Is Houston’s Affordability Just a Myth?

Houston has been held up as a rare example of an American city that is both large, thriving, and cheap, thanks to the minimal restrictions it places on building new housing. But is this affordability just a myth?

On Friday, Texas Monthly published an article with the provocative headline, “Houston is now less affordable than New York City.” The piece argues that once the costs of transportation are factored into the equation, auto-dependent Bayou City becomes much less of a bargain.

“While the seemingly endless suburban growth has traditionally offered the city the veneer of affordability, the sprawl has also spiked transportation costs, so much so that the city’s combined transportation and living costs now place it on par with New York City,” writes Texas Monthly‘s Peter Holley.

“When considering housing and transportation costs as a percentage of income,” Holley continues, Houston, with its lower median income, appears “significantly less affordable than cities with much more expensive housing, including New York, San Francisco, Chicago, and Boston.”

Holley is relying on a new report from the Citizens Budget Commission, a New York-based non-profit. Its January-released “Rent and Ride” report used data from the U.S. Department of Housing and Urban Development (HUD) to compare the affordability of 20 large American cities. It found that when median housing and transportation costs are added up, Houston is just barely more affordable than New York City. When median income is taken into account, Houston becomes much less affordable.

This counterintuitive conclusion was polarizing, to say the least. Public transit advocates felt their complaints about “auto-dependency” were vindicated.

Wait, hold on, you’re saying it costs money to own and operate a car? And that this might factor into a city’s affordability, and by extension, that almost everything Americans think they know about cities is wrong? https://t.co/PhUPpC2Rjv

— David Klion???? (@DavidKlion) January 20, 2020

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The auto lifestyle isn’t cheap https://t.co/Snr4svaoxB

— Nick Riccardi (@NickRiccardi) January 21, 2020

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Others were a bit less credulous.

this is an absolute crock https://t.co/sKka4RZIHp

— J. Arthur Bloom ???????? (@j_arthur_bloom) January 21, 2020

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This headline’s so stupid, I’m making myself not click.

But could someone summarize the piece? Are they really arguing that a city w/ $189k home price medians has higher COLA than one w/ $649k medians, just because you have to own a car?https://t.co/dIvHudLa2y

— Market Urbanism Report (@sbcrosscountry) January 20, 2020

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Indeed, a closer look at how affordability is measured by HUD reveals some serious problems with the Texas Monthly article’s analysis, suggesting that the traditional view of Houston as a big, affordable place to live still holds up.

That’s largely because the way HUD calculates transportation costs actually understates the costs of taking public transit, biasing its affordability measurements against auto-heavy cities like Houston.

HUD measures a city’s cost of living by using a Location Affordability Index (LAI), which estimates median household housing and transportation costs down to the census block group level.

To calculate transportation costs, the LAI adds up the costs paid by motorists to own and operate their vehicles, as well as the fares that transit riders pay.

The trouble is that while it does a good job of capturing most of the costs commuters pay to get around by car, HUD’s LAI does a bad job of calculating the costs that transit users pay for their transit trips.

With the exception of tolls and parking fees (which obviously can be substantial in some cities), HUD’s calculation of auto ownership is pretty comprehensive, including the costs of fuel, “drivability” or maintenance, financing, and depreciation.

However, when measuring transit costs, HUD only looks at the fares commuters pay. Right away, that presents a problem, as fares cover only a portion (and sometimes a tiny portion) of the cost of each transit trip.

In New York City—which has one of the best farebox recovery ratios in the country—fares only cover about 40 percent of the subway’s operating costs, and less than 30 percent of the operating costs of the city’s bus service.

The difference is made up by taxes, including a special payroll tax, real estate transfer tax, and a surcharge on taxi and rideshare rides. The city and state also chip in additional tax-funded subsidies. These taxes are ultimately part of the transportation costs riders pay, but they are missed by HUD’s affordability index.

The result is that HUD’s LAI understates the transportation costs in transit-heavy cities like New York, while giving a more accurate picture of the transportation costs for motorists in Houston, who pay the full cost of operating their own vehicles (if not the roads they drive on).

Taken to extremes, New York could become the most “affordable” city in the country by just replacing private expenditures with tax-funded transportation subsidies. Conversely, Houston gets no credit for the money its low tax rates save residents, a point noted by Tory Gattis in a blog post published on the Houston Chronicle‘s website.

“If you move from NYC to Houston and spend the tax savings on a better house and car, your life got worse because their percentage of your income went up!” he writes.

Taxes aren’t the only thing HUD’s affordability index misses. Gattis’ post, citing data from the Bureau of Economic Analysis, also points out that Houstonians have higher buying power than their New York cousins.

Additionally, both the Texas Monthly article and the Citizens Budget Commission report weigh an already skewed measure of affordability by median income, which only distorts the relative affordability of Houston and New York City even more.

The median income in Houston is $61,000, while the median income in New York City is $69,000. That means each dollar a median-earning Houstonian spends on his housing or transportation is going to be a larger percentage of his income than the median-earning New Yorker, making Houston look more expensive by comparison.

What this misses is that Houston has a lower median income, in part, because it’s a more affordable place to live, and therefore is able to attract lower-income people who’ve been priced out of more expensive metros.

New York City, meanwhile, has experienced a 40,000-person net population decline in both 2017 and 2018, with the high cost of living being cited as one of the reasons for the outflow.

Provided that the bulk of the people moving out of the city are low- and moderate-income earners, their departure would raise New York City’s median income, thus making the city look more affordable on paper, even if it’s actually getting more expensive in reality. If these same low- and moderate-income earners moved to Houston in search of a lower cost of living, they’d make that city look less affordable by lowering the city’s median income.

So despite what a cursory look at HUD’s LAI might have one believe, Houston in all likelihood still deserves its reputation as a success story of urban affordability.