New Geography

Category: Economics

  • The South’s Big Cities Moment

    August’s tragic events in Charlottesville kickstarted a somber debate about the appropriate way to commemorate the war that gave all Americans their freedom. It also triggered a conversation about whether the south’s legacy of rebellion and independence – with slavery a painful and regretful part of its past – is a legacy worth remembering.

    These discomforting conversations are a reminder that the south’s antebellum past continues to affect it in the present. Beyond civil rights, these impacts are profoundly felt in the south’s continuing urbanization, which is among the most rapid in the country despite occurring largely within the frameworks of cities whose prewar, pre-industrial bones were never suited for the “big city” qualities filled by their northern cousins. Today’s globally-connected southern cities grew largely from antebellum-era towns that were not the commercial or industrial powerhouses of the past, and yet they are growing dramatically anyway.

    The result is a murmuring culture war about the future of southern cities. The media may be fixated on statues, but the real issue is how these cities – thanks to a variety of historical and developmental factors that differentiate them from those in the north – are growing in ways that may not appeal to many planners and local boosters.

    Many of the south’s transformations have been enviable and measurable: between 2000 and 2012 most large southern metro grew by at least 20 percent, with some like Charlotte and Austin growing at more than twice that rate. Since air conditioning became a norm rather than an exception, growth has trended toward warmer climates, with half of America’s population growth in the last 50 years going to the eight states with the warmest climates. Southern cities have been particularly successful in attracting black families, a declining demographic in nearly every large northern city. They have by and large remained affordable, and continue to be attractive relocation destinations for big companies: metro Atlanta, for instance, is now home to more Fortune 1000 companies than vaunted San Francisco.

    The result is a set of increasingly economically significant and connected large cities with ever-larger suburbs and de-centralized economic gravity. Compared to northern cities, southern ones are less urban, less clustered, and less tall, on average with about half the number of skyscrapers per capita as major northern cities, based on data available from Emporis.com. This dispersion reflects their expanding ethnic diversity. Counties that were once entirely rural are now increasingly suburban, and attractive to minorities and immigrants. Georgia’s recent 6th District election in 2017 and Hillary Clinton’s victory in Fort Bend outside Houston reflects this unpredictable new southern political world.

    Planners have celebrated the urban revitalization in many large existing cities in the north, but largely have been less enthusiastic about this continued growth of sprawling cities in the south. In turn, they have sought increasingly to steer their growth in a more traditional northern pattern. Foremost among the goals of these planners is to densify and re-orient these cities around downtowns that have generally never embodied a strong urban character. This has created a number of awkward dualities: the push for walkability in places that have never before been walkable; the push for rail in cities where the density doesn’t support it; and the push for outdoor living in cities where being outside is uncomfortable for much of the year. This push for glassy Chicago-style downtowns does not always come naturally to cities whose strongest urban legacy is that of sleepy tree-lined Georgian mansions, and it has forced cities from Charlotte to Charleston to contemplate what kind of cities they want to be in the future.

    Conventional urban planning is simply not well-suited to the south’s dynamic new urban environments. New urbanism, for instance, while influential in the south, has made its name through quaint town making largely in the suburbs. Typical urban approaches like the repurposing of downtowns back into modern reinventions of what they once were – do not reflect the development, demographic, infrastructural, or character-driven challenges of cites without urban or industrial legacies.

    Now, the south has begun inventing its own new brand of experimental urban development, often heavily fueled by the private sector. In Atlanta, for instance, the public-private development of the Battery and Sun Trust Park is a public-private typology virtually unimaginable in the north. Boldly, the Atlanta Braves major league baseball team uprooted from its perfectly acceptable downtown home to move closer to its suburban fan base; a county without a discernible center delivered on much of the financing, and worked with the Braves to develop, from scratch, an entire new ballpark-oriented urban district to compete with downtown Atlanta and help fund both the cultural evolution and the cash flows needed to sustain the ballpark.

    The Battery was a form of urbanization and regional re-positioning delivered through a single project. Rather than a renewed focus on the urban core through adaptive reuse and infill, all gospel to planners in the north, metro Atlanta has shaped its own new downtown at a convenient juncture in the sprawl. These kinds of large-format development projects that create their own energy and introduce their own anchors are a hallmark of southern city-making, and build upon the “edge cities” idea first extensively written about by Joel Garreau in the early 1990s.

    The most impressive forms of project-driven development have been those where private developers have taken on urbanization efforts too massive for governments. In Florida and Texas, for instance, private developers are trying to implement high-speed rail lines by leveraging potential profits from real estate development around stations as part of the funding package. And Sandy Springs, Georgia received abundant attention in 2012 when it became a “contract city”, the ultimate privatization experiment when it bid out nearly all of its city services to outside contractors. By relying on private industry to take on these kinds of complex development and governance projects, southern cities are trying to avoid the government boondoggles as well as budget and debt ceiling shortfalls many northern cities face. In turn, however, those delivering on the projects have tremendous power over the formation of these cities, while urbanization is rarely happening according to plan.

    Acknowledging the power of these leaps and bounds innovations, some cities are trying to better channel the urbanization through example projects designed to inspire the private sector to develop in a more organized way. In Raleigh, for instance, the development market has been slow to deliver on high-quality urban projects, so in response the City is taking on the challenge itself: its own new City Hall campus may end up being the most powerful piece of modern architecture in the city. In turn, it is hoped to have catalytic potential to induce dramatic change across a downtown smattered with low-rise buildings. In many such cities, there is an underlying belief that channeling the pent-up private development market toward areas where land values are already the highest will maximize tax revenues and fiscal stability, and improve those cities’ urban qualities. Whether it’s a strategy with staying power is yet to be seen.

    There is no rulebook for how urban change is occurring in the south, but there is no doubt it is occurring more rapidly there. The universal themes in southern city-making today are diversification and creativity, ideas imbuing innovation that would be unlikely if they borrowed conventional approaches verbatim from the north. This new creativity on behalf of big steps and bold visions belies many recommendations from nationally-focused planners toward government consolidation and the belief that all new good things must happen through incremental steps in traditional downtowns. Perhaps this new form of southern rebellion will have staying power; much better, and better for its citizens, than the last one.

    Roger Weber is a city planner specializing in global urban and industrial strategies, urban design, zoning, and real estate. He leads the Urban Policy Practice Area for Skidmore, Owings & Merrill’s City Design Practice and holds a Master’s degree from the Harvard Graduate School of Design. Research interests include urban finance, demographics, architecture, housing, and land use.

    Photo: Thomson200 [CC0], via Wikimedia Commons

  • Amazon’s HQ2 Is a Golden Opportunity for the Heartland

    The Wall Street Journal is reporting that Amazon is seeking bids for a second headquarters location that will be equal in size to its current Seattle base. (You can read their RFP here). It would ultimately employ 50,000 people in eight million square feet of office space at an average salary of over $100,000.

    This is going to be the feeding frenzy of the century.

    This seems to suggest that Amazon thinks they are about capped out in Seattle. To give a sense of Amazon’s place in Seattle, the Seattle Times recently labeled it “America’s biggest company town.” The company has over eight million square feet of office space and accounts for nearly 20% of the city’s total office space. They have a graphic that illustrates this. The next biggest footprint of any user in any city is Citi in New York with only about 3.7 million square feet. (Interestingly, Columbus, Ohio is in second place when it comes to being dominated by a single office user; Nationwide Insurance has 16% of the total market. It looks like these may be city, not regional totals).

    The impact of Amazon on Seattle has been huge. The pressure Amazon growth has put on things like housing availability and pricing is tough to measure, but surely huge. Amazon appears to have concluded that the city can’t take anymore.

    Seattle is the 15th largest metropolitan area in the US, with 3.8 million people. It’s also a highly attractive region with no trouble luring people to move there. So while Amazon says that they are open to metro areas of over a million people, realistically, if you want to be as big as Amazon is in Seattle toady, you probably need to be in a market as big as Seattle or bigger.

    50,000 is a huge number of workers, especially when they are high skill white collar ones. Very few cities could easily supply that labor force. Which ones might? Let’s game this out.

    Well, the usual coastal suspects probably can. But they have the problem of already having very high costs and hot labor markets for exactly the skills Amazon is seeking – and building restrictions that make growth hard. The Bay Area would be an obvious choice for an HQ, but can they really accommodate it? (A better question might be, do they want to)? I would suggest similar questions apply to Boston.

    Los Angeles/SoCal, New York, and Washington could accommodate an employer that big. Again, high costs, etc. But especially LA and NYC are so huge, they can do things other cities can’t. Washington is by its DNA a government town. It’s high tech, but a lot of that tech is government related.

    One intriguing option for Amazon would be Hudson Yards. Amazon is putting a huge premium on real estate in this RFP, and assuming they want an urban location, this is one that’s nearly pre-baked. Right now it’s only planned for six million square feet of office, with some of that already leased. But I would guess changes could be made and/or other real estate in the area added to the mix. Newark might be a dark horse here.

    What then are the other cities that could potentially compete. I see four strong contenders: Chicago, Dallas, Philadelphia, and Atlanta. (Houston is very energy focused and dealing with bigger problems right now. Miami and Phoenix are big enough, but could they attract the quantity of tech workers needed?) All of these are large markets with good air service. Chicago and Philly have genuine urban options with genuine urban transit. (I should note Amazon hasn’t ruled out a suburban location). All of them would surely clear the decks of any obstacles to construction, etc. All of them have much more affordable housing than coastal cities. All have an ability to draw college grads from a large footprint.

    I would expect these cities to bid aggressively. Dallas and Atlanta really don’t need Amazon, though they would surely want it. For Chicago and Philly this represents a transformational opportunity.

    Rahm Emanuel in Chicago says he’s already had conversations with Bezos. If I were making the choice, Chicago would be at the top of my list. It’s an established urban center a reasonably flight distance from Seattle (cf Boeing decision), with transit, a huge airline, etc. It’s also a slam dunk draw for every Big Ten school. You can bet that Illinois political dysfunction would mysteriously disappear to get a deal done here. One person says Amazon’s staunchly anti-union stance rules out Chicago. We’ll see, but Seattle has strong unions too, and unions are less applicable to a while collar workforce. Chicago has been looking for a transformational event, and this could be it.

    Possibly Amazon could also take a chance on scaling some smaller places, like Denver or Minneapolis. I expect everybody to be all over this. And yes, there will be huge government money on the table. Not even the most ardent anti-subsidy person out there is going to take a pass on this.

    To me this is a big test of the thesis that the coasts are capped out, which will force growth into the interior. If Amazon picks a big, established, high cost coastal center, that will tend to undercut it. We will see.

    This piece originally appeared on Urbanophile.

    Aaron M. Renn is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and an economic development columnist for Governing magazine. He focuses on ways to help America’s cities thrive in an ever more complex, competitive, globalized, and diverse twenty-first century. During Renn’s 15-year career in management and technology consulting, he was a partner at Accenture and held several technology strategy roles and directed multimillion-dollar global technology implementations. He has contributed to The Guardian, Forbes.com, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.

    Photo: Rober Scoble, CC BY 2.0

  • Hurricanes Don’t Kill Cities – People Do

    Cities that believe in themselves are hard to kill. In the aftermath of Hurricane Harvey many pundits have urged Houston to abandon many of the traits that have made it a dynamic, growing metropolis, including key elements of its light-handed, pro-business regulatory regime.

    Houston, we are told, should retrench and reduce its sprawl; Slate recommends New Orleans’ post-Katrina shrinkage as a model. This goes against the best of urban tradition. Great cities generally do not shrink themselves.

    Many cities have rebounded and even improved after far more lethal devastation, including London, Berlin, Tokyo and New York. After the Great Chicago Fire of 1871, the city ultimately constructed a downtown that may well be the world’s most beautiful. San Francisco famously rebuilt itself after the 1906 earthquake and fire into “a new and improved city” that has evolved into an integral part of the world’s dominant tech hub.

    In contrast cities that destroy themselves from within, like Detroit after the 1968 riots, and New Orleans before Katrina, can decline for decades.

    Urban resiliency requires two things: an ability to learn from experience and, per Northeastern University’s resiliency expert Daniel Aldrich, a commitment on the part of its residents to improve their city.

    Should Houston downsize?

    Unlike New York or New Orleans, Houston is not celebrated by the mainstream press or intellectuals; its residents have been portrayed as hypocritical religious fanatics and even neo-Nazis, despite living in what may well be America’s most diverse city.

    To many pundits, Houston’s problems are due to a lack of zoning and too much unregulated growth. Days after Hurricane Harvey hit, Quartz opined that “Houston’s flooding shows what happens when you ignore science and let developers run rampant.” The Guardian’s climate columnist George Monbiot even portrayed the event as a kind of payback for being the world capital of planet-destroying climate change.

    Few Houstonians are likely to embrace this interpretation of natural forces, or their own culpability. Longtime residents know that the Bayou City always has been prone to serious hurricanes and flooding due to its location along the Gulf, and Houston has shown an ability to deal with it.

    A 1935 flood caused proportionally much more severe damage on a much smaller city. Tropical storm Allison in 2001 led to significant hardening of infrastructure. Unlike New Orleans at the time of Katrina, many services in Houston, including police and fire, were ready for Harvey. Flood control, although clearly not up to the standards required by such a huge weather event, has been much improved. New developments are required to show how they can make up for the absorption lost, often with sophisticated drainage and storage techniques.

    Much blame for Harvey has been linked to development on the fringe, a major component of the region’s growth. Over an 18-year period, Houston lost about 25,000 acres of wetlands, which took away about 4 billion gallons of storm water detention capacity. In contrast Harvey dumped about 1 trillion gallons, meaning those wetlands could have only absorbed about 0.4% of Harvey’s deluge. Many flooded roads were consciously designed to hold storm water temporarily when there is nowhere for it to drain.

    To succeed, Houston, like any city, must adapt and bolster its defenses, particularly if such events become more common. This does not mean, as many suggest, that the region abandon its development-friendly policies. In contrast to claims of “wild west” regulation, many developments after Allison are required have better systems to handle downpours than older areas closer to the center. One friend notes that his 10 suburban shopping centers employed the most advanced methods for handling excess water and survived.

    Most of his projects’ first line of defense is made up of catch basins and stormwater lines in the parking lot which flow to a retention pond. The second line of defense is the retention pond. In the event the pond reaches capacity, the third line of defense is storm water backing up into storm drainage lines and ultimately ponding in the parking lot. These three defenses are very typical in newer developments, and many withstood the biblical flooding intact.

    Many others, either not up to code or built well before the new regulations, did not do so well. But on the whole, rather than prove the inadequacy of Houston model, as the New York Times Bret Stephens correctly noted, the region managed to survive a crisis with minimal, albeit tragic losses, that in other places would have cost thousands of lives.

    In the coming years, Houston surely will have to find ways to grow with less peril. But as both MIT’s Alan Berger and Houston’s Mayor Sylvester Tuner have noted, Harvey did not “punish” Houston for lax development. Houston has a planning system that is not the “wild west” but simply less bureaucratic and politicized. Its suburbs, notes the planning blog Strong towns, “are largely indistinguishable from the suburbs of any American city.” As Mayor Sylvester rejoined, if Houston had zoning, he would be presiding instead over a “flooded zoned city.”

    The zoning argument is, simply put, bogus. Cities in the area that were heavily zoned, like West University, or intensely planned like Sugarland, got hit as hard as more haphazard areas. Harvey, it turns out, was an equal opportunity devastator. Similarly, Sandy dropped barely one-third the rain from Harvey, yet overwhelmed a dense and very zoned area. New Orleans before Katrina was dense and zoned; a lot of good it did them.

    Nor, as many commentators suggest, can Houston’s supposedly enormous “sprawl” be the prime culprit. As demographer Wendell Cox points out the Houston urban area density at 3,000 per square mile, is 20 percent above metropolitan Boston (2,200), and Philadelphia (2,700) and not much less dense than that mecca of smart growth, Portland. Overall Houston ranks 18th in urban population density among the 53 metropolitan areas with more than a million residents, according to Census date.

    In contrast to its image as a paved over dystopia, Houston has more parkland and green space than most any other large city in America and ranks third overall to San Diego and Dallas in park acreage per capita. Rather than focus on urban form, Berger, himself a landscape architect who is co-director MIT’s Center for Advanced Urbanism, says this region really needs better and stricter building codes, such as the ones that saved my friend’s shopping centers. Others, like Rich Campanella at Tulane, suggests the best strategy for the Gulf cities should be to focus on building barrier islands along the coast, and improving often aged drainage systems.

    In the end, it’s the civic culture

    As we know from experience, storms, violent conquest and, in the case of Hiroshima, even nuclear weapons, cannot kill a city — only residents can do that. I saw this in Los Angeles, which in the early 1990s suffered a Pharaonic series of disasters — riots, fires, floods and a huge earthquake in 1994. The city rebuilt smartly after all of them, but only one, the 1992 riots, left a residual toll on the civic spirit, or led to an exodus of residents. Los Angeles may look spiffier than it did before the riots, but its enterprising spirit, and its allure to newcomers, never recovered fully.

    Internal collapse, the lack of a civic spirit, occurs most often when a city’s elite and its population no longer see a common future. Detroit’s 1967 riots created a morass that devastated the city for the next half century. Earlier on conflict between Boston Brahmins and the Irish under Mayor James Curley ushered in a period of stagnation that went from the 1920s to the late 1950s.

    More recently, Katrina revealed how a collapsed civic culture can make a disaster worse. Corrupt politicians, an ineffective business community and poor emergency services turned a Harvey-like natural disaster into a massive human one, with much greater loss of life. Some blame the city’s entrenched, often multi-generational lower-income population but perhaps more critical to failure was the city’s often elegantly appointed and comfortable upper echelon.

    In the decades before Katrina, as southern cities like Houston and Atlanta were burgeoning, New Orleans stagnated. Joel Garreau in his Nine Nations of North America described the Crescent City as a “marvelous collection of sleaziness and peeling paint.” The aristocracy enjoyed the city’s unparalleled culture while many ambitious people from its neighborhoods migrated elsewhere. Without a strong, engaged business community and middle class, there was little attempt to fix the infrastructure. This weak civic culture has left a city with huge economic challenges that a regenerated local business community is now gamely trying to address.

    Houston performed very differently during Harvey. Mayor Turner and the Harris County Judge, Ed Emmett, epitomized level-headed leadership. Gov. Abbot, unlike Louisiana’s dithering Gov. Kathleen Blanco, swung immediately to action. Local volunteers pitched in, so much so, notes Houston-based analyst Tory Gattis, that many found themselves unable to participate because each Facebook call for help spurred more volunteers than could be accommodated. Houston can also count on something New Orleans lacked: a strong, and philanthropically inclined business establishment who are pouring millions into recovery efforts.

    Houston will come back, albeit with some modifications, not because it’s a charity case, but because its people want to stay and rebuild their neighborhoods. They have been putting their shoulders to the wheel personally, with special emphasis on those most in need; rather than rugged individualists they are, in the words of one prominent Houston businessperson “rugged communitarians.”

    In the coming months, Houstonians will seek aid from Washington, as all hard-hit areas do, but most understand that the challenge is basically for them to solve, whether through mutual self-help, or new infrastructure; their city is an engineering marvel that needs a new upgrade.

    Ultimately, the power of human agency at the grassroots level remains the “secret sauce” overcoming almost any disaster, whether it’s London, New York or Houston. Great cities are not about buildings but great people. By that standard, Houston will likely come back better than before, a testament to the greatness of the urban ideal.

    This piece originally appeared on Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book is The Human City: Urbanism for the rest of us. He is also author of The New Class Conflict, The City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

    Photo: Jill Carlson (jillcarlson.org) from Roman Forest, Texas, USA (Hurricane Harvey Flooding and Damage) [CC BY 2.0], via Wikimedia Commons

  • The Changing World of Aviation

    Perhaps nothing more illustrates the shifts in the global economy than the geography of the largest airports. In 2000, world air passenger statistics were dominated by high income world economies. Among the 25 busiest passenger airports, 14 were in the United States, five in Europe and five in Asia and one in Canada, according to data from the Airports Council International and the Port Authority of New York and New Jersey.

    Among the largest airports in 2000, all but Bangkok were in a high income economies. Things have changed significantly. Today, only eight of the largest airports are in the United States, six in Europe, and five in China and six in Asia outside China. Airports in middle income countries — largely not on the list in 2000 — come from Beijing, Shanghai, Guangzhou and Chengdu in China, Kuala Lumpur in Malaysia, and Turkey’s Istanbul (Figure 1).

    The Largest Airports

    Since 1998, Hartsfield-Jackson International Airport has been the busiest passenger airport in the world, after it replaced Chicago’s O’Hare International. In 2016, the airport handled nearly 104.2 million annual passengers. This is quite an accomplishment for an urban area that is only the 81st largest in the world. Since 2000, Atlanta’s passenger count has increased 30 percent.

    Yet, Atlanta has been challenged in recent years by Beijing Capital City International Airport, which was substantially remodeled and enlarged for the 2008 Olympics. Beijing handled 94.4 million passengers in 2016. In 2000, Beijing Capital City International was not among the world’s 25 largest airports but has experienced a 335 percent increase in passenger use. Capital City could pass Atlanta in the next few years, but will soon thereafter split air traffic with the Beijing-Daxing International Airport, due to open in 2019, probably making any number one ranking temporary. In the long run, local officials expect Beijing-Daxing to be the busiest in the world.

    The new airport will be located south of the city and far better situated for access from the entire Jin-Jing-Ji megacity complex, around which many of the current functions of Beijing are being dispersed. Jin-Jing-Ji includes Beijing, Tianjin and much of the northern part of Hebei province. Construction progress can be viewed at this location on Google Earth: 39°30′52″N 116°24′25″E (copy into the Search box or a “’Google” search will bring up the location on Google maps).

    Dubai International Airport, the world’s third largest airport, has seen its passenger traffic growth much faster than even Beijing Capital City International. Dubai saw nearly 600 percent growth from 2000 to 85.7 million passengers. In 2000, Dubai International was not among the world’s 25 largest airports.

    Los Angeles International is the world’s fourth busiest airport. LAX handled 80.9 million annual passengers, up 22 percent from 2000.

    Tokyo’s centrally located Haneda International Airport ranked fifth, with 79.7 million annual passengers. Haneda has grown strongly, up 42 percent since 2000, when it ranked 6th. During that time, Japan’s regulators have allowed a considerable increase in international flights. Haneda’s overall volume is approximately twice that of far more remote Narita International Airport, which handles most international flights.

    Chicago’s O’Hare International Airport was the world’s busiest as late as 1997, but has fallen to sixth most patronized. O’Hare handled 78.3 million passengers in 2016, with its strong United Airlines and American Airlines hubs. However, O’Hare’s growth has been modest, adding only 8 percent to its 2000 volume, when it ranked 2nd to Atlanta (see photo above).

    London’s Heathrow Airport ranked 7th in the world, with 75.7 million annual passengers. Growth was also somewhat muted, Heathrow’s volume grew 17 percent from 2000 to 2016.

    Hong Kong has experienced considerable growth after having closed its obsolete Kai Tak airport in the late 1990s. Hong Kong International has experienced a 115 percent increase in passengers since 2000 and handled 70.6 million passengers in 2016. In 2000, Hong Kong was the 22nd busiest airport in the world, compared to its 8th ranking in 2016.

    Shanghai’s Pudong International Airport experienced the largest handled 66.0 million passengers in 2016 and was not among the top 25 in 2000. The world’s 9th ranked airport opened in 1999 and is served by the world’s fastest train, a Mag-Lev (magnetic levitation) that carries passengers 19 miles (30.4 kilometers) to the Longyang Road station at a top speed of 268 miles per hour (431 kilometers per hour) during weekday peak periods. By comparison, the fastest high speed rail trains in the world will operate at up to 218 miles per hour (350 kilometers per hour) between Shanghai Hongqiao Station and Beijing starting this month. From Longyang Road station travelers can transfer to taxis or Metro Line 2 to complete the final 7 miles (12 kilometers) to People’s Park in the central business district, or to other locations in the area.

    Charles de Gualle International Airport in Paris ranks 10th, handling slightly fewer passengers than Pudong International (65.95 million). CDG’s volume is up 37 percent since 2000, when it ranked 8th in the world.

    The 11th through 16th positions include Dallas-Fort Worth, Amsterdam, Frankfurt, Istanbul and Guangzhou. Istanbul has seen its passenger volume increase more than 300 percent since 2000, while Guangzhou has exceeded 360 percent.

    The next five (16th through 20th) include New York’s JFK, Singapore, Denver, Seoul’s new Incheon Airport, and Bangkok, also a relatively new facility. Singapore has had the greatest growth, at 105 percent.

    The final five of the top 25 include San Francisco, Kuala Lumpur, Madrid, Las Vegas and Chengdu. Kuala Lumpur’s growth was more than 250 percent, while Chengdu posted the largest gain, at more than 730 percent (Figure 2).

    A number of US airports that were among the top 25 in 2000 dropped out over the next 16 years. These include Seattle, Miami, Phoenix, New York La Guardia, Orlando, Houston, Newark, Minneapolis-St. Paul, Boston, Detroit and St. Louis. All of them experienced passenger increases, with the exception of St. Louis, where traffic was down more than 50 percent, with the demise of the American Airlines (former TWA) hub. Toronto’s Pearson International also dropped out of the top 25.

    More and More Flying

    The world is flying more and more, According to World Bank data, the volume of air passengers increased 120 percent between 2000 and 2016, with a nearly 7 percent increase between 2015 and 2016. As airline use increases, significant airport construction is underway. Istanbul is building an airport intended to have the highest passenger capacity in the world (41°15′39.97″N 28°44′32.54″E), claims mirrored by Beijing-Daxing and expanding Dubai World Central-Al Maktoum International (24°55′06″N 55°10′32″E). Mexico City will replace aging Benito Juarez International (19.5°N 98.9975°W construction not yet evident), while two cities in China are also building new airports. Dalian is constructing an off-shore facility (39°06′32″N 121°36′56″E) while Qingdao (36°21′43″N 120°5′18″E)is building one in the exurbs, which will be reached from the central business districts with a trip over the Jiaozhou Bay Bridge, the world’s longest over-water bridge (25 miles or 41 kilometers). Berlin’s notoriously behind schedule Brandenburg (Willy Brandt Airport) continues to struggle toward completion (52°22′00″N 013°30′12″E). Meanwhile, with the exploding volume of passengers in Chengdu, construction is starting on a new airport more than 30 miles (50 kilometers) away (30.319°N 104.445°E).

    The rise in air traffic suggests rising affluence, particularly in developing countries, as progress continues to be made in reducing poverty. It seems likely that by 2030, the list of the largest airports will include fewer from today’s most affluent economies and many more from emerging economies.

    Wendell Cox is principal of Demographia, an international public policy and demographics firm. He is a Senior Fellow of the Center for Opportunity Urbanism (US), Senior Fellow for Housing Affordability and Municipal Policy for the Frontier Centre for Public Policy (Canada), and a member of the Board of Advisors of the Center for Demographics and Policy at Chapman University (California). He is co-author of the “Demographia International Housing Affordability Survey” and author of “Demographia World Urban Areas” and “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.” He was appointed to three terms on the Los Angeles County Transportation Commission, where he served with the leading city and county leadership as the only non-elected member. He served as a visiting professor at the Conservatoire National des Arts et Metiers, a national university in Paris.

    Photograph: O’Hare International Airport, by Author

  • U.S. Cities Have A Glut Of High-Rises And Still Lack Affordable Housing

    Perhaps nothing thrills mayors and urban boosters like the notion of endless towers rising above their city centers. And to be sure, new high-rise residential construction has been among the hottest areas for real estate investors, particularly those from abroad, with high-end products accounting for 8o% of all new construction.

    Yet this is not an entirely high-end country, and these products, particularly the luxury high-rises in cities, largely depend on a small segment of the population that can afford such digs.

    No surprise, then, that we see reports of declining prices in areas as attractive as New York, Miami and San Francisco, where a weakening tech market is beginning to erode prices, much as occurred in the 2000 tech bust, John Burns Real Estate Consulting notes. There have been big jumps in the number of expired and withdrawn condo listings, particularly at the high end; last year, San Francisco saw a 128% spike in the number of withdrawn or expired listings for condos over $1.5 million.

    Several factors suggest the high-rise residential boom is over, including a growing recognition that these structures do little to relieve the housing affordability crisis facing middle-class residents, the inevitable aging of millennials and their shift to suburbs and less expensive cities, and the impending withdrawal of some major foreign investors who have come to dominate the market in many cities.

    Cost And Affordability

    One common refrain among housing advocates and politicians is that high-rise construction is a solution to the problem of housing affordability. The causes of the problem, however, are principally prohibitions on urban fringe development of starter homes. Critics also note that high-rises in urban neighborhoods often replace older buildings, which are generally more affordable.

    One big problem: High-density housing is far more expensive to build. Gerard Mildner, the academic director of the Center for Real Estate at Portland State University, notes that development of a building of more than five stories requires rents approximately two and a half times those from the development of garden apartments. Even higher construction costs are reported in the San Francisco Bay Area, where the cost of townhouse development per square foot can double that of detached houses (excluding land costs) and units in high-rise condominium buildings can cost up to seven and a half times as much.

    Almost without exception, then, the most expensive areas are precisely those that have the most high-rise buildings: New York, San Francisco, Seattle and Miami. More to the point, these buildings don’t tend to be occupied by middle-class, much less working-class, families. And in many cases, these units are not people’s actual homes; in New York, as many as 60% of new luxury units are not primary residences, leaving many unoccupied at any given time.

    Even worse, a high-density strategy tends to raise the price of surrounding real estate. As Tim Redmond, a veteran San Francisco journalist, points out, luxury apartments often tend to be built in areas with older, more affordable buildings. The notion that simply building more of an expensive product helps keep prices down elsewhere misses the distinction between markets; the high-rises in Washington, DC, are not the affordable units that the vast majority of city residents need.

    Other cities favored by luxury developers – like Vancouver, Toronto, Seattle and San Francisco – have also seen deteriorating affordability and, in some cases, a mass exodus of middle- and working-class residents, particularly minorities. San Francisco’s black population, for example, is roughly half of what it was in 1970. In the nation’s whitest major city, Portland, African-Americans are being driven out of the urban core by high-density gentrification, partly supported by city funding. Similar phenomena can be seen in Seattle and Boston, where long-existing black communities are gradually disappearing.

    The New Demography Works Against This Trend

    It is common in retro-urbanist circles to maintain that more Americans, particularly younger ones, will opt to remain customers for ever-greater density, a preference that could sustain an ever-growing market for high-rises. Yet that notion may be past its sell-by date, with demographic evidence suggesting that most Americans, including younger ones, are looking less for an apartment in the sky than for a house with a little backyard.

    Suburbs, consigned to the dustbin of history by many urban boosters, are back. Demographer Jed Kolko, analyzing the most recent Census Bureau numbers, suggests that population growth in most big cities now lags that of their suburbs, which have accounted for more than 80% of metropolitan growth since 2011. Even where the urban core renaissance has been most prominent, there are ominous signs. The population growth rate for Brooklyn and Manhattan fell nearly 90% from 2010-11 to 2015-16.

    The real trend in migration is to sprawling, heavily suburbanized areas, particularly in the Sun Belt. To be sure, there are high-rises in most of these markets – quite a gusher of them in Austin, for instance – but the growth in all these regions is overwhelmingly suburban.

    The most critical factor over time may be the aging of millennials. Among those under 35 who do buy homes, four-fifths choose single-family detached houses, a form found most often in suburbs. Surveys consistently find that most millennials see suburbs as the ideal place to live in the long run. According to a recent National Homebuilders Association report, more than 66%, including those living in cities, would actually prefer a house in the suburbs.

    The largely anecdotal media accounts of millennial lifestyles conflict with reality, Kolko notes. Although younger millennials have tended toward core cities more than previous generations, the website FiveThirtyEight notes that those ages 30-44 are actually moving to suburban locales more than in the past.

    The China Syndrome

    Given the limits of the domestic market, the luxury high-rise sector depends heavily on foreign investors.

    Already, harder times for some traditional investors – Russians and Brazilians, for example – have hurt the Miami market, long attractive to overseas buyers. There is now three years’ worth of inventory of luxury high-rises there, with areas such as Edgewater, Midtown and the A&E District suffering an incredibly high inventory of seven and a half years. Miami Beach is faring a bit better but is still a buyer’s market at a little over two years of inventory.

    Still, the greatest threat to the luxury high-rise market may come from the Far East, the region of the world with the most surplus capital and, given the rapidly aging society, often the fewest profitable places to put it. Korea and Japan have lots of money sitting around looking for a home. Japan and its companies, according to World Bank data, are hoarding more than $2 trillion in unused liquid assets.

    But as in all things East Asian, China stands apart. Last year, the country had a record $725 billion in capital outflows, according to the Institute of International Finance. China is now the largest foreign investor in US real estate.

    But now the Chinese government has placed strong controls on these investments, which could leave some places vulnerable. In Downtown Los Angeles, according to local brokers, many of the new high-rise towers are marketed primarily in China. (LA claims to have the second-highest number of cranes, behind only Seattle.)

    These expensive units are far out of reach for the younger people who tend to inhabit the neighborhood, instead serving as what one executive called “vertical safe deposit boxes” for people trying to get their money out of China. If the new crackdown on such investments is strongly enforced, this could leave a lot of expensive units without buyers. Prices have already softened, and with several new luxury buildings coming up, Downtown is likely to experience a glut.

    Even in Manhattan, another market long dependent on foreign investment, projects are now stalled, including some once-hot properties in Midtown that are delaying their sales launches. Overall sales of condos over $4 million dropped 18% last year from the high levels of the previous three years. The ultra-premium market for condos over $10 million saw a 5% sales decrease in 2016.

    Changes Ahead

    The current slowdown, and perhaps longer-term stabilization, could lead to lower rates of migration out of the expensive cores.

    Yet this trend is not likely to reverse the movement of younger people to less dense areas. Luxury high-rise units were not built for families, and they are often located in areas with poor schools and limited open space. They may simply become high-priced rentals, attractive no doubt to childless professionals but not to middle- and working-class families.

    In the end, the real need is not for more luxury towers. What is needed, particularly in America’s cities, from the urban core to the urban fringe, is the kind of housing middle- and working-class families can afford.

    This piece originally appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book is The Human City: Urbanism for the rest of us. He is also author of The New Class Conflict, The City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

    Photo: Sharon Mollerus, via Flickr, using CC License.

  • Post-Work Won’t Work

    Proposals to institute a basic income are increasingly popular, especially in Silicon Valley. Philippe Van Parijs and Yannick Vanderborght make their case for it in Basic Income: A Radical Proposal for a Free Society and a Sane Economy. A basic income—an annual, unconditional cash grant to every adult, regardless of need, and without a work requirement to obtain it—would be non-taxable and total about 25 percent of GDP. The amount of the grant could vary depending on the age of the recipient, but it would start at birth. It would supplement existing safety-net programs and replace only those whose benefits are less than the basic income amount; thus, the grant would establish a floor, but not a ceiling, on government income transfers. (Publicly financed health care would remain outside the system, for example.)

    The overarching goal of the basic-income proposal is to ease economic distress stemming from the structural disappearance of work and declining real incomes for lower-skilled workers. Technology has eliminated countless jobs, and there’s no reason to believe that this process won’t continue. Researchers from MIT and Oxford have estimated that technology already in development, such as driverless cars, could eliminate nearly half of all current jobs in the United States. One does not have to accept this particular analysis to recognize the anxieties that exist—one reason why Silicon Valley supports the idea.

    Another goal of the basic income is to redirect the negative incentives created by current welfare systems. When you pay people for being poor or unemployed, unsurprisingly, they’re often motivated to remain poor. Welfare benefits get phased out as income rises; the poor and lower-income workers can face effective marginal tax rates as high as 85 percent, according to the Congressional Budget Office. Working longer hours or seeking out a higher-paying but more difficult job doesn’t make much sense in a system that punishes good behavior and traps people at the bottom of the income ladder.

    Unfortunately, the authors’ version of basic income has several critical practical and philosophical flaws. A more controlled, restricted immigration system would be essential if everyone in the United States were entitled to a significant basic income just for being here. To their credit, the authors say that eligibility for basic income “excludes tourists and other travelers, undocumented migrants, and employees of supranational organizations [emphasis added].” While they would prefer a global basic income with open borders, they understand that, “if generous national (or, more generally, subglobal) basic incomes are to be made sustainable in the era of globalization, it will therefore not be possible to dispense with some version of the exclusionary [immigration] strategy.”

    This would likely be a showstopper for basic income in the United States. Championing de facto unlimited immigration and the rights of illegal migrants is arguably the highest priority of a significant portion of the American political class. Chicago Mayor Rahm Emanuel closed 50 schools, shuttered half the city’s mental-health clinics, and cut library hours, but still found $1 million to pay for legal aid for illegal migrants. Until America reestablishes control over immigration and limits the number of poor migrants it accepts, basic income will be completely unworkable—as the authors concede.

    Some humility from the authors would have been welcome about the risks of the radical restructuring that basic income would entail; Van Parijs and Vanderborght see only upside. To illustrate the downside potential, consider the poor results from annual per-capita payments of casino revenues to American Indian tribes (not discussed in the book). Some tribes enjoy a very high “basic income”—sometimes as high as $100,000 per year— in the form of these payments. But as the Economist reports, “as payment grows more Native Americans have stopped working and fallen into a drug and alcohol abuse lifestyle that has carried them back into poverty.” The magazine contrasts this fate with that of more successful tribes like Washington State’s Jamestown S’Klallam, which eliminated poverty by investing in tribal-owned small businesses instead of handing out cash grants.

    Another major problem with the basic-income thesis is that its intrinsic vision of society is morally problematic, even perverse: individuals are entitled to a share of social prosperity but have no obligation to contribute anything to it. In the authors’ vision, it is perfectly acceptable for able-bodied young men to collect a perpetual income while living in mom’s basement or a small apartment and doing nothing but play video games and watch Internet porn. A basic income “differs from conditional minimum-income schemes in having no strings attached,” the authors concede. “It carries no obligation for its beneficiaries to work or be available on the labor market. In this precise sense, we shall say that a basic income is obligation free.” Their attempts to address the problems implicit in their asymmetric view of society are some of the weakest arguments in the book.

    As is often the case with social reformers, Van Parijs and Vanderborght are making an argument that is fundamentally moral, not empirical or practical. “An unconditional basic income is what we need, we argued, if what we care about is freedom, not just for a few but for all,” they write. “We thereby appeal to an egalitarian conception of distributive justice that treats freedom not as a constraint on what justice requires but as the very stuff that justice consists in distributing fairly.” Make no mistake about what this means: if justice requires a basic income, then there is no moral right to dissent from it, and thus all disagreement with their position must ultimately be exiled from the realm of politics, democracy, and polite society. If a basic income were ever implemented, any attempt to remove it would be treated by its advocates as not just a bad policy idea, but evil, regardless of public support.

    Basic income sounds to many like an attractive idea—but closer examination reveals that it’s also a dangerous one, based on dubious social and moral logic. Though it surely wasn’t their intention in writing this book, Van Parijs and Vanderborght have made the dangers clearer.

    This piece first appeared on City Journal.

    Aaron M. Renn is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and an economic development columnist for Governing magazine. He focuses on ways to help America’s cities thrive in an ever more complex, competitive, globalized, and diverse twenty-first century. During Renn’s 15-year career in management and technology consulting, he was a partner at Accenture and held several technology strategy roles and directed multimillion-dollar global technology implementations. He has contributed to The Guardian, Forbes.com, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.

    Photo: http://401kcalculator.org, via Flickr, using CC License.

  • Changing the Narrative in Cleveland

    Cleveland, like many Rust Belt cities, has both an image and a self-image problem. Its residents have simultaneously had passion and loyalty for the city, while also being filled with shame about it and relentlessly negative and fatalistic about its future. Again, this is something that is the case for any number of places.

    This is a problem because the economy runs on expectations. Why do you start a business doing X? Because you expect to make a profit at it. Why move to city Y? Because you expect the job you have there will be a good fit or you otherwise expect that you are going to find personal satisfaction there.

    If we expect the economy to do poorly, we tighten our belts and help create the weakened demand conditions that bring that economy about. If we have positive expectations about the future we behave differently.

    Any number of cities seemed to be created from nothing much out of sheer boosterism, a sort of fake it till you make it approach that generated expectations that ultimately became a self-fulfilling prophecy. Houston may be a good example of this.

    So in a sense the real future of a place depends on people’s expectations about it in the future. That’s not to say that any expectation can simply be willed into being. Just because you expect to win the Super Bowl doesn’t mean it will happen. But positive expectations play a critical role in creating positive realities.

    Expectations are simply beliefs about the future, and thus can be shaped by sales and marketing techniques. This is part of what the city branding business is all about.

    Traditionally, marketing folks in Midwest cities have struggled to definite a positive aspirational identity and sell it to the world. Cleveland falls into this category. But a recent article in Cleveland Magazine talks about how the narrative and expectations about the city have changed in light of recent developments such as the return of LeBron James and the resulting NBA championship.

    “It got to the point where we began to believe the negative side of our image, to the point where we ourselves began to reinforce that,” says Mayor Frank Jackson. “When we did that, it became true, not only what the world thought we were, but also what we thought we were.”

    Research by Destination Cleveland showed that in 2012, only 34 percent of locals would recommend Cleveland to friends and family. Consider that for a second. Only five years ago, 66 percent of Clevelanders were so down on their town they couldn’t even bear the agony of putting in a good word with their college pals or Uncle Al. Other similar cities would usually have positive numbers in the mid-60s.

    Well, we’ve got a problem, thought David Gilbert, Destination Cleveland president and CEO.

    Five years later, amid an avalanche of good news, our chests swell with civic pride. LeBron came back. We won an NBA championship and made it to the World Series in the same year. We hosted a major political convention. The renovated Public Square opened. The lakefront is blossoming. Health care technologies and professional services are opening a connection to the globalized economy. We are, proportionately speaking, drawing more than our fair share of millennials to the region.

    The article goes on to describe the various ways in which Clevelanders are much more optimistic about the future of their city than they were in the past. That’s great news and a sign of shifting internal expectations.

    It’s hard to convince the world your city is great if you don’t even believe it yourself. I myself have had the experience in other cities of having people berating their own town and wondering why people who had moved there had done such a darned fool thing. Changing the internal narrative really helps set the stage for changing the external one.

    The article rightly highlights the risk facing Cleveland and other cities in the region. Namely that this expectations turnaround has been based on events like the NBA win, the GOP convention, etc. Previous Cleveland renaissances flamed out when those externals changed.

    The challenge for Cleveland is to create something durable that carries them through the difficult challenge of long term change and dealing with some of the challenges they face. But for now the fact that the spirits of residents have been lifted – and not without cause – and that there have been some events that generated positive national press is good news for this long-struggling city. It’s right and proper to celebrate it.

    This piece first appeared on Urbanophile.

    Aaron M. Renn is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and an economic development columnist for Governing magazine. He focuses on ways to help America’s cities thrive in an ever more complex, competitive, globalized, and diverse twenty-first century. During Renn’s 15-year career in management and technology consulting, he was a partner at Accenture and held several technology strategy roles and directed multimillion-dollar global technology implementations. He has contributed to The Guardian, Forbes.com, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.

    Photo by Aeroplanepics0112 (Own work) [CC BY-SA 3.0], via Wikimedia Commons

  • A Different Kind of Border Wall

    To slow mass migration, stop the illicit capital flight from poor to rich countries.

    An asset manager called ____ Capital recently sent out this email seeking referrals:

    The US Investor visa program allows one to invest $500,000 U.S. in a government licensed fund for a period of about five years and in around 18 months, a conditional green card is attained for the investor and their immediate family. The investor and their family can live, work and study anywhere in the United States and there are no educational, age or English language requirements.

    Most experts report that on September 30th the investment amount will increase from $500k to $1.3m, a significant jump that will price out many potential investors.

    There is still time to file before September 30th if you start your process with ____ Capital now.

    Others can comment on the practice of selling green cards (and ultimately US citizenships) to wealthy foreigners while millions of other applicants, some of whom would be greater contributors to the United States, continue to wait in line for years. Our concern is one step removed and has to do with the legality of this money.

    Give me your rich, but no huddled masses. (photo: populyst)

    It would be unfortunate if foreign money inflows into the US, whether green card-related or not, benefited only a small number of American fund managers and real estate developers while they lowered the standard of living of larger numbers of Americans, for example by crowding them out of some cities because of rising home prices. But it would be doubly unfortunate if some of this money was also illicit, in other words stolen or obtained through dubious maneuvers by corrupt or crony foreign government officials and corporate executives.

    Indeed, to use just one example, the fact that the identity of many buyers in New York’s newest condominiums is cloaked by the use of shell companies is unhelpful to anyone claiming that these vast incoming sums are mostly clean money. For more on this, see Manhattan Ultra-Luxury ‘Battling the Serpent of Chaos’.

    Why Mass Migration

    Before we loop and close this circle, let us examine a very related issue: the mass migration of people from poor countries towards Europe, North America and other wealthy nations.

    When considering the migrant crisis, from the Middle East, Asia and Africa into Europe, or from Asia and Latin America into the United States, the question among policy makers has been on whether and on how to allow or to stop the inflow of people: when, where, how and how many?

    But an antecedent question should be: what in the first place is causing these people to migrate thousands of miles, often at the risk of their own lives? Clearly the answer resides in the poor economies of their home countries. But then what accounts for this poor state of their economies?

    Capital flight must be one of the most important reasons. Modern economics and globalization encourage the free flow of capital. But what if this capital leaving poor countries was ill-obtained? What if it was stolen by corrupt government officials or corrupt corporate executives, or diverted unethically by cronies operating on the margin of legality?

    We do know that wealth and opportunity in many of these countries are hoarded by a small, insecure and often corrupt governing elite. Indeed it is the insecurity that accompanies such hoarding that naturally leads to a significant share of this capital being exported towards jurisdictions where the risk of seizure is deemed to be minimal.

    Yet rich country economies are already awash in capital due to extremely accommodative central bank monetary policy while at the same time poor countries are in dire need of capital to improve their own infrastructure and economy. Simply put, their economies need this money a lot more than ours do. If anything, our own economies may be suffering from too much capital because of extremely low interest rates.

    Closing the Loop

    This then is the reality of today. Rich countries have been on the one hand accepting with open arms the capital coming from poor countries and profiting from it handsomely, and on the other hand balking, to put it euphemistically, at accepting the people from these poor countries who are emigrating in part as a result of this large capital flight.

    The Honest Accounts report estimates that illicit capital outflows from sub-Saharan Africa alone totaled $67.6 billion in a single recent year and that the continent is a net creditor to the world to the tune of $41.3 billion per year.

    One way to think about it then is that migrants are coming to our shores after their country’s money has already come to our shores. As with your typical human being, their search for better living conditions are forcing them to follow the money, some of which happens to be their money. This is not to justify illegal immigration but to explain that it is at least partially a result of our open and undiscriminating stance towards incoming wealth.

    If, as Pope Francis recently stated, corruption steals from the poor, then its younger brother, cronyism, steals from the middle class. Of course, most poor countries don’t have a middle class and their elites therefore often don’t even bother to become cronies. With a weak judiciary, they go directly into corruption, usually with impunity until the levers of power change hands, which is not all that often.

    Parenthetically, it stands to reason that elites in poor countries would not love democracy at home because it reconfigures the power structure every few years in a way that threatens their standing and prosperity. These same elites however do love the democracy and fair play of rich countries because they are the conditions that allow them to safeguard their assets.

    For better or for worse, things are different now due to demographics and technology. For decades, all the power players – government officials, foreign corporations, safe-haven banks – have extracted a large share of wealth because the poor in underdeveloped nations were few, disorganized and largely uninformed. But now they are far more numerous, goaded by smugglers to emigrate, and better informed through the internet. See Working Age Population Around the World to understand the potential magnitude of the migrant issue.

    Where the Money Goes

    The image of the elite from poor countries living in the lap of luxury, jetting to their homes in New York, Miami and London, visiting their financial advisors in Zurich and Cayman, and educating their children at tony private colleges while the masses of their countries subsist in abject poverty, often without sanitation, water or electricity, is so widespread and so real that it has almost become an accepted cliche to most people.

    But to the European and American business and financial elite, the moneyed foreign elite is irresistibly cool, usually not because it is foreign but because it is moneyed and often free-spending. For every American consumer whose appetite for luxury goods is flagging, there may be two or three new wealthy consumers in emerging nations who are eager to collect luxury status symbols. If Louis Vuitton and BMW revenues were to stall in the United States, these firms would merely intensify their focus on new customers in the Middle East, Africa and Asia.

    Foreign elites are also big investors in the United States and Europe. The destination of flight capital is usually one of the following:

    • Banks or financial institutions that offer some secrecy and safety. Historically, this has been private banks domiciled in Switzerland but more recently, it has become any financial institution in an offshore financial center such as the Cayman Islands, Bermuda, Panama, Cyprus, the Channel Islands or other. The Tax Justice Network estimated in 2016 that $12 trillion from developing countries were parked in offshore havens.
    • This capital is then funneled by these banks to asset management firms, be they stock and bond funds, private equity funds or other, to be put to productive use through investments in the public or private markets (see footnotes 1 and 2).
    • Real estate projects in New York, Miami, London, Vancouver and many other places. In 2015, a report by the New York Times estimated that in six of Manhattan’s most expensive buildings, shell companies owned between 57 and 77 percent of the condominiums. (see footnote 3).
    • Other asset classes such as art where funds can be parked safely.

    So, here today, we are faced with this question: is it right to accept into our country another people’s money but to turn away the people themselves? And if we cannot, due to their sheer numbers, accept the people themselves without risking a disruption of our own politics and economics, shouldn’t we then at least turn away the illicit capital that is fleeing their countries? Shouldn’t that capital remain in their countries where it can help them build a better economy and thus remove or reduce their need to emigrate across the sea?

    Given that the number of working-age Africans and Asians is about to swell by hundreds of millions of additional job seekers, it would be prudent for us to encourage the capital originating in their countries to stay at home rather than come to rich countries where it is distorting prices in real estate and other markets. We may not be able to enforce a barrier against all such capital but it behooves us to try and limit the migration of illicit wealth, or to face the inevitable blowback, a human wave of tens of millions of migrants banging on the door to enter the rich world.

    Cruelty plays its hand artfully. Some large beneficiaries of foreign money inflows are also vociferous proponents of greater limits on immigration. These two positions can coexist harmoniously within the same brain only until the connection between the trillions in capital flight and the millions of migrants is exposed in full relief.

    _____________________

    1. Most of the returns on this capital underperform the major stock indices but custodians seem indifferent while they extract their own hefty fees. Meanwhile the owners of the capital don’t worry about a few percentage points of underperformance when their main motive is the safety of the principal. This is the real reason why hedge funds continue to thrive despite delivering poor performance. Their investors are more tolerant of subpar returns because the main alternative is to keep their money in their home countries where they could lose some or all of it in an unfriendly crackdown.

    2. In theory, the Patriot Act required financial institutions to investigate the sources of funds that they receive from foreign countries. But in practice, depositors with no suspected connection to terrorism are ostensibly granted the all clear. Finance firms are simply not staffed or equipped to differentiate between ill-gotten funds and clean funds.

    3. Here too, investors are relatively indifferent to the return they obtain and are merely looking to garage their wealth. Some of New York’s new high-rise condominiums have been called “safety deposit boxes with a view”.

    This piece originally appeared on Populyst.net

    Sami Karam is the founder and editor of populyst.net and the creator of the populyst index™. populyst is about innovation, demography and society. Before populyst, he was the founder and manager of the Seven Global funds and a fund manager at leading asset managers in Boston and New York. In addition to a finance MBA from the Wharton School, he holds a Master’s in Civil Engineering from Cornell and a Bachelor of Architecture from UT Austin.

    Photo by Mstyslav Chernov/Unframe (Own work) [CC BY-SA 4.0], via Wikimedia Commons

  • A New Way Forward on Trade and Immigration

    President Donald Trump’s policy agenda may seem somewhat incoherent, but his underlying approach — developed, in large part, by now-departed chief strategist Steve Bannon — can be best summarized in one word: nationalism. This covers a range of issues from immigration and trade to cultural and ethnic identity, and generally the ones with the most polarizing impact on our political system.

    To many progressives, nationalism is, by its very nature, a dirty word, associated with fascist, Nazi or otherwise repressive regimes throughout history, and tied to violent extremists among the “alt-right,” like the small group of truly “deplorables” that recently surfaced in Charlottesville, Va. Liberal globalists detested Trump’s Poland speech defending Western values. To them, progressive theology matters more than affiliation with political tradition. Assaults on free trade also concern tech and other corporate chieftains, whatever their impact on the American working class.

    Yet, despite his consistently ill-considered rhetoric, Trump is actually about half-right on nationalism. The postindustrial, globalized economy has not worked for most Americans, as judged by their meager income growth. The West is, indeed, threatened not only by Islamic fundamentalists, but also by China, Russia, North Korea and other authoritarian states. In comparison with today’s progressives, the Roosevelts, Truman, Kennedy and Johnson would be considered rampant nationalists.

    Reassessing free trade

    Free trade, the fundamental economic dogma of the global corporate class and its neoliberal allies, has proven, in practice, to be far less benign than “global strategists” suggest. What works for Manhattan or San Francisco has had devastating impacts in more industrially oriented places like the Midwest and much of the South. Overall, notes a recent study from the labor-backed Economic Policy Institute, trade with China has cost an estimated 3.4 million jobs so far this century.

    Commerce Secretary Wilbur Ross points out — correctly — that many leading trading partners, like the EU and China, impose higher tariffs on incoming U.S. goods than what we impose on their exports. China, in particular, seeks to gain advantage over U.S. producers, embracing what William Galston, former policy adviser to President Bill Clinton, calls “technonationalism,” under which a country seeks to extort the surrender of intellectual property in exchange for market access and cold hard cash.

    In this sense, Trump’s hard-line position on trade — and his courting of foreign investors such as Toyota and Mazda — represents a justifiable throwback to the nationalist policies framed by Alexander Hamilton, which persisted until World War II. The problem here, as elsewhere, is that Trump’s pettiness and Twitter inanities allow our trading partners to divert the discussion away from the legitimate issues around international commerce.

    Read the entire piece in the Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book is The Human City: Urbanism for the rest of us. He is also author of The New Class Conflict, The City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

    Photo by Dirk Dallas, via Flickr, using CC License.

  • The Precariat Shoppe

    The precariat is a term coined to describe the segment of the population that lives without security or predictability. These days it often refers to the former American middle class that’s currently experiencing reduced circumstances. There’s always been a precariat, but it usually includes a minor subset of the population that no one really likes or cares about. Indentured Irish servants, black slaves, Jewish and Italian sweatshop workers, Mexican field hands, Puerto Rican cleaning ladies… It’s a long list. People are up in arms now because the “wrong people” have fallen in to the precariat that didn’t used to “belong” there. There’s been a sudden realization that sometimes the structure of the economy itself institutionalizes their personal decline. Shocking! I’m not a political animal so I’ll leave those discussions to others to hash out. Instead, I’m interested in how people adapt to the circumstances they find themselves in.

    We’re all familiar with the ice cream man whose truck rolls around with the happy music playing on hot summer days. This one is in Detroit – and it’s an ice cream lady. She bought an old delivery vehicle, did a bit of hand painting, fitted it with chest freezers, and opened for business. It’s a fast, low cost, and flexible way to get a business off the ground even in the most challenging economic environments.

    The ubiquitous food truck fills the gap between the cost, complexity, and risk of opening a brick and mortar restaurant vs. working for someone else. A well constructed food truck isn’t necessarily cheap, but it’s within the reach of many more people than anything in a building. This one is in Los Angeles.

    Here’s a twist on the mobile shop theme that’s a direct result of rising commercial rents. This woman ran a successful second hand clothing boutique for many years and was driven out when her shop rent hit $5,400 a month. You have to sell a lot of schmatta to make that nut. Now she follows various fairs and pubic gatherings with her merchandise in a repurposed school bus. She goes directly to where her customers are most likely to find her. As I’ve heard many times from shopkeepers around the world – it’s not how much money you earn, it’s how much you have left over after all the thieves are paid.

    Here’s a mobile veterinary clinic. Dogs, cats, horses… As the cost of a medical degree, insurance, and real estate have skyrocketed even doctors are taking a long hard look at the whole medical office building situation. The transition from a practice with a full team of professionals to a solo gig in a tricked out custom van can be described as a positive lifestyle change, but it’s almost certainly about money.

    I stumbled on this mobile grocery store complete with fresh produce, real bread, and dairy products. The offerings and prices were substantially better than what can be found at the alternative in this location – a classic food desert where people without access to a car have little choice but to buy low quality industrial food-like products at inflated prices at gas stations.

    Down the street I found a similar grocery truck. I chatted with the family that runs the business. There was a need in the community to bring in groceries as well as an opportunity to make money. The usual chain stores on the main arterial road don’t always work well for either customers or potential shopkeepers. The trucks do. They arrive exactly when and where they’re needed and stock what people want. I noticed health department certificates and Weights and Measures seals. Both trucks were Grade A.

    Here’s a mobile woodworker’s tool shop. These are specialty items not typically found in most hardware stores. This man has a relationship with various brick and mortar lumber yards who find his presence good for business. Social media alerts customers of his schedule. Mobile shops have the ability to specialize and cover a wider territory more economically than a stationary establishment burdened with overhead and a limited static customer base.

    The irony here is that all around the parking lots that host occasional mobile vendors are empty buildings that once housed chain pharmacies, banks, and such. Sometimes new buildings are constructed to house updated versions of the same stores in the same town. Sometimes there’s simply less need for physical operations as activity migrates to the interwebs. But repurposing the vacated spaces is hard. The size, configuration, and cost of these places is fundamentally at odds with the creation of new small scale mom and pop enterprises. The numbers don’t add up. I’ve had nearly everyone I talked to tell me some version of the same story. The combination of expenses, regulations, and the culture of distant corporate management is all agressively hostile to their efforts. And taking on a single employee is often the difference between making money and failing within the first year.

    Here’s one example of the challenges of opening a brick and mortar shop even if you have a generous budget. A prosperous California winery decided to open a tasting room in town to promote its products. The building had been a family paint store since the 1950s. The 2008 financial crash forced it to close. The new owners gave the old nondescript concrete block building a designer facelift. But it was a bumpy road. The climate controlled warehouse in the back was subject to a design review board that spent months rejecting the proposed color of the structure. White was preferred by the owner since it reflected heat most effectively. Evidently pure white was not in keeping with the character of the community. There was a back and forth with the oversight committee over various shades of off white, beige, and creme anglaise. Each time the committee rejected a color the process had to start all over again which delayed the opening of the shop by several weeks – which all costs money.

    The fire marshal insisted on the installation of this bit of plumbing that cost $65,000. I can’t think of anything more flammable than 1950s era paint – not even wine – yet somehow the building managed not to burn for sixty odd years. But no new business could open in this spot until this valve was installed. And then there was the requirement that each seat and stool in the tasting room have a corresponding parking spot on site while not interfering with the ability of a giant fire truck to completely encircle the entire property.

    Here’s the other end of the spectrum. A mother and daughter sell cold drinks at a busy bus stop from an ice chest. Totally ADA compliant!

    But the award for creative entrepreneurial capitalism goes to this mobile video game kiosk that regularly parks outside a San Francisco bar on weekend evenings. Comfortably liquified patrons settle in to folding chairs and play electronic games on the sidewalk. Free! (But please keep the tips coming.) It’s been in the same spot for so long the bar owners must not mind. This is how you work a side hustle when you’re part of the precariat.

    This piece first appeared on Granola Shotgun.

    John Sanphillippo lives in San Francisco and blogs about urbanism, adaptation, and resilience at granolashotgun.com. He’s a member of the Congress for New Urbanism, films videos for faircompanies.com, and is a regular contributor to Strongtowns.org. He earns his living by buying, renovating, and renting undervalued properties in places that have good long term prospects. He is a graduate of Rutgers University.