"There Was Nowhere to Go but Up"

By Richard Woodbury/Houston

If the world's economic leaders had visited Houston a few years ago, they would have found a down-at-the-heels oil town. Not anymore. Across the city last week, thousands of bag-toting volunteers scoured streets and back alleys for litter. Others painted over graffiti and planted hundreds of red begonias. Freshly remodeled hotels stocked up on ethnic food; civic workers conducted courtesy classes for taxi drivers; and the police readied 125 new patrol cars for escort duty.

All that pizazz, however, is only frosting on the cake for Houston. The city is in the third year of a brisk economic recovery that is transforming the fourth largest U.S. city (pop. 1.7 million) from a freewheeling oil-and-gas town to a more broadly based cosmopolitan center. Energy still constitutes 60% of the economy, but that is down from 83% in 1981. Boasts Mayor Kathy Whitmire: "We are no longer a one-industry town."

Factories are sprouting and expanding to accommodate newcomers in such fields as aerospace, computers and medical services. The population exodus has been reversed as office towers, whose occupancy levels plummeted as low as 10% in 1986, fill with firms springing up or relocating from other states. As Houston diversifies, it is shedding some of its rough-and-tumble past for an urbane glitter. Chic Italian restaurants now set the gastronomic tone, and croissant parlors near Rice University are crowded with research biologists from the nearby Texas Medical Center.

The Federal Deposit Insurance Corporation helped fuel the comeback by pumping in $5 billion to recapitalize three major banks, while two others were shored up by acquisition. "Houston deflated so sharply there was nowhere to go but up," says Barton Smith, a University of Houston economist. Low-energy prices forced the oil industry to reduce its reliance on such traditional businesses as exploration and production, while investing more heavily in refining and petrochemical manufacturing, which can earn greater profits.

Houston's bargain-price land and labor have lured dozens of companies, including small steel mills, toolmakers and clothing manufacturers. The cost of office space, at $15 per sq. ft. (compared with $43 in Manhattan), is among the lowest in the U.S., and the median $69,000 price for a single-family home is about 30% below the U.S. average. At the same time, aggressive promotion has helped Houston keep its newcomers close to home. When fast-growing Compaq Computer hinted that it might pick another locale for a 4,000-worker plant expansion, community leaders assembled a $7.7 million package of tax abatements, bus service and access roads that won Compaq over.

The situation is a marked turnaround from 1986, when unemployment topped 12%, U-Haul trailers streamed out of the city, and foreclosures were rampant. Today the area has regained 77% of the 220,000 jobs it lost; unemployment has been whittled to 5.3%; and suburban condos that sank in value to as little as $5,000 have rebounded to more than $25,000.

Houston still has remnants of its oil-bust hangover. The real estate market is saddled with 55,000 vacant, subdivided lots left over from the building boom. The city has environmental woes as well, ranking as one of the four U.S. cities most afflicted by air pollution. Yet the broad scope of Houston's recovery suggests a new stability and maturity. Says A. Robert Abboud, chairman of First City Bancorp.: "Houston's coming back strong, but with a good deal of caution because of the past."