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Dallas slipping as a top performer? High housing costs threaten the region’s allure

Amid concerns about the pandemic hurting “superstar” cities, Dallas-Plano-Irving falls to No. 14 in national ranking of 200 large metros.

Dallas regularly ranks among the best-performing metros in the country, but its halo appears to be dimming, and that was before a record ice storm paralyzed power for a week.

The Dallas-Plano-Irving area ranked 14th among 200 large metros, according to an annual analysis of best-performing cities by the Milken Institute. The report, released last week, measures a dozen indicators, including long- and short-term job creation, output growth and wage gains, especially in technology sectors.

Ranking No. 14 would be a strong showing for most places, far higher than metro giants Los Angeles, New York and Houston. It’s also well ahead of neighboring Fort Worth-Arlington, which was No. 35.

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But this is the first time Dallas-Plano-Irving dropped out of the Milken Institute’s top 10 since 2012. And in four of the previous five years, Dallas ranked in the top five.

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What happened?

Measures of housing affordability and broadband access were added to the index this year, and Dallas didn’t perform well on those scores related to economic inclusion and infrastructure.

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“There are some things about Dallas that are really going in the right direction and have continued very strongly, especially on jobs and wages,” said Misael Galdamez, co-author of the report and senior policy analyst at the Milken Institute’s Center for Regional Economics.

Nearly all the data in the report comes from 2019 and earlier so it generally doesn’t include effects from the pandemic. But the report added job growth for the 12 months ended in October 2020 to introduce a COVID-19 element.

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While employment in Dallas-Plano-Irving fell 2.1% over that period, the decline was small enough to rank 20th among 200 large metros.

“To be even better than the national average on job losses in a pandemic year is pretty incredible,” Galdamez said. “But one of the key challenges for Dallas has certainly been housing affordability.”

The region must continue to build new housing stock, he said. And leaders must find ways to increase the supply of subsidized housing so more people can afford a middle-class life here.

Just over two-thirds of residents in Dallas-Plano-Irving have affordable housing, defined as spending less than 30% of income on housing costs, the Milken report said. Dallas ranked 146th among 200 metros in that measure over the longer term, from 2014 to 2018. And it was 112th for housing affordability in the single year 2019.

San Francisco and San Jose, which had ranked in Milken’s top five last year, got bumped lower than Dallas largely because of high housing costs. That economic weakness was exacerbated by people working from home during the pandemic – and the fact they weren’t tethered to their employer’s hometown.

For decades, people have moved to Texas from high-cost states like California, New York and Illinois, and that may have accelerated over the past year.

The Milken report cited big declines in its rankings of San Francisco, San Jose and Riverside, Calif. In addition to housing affordability, they didn’t do as well in limiting pandemic job losses.

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“This may indicate the outsized effect of the COVID-19 pandemic on so-called ‘superstar cities’ that have suffered the most local job losses and the migration of high-tech workers to lower-cost areas as they work from home,” the report said.

In Texas, the trend has taken hold. In recent surveys by the Federal Reserve Bank of Dallas, executives said 35% of employees were currently working remotely, and they expected 22% to continue after the pandemic. Both numbers were slightly higher in a survey of service sector executives.

The trade-off: One-third of respondents allowing remote workers said that productivity had declined compared with 11.6% citing gains.

“It is a bit difficult to manage some employees remotely,” one executive told the Dallas Fed. “We just have to spend more time managing.”

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Said another: “We are struggling with the thought of losing the team atmosphere that we have built over the years and how we are going to replace the training that goes on in our office every day.”

Will Dallas benefit from more flexible work arrangements or lose workers to places with cheaper housing? “That remains to be seen,” Galdamez said.

If wages continue to grow, as they have in recent years, and the region can bulk up the housing supply, then economic prospects become more promising.

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Dallas has a deep base of tech talent with eight tech sectors having a higher concentration of workers than the U.S. average, the Milken report said. A related metric, known as the location quotient, also shows a much higher tech concentration here.

Austin ranks even higher in technology, which helped it land the No. 3 spot nationally in the Milken scorecard. But Dallas is generally strong, although it recently posted a weak gain in one-year high-tech GDP growth.

Over a longer five-year period, tech output was strong, but this bears watching, Galdamez said.

“It’s not necessarily a panic moment,” he said about the slowdown in output. “But keep an eye on it to see if it translates into a trend.”

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The Milken report puts extra weight on the tech sector, and it’s likely to become more important after the pandemic. Low-wage, service-sector jobs were among the hardest hit in the past year, and many displaced workers will be looking for new positions.

“We think high-tech jobs are gonna allow people to have a strong quality of life – and afford the places where they’re going to live,” he said.

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