How Will Houston Adapt to the High Heat?

I have moved my blog over to Substack (and I've lost many readers). Please join me there. Here is a recent column. The Wall Street Journal has published an important piece about how the high heat is reducing economic activity in Houston. The piece has a pessimistic tone that the heat melts the city’s infrastructure and shaves off economic activity as people don’t want to go outside. When microeconomists study consumer expenditure dynamics as people buy cars, go out to dinner and buy groceries. During hot spells, people are less likely to go out for dinner or to play multiple rounds of golf. A microeconomist would say that this evidence indicates that people have “state dependent preferences”. In English, this means that how much we enjoy a steak dinner at an outdoor restaurant depends on whether it is 75 degrees outside or 95 degrees outside (this is the “state of the world”). I certainly believe that hot and humid Houston is in a type of “macroeconomic Siesta” right now and this reduces economic activity. But, permit me to make some counter-points. #1 The money people in Houston do not spend on the hot July 28th 2023 is still in their bank account and they can spend it on a cooler November 5th 2023 day. Note this intertemporal substitution. The media focuses on the direct effect of the heat (that high heat is reducing economic activity today) but my counter-hypothesis is that it displaces expenditure to the future when it will be cooler later this year in Houston. So, will the New York Times write a piece saying that high summer heat causes a fall boom in Houston? I don’t think so. This type of cross-elasticity is ignored by the “climate crisis” focused media. #2 The WSJ interviewed a few people who want to leave Houston. As always, they are free to choose. As more workers can engage in WFH, those who hate the high heat will leave the city in summer. If they own a home, they can AirBNB it. WFH is a climate adaptation strategy as it makes people more geographically footloose. I discuss this in my 2022 book. #3 We have to live somewhere. Is Houston becoming more miserable to live in summer than other cities? If the answer is “yes”, then its home prices will fall. Here are some data from Zillow.

Even with higher interest rates, I don’t see a collapse here in the Zillow index. Are you going to sell short Houston homes as your strategy to get rich? Incumbent home owners form a strong interest group to invest in adaptation strategies to protect their asset’s value. WHAT are possible adaptation strategies? #1 Road construction materials can be re-evaluated to reduce the urban heat island effect. Read this report. The City has strong incentives to embrace the cost-effective strategies discussed here. #2 Golf courses can open up part of the area and charge people to enter on hot days to use them as private parks. #3 Here are personal cooling strategies. On a personal level, of course the city needs access to strong air conditioning. Firms that make them and repair them will enjoy a boom. The Electricity GRID must remain reliable. The Climatopolis logic is that Houston competes with other cities to attract successful people and firms. The system of cities and the fear of brain drain gives Houston’s leaders and land owners strong incentives to be pro-active in adapting to climate change. Such efforts will be messy as there will be fights over who pays for such local public goods but the end result will be a more resilient Houston where the high heat causes less economic damage in the short term and medium term. This is the climate change adaptation hypothesis.