Why Toyota Moved to Texas

Tuesday, April 29th, 2014

Toyota is moving its North American sales headquarters from Torrance, south of Los Angeles, to Plano, north of Dallas, which offers a 21st-century version of the middle-class California dream that built towns like Torrance:

In contrasting Texas and California, politicians and pundits tend to emphasize taxes and business regulation. But for most people on a day-to-day basis, the biggest difference between the two is the cost of housing.

Although Plano is one of the country’s richest cities, with a highly educated population and a median income of $85,333 compared to Torrance’s $70,061, it offers a much wider range of housing options. You can pay nearly $7 million for a five-acre estate in Plano — $3 million more than the most expensive listing in Torrance — but the average home costs less than $200,000, compared to $552,000 in Torrance. A Redfin search for three-bedroom houses costing less than $400,000 turns up 149 in Plano versus four in Torrance; lowering the threshold to $300,000 cuts the Plano supply to 73, while yielding nothing in Torrance.

As I’ve written elsewhere, Plano’s combination of inexpensive real estate and excellent public schools has cultural consequences. It allows for more traditional lifestyles, since many families don’t need a second income to live a comfortable middle-class life. Many mothers choose to stay at home or to work, often part-time, for personal fulfillment and luxuries such as family vacations. For both men and women, a life oriented around work rather than family is less common than in coastal enclaves of similarly highly educated people.


  1. Scott Angell says:

    Those sorts of analyses always overlook one of the most important facts about housing costs in Texas — in general, property taxes are sky high in order to make up for the absence of any state income taxes. Believe me, you pay for that low sales price.

  2. Isegoria says:

    I was going to bring up property taxes. Incidentally, Texas has no state property taxes, but Plano has city, school, and county property taxes that total 2.26 percent.

  3. William Newman says:

    For what it’s worth, I live in Plano, and I’ve never encountered “the conversational assumption that everyone belongs to a religious congregation of some kind.” It wouldn’t astonish me if I did encounter it; there is a lot of religion here. And I don’t doubt Postrel — not just reporter but book author and for some years editor of Reason, almost certainly talks to a whole lot of folks — encountered it multiple times, because she might have had at least two orders of magnitude more conversational partners than I did, and almost certainly encountered a somewhat different population than I do. But I worked for Nortel in Plano for a couple of years without encountering it, so I think my experience has enough overlap with corporate Toyotans’ that many of them won’t encounter it very often either.

    Other stuff sounds about right.

  4. Aretae says:

    I share Ms. Postrel’s belief in the conversational assumption. Less so in Austin. Somewhat less so in Houston. Lots in San Antonio. Lots in Dallas. Coming from California, Austin, or Chicago, she’s spot on. It’s a palpable difference.

  5. Isegoria says:

    Torrance, by the way, appears to have a property tax rate of 1.075651 percent, near the bottom of LA County cities’ property tax rates.

  6. Scott Angell says:

    “Plano has city, school, and county property taxes that total 2.26 percent.”

    That sounds about normal here. I pay just shy of 3%. It varies from place to place.

    Just to put that in perspective (just in case 2-3% sounds like peanuts to some people).

    If you assume a natural rate of interest ~5%, a $200,000 house in Plano corresponds to $10,000 in imputed rent (basically, the $200,000 corresponds to the net present value of a discounted $10,000 a year perpetual cash flow). That $200,000 house will land the city/county/school district ~$4,500 (I’m rounding) per year in ‘rent’. So, $4,500/$14,500 = 31% tax on the ‘income’ of that property. Conversely, with no tax, the property would be worth (at ~5% natural/discount rate) about $290,000 since the family is willing to pay $14,500 annually to live there – again, your corresponding 31% price discount, by my crummy math, anyway, caused by the property tax. The city/county/schools effectively ‘seize’ $90,000 of the value of the house and rent it out.

    (Supposing we rounded the California rate to 1%, the corresponding number is ~17%).

    Most people would say a 31% income tax is pretty high, granted it is limited to only one asset class. Texas is a great place, don’t get me wrong, and Plano surely does seem like a nice place to live. But a lot of that ‘too good to be true’ stuff you hear really is too good to be true. Texas doesn’t get to flout basic economics. The laws of the universe operate here, too.

  7. Isegoria says:

    There’s a crucial difference between collecting the same amount of tax revenue through income taxes or through property taxes. Income taxes hit labor, which is rather elastic, while property taxes hit real estate, which is much less elastic.

    With higher property taxes, monthly payments for homes don’t change much. More goes to the government, in the form of taxes, and less goes to the bank, in the form of mortgage payments — because the sale price is lower — but the monthly payment should come out roughly the same.

    Of course, you don’t want to be stuck with a mortgage on a house you bought just before a property-tax hike.

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