The crisis may be over (for the time being) in Washington. But the crisis for America’s middle class continues, as middle-income jobs get harder to find and the cost of living gets harder to bear. Where can Americans turn for answers? In a word: Texas.
In the cover story of this week’s TIME magazine, economist Tyler Cowen, author of the new book Average Is Over, looks at why so many Americans are headed to the Lone Star State. And he comes to a surprising conclusion. For better or worse, he argues, it’s because Texas is our future.
Based on Cowen’s research, here are 10 reasons why America’s future is going to look a lot more like Texas:
1. Everyone’s moving there
More Americans are moving to Texas than to any other state. As Cowen notes in the piece:
Texas is America’s fastest-growing large state, with three of the top five fastest-growing cities in the country: Austin, Dallas and Houston. In 2012 alone, total migration to Texas from the other 49 states in the Union was 106,000, according to the U.S. Census Bureau. Since 2000, 1 million more people have moved to Texas from other states than have left … Over the past 20 years, more than 4 million Californians have moved to Texas.
2. The middle-class squeeze
We’re creating jobs at the low end of the income spectrum — 58% of jobs created since the end of the Great Recession pay less than $13.83 an hour. However, it’s not that incomes are stagnant generally. Earners at the top have done very well — but the gains have been distributed quite unevenly. Last year the top 1% of earners took home 19.3% of household income, their largest share since 1928. The top 10% of earners didn’t do so badly either, taking home a record 48.2% of household income.
The middle-income job is disappearing, at the same time that holding onto a middle-class lifestyle is becoming more expensive. As a 2010 report by the Department of Commerce found, looking at economic data from the past two decades, “The prices for three large components of middle-class expenses have increased faster than income: the cost of college, the cost of health care and the cost of a house.”
One of the big reasons behind the middle-class squeeze is automation — and it’s only going to get worse, possibly much worse. A recent study by researchers at Oxford University found that 47% of jobs in the U.S. are vulnerable to automation, not just in fields involving manual labor but also increasingly in fields involving complicated decisionmaking.
Looking forward, says Carl Benedikt Frey, co-author of the Oxford study, more and more low-to-medium-skilled jobs will be vulnerable to automation. “Take the autonomous driverless cars being developed by Google. This new technology may lead to workers such as long-haul truck driver being replaced by machines,” he says. “The ability of computers, equipped with new pattern-recognition algorithms, to quickly screen through large piles of documents threatens even occupations such as paralegals and patent lawyers, which are indeed rapidly being automated.” Even the bulk of service and sales jobs, Frey says, from fast-food-counter attendants to medical transcriptionists — the types of fields where the most job growth has occurred over the past decade — are also to be found in the high-risk category.
4. The skills gap
Automation doesn’t just kill jobs, of course, it also creates them. To take just one example, as Cowen notes in his book, according to the U.S. Air Force, it takes about 168 workers to keep a Predator drone in the air for 24 hours. To compare, the operation of an F-16 fighter aircraft requires fewer than 100 people for a mission.
But the new jobs will be far different from the old ones, Cowen argues. Rather than driving a truck, workers will be needed to regularly inspect that the sensors of self-driving vehicles are in good working order. Medical technicians will let software interpret body and brain scans, but they will need to know more about the limitations of the software (to override mistakes or look more closely when necessary) than about traditional medical science. Teachers and professors will be less crucial to the communication of information and grading, and more important for motivating and inspiring (two tasks computers usually cannot manage on their own).
The question to ask in the years to come will be: Do you add value to the computer, or is the computer better off without you? If the answer is the latter, your job is in trouble. In such an economy, the job growth is likely to be strong — as it is now — in very high- and very low-earning jobs. But the middle is in trouble. As Cowen puts it, average is over.
5. Cheap land, cheap houses
So where can people go when their incomes aren’t keeping pace with the rising cost of living? We know they’re headed to Texas. And they’re headed there because land is cheap, and thus housing is cheap.
A typical home in Brooklyn costs more than half a million dollars (and rising rapidly), and 85% of these dwellings are apartments and condos rather than stand-alone homes. They don’t usually have impressive sinks and seamlessly operating air-conditioning fixtures. In Houston, the typical home costs $130,100 — and it is likely a stand-alone and newer than the structure in Brooklyn.
Housing is bigger — and cheaper — in Texas.
6. Cheap living generally
Cowen notes that this cheap cost of living isn’t just limited to housing, it’s a pervasive fact of life in Texas. And it has a huge impact on people’s standards of living:
The lower house prices, along with a generally low cost of living — helped along by cheap labor, cheap produce and cheap gas (currently about $3 a gallon) — really matter when it comes to quality of life … Texas has a higher per capita income than California, adjusted for cost of living, and nearly catches up with New York by the same measure. Once you factor in state and local taxes, Texas pulls ahead of New York — by a wide margin. The website MoneyRates ranks states on the basis of average income, adjusting for tax rates and cost of living; once those factors are accounted for, Texas has the third highest average income (after Virginia and Washington State), while New York ranks 36th.
In the past 12 months, Texas has added 274,700 new jobs — that’s 12% of all jobs added nationwide and 51,000 more than California added … In fact, from 2002 to 2011, with 8% of the U.S. population, Texas created nearly one-third of the country’s highest-paying jobs.
8. Low taxes
Texas has no income tax. Per resident, it collects roughly $3,500 in taxes overall (including all state and local taxes) every year. By way of contrast, California collects $4,900 per resident — New York collects a whopping $7,400 per resident. Both states, of course, have income taxes.
People are going to Texas because it’s a low-cost, low-tax state. But they’re also migrating to other Sun Belt states, like Colorado, Arizona and South Carolina, which have similar policy profiles.
9. The rise of the ‘new cowboys’
These folks moving to Texas are a bit like the mythical cowboys of our past — self-reliant, for better or worse. As Cowen predicts in his piece, a new generation looks set to repudiate work and consumerism in favor of a simpler, off-the-grid way of life:
A new class of Americans will become far more numerous. They will despair at finding good middle-class jobs and decide to live off salaries that are roughly comparable to today’s lower-middle-class incomes. Some will give up trying so hard — but it won’t matter as much as it used to, because they won’t have to be big successes to live relatively well.
10. The rise of micro-houses
In the coming decades, some people may even go to extremes in low-cost living, like making their homes in micro-houses (of, say, about 400 sq. ft. and costing $20,000 to $40,000) or going off the grid entirely. Brad Kittel, owner of Tiny Texas Houses, blogs about his small homes built from salvaged materials at tinytexashouses.com. His business, based in the small rural community of Luling, east of San Antonio, offers custom homes, plans and lessons on how to be a salvage miner. So far he has built about 75 tiny homes … The micro-home trend is being watched by traditional homebuilders as well. Texas-based developer D.R. Horton, a member of the New York Stock Exchange and one of the largest homebuilders in the country, built 29 micro-homes sized from 364 to 687 sq. ft. in Portland, Ore., last year.
In some ways, Cowen says, the new settlements of a Texas-like America could come to resemble trailer parks. “The next Brooklyn may end up somewhere in the Dakotas,” he writes. “Fargo, anyone?”
What it all adds up to is a future where many more Americans live in Texas — and much of the rest of America looks more and more like the Lone Star State.
Among the policies Cowen proposes as we move into this future: cheaper education (to allow workers to upgrade their skills), looser building and zoning regulations (to radically reduce the price of housing across America), and a loosening of occupational licensing at the state and local level (to open up many more low-skill jobs).
Texas, he writes, is “America’s America,” where Americans go when they need a fresh start. And a little more Texas could go a long way.
For more on Central Texas Real Estate for sale or general questions about the market contact The Heyl Group at Keller Williams today.