Austin’s Challenges

Scott Francis
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“A lot of the world would love our challenges”

– Angelos Angelou, on the subject of Austin

On December 12th last year, Angelos Angelou held the 39th Angelou Economics Forecast.  He announced that next year’s – the 40th! – would be the last one.  I’ve attended these Forecasts pretty religiously since discovering them, and I am going to miss the forecast when it ends.  It is truly an Austin institution, and I don’t know where we’ll get the kind of insights he shares in this one forecast, along with the color commentary that makes it more meaningful.

Mr. Angelou started with an update on the national economy – which is in full recovery.  Unemployment at 7%, if my notes are correct, housing is up, and foreclosures are down 28%.  In a time of economic uncertainty, we got “what we wanted” – federal intervention – which has been successful, at the cost of driving up the debt.  Total Debt is now greater than GDP, but the trend for the deficit is heading sharply downward, projected to fall from a current $1 Trillion Dollars to $613B in 2014.  And this is down from a high of $1.6 Trillion.

But the success isn’t without challenges, according to Angelou – we have a declining median income, and the majority of new jobs are part-time.  2013 and 1995 share something in common – the median income.  This is a big challenge for our economy going forward.

And what about Texas?

  • Added 530,000 people in 2013
  • Added 300,000 jobs
  • 6.2% unemployment
  • 18% growth in housing starts
  • -46% in foreclosures (much better than the national decline)
  • We now have 570,000 more jobs than we did pre-recession.
  • Even government jobs have grown in Texas, due to increased population and educational demands.

Could it get any better?  It could.  Take Austin:

  • Added 55,000 people in 2013 (above expectations)
  • Added 27,000 jobs in 2013
  • Unemployment is down to 5.2%
  • We have 850,000 jobs in Austin… which is the same as the number of residents 20 years ago… !
  • 1600 new businesses in 2013!
  • Major employment changes: professional services firms added nearly 9000 jobs, and hospitality added over 4000 jobs.
  • Employment growth was 3.3% in Austin, vs. 3.4% in Houston, to come in 2nd in Texas.  Nationally, 1.6% growth in employment.

If you’re wondering why there is a sense of optimism in Texas, and in Austin in particular, now you know why.  Next, he turned his attention to “Austinpreneurship” – entrepreneurship in Austin –

  • Venture investments were $518M in 2013 (not counting investments between Dec 12 and Dec 31, which might have pushed this to $550M), $626M in 2012, $660M in 2011, $389 in 2010.
  • Tech has added 5000 jobs this year, for a total of 120,000 tech jobs in Austin.  The density of tech jobs here is nothing like Silicon Valley, but dramatically higher than say, New York City, which has about 260,000 tech jobs.
  • Austin had 3 IPOs in Tech:  LDR, Retail-Me-Not, and Jones Energy.

Austin is also adding more international exposure and accessibility with the addition of a non-stop flight from London, and the Formula 1 race.  SXSW is gaining in international appeal as well.  Many Austin companies have ties to overseas companies or customers.

Austin real-estate has really been cracking.  Vacancy is hitting new lows, and even capacity that hasn’t been built yet has largely been pre-sold or pre-leased. Normal housing supply is 5-6 months inventory, but currently it sits at 2 months.  The average price of a home has jumped to $285,000 (I believe this is average, not median, as median is something along the lines of $211k or $218k).

As if that weren’t enough, Austin is gradually an overnight success in the festival-event business.  It isn’t hard to point to the source:  SXSW.  When it started in the 80’s, it was a small, nascent music festival.  Today, SXSW brings in a huge number of visitors to Austin over a two-week period in 3-4 different conferences.  It has gotten so big, that satellite conferences have been started, including an offshoot in Vegas.  But every year it was a gradual improvement over the year before.  Until finally, the ecosystem supporting SXSW was so good that it just made sense to bring other festivals to Austin, and count on the ecosystem to support them.  Last year’s results in economic benefits:

  • Austin City Limits Festival (ACL Fest): $105M
  • SXSW:  $218M
  • Circuit of the Americas (including Formula 1)

And starting this year, X-games is coming to Austin as well.

So what’s the forecast for the next two years?  Angelou joked that “like every year, it is going to be good news.” In fact, the actual numbers have generally been higher than his estimates for Austin over the last 39 years.  So, for the next two years:

  • Another 59,000 jobs (increasing 7%)
  • Professional Services adding 16,800 jobs
  • Unemployment trending toward 4.8%
  • Population growing to 1.987M in the Austin Metro Area in 2 years, up from 1.873M now.

So if everything is so great for Austin, no problem right?  Well, as he points out, Austin has some growing pains ahead: in 20 years, he expects Austin to have 4M people in the Metro Area.  The big challenge here will be to grow in and up, not just sprawling out.  As he put it “Green cities grow UP!”  We can’t be watering twice the number of lawns, and have twice the number of cars on the same miles of roads.  We have to grow the number of university students because the number of students is declining as a percentage of overall population, and educated talent is the lifeblood of the city.  New schools will be required, in his opinion, as UT is unlikely to expand sufficiently.

Next, the Forecast kicked off a panel discussion with Mark Strama (Google Fiber), Hugh Forrest (SXSW), Morse (Samsung), Hartman (Seton), and Jason Dorsey (Gen Y Guy).  My immediate reaction to the panel was to dislike Dorsey’s title – might as well throw in a Ninja or Guru for good measure.  It was a good panel discussion overall, once they got past lengthy introductions.  Morse pointed out a lack of young talent in basic skills like welding.  Apparently the average age of an electrician in Austin is over 50, for example.  Mark Strama’s segment on Google Fiber has a key insight: the transition from broadband to fiber feels like just a difference of degree. The transition from dial-up to broadband was a difference of degree… but it was also a difference in kind, not just degree.  There’s no YouTube on dial-up, for example.  Or Vimeo.  Or Hulu.  And Strama believes fiber will yield the same distinction. He makes the case well.

In the ensuing discussion, Jason Dorsey admonished the room that we are too full of ourselves in Austin, that we can’t take what we have for granted.  He warned that we’re the most expensive city in Texas, and it is a big challenge to our culture and growth.  Of course, another panel member pointed out what I was thinking – Silicon Valley and NYC and Boston are all more expensive than Austin or other reasonable alternatives, and still attract the desirable startups and developments.

Angelou wrapped with a comment along the lines of the idea that we may not be able to keep the cost down, but we can work hard on increasing the value.  We have to choose the kind of growth we want.  We have similar choices in business, if we stop long enough to think about them.