of big Texas cities at the top of the change list, led by housing factors.”  Houston ranked #2 for house price appreciation and #3 in the US for building permit expansion.

Even though this study was the most recent – released within the last ten days – it is a “change” study for a snapshot in time, 2006-2016.  The dynamics of these cities almost ensure they are changing as we speak.  Another point:  “change” can be seen as good or bad, depending upon your perspective.

Now, for what may be considered a “surprise:”  Austin did not rank in the top five in change in Commute Times.  San Francisco, +18% … San Jose, +18% … Los Angeles, +12% … Boston, +12% and Portland, 12% took the honors in this study.  Wonder what it is today. Read more →

October 20, 2017

Volume 39, Number 29

When analysts across the USA assess Austins chances of being selected for the site of Amazons second headquarters (Amazon HQ2), transportation and affordability issues are almost immediately cited as negatives for the Capitol City.  Even those who place Austin at or near the top of the list concede this point.  But, what if Amazon were to help the situationturning lemons into lemonade?  A hint dropped this week indicated there could be something to thisand could possibly be a game changer in Austins favor.

The hint was a public comment from someone who has been involved in the private development of Austins proposal to land Amazon’s $5 billion investment, which is anticipated to generate 50,000 new jobs over a couple of decades.  The insider who made this public comment will be a key player in negotiations/approvals, if Amazon HQ2 names Austin as finalist.  The insider:  Austin Mayor Steve Adler.

Adler’s comment was significant.  It was well-thought-out.  In fact, it was a comment he submitted in writing, not some offthecuff remark.  But, it has received very little notice, probably because it was buried at the very end of a lengthy Austin American-Statesman page one story about Austin’s bid being officially submitted to Amazon.

Here’s Adler’s written statement as it appeared in the Statesman (pay special attention to the second sentence that we bold-faced for you):  “Every city faces its own unique challenges in ways best for that city.  If Austin is given the opportunity, however, we should find out if the scale of Amazon could help us achieve answers to affordability or mobility that are not otherwise available or available as quicklyThat would be great, but as yet we don’t have enough information to know the answer.”  Of course, there’s no way to know the answer at this stage.  Proposals are presented unilaterally.

Austin’s two biggest problems the mayor hears about daily are “affordability” and “mobility.”  Right now, the naysayers are saying this would not be good for Austin because Amazon HQ2 would only make a bad situation worse.

But.  What if Amazon HQ2 could be part of the solution as an infrastructure buildout to meet Amazons unique needs helps, not hurts, Austins two biggest problems.  Amazon initially urged prospects to be creative.  This would surely qualify.  Check the next item for a solution. Read more →

October 13, 2017

Volume 39, Number 28

About a week after you read this, one of the most important deadlines for Austins economic future will have come and gone.  But you wont know the results until next year.  Were talking about the coveted site for Amazons second headquarters location.  Amazon claims it will invest $5 billion in its HQ2, and that it will generate 50,000 new jobs over the next two decades.  The deadline for site selection proposal submissions is October 19, 2017.

Based on multiple reports, more than 100 cities are scrambling to meet this deadline.  Talk about worldclass competition.  Talk about a worldclass prizeIts hard to overestimate the impact on the winning city (or area).  No matter what you read about various cities and their chances, it’s all speculation, some of it even well-reasoned.  (We’ve also been a part of this speculation/analysis.  To understand the process, check our September 22, 2017 edition in the Archives section of this newsletter.)

It’s important to understand that, of all the submissions, none will likely be the perfect location.  I mean, after all, Amazons wish list/criteria is such that no city/area can be a perfect ten on each item.  Add “incentives” that will be unique to each location and it further compounds the selection problem.  And, much of the Amazon HQ2 site selection team will have a gut reaction to intangibles that are not mathematically quantifiable – such as how they “feel” after a city/area visit – and how they like specific sites within a high-ranking city/area.

It goes back to the old adage of “if the solution is not perfect, then select the best of the options.”  Think politics:  “I don’t like this candidate” until an opponent emerges that you perceive to be worse.  Or, deciding which movie to watch.  “This movie doesn’t really appeal to me, but it’s probably going to be better than what’s currently available.”  They won’t flip a coin, but subjectivity will also play a role.

Amazon already knows a lot about the Austin area.  The company bought Whole Foods, and along with other operations, thousands of local employees already receive an Amazon check each pay period.  Heck, a recent Amazon distribution center in San Marcos in just a year of operation has about 3,000 employees, three times as many as promised.  Next step to watch:  whether Austin makes the Amazon HQ2 short list, after the 100 or so presentations are culled.  Amazon hasn’t indicated when the short list will be announced. Read more →

October 6, 2017

Volume 39, Number 27

The City of Austin is investing heavily in wind and solar power as a source for electricity, even though it is generally known to be more expensive than electricity generated by natural gas.  Currently, Austin Energy is also using several other power sources to provide cheaper electricity to its customers.  One of them nuclear power just passed a major test, at the same time it was receiving federal authorization to operate for another 20 years near the Texas coast.

Back in the 1980s, Austin, San Antonio and Houston invested in building the South Texas (Nuclear) Project in Matagorda County, near Bay City.  As a result, Austin owns 16% of the plant with a priority to access its power to generate electricity.  As you well understand, from construction until today, nuclear power has been controversial.  But nuclear power has been a “clean” industry and is relatively reliable and inexpensive.

One of the major concerns about the nuclear plant has always been its location.  The criticism:  the site made it subject to the ravages of a hurricane that could come roaring into the Texas coast.  Well, the monster Hurricane Harvey came and went.  And the 1,200 employees of the South Texas Project kept the plant producing power without missing a beat.

Another important recent development:  the US Nuclear Regulatory Commission has renewed the license for 20 years for the South Texas Projects two units.  The units are now cleared to operate through 2047 and 2048.  This is significant, because the renewal applications were first filed in 2010 (for licenses that were set to expire in 2027 and 2028).

By the way, the South Texas Project is one of the newest and largest nuclear power plants in the US.  Austin’s portion of power to provide electricity to Austin Energy customers is part of the projects 2,700 megawatts of power that is in use in almost 2 million homes.

Activists have been trying for years to get Austin out of using fossil fuels to provide electricity.  Efforts have been aimed at pulling out of a coalfired power plant in La Grange and the city is not adding another natural gas plant.  Of course, the same activists aim their criticism at nuclear power-generated electricity, as they continue to press for more reliance on solar and wind. Read more →