Foreword

Peter Spiegel, US Managing Editor, Financial Times

The Financial Times and Nikkei launched our “Investing in America” project three years ago with a single goal: to shine a light on how foreign investment shapes the US economy. As Europe and Asia’s leading business news organisations, we believed we had unique insight into how important the American market is to foreign multinationals — and how important these overseas companies are to the vibrancy of the domestic economy. What started as a new focus for our joint coverage has grown beyond our expectations. The FT-Nikkei “Investing in America” initiative now includes an annual summit in New York, a ranking of the best US cities for foreign investment and a “special report” on the biggest challenges facing foreign investors in an increasingly protectionist political environment.

The success of the “Investing in America” project has prompted the FT and Nikkei to launch something new in 2024: the Investing in America Series, a number of nationwide analytical reports and senior-level dialogues focusing on individual American cities that have succeeded in attracting the biggest multinationals and foreign investment dollars. How did they do it? What can they do better? What lessons are there for other cities looking to diversify their economies? Naturally, we started with Houston, which finished atop this year’s FT-Nikkei city rankings because of its low costs, skilled workforce, international transport links and increasingly global population base. A town once known for urban cowboys and oil wildcatters has transformed into a diverse city of cutting-edge medical research, green start-ups and deep space ambitions. This report takes an in-depth look at that transformation — and what challenges Houston still faces as it shapes its economic future.

Houston, Texas

By Lucy Colback

Houston, Texas. A city that conjures up images of oil wells, cowboys and astronauts. Those images would be right — and also outdated. Houston's large economy, which is as big as Ireland’s, is increasingly varied, with extensive connections to the rest of the globe. It sits at the centre of the US’s top-ranked exporting metropolitan area, ahead of New York – $176bn in exports goes through  the Houston/Galveston customs district.

Although oil and gas remains at the heart of that export engine — nearly three-quarters of the $176bn is still tied to fossil fuels and their derivatives, according to 2022 data – Houston and Texas more broadly is rapidly diversifying beyond these origins. In March 2024, the energy generated by solar power in Texas outstripped that from fossil fuels for the first time — and on one day in May it even produced more energy from solar power than California.

Despite Houston’s reputation as the US’s oil and gas capital, the three counties that comprise Houston's metropolitan statistical area (MSA) rank relatively far down on the Texan oil well count. The city is home to energy company headquarters rather than production, and that group is increasingly skewing green. Last year alone, Houston welcomed investments totalling $260mn from two Asian companies involved in electric car manufacturing. In total, the self-styled “energy capital of the world” says its region has more than 200 companies in the renewables sector and 100 related to energy technology and R&D. Its endeavours to lead the energy transition could create 560,000 new jobs, mitigating potential job losses of 650,000 in its fossil fuel industry under emission goals set by the 2015 Paris climate agreement, according to a McKinsey analysis.

The gradual shift away from reliance on a single industry has been accompanied by a significant change in the city’s demographics. Once known for urban cowboys, it now boasts the most diverse population in the US—one in four of its inhabitants was born overseas. In the past two years, the population has grown more from net immigration than from births or net domestic migration. It has a vibrant Vietnamese community and its food scene also emphasises the connection to South Korea, Houston's fourth-largest trading partner, according to the Greater Houston Partnership's 2024 report. 

One part of Houston’s history is being revitalised, however. The hometown of the Johnson Space Center, where the Apollo missions to the Moon were guided, is trying to reignite its ties to space. At Ellington Field Joint Reserve Air Force Base, a first world war pilot training ground that was subsequently used as a lunar training base for Apollo missions, local authorities have created Houston Spaceport, a launch and landing site that has also served as an incubator for aerospace tech groups. In February, anchor tenant Intuitive Machines landed the first commercial spacecraft on the Moon and in early 2024, Axiom Space began operations at the spaceport. Houston's long connection with Nasa may have helped, but so has its cluster of prestigious universities — Rice University, for example, consistently ranks in the US’s top 20 and is renowned for its science and engineering programmes.

But no industry better symbolises the diversification of Houston’s economy than healthcare. The city has become home to the largest medical complex in the world, anchored by academic hospitals such as the University of Texas’ MD Anderson, a globally renowned cancer care centre. The complex is populated by dozens of other life sciences companies. Healthcare has been a core part of the city’s effort to attract investment in technology and innovation, with venture capital funds ploughing $2bn into its start-ups in 2022 alone, with an average of 178 deals a year over the five years to 2021 .

In 2023, the city took top spot in the FT-Nikkei Investing in America rankings of best US cities for foreign investment, which takes into account how well organised authorities are in recruiting and retaining overseas companies. Houston has several organisations dedicated to championing its development and international stature, such as Houston First (outreach for destination development both of tourism, culture and events) and the Greater Houston Partnership (recruitment and development of business, especially in targeted growth areas such as life sciences, energy, digital transition and logistics).

As for the city’s energy transition, the Houston Energy Transition Initiative, established by the GHP, is tasked with implementing the vision of the shift from old fuels to new. Internally, the city has its own sustainability and resilience goals to ensure, for instance, more widely available public transport, waste reduction and the building of more homes, which Greenhoustontx.com is tasked with executing (to varying degrees of success).

Foreign investors have arrived already

According to GHP research, more than 1,700 foreign-owned companies have operations in Houston, along with 17 foreign banks. Many of the foreign groups already in the city are in businesses related to fossil fuels — Norway's Aker, Brazil's Braskem, Australia's Worley and the UK's Shell, for instance — but others lean towards advanced technology and engineering. The Houston operations of Switzerland’s ABB include automation, robotics, electrification and instrumentation. New entrant John Cockerill of Belgium broke ground on an alkaline electrolyser gigafactory in Houston's MSA last year. 

The GHP has also identified more than 50 foreign-owned companies that have announced an intention to move to or expand operations in the city. Among these Sino Biological, a Beijing-headquartered biotech company, has opened operations in Levit Green, a purpose-built lab and office park dedicated to life sciences near Houston's Texas Medical Centre, and Singapore's Finc and China’s Huayuan Food Group intend to build an edible fungus smart factory in Houston. 

Houston's links to foreign countries include 19 sister cities. The youngest, Ulsan in South Korea, attests not only to the growing South Korean connection but also offers an echo of Houston's advanced manufacturing capabilities. Ulsan is placed either first or second nationally in shipbuilding, automobile production, petrochemicals and secondary battery manufacturing. And while Phoenix, Arizona, has attracted all the headlines as the location of TSMC's US plant and the sizeable investment that went with it, Houston also has a foothold in high tech. Last year it attracted $250mn in investment from a South Korean semiconductor process chemicals subsidiary of Sumitomo.

Air conditioning, which has enabled hot and humid Houston’s expansion, encapsulates the story of the city. It is home to the manufacturing facilities of Daikin Industries, the Japanese maker of the appliances, whose immense campus is the third-biggest in the US, behind those of Boeing and Tesla. Low state taxes, affordability, direct flights to Japan and proximity to a large port were all contributing factors to the company’s decision to maintain its base in the city.

A diverse cultural scene

Houston is home not only to foreign companies but also to a large proportion of immigrants: one in four of the more than 2mn inhabitants in the city proper was born overseas. Despite intense polarisation over immigration nationally, local residents are receptive. In the 2023 Kinder Houston Area Survey, 71 per cent of Houstonians believed that immigrants put more into the economy than they take out of it, an increase from just over 40 per cent in 1994. A similarly high proportion believed that immigrants strengthen American culture rather than threaten it, with 86 per cent of young adults between the ages of  19 and 28 holding this view.

Testament to the scope and number of foreign citizens who pass through the city, Houston hosts nearly 90 foreign consulates. Its two airports have direct flights to nearly 70 international destinations. Fourteen of those cities served from George Bush Intercontinental, the main long-haul hub, lie outside the Americas, including Tokyo, Taipei and Manchester in the UK.

Its overseas connections are evident in its communities. While the vast majority of the immigrant population comes from close to home in Latin America, a full quarter are from Asia. Houston has one of the largest Vietnamese populations in the US, with a cluster of businesses and restaurants in the southwestern part of the city. Korean and Chinese cuisines are also well-represented.

Houston's cultural offerings extend beyond the international food scene. Its entertainment district houses nine theatres which stage anything from touring Broadway shows through to stand-up comedy, and the city has resident opera, ballet and orchestral organisations. It also claims a Museum District, home to 21 of them. Nor was Houston passed by for one of the biggest music tours and economic events of 2024 — Taylor Swift played three dates at the city's NRG Stadium on her Eras Tour.

To co-ordinate its cultural events and corporate conventions, Houston First was established in 2011, tasked with management and maintenance of assets across the city, including 25 acres of park and 11 buildings and venues such as theatres and the largest convention centre. This centralised approach to destination management is helpful for encouraging touring troupes as well as supporting homegrown talent.

Workers and skills

In the FT-Nikkei rankings, Houston scored particularly well on the workforce and talent components, a reflection of the number of major universities nearby but also business-friendly labour policies, which include a low minimum wage compared with averages in other big US cities and low levels of unionisation.

There remains spare capacity in the workforce, too. Unlike cities such as Phoenix, where the influx of semiconductor manufacturing has lifted employment, Houston's unemployment rate is about in line with the national average and somewhat higher than peer cities, giving employers more flexibility. According to May 2023 Bureau of Labor statistics, the mean hourly wage in the Houston MSA was $30.54. While this had risen from the prior year level of $29.11, it remains below the national average of $31.48.  

Competition for managers seems somewhat more fierce. Average annual salaries in occupations such as human resources management are $150,260, while computer and information systems managers are $172,160 and medical and health services managers are $125,070. This compared with national averages of $136,350, $169,510 and $110,680 respectively. 

Education of its relatively youthful population – the median age in the city is just below 35 – are comparable to cities that are better known for their major universities, such as Philadelphia, with more than a third holding at least a bachelor's degree, according to US census figures. Houston has four universities categorised as “tier one” or “tier two”, a designation reserved for the US’s leading research universities. In addition to Rice, regarded as one of the country’s most prestigious engineering faculties, the University of Houston is also known for its engineering, entrepreneurship and hospitality management programmes.

There are problems at the high school level, however. Last year, the system was taken into administration by the Texas state governor, a manoeuvre criticised by some as a political intervention by the Republican administration against a Democratically-controlled city. For those more interested in the foreign offerings, the city has a handful of foreign language schools orientated towards the international community, such as a Vietnamese private school.

Drawbacks

Like many big American cities, Houston is also facing significant challenges that could impact its growth trajectory. The 2024 Kinder Houston Area Survey, a gauge of Houstonion attitudes that has been running for 40 years, found that crime and safety are the biggest concerns facing the area, followed by housing affordability. The prior year, the economy was a higher priority than affordability, with many Houstonians troubled by health and education inequalities.

Political polarisation has also become problematic for Houston, which finds its Democratically-controlled city government increasingly at odds with an outspokenly conservative governor on issues like abortion rights and environmental regulation. The disputes came to a head when the state government took over the city school system in 2023, a move that has angered local leaders.

Although the population is strongly in favour of abortion rights, the state government followed the 2022 Supreme Court decision to overturn Roe vs Wade by passing an abortion ban within months; the conditions that constitute a medical emergency for the mother, which allows an exception to the law, are unclear. Local reports have found that most doctors will not perform abortions due to the risk of prosecution. It is too soon to say how the new law might impact outside investment, but experts caution it could force decision makers to reconsider if employees baulk at moving to a state with an abortion ban. 

The gun homicide rate in the city, at 17.5 per 100,000 people, is nearly three times the national average. The gun lobby is strong in the state. According to gun control advocates, Texas has adopted only 12 out of 50 laws that they track on restricting gun ownership, carry and usage. State legislation recently expanded gun rights, allowing open or concealed carry without a permit, a measure opposed by many Houston residents, who polls show back more control over weapon ownership—even those residents who believe strongly in the right to carry a gun. In 2022 the National Rifle Association's annual meeting was held in Houston days after the shooting of 19 schoolchildren and two teachers in the Texas town of Uvalde, just four hours' drive away. 

Despite affordability being one of the city's attractions, property prices have been rising. It still compares favourably with other top cities on the FT-Nikkei index – particularly Miami, which won the rankings’ top spot in 2022 but slipped behind Houston because of its skyrocketing property prices. Still, data collected by the Federal Reserve Bank of St Louis shows housing prices have jumped since the end of Covid-19 pandemic lockdowns. The 2024 Kinder Houston Survey notes that house prices and rental inflation have been outpacing wage growth in recent years. The house price to median wage ratio has gone from about three times in 2010 to five times by 2021, according to US Bureau of Economic Analysis data. Optimism about personal financial circumstances has also been diminishing. Taken together, two factors — house prices and the economy — are the highest cause for concern for nearly half of all Houstonians.

Infrastructure

Houston is well-connected to the outside world, with two major airports serving a variety of overseas destinations. Aviation is also the main connection domestically. Like the rest of the US, there is little in the way of national passenger rail, although freight is well-served. 

Within the city there is a similar dearth of public transport, with just 5 per cent of Houstonians living within a quarter mile of a bus stop. The city also scores poorly on walkability with a lack of sidewalks relative to streets, notes community initiative Understanding Houston, pushing residents to an even higher reliance on cars than the rest of the US, with 93 per cent car ownership.  Houstonians are increasingly supportive of improving public transportation ahead of funding road improvements, with younger generations most in favour of the shift.

There have been attempts to create more co-ordinated transport in pockets of the city, such as along the Houston Innovation Corridor (so named by the city’s marketing department). Along this four mile strip, light rail, bike lanes and pedestrian thoroughfares are designed to connect the Texas Medical Center on the southern end, through Hermann Park, the museum district and Midtown to Downtown, which is home to corporate HQs, the city’s compact Theater District, restaurants and more parks. There is also recognition of Houston’s lack of pedestrian appeal, with projects designed to address the issue.

The most high-profile infrastructure crisis has been in the electricity network, however, with brownouts and power outages garnering national headlines twice in the past four years. Despite being the energy capital of the US, Hurricane Beryl illustrated in early July 2024 that the city remains vulnerable to storms, with millions of residents left without power in its wake – in some instances for more than a week. While households sweltered after this summer storm, winter storm Uri in 2021 left many households powerless and freezing after a massive snowstorm hit the state. 

The monopoly utility CenterPoint Energy is generally held responsible for the inadequacies of the infrastructure and in early August 2024 was placed under investigation by the state after allegations of fraud and waste in the wake of Beryl.

A co-ordinated investment approach to bury the 40 per cent of Houston’s power lines that remain above ground would go a long way towards improving the grid’s performance. Across the state, Texans are aware of the need for that investment. In November 2023 they voted to create the Texas Energy Fund, allocating $5bn to support the construction, maintenance, modernisation and operation of generation facilities.

Flooding is an additional problem for a port city like Houston. While the streets are designed to carry away the worst of flood waters in order that homes be relatively protected, residents are keen for a change in planning laws so that flood-prone areas are left unbuilt. This view is strengthening as concerns grow around climate change and natural disasters. In 2023, 80 per cent of Houstonians said they favoured prohibitions on building in areas that have repeatedly flooded. Some facilities are more prepared than others—the Texas Medical Center has submarine-style doors at its entrances to protect its operations and research. It is also planning to be self-sufficient in energy in order to relieve the burden on city resources.

Corporate costs/incentives

The business environment in Houston benefits from the state government’s increasing shift towards conservative pro-business policies. Texas has long been known as a state without corporate income taxes, though some companies face a complicated “franchise tax” that is based on revenues.

The pro-business policies have seen Houston and Texas land some high-profile corporate relocations in recent months. California companies such as Tesla, Oracle and HP have moved to Texas, although some of these have gone to Austin. Houston’s most significant new addition has been oil major Chevron, which announced in 2024 that it would leave its northern California home after being there for a century.

The local government code of Texas authorises municipalities and counties to offer incentives under Chapters 380 and 381, including tax breaks, loans or grants of funds and services, to companies to build in their jurisdictions. In instances where local authorities do not directly offer tax breaks, they might prepare the ground for new sites, for instance putting in infrastructure such as roads and utilities, and offer transport links.

The city also offers worker training grants, tax-free equipment purchases and other incentives to bring new projects into the state (if not stealing from other Texan cities).

Editor: Peter Spiegel

Report author: Lucy Colback

Houston correspondent: Myles McCormick

Sub-editor: Gavin Kallmann

Production editor: George Kyriakos

Data journalists: Oliver Roeder, Radhika Rukmangadhan

Research: fDi Intelligence