New Geography

Category: Policy

  • Hooray For the High Bridge

    My latest article is online in City Journal and is a look at the restoration and reopening of the High Bridge in New York City. Part of the original Croton Aqueduct system that first brought plentiful clean water to New York, portions of the High Bridge are the oldest standing bridge in the city. Here’s an excerpt:

    It’s worth asking whether, with its $61 million price tag, the High Bridge project was really needed. Strictly speaking, the answer is: No. The structure was in no danger of falling down. And, just a half mile to the north, the Washington Bridge provides a functional, if unpleasant, pedestrian crossing over the Harlem River. Yet, the High Bridge is an important part of New York history and deserves its loving restoration. Spending serious money on outlying neighborhoods that are mostly minority and heavily poor to give their residents a humane environment instead of a minimalistic one shows that New York does care about all its citizens. Great cities don’t just do great things in a sanitized downtown Green Zone for visitors. They create greatness in their workaday neighborhoods, too, with projects that speak not merely to the pragmatic, but to the human spirit. The High Bridge restoration again shows what great commercial success allows a city to do for its citizens.

    Click through to read the whole thing.

    Here are some additional pictures I took. First, the High Bridge peeking through the trees from the Manhattan heights. You can see both the original stone arch spans and the longer steel arch span.



    Looking south:



    Embedded seal in the bridge pavement with historical info. There are quite a few of these discussing various aspects of the project.



    The neighbors are fans:

    Aaron M. Renn is a senior fellow at the Manhattan Institute and a Contributing Editor at City Journal. He writes at The Urbanophile, where this piece first appeared.

  • Small Regions Rising

    In the last 25 years there has been a huge change in the level of competitiveness of smaller urban areas – by which I mean the small end of the major urban scale, or metro areas of about one to three million people – that has put them in the game for people in residents in way they never were before.

    I recently gave the morning keynote at the Mayor’s Development Roundtable in Oklahoma City and talked a bit about this phenomenon, as well as how these generally younger and sprawling areas ought to be thinking about their future.

    If the video doesn’t display for you, click over to watch on You Tube (my segment starts at 4:36).


    Aaron M. Renn is a senior fellow at the Manhattan Institute and a Contributing Editor at City Journal. He writes at The Urbanophile, where this piece first appeared.

  • The California Dream has Moved Away

    Southern California faces a serious middle income housing affordability crisis. I refer to middle income housing, because this nation has become so successful in democratizing property ownership that the overwhelming majority of middle income households own their own homes in most of the country.

    Recently I had the privilege of participating in a forum on this subject sponsored by the Urban Land Institute, Los Angeles Housing Chapter in Century City. The forum also included a presentation from USC Professor Dowell Myers and was chaired by Ehud Mouchly, who chairs the Housing Chapter. This article is adapted from my presentation.

    I am a native Angeleno, having been born near Temple and Alvarado, less than two miles from City Hall. I was appointed to three terms on the Los Angeles County Transportation Commission (LACTC) by Mayor Tom Bradley, where I played a pivotal role in the establishment of the Los Angeles rail system. LACTC and SCRTD were the two predecessors to the current Los Angeles County Metropolitan Transportation Authority (MTA).

    In addition, for 11 years, Hugh Pavletich of Christchurch, New Zealand and I have published the Demographia International Housing Affordability Survey. The latest edition was released in January and included median multiple data for 86 major metropolitan areas and nearly 300 smaller metropolitan areas in nine nations. Finally, I publish the most comprehensive annual review of world urbanization, providing population, land area and density for world urban areas with over 500,000 population (See World’s 1,000 Largest Cities: World Urban Areas 2015 Edition).

    All of this makes housing in Southern California and urban development particularly interesting to me.

    The Imperative: A Rising Standard of Living and Less Poverty

    The title of the forum was "The Changing Demographics of Southern California and Their Impact on Housing," however I think that the reverse is more significant — the impact housing is likely to have on Southern California.

    My perspective is neither ideological nor tied to any political party. It is a fundamentally pragmatic view that domestic policy should principally seek to better people’s lives, by facilitating a rising standard of living and reducing poverty. These objectives were also referenced in the G20 nations communiqué in Brisbane and adopted a announcing a dedication to improving standards of living and eradicating poverty.

    The issue is particularly ripe in California, where public policies relating to housing are having virtually the opposite effect. Housing costs have already increased poverty and reduced the discretionary income of middle-income households.

    This is not an issue of suburbs versus the urban core. I could not be more pleased by the long overdue resurgence of downtown areas as residential locations, something made possible by the huge crime reductions that began with Mayor Rudy Giuliani’s policies in New York City and similar efforts in cities like Los Angeles. It is important to recognize that a vibrant core no more needs dying suburbs then vibrant suburbs need a dying core. Both urban cores and suburbs can prosper, creating a stronger urban area.

    The Housing Crisis

    Southern California’s biggest crisis relates to housing. Housing is important to the standard of living and alleviating poverty. It is the largest element of household budgets. When housing more expensive, it leaves households with less discretionary income to purchase other goods and services. This will, other things being equal, reduce economic output from levels that would be otherwise attained.

    This has been developing for more than four decades as house price to income ratios (such as the median multiple, the median house price divided by the median household income) have doubled and tripled above historical levels and well above those of other metropolitan areas. Attention is often focused on lower income affordable housing, a problem virtually everywhere, but most parts of the country do not suffer so severe a middle-income housing affordability problem. Low-income housing affordability is important and one of the best ways to minimize it is to ensure that there is middle-income housing affordability.

    A bit of historical perspective is appropriate. For centuries nations had little or no property-owning middle class. Huge progress has been made in the last century and particularly since World War II. Following the war, housing development innovation, combined with transportation advances, led to the development of owned middle income housing in the suburbs. It started with Levittown on Long Island and spread across the nation. The most fabled Southern California example is Lakewood (see D. J. Waldie’s Holy Land: A Suburban Memoir on this). The result was a massive increase in home ownership, rising from percentages from the low 40s to 65% in the final decades of the 20th century.

    Similar progress was made in other countries, especially in Canada, Australia and New Zealand, where middle-income households purchased homes with sufficient space. In each of these nations, the median multiples were around or below 3.0 as late as 1995.

    All of this represented progress toward what the late and renown British urbanist Peter Hall called the "ideal of a property owning democracy" (See: The Costs of Smart Growth Revisited: A 40 Year Perspective).

    Sadly, affordability has diminished greatly in many metropolitan areas around the world.  House prices relative to incomes have doubled or tripled in virtually all of the metropolitan areas of Australia and New Zealand, some metropolitan areas in Canada as well as in some key metropolitan areas in the United States, with the worst in California. In each of these places, this house price escalation occurred after implementation of urban containment policies (also called smart growth or growth management), which seriously reduce the amount of land that can be used for new housing.

    The Roots of Urban Containment Policy

    Urban containment has its roots in the British 1947 Town and Country Planning Act. This act created green belts around British cities and is a proximate cause of the present housing shortage and crisis. The general philosophy of the 1947 Act is evident throughout urban planning in the United States and has been implemented in Oregon, part of Washington and California. Urban containment policy was also enacted in Florida. There, house prices had escalated at rates — if not the price levels — to near that of California during the housing bubble. However, legislators took the opportunity to repeal Florida’s urban containment policies when housing prices dropped to historical median multiple levels.

    A recent California Legislative Analyst’s report indicated that much of the problem is California’s strict land-use laws and regulations (See:  How the California Dream Became a Nightmare). A dense mesh of "urban containment" and "smart growth"  regulations have severely limited the land available for new housing, especially on the periphery, where cities grow organically. This destroys the competitive market for land, driving up its cost. This makes house prices escalate in relation to incomes.

    California: 50% More Poverty Than Mississippi

    Today, California house prices are far higher than in the rest of the nation. This is taking a toll on the standard of living and increasing poverty. The Census Bureau’s supplemental poverty measure, which adjusts for housing costs shows California’s poverty rate to be the highest in the nation. It should be of concern that California’s poverty rate is 50% above that of perennial poverty leader Mississippi (Figure).

    Because so much poverty is concentrated among minority ethnic populations, California’s urban containment policy is particularly disadvantaging Hispanics and African-Americans. The Thomas Rivera Institute at USC published a detailed examination of California’s land-use regulations and found that "Far from helping, they are making it particularly difficult for Latino and African American households to own a home."

    The Need for Reform

    The bad news is that things are likely to get much worse. Under the Sustainable Communities Strategies required under Senate Bill 375 (2008), it is likely to become nearly impossible to build traditional suburban single-family housing in California’s metropolitan areas (See: California Declares War on Suburbia). Already, median multiples in San Francisco, San Jose, Los Angeles and San Diego are approaching the highs reached at the peak of the housing bubble. House prices are likely to continue rising relative to incomes, other things being equal.

    Allowing Supply to Meet Demand

    It is often asserted that diminishing land supply in California reflects not so much regulation, but physical limits. The state is sometimes seen as ‘built out’. Yet, in fact, there is plenty of land available for development. Despite its reputation for urban sprawl, the Los Angeles urban area is the most densely populated in the United States. It covers a bit more than one half the land area of the New York urban area. Like any urban area, the greenfield land that is available for development is on the periphery, which  includes areas like the northern Antelope Valley, the Victor Valley, and Southwestern California (Temecula to Hemet) and in some closer areas. Each of these areas is closer to the urban core than some parts of the New York commuter shed.

    These areas could easily accommodate the additional population expected in the area by 2060, including the single family housing generally preferred among middle-income households. Households are not likely to raise children on high rise balconies.

    Even so, the urban footprint would continue to be much smaller than that of New York. If sufficient land were opened to development, the city would expand geographically, but people would also have better access to middle class standards of living, and there would likely be a lot less poverty. The obvious choice would be to let the city expand, while improving real incomes and reducing poverty.

    The California Dream is Now in Denver?

    During the discussion period after my talk, perhaps the most prescient comment was made by an unidentified audience member said that the California dream is now in Denver. California’s unjustifiably and artificially high housing prices are the cause. Between 1993 and 2010, there was net out-migration from California to 42 of the 50 states and the District of Columbia. Immigration to Los Angeles and Orange from abroad has also declined, as immigrants too look for more affordable alternatives. People seeking sun, glamour or a good time will continue to flourish in southern California, but it seems likely that more families, and middle class households, will continue to ebb out, seeking somewhere else the dream that was once so closely identified with Southern California.

    Wendell Cox is principal of Demographia, an international public policy and demographics firm. 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. Wendell Cox is Chair, Housing Affordability and Municipal Policy for the Frontier Centre for Public Policy (Canada), is a Senior Fellow of the Center for Opportunity Urbanism and is a member of the Board of Advisors of the Center for Demographics and Policy at Chapman University.

    Photo: Central Los Angeles and the San Fernando Valley (by author)

  • Are Suburbs Causing Crime?

    Reihan Salam, often an insightful critic, argues in Salon that poverty has come to the suburbs at a higher rate than it has grown in big cities because poorer service workers have followed the service jobs required in the suburbs. This has caused problems. Salam sees more civil strife in suburbs like Ferguson, Missouri today partly because the different kinds of family structures that have become so predominant, particularly those exhibited by the poor, cannot be accommodated in single-family, detached housing.

    There’s clearly some truth here but overall the policies he suggests do not hold water. Households led by singles are up to over 20 percent of all households in the most highly populated metropolitan areas, two-parent families with the manpower to take care of suburban homes and lawns has fallen, and single parent households have grown. His solution:  to build smaller, high-density attached housing units, not so much because they are more affordable for the poor; many of the suburban poor already live in rental housing units, and overall high density is generally more expensive than lower density. Salam sees density and its concomitant higher property assessments as  generating more  tax revenue, thus reducing local government aggressiveness in  levying traffic and loitering fines (administered mostly through an often distrusted police force), which have grown to become an enormous burden for the poor in the suburbs.  

    But Salam doesn’t seem to appreciate that much of the desperation for local tax dollars is driven by increases in the number of residents — all kinds of residents but including the poor — and especially the young and poor, who generate the demand for  expensive services like schools, special education, and law enforcement.  Salam is under the impression that higher density buildings produce more property tax revenue, but he doesn’t acknowledge that if these buildings are filled with more people per acre than a single family home, they will also require more services, and generate the need for more taxes.   One of the enduring political features of high-density urban areas is the lack of a tax base (or political willingness) to adequately fund big city school systems. By court order, New York State had to revamp its school aid formula in the early 2000s to channel billions in more funds to the New York City public school system, which State Supreme Court Justice Leland DeGrasse  ruled had for years neglected its constitutional obligation to ensure "the availability of a sound basic education to all children of the state."

    In fairness, one of the most perplexing issues in urban planning over the decades has been whether or not certain types of housing pay more or less in property taxes than their inhabitants require in government services. This question has not been answered to anyone’s satisfaction.

    There are broader questions raised by this article. If the poor (the majority of whom are single mothers) are poor at least in some respect to there being only one or no working adults in a household, wouldn’t a poor, single mother of three still be poor living in an attached apartment (as opposed to a basement of a single-family home)? If at least one social objective to alleviate poverty is to create two-income households, it is not clear how building smaller housing units would encourage this. As the University of Washington’s Richard Morrill  and others have repeatedly shown, our most densely populated areas (i.e. those with smaller housing units) exhibit the most severe forms of economic stratification.

    Nor is it clear how Salam’s recommendation would address the aspirations of the poor, most of whom still seek one day to acquire a piece of property and a single-family home. A recent Redfin study found that 92 percent of “Millenials” (those born during the early 1980s and now in their late 20s and 30s) who don’t own a home want to buy one in the future. And according to figures from the 2008 Current Population Survey, as reported by Thomas Tseng in Newgeography.com, 44 percent of Millenials belong to some racial or ethnic category other than "non-Hispanic white." It’s an unfortunate reality of American life that even into the second decade of the 21st century a disproportionate number of the poor are racial minorities. One must assume that a goodly portion of these young aspirants to homeownership must be poor racial minorities.

    How would forcibly filling the landscape with apartment buildings and crowding out single-family, detached homes (making them, therefore, more expensive) help the poor achieve that dream?

    Salam’s remedy of building smaller living units might even exacerbate another problem that some suburbs (and the nation as a whole) face: the “birth dearth”, or the decline, especially in older suburbs, of family formation and birth rates. As opposed to the “nursery” for America’s next generation that many of America’s sprawl suburbs still remain, urban centers today are among the most “child free” ‑ whether in Manhattan, San Francisco, Chicago, or Boston. But even in the old-line suburbs, since the 2008 recession, the number of new children has plummeted. The largest declines in the 5 to 14 cohort since 2000 have almost all occurred in the large coastal metropolitan regions, including their suburbs, led by Los Angeles where the child population has dropped by 303,000, or 15.3%, since 2000. In the New York metro area, the number of 5- to 14-year-olds has fallen by 238,000. This includes the Nassau-Suffolk region, America’s “oldest suburb,” which has experienced a decline of 71,834 residents in the 0-14 population group between 2000 and 2013.

    Today the number of households with children is 38 million, about the same as a decade ago, even as the total number of households has shot up by nearly 10 million. There are now more houses with dogs than houses with children.

    The decline in the numbers of potential young suburban residents suggests not some great urban revival, but a drain in the population of future taxpayers and workers. As demographer Wendell Cox and others have shown, localities with higher densities have considerably lower birth rates than areas with lower densities. With the push for higher density, are the suburbs slated next to become “child free zones”?

    Few would dispute that many suburban areas across the country lack sufficient housing options. But the seemingly ubiquitous assumption that high density housing will eradicate problems such as high taxes, increasing inequality, civil unrest, and lower birth rates may be invested with an unjustified sense of certainty.   

    Seth Forman, Ph.D, AICP, is author of American Obsession: Race and Conflict in the Age of Obama and Blacks in the Jewish Mind: A Crisis of Liberalism, among other books. His work has appeared in publications that include National Review, Frontpagemag.com, The Weekly Standard, and The American. He is currently Research Associate Professor at Stony Brook University, and the Chief Planner for the Long Island Regional Planning Council. His opinions are not associated with any of these institutions. He blogs at www.mrformansplanet.com.

  • A Leaky Economy

    Real gross domestic product is growing at an anemic pace. Exports are down, and state and local governments are spending less. The consumer price index is falling in a condition known as deflation. Even national defense spending is down. Despite the bad news, consumer spending and home building are rising. Real disposable personal income is roaring ahead at growth rates of 6.2 percent in the first quarter of 2015 and 3.6 percent at the end of 2014. Even the personal savings rate is up (5.5 percent so far this year and 6.2 percent at the end of 2014). These consumer factors are attributed to an increase in government social benefits, though, and not to jobs and economic prosperity. Social Security makes payments to more than 64 million Americans and nearly 3 million more receive federal government retirement checks. More than 20 percent of the US population is basically living on fixed-incomes.

    The banks also continue to benefit from government largess. The Federal Reserve’s Open Market Committee has been holding onto the view “that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate” for more than five years. The stated purpose of offering this free money to banks is to maintain high employment. Although the Fed declines to set a specific goal, they generally believe that the unemployment rate should be around “5.2 percent to 6.0 percent.” For perspective, the US unemployment rate averaged 6.15 percent last year (2014); compare that to an average unemployment rate of 4.62 percent in 2007, the year before the financial crisis that was the reason for dropping the federal funds rate to zero.

    The offsetting condition that could thwart the Fed’s efforts to bolster the economy is high inflation – too much money chasing too few goods. The Fed has a stated goal of keeping inflation at or below 2%. As long as there are enough people working, producing plenty of goods and having money to spend on those goods, inflation this should not be a problem. In the 12 months just ended, consumer prices fell 0.1 percent. In 2007, prices rose about 2.1 percent. The most recent peak inflation was nearly 6 percent in 2008 and the peak deflation was about -2.4 percent in 2009.

    As long as there is some unemployment, wages and prices will not rise too rapidly – if we had more jobs than workers there would be a tendency for employers to bid up wages in trying to attract the best workers. But we are facing the opposite situation. Despite so much Federal Reserve money pouring into banks, the economy is slowing and deflating.

    There is worse news. Corporate fixed investment is running higher than the cash being generated by businesses. This was true in 2007 right before the crash and also in 1977 when Hyman Minsky wrote about “the era of the post-World War II financial crunches, squeezes, and debacles.” Corporations investing more than they are earning is the kind of event the Fed means when they write: “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant” continuing their loose money policy. They are referring to exactly this condition where an incipient financial crisis can be triggered by increases in interest rates.

     

    Borrowing to Make Ends Meet: Then

    $ Billions

    2003

    2004

    2005

    2006Q4

    2007Q3

    Internal funds (US)

    732.0

    850.7

    1061.3

    747.2

    782.4

    Internal funds (total)

    831.3

    928.4

    995.0

    935.8

    912.3

    Fixed investment

    747.5

    788.3

    889.7

    1000.6

    1057.0

    Source: Flow of Funds, Table F.102 Nonfarm Nonfinancial Corporate Business March 6, 2008 (Federal Reserve System, Washington, D.C.)

    Borrowing to Make Ends Meet: Now

    $ Billions

    2010

    2011

    2012

    2013Q4

    2014Q4

    Internal funds (US)

    1520.4

    1575.2

    1569.2

    1607.2

    1590.2

    Internal funds (total)

    1676.7

    1728.5

    1761.0

    1844.6

    1782.6

    Fixed investment

    1178.6

    1297.4

    1415.2

    1512.9

    1681.0

    Source: Flow of Funds, Table F.103 Nonfinancial Corporate business March 12, 2015 (Federal Reserve System, Washington, D.C.)

     

    The reasoning is quite simple: if businesses are investing more than they are making, they must be borrowing to do it. Fixed investment – the construction of things like buildings, plants and factories – has to be paid for before it produces income. That means taking a lot of short term loans, refinancing them when they come due and sometimes borrowing a little more to cover the interest due on the last loan. If interest rates rise between the planning phase and when the completed project starts generating revenue, that is what triggers Minsky’s “incipient” financial crisis. The only difference between the gap in 2007 and the gap in 2014 is that some of it is being made up by foreign earnings – a source that may not hold up as Europe teeters on its third recession in six years, China’s growth slows and Japan continues to struggle. The possibility of the Fed raising interest rates is receding further and further into the future.

    Falling prices and low interest rates might sound like “good” things. They are not. Low interest rates favor borrowers (and speculators) but it harms the elderly and baby-boomers going onto pensions because it reduces the rate of return they can earn on their safe-harbor investments like savings accounts and government bonds. Speculators in stocks, real estate, collectibles, etc. make out in a low-interest rate environment with deflation. Safe-and-sound investors are more likely to lose because they are more likely to depend on interest for income. This is especially true for households living on fixed incomes and have a low tolerance for investment risk.

    This is another Lesson Not Learned by US policymakers: Banks and businesses find a way around Fed policy while consumers take it on the chin. We will all be better off when businesses depart from the crony-capitalist cycle of dependency on Federal Reserve hand outs. The business and consumer winners in the post-Capitalist society will be the ones who learn to accumulate human-capital knowledge instead of staking the health of the economy on financial capital. Capital flows are characterized by panics and manias. It will take human knowledge to resolve the financial crises that follow.

    Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Dr. Trimbath’s credits include appearances on national television and radio programs and the Emmy® Award nominated Bloomberg report Phantom Shares. She appears in four documentaries on the financial crisis, including Stock Shock: the Rise of Sirius XM and Collapse of Wall Street Ethicsand the newly released Wall Street Conspiracy. Dr. Trimbath was formerly Senior Research Economist at the Milken Institute. She served as Senior Advisor on United States Agency for International Development capital markets projects in Russia, Romania and Ukraine. Dr. Trimbath teaches graduate and undergraduate finance and economics.

    Photo: “Federal Reserve” by Dan Smith – Own work. Licensed under CC BY-SA 2.5 via Wikimedia Commons.

  • Better Suburbs = Better Cities: Employment and the Importance of the Suburban Economy

    Australia’s inner city areas and CBDs are a focus of media and public policy attention, with good reason. But it’s also true that the real engines of employment are outside the inner city areas and that the dominant role of our suburban economy as an economic engine is grossly understated, even ignored. This is not good public policy. It’s not even common sense. 

    I have a view that the focus on urban renewal and inner urban economic development has become a policy obsession of late. It’s the trendy thing to quote Richard Florida’s ‘creative class’ theories which become the excuse to increasingly spoil inner city workers with transport, cultural and other forms of taxpayer funded infrastructure. There was a time when inner city areas, if not recapitalised, risked pockets of blight. But those days have passed. Today, it is the suburban landscape – much derided in fashionable inner city policy circles – that risks pockets of blight if not brought back to the attention of policy makers and strategically recapitalised.

    The imperative is simple: the suburban economy is so much larger than inner city areas. As a rule of thumb, between 8 and 9 out of ten jobs in our major metro regions of Brisbane, Sydney and Melbourne are suburban. Only one in ten or at most two in ten, are found in the inner city areas. Achieving a 10% improvement in the suburban economic engine is hypothetically equivalent to achieving an 80% improvement in the economic performance of the inner cities. 

    So why this preoccupation with the inner cities to the detriment of the suburbs?

    First, a quick review of the evidence as provided in the Census. 

    In Brisbane, the CBD itself accounts for 12.5% of the Brisbane region’s employment numbers – one in eight. The combined CBD and inner city areas – including the CBD – account for around 170,000 jobs.  That’s not a very big number.  As a proportion of state-wide jobs, it’s less than 9%. As a proportion of the 925,000 jobs across the metro region of Brisbane, it’s less than one in five – and that’s with including the near city areas like South Brisbane, Fortitude Valley and Spring Hill. 

    In Sydney in 2011, the CBD accounted for only 8.3% of all jobs in New South Wales, and for only 13.4% of all jobs in wider metropolitan Sydney. Including the surrounding areas of Pyrmont, Ultimo, Potts Point, and Woolloomooloo raises this share to just 9.7% of all jobs in the state and 15.6% of jobs in metropolitan Sydney. So one in ten state-wide jobs and one in every six or seven metro wide jobs. 

    In Melbourne, the CBD is home to just 7.6% of the state’s total employment, and to just 10.6% of all jobs in greater Melbourne. Including the ‘fringe’ locations of Docklands and Southbank sees this share rise to only 10.3% of the state and 14.3% of greater Melbourne, which is one in ten of all jobs in the state and one in seven metro wide jobs.

    In none of these centres is the concentration of inner city jobs close to one in four metro wide jobs. Yet if you asked a room full of people – industry and planning experts included –a significant proportion will think the figures are much higher. I’ve done this several times at workshops and presentations and there are a worrying proportion of people who seem to think the figure is more than 50%. A wider survey of the general public might even put the figure higher – it would be an interesting exercise to find out.

    Suburban employment centres are by nature much more widely dispersed. Teachers, doctors, dentists, tradies, factory workers, shop workers and so on do not rely on close proximity to each other to perform their work, as do CBD employment markets. In the suburban business districts of our metro regions, workforce concentrations typically fall into a band somewhere between 3,000 and 5,000 jobs per square kilometre. Places with super-regional shopping centres will tend to be at the upper end of that scale while industrial areas at the lower end. CBDs, by contrast, can easily have pockets where the employment density sails past 10,000 or 20,000 jobs per square kilometre.

    But however dispersed these suburban jobs may be, it doesn’t make them any less important to the economy – particularly given their dominant role as employment and economic engines.

    So why then the preoccupation with the inner cities and why the dearth of policy interest in the suburbs? 

    Perhaps the inner cities are seen as more glamorous? There are more higher paying jobs and more CEOs to the square mile than anywhere else. It’s where cultural facilities and seats of government are found. It’s where the most expensive real estate is. Basically, any concentration of money plus power is always going to grab attention. It’s an age when celebrity tweets capture more media and public attention than important issues of economic policy. The CBDs and inner city areas are widely seen as ‘where it’s at’ and where the cool people are. ‘Nuff said?

    Sadly, even policy makers seem to have fallen for the inner city bling over suburban substance. The importance of transport workers, freight workers, teachers, doctors, tradies or suburban white collar employment to the economy receives next to no policy comment. The performance of suburban transport systems, the need to promote higher employment density in key centres, the pathways by which property owners could be encouraged to partner with public sector agencies for suburban centre improvement – none of these seem to appear as workshop or forum topics promoted by any of the leading industry groups. 

    I suspect there’s also a strong element of cultural cringe as it applies to our suburban heritage. Frequently mocked as a cultural wasteland or ‘home of the bogan’, there’s an almost desperate desire to prove we’re an advanced society by focussing on the lifestyles and achievements of our inner city areas and the people who live and work there, to the exclusion of all else. ‘Urbanists’ grab headlines and appear as keynotes at any number of planning conferences. Sub urbanists (and there are plenty of them) are evidently persona non grata.

    It’s as if a prosperous, successful and highly efficient suburban economy simply doesn’t cut it in the global race for attention and status amongst cities, which seems almost exclusively focussed on the how much like downtown New York or downtown Paris every other city can pretend to be. 

    The reality is that the inner city economy is reliant on – not divorced from – the performance of the suburban economy. In the same way that there can be no public sector without a profitable private sector, I suggest that a strong and prosperous inner city economy relies heavily on a strong and prosperous suburban economy. And in the same way that strategic infrastructure and policy decisions are needed for the inner city to operate at optimum efficiency, the exact same applies to suburban economies.  

    The question is whether this balance is being achieved.

    Ross Elliott has more than 20 years experience in property and public policy. His past roles have included stints in urban economics, national and state roles with the Property Council, and in destination marketing. He has written extensively on a range of public policy issues centering around urban issues, and continues to maintain his recreational interest in public policy through ongoing contributions such as this or via his monthly blog The Pulse.

  • Flexible Economic Opportunism: Beyond Diversification in Urban Revival

    Discouraging employment data have recently dampened optimism about America’s economic recovery. These challenges are nothing new for developed regions long beset by manufacturing decline amidst globalization. Exemplars of this trend, America’s rust belt cities have battled unemployment, decaying infrastructure, and social challenges since economic decline emerged in the 1960s. In response, some now cultivate service, knowledge, and tourism industries. Explaining these new growth models, analysts often espouse the virtues of diversification. However, legacy industrial systems and native constraints (e.g. geography and culture) can hinder this strategy. Chasing diversification for its own sake diverts policy attention from a more valid determinant of growth. Post-industrial urban policy should target structural flexibility, enabling diversification or specialization – neither deserving preeminent status – to occur naturally.

    In exploring rival economic development strategies, two management theories are particularly relevant: Michael Porter’s competitive advantage and Harry Markowitz’s portfolio theory. Competitive advantage describes the strategic orientation of business operations and brand image to command an inimitable market position. Portfolio theory is the logic behind investment diversification to maximize returns for given risk preferences. In management, these are not rival theories. However, when applied to urban economic development they present a direct contrast. The former can be likened to specialization, and the latter to diversification.

    In attempting to revive their economies, cities often reduce strategic options to the simple dichotomy of specialization versus diversification. Some compromise by favoring a primary industry and enabling the emergence of secondary industries. Economic orthodoxy generally argues that diversification is the wiser choice in volatile economies. This portfolio-style approach assumes that stability in one industry offsets decline in another. This argument is convincing: many “single-engine” economies have underperformed amidst globalization. Besides the usual cases, overlooked examples are Oakland, California (shipbuilding and automobiles), Birmingham, Alabama (steel), and upstate South Carolina (textiles). A similar fate befell the British Midlands and German Ruhr Valley, where recovery strategies have generated mixed results. Instability in single-industry dependence is not limited to manufacturing. Las Vegas, where the pro-cyclical tourism mirrors national economic trends, remains fairly irrelevant outside its casinos and related industries.

    By contrast, many successful cities boast diversified economies. New York has a path-dependent advantage in finance, with recent volatility offset by tourism, business services, and the arts. The 1986 collapse in oil prices tested the resilience of Sunbelt boomtown Houston, whose shipping industry offset energy sector declines while banking, finance, and healthcare kept the city competitive. Large cities are naturally more diversified, but smaller cities can also exhibit diversification: examples are Austin, Texas (research, education, and technology), Nashville, Tennessee (entertainment, insurance, and health care), and Tampa, Florida (military, tourism, trade, and retirement services). Austin added jobs even during the 2008 recession, and has routinely been labelled the nation’s best-performing economy in recent years. These examples show that economic resilience is dependent more on diversified industrial portfolios than on size.

    Nevertheless, a larger story underlies America’s revitalization champions. While the flag of diversification flies high, at the base of the pole stands structural flexibility, arguably a more durable, achievable, and powerful mechanism for growth. Cities prepared to re-orient towards emerging opportunities maintain development potential across economic cycles. Furthermore, flexibility gives cities of any size hope for transformative growth. Not every city has the native advantages to meaningfully diversify, but flexibility can be their wild-card strategy.

    Two former manufacturing cities have exhibited post-industrial flexibility: Pittsburgh and Bilbao. Once the pride of America’s post-WWII steel industry, Pittsburgh suffered a precipitous decline in the 1980s as manufacturing moved overseas. 200,000 jobs and nearly half the population were lost. However, Pittsburgh’s situational advantages provided a flexible platform for revival. Well-endowed cultural institutions and flourishing medical, education, and research sectors supported a lifestyle economy based on knowledge, services, and creative entrepreneurship. Pittsburgh’s economic performance was seventh best in the nation during the 2008 recession, an example of how flexible planning, private sector creativity, and situational advantages converged to make progress halting seemingly irreversible decline. Similarly, Bilbao, Spain, sharply declined after the withdrawal of manufacturing. Without its economic engine and facing crisis-level unemployment, it creatively turned to tourism and culture. The government’s stated commitment to collaborative policy making and quality-of-life now complements efforts to sustain post-industrial competitiveness. Like Pittsburgh, Bilbao has used flexible, opportunistic planning to pursue economic growth.

    Despite their highly publicized transformations, however, these post-industrial success stories are not without challenges. The Pittsburgh metropolitan area has failed to gain population for years, and lost nearly 5,000 residents between mid-2013 and mid-2014. The city’s stagnant job growth has led some claim that Pittsburgh’s amenities, rather than employment opportunities, are a relocation magnet. Others claim that flat overall job growth conceals local economic restructuring, as manufacturing industries give way to the creative sector. Despite recent signs of a recovery, Spain’s persistent unemployment (23.8% in the first quarter of 2015) indicates that the nation, and particularly secondary cities such as Bilbao, continues to struggle in the stubborn wake of the 2010 euro crisis. Further, Bilbao’s top-down approach of museum-based revitalization has failed to generate vitality in the grassroots cultural scene, where artists have collectively mobilized but still struggle to obtain financial support.

    Manchester has recently enjoyed consistent growth, and is now considered the UK’s healthiest economy outside of London. Like Pittsburgh and Bilbao, the city experienced rapid mid-century decline with the closure of its shipping port and loss of heavy manufacturing. The city’s economic revival has pivoted towards knowledge, services, and entertainment, a strategy attracting recognition for liveability and cultural vibrancy. Financial services now outsize manufacturing and engineering, with no single industry representing more than 16% of the economy. Poised to benefit further from devolutionary reforms and “northern powerhouse” status, Manchester has garnered recognition for its economic diversity and entrepreneurial spirit. The city exemplifies a flexible approach to post-industrial development, particularly for a hinterland region overshadowed by a dominant neighbour (London).

    Other efforts at revitalization, however, have produced lesser results. Like Pittsburgh and Bilbao, Cleveland’s steel industry flourished in the mid-20th century before industrial decline gutted the city of jobs and population. In 1969 the emblematic Cuyahoga River fire brought national attention to Cleveland’s economic crisis. Since 1990 the city has caught fire once again – in a revival driven by services, tourism, and entertainment. Global connections in knowledge industries and education complement Cleveland’s flexible economic vision. However, the city still struggles with disinvested neighbourhoods, ageing infrastructure, and regional competition from Pittsburgh, where flexible strategies also target culture and technology.

    Taken superficially, these revival cases support the concept of diversification. Cities focusing on a singular competitive advantage – geography, image, or path-dependent conditions – tend to specialize but often struggle to re-configure inflexible industrial infrastructure for new opportunities. Regardless, specialization versus diversification is a false choice. Beyond this continuum, the true survival instinct is structural flexibility. Diversification often correlates with overall growth but is more a lagging indicator of opportunistic preparedness. Flexible policy broadens structural capabilities and builds resilience into urban systems, in either a specialized or diversified economy. The outputs include infrastructure both hard (transport, technology and housing) and soft (education, culture, and institutions). In providing platforms for investment that adapt to global trends, this strategy transforms industrial determinism into flexible economic opportunism.

    Kris Hartleyis a visiting researcher at Seoul National University and PhD Candidate at the National University of Singapore, Lee Kuan Yew School of Public Policy. For more details about his argument, see his book Can Government Think? Flexible Economic Opportunism and the Pursuit of Global Competitiveness.

  • U.S. Foreign Policy a Series of Unforced Errors

    President Obama, as a fan and occasional player of basketball, should know about “unforced errors.” Those are the kind of thoughtless, bonehead plays where you lose the ball without a defender swatting it or toss a pass somewhere into the higher seats. If you want to review how this is done, I recommend re-watching the recent Clippers versus Rockets series – if you have the stomach for it.

    Lately, America has become proficient in creating such unforced mistakes. At a time when the U.S. economy has been out-performing most competitors – resurging in everything from energy and manufacturing to tech – we appear to be slipping ever more into pessimism and fear of decline. Even the reliably pro-Obama New York Times conveys concerns of seeing the U.S. in a tailspin, losing influence in a world that now increasingly looks to authoritarian regimes, such as China and Russia, for leadership and support.

    The Great Unforced Error

    You can’t blame Obama for the biggest of all the unforced errors, the disastrous invasion of Iraq. Rather than the “mother of all battles,” in Saddam Hussein’s phrase, it turned out to be the mother of all mistakes. In the end, at great human and financial expense, we turned a country run by a weakened, slightly buggy dictator into a nest of jihadi fanatics fighting Iran’s allies for control of the country. Americans have to watch as Iranian commanders direct the battles on the ground and take the bulk of the credit for successes.

    Read the entire piece at the Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050.  He lives in Los Angeles, CA.

  • Who Benefits From Other People’s Transit Use?

    In the May 11 issue of Finance and Commerce, Matt Kramer, a local Chamber of Commerce representative lobbying for additional public transit and transportation spending (currently being debated at the Minnesota Legislature) is quoted as saying “Every person who is riding transit is one less person in the car in front of us.”

    This is a fascinating quote. First is the use of “us.” So the Chamber of Commerce (probably correctly) identifies riding transit as something someone else does (since “we” are still in the car) and goes on to imply that it benefits us because there will be fewer cars. (Actually he says fewer people per car, but I think he meant fewer cars, not that it would reduce carpooling.) And I suppose he could mean he rides the bus, and the car in front has fewer people (or there were fewer cars in front), but I don’t think that’s what he meant, since the arguments in the legislature are mostly about building and operating new facilities — such as LRT lines or freeway BRT, rather than supporting existing buses driving in traffic.

    This evokes the famous Onion article: Report: 98 Percent Of U.S. Commuters Favor Public Transportation For Others.

    But it also suggests transit reduces auto travel. The converse is almost equally true, building roads reduces transit crowding. But that is not an argument road-builders make. (It is an argument urbanists make against roads.)

    Of course, some transit users would have otherwise driven, but many would have been passengers in cars, walked, ridden bikes, or telecommuted. No one really knows what the alternative untaken mode would be. We have models, but the form of those models dictates the answer. Logit models, which are widely used by travel demand forecasters to predict mode choice (and whose development resulted in a Nobel Prize in Economics for University of Minnesota graduate Daniel McFadden), have the property called “IIA”, which is short for Independence of Irrelevant Alternatives. In short, if you take away a mode, IIA means people choose the other modes in proportion to their current use. So let’s say there are 3 modes: walk 25%, transit 25%, drive 50%, and there is a transit shutdown (like in 2004). IIA implies the 25% of former transit users would split 1/3 (25%/75%) for walk and 2/3 (50%/75%) for driving. We all know that is not true (and there are various techniques to try to fix the models and use more complicated functional forms), but the question of what istrue is not at all clear.

    While there are surveys that have answered those questions, they are all context specific. For instance, Googling turns up a Managed Lanes Case Study report:

    95 Express bus riders were asked how long they have been traveling by bus and what was their previous mode of travel before using the bus service. 92 percent of respondents (307 out of 334) mentioned they have been traveling the 95 Express bus before the Express Lanes started. Only, 8 percent of respondents (27 out of 334) began using the bus after the Express Lanes opened. Among them, 50 percent (13 out of 27) had their previous mode as drive alone and none of them carpooled previously. Therefore, 95 Express bus ridership consisted primarily of those who have been using the service prior to Express Lanes implementation and the small mode shift from highway to transit was mostly from SOVs. Note that the number of respondents is too small to make any conclusions (Cain, 2009).

    Undoubtedly other services would have different numbers, but transit lines are not generally a direct substitute for driving.

    The line of reasoning in the opening quote suggests the primary purpose of transit is reducing auto travel, rather than serving people who want to or must use transit. In other words, building transit is good because it reduces traffic congestion (and almost no one argues building roads is good because it reduces transit crowding).

    That is at best a secondary benefit, a benefit which could be achieved must more simply and less expensively through the use of prices as we do with almost all other scarce goods in society, even necessities like water.

    Transit today is, in almost all US markets, slower than driving. People who depend on transit can reach fewer jobs than those who have automobiles available. Some people use transit by choice, for instance to save money (if they need to pay for parking), and the rest without choice. In my opinion, it is more important to spend scarce public dollars to improve options for those without choices than to improve the choices for those who already have alternatives. Perhaps ideally we could do both, in practice, one comes at the expense of other.

    The idea that transit is for the other person is true for the 95.5% of people who don’t use transit regularly. But it warps thinking that the aim of public transit funding is to benefit those non-transit users.

    This post was written by David Levinson and originally published on streets.mn. Follow streets.mn on Twitter: @streetsmn.

    David Levinson is a Professor in the Department of Civil Engineering at the University of Minnesota and Director of the Networks, Economics, and Urban Systems (NEXUS) research group. He also blogs at The Transportationist and can be found [@trnsprttnst]. Levinson has authored or edited several books, including Planning for Place and Plexus: Metropolitan Land Use and Transport and numerous peer reviewed articles. He is the editor of the Journal of Transport and Land Use.

    Photo Metro Transit Stop at Coffman Memorial Union by Runner1928 (Own work) [CC BY-SA 3.0], via Wikimedia Commons

  • 21st Century California Careers

    California is undergoing profound change.  Most strikingly, people are leaving the Golden State, which was once the preferred destination of migrants worldwide.  California’s domestic migration has been net negative for over 20 years.  That is, for 20 years, more people have been leaving California for other states than have been arriving from other states.  The state’s population is only growing because of a relatively high birthrate, mostly among immigrants.

    Domestic migration is not a one-way street.  It may be net negative, but lots of people are coming to the state.  It’s just that more are leaving. Generally speaking, low and middle-income people are leaving.  Those coming tend to be wealthier and older than those leaving.  They are people who can afford California’s higher costs and limited opportunity.  These migratory trends are increasing income-inequality in America’s most unequal state.

    Businesses are leaving the state too, but not all businesses.  Tradable goods producers are leaving California, because the state has for ten years maintained the single worst business climate in America.  Tradable goods are goods that can be produced in one place and consumed in another.  Manufacturing is the classic example, but technology is changing what is a tradable good.

    Today, many jobs that used to be considered non-tradable services are now tradable services.  Back-office accounting functions can be done anywhere, as can legal research or title research.  Just about any job that is done at a computer is now a tradable service.

    Unless they have a monopoly, tradable goods and tradable service providers face relentless price competition.  California’s high-cost environment is forcing them to relocate to lower-cost communities to survive.  Tradable producers won’t be providing 21st Century California jobs.

    California, with its beaches, deserts, mountains, cosmopolitan cities and other attractions, is a major tourism destination.  These amenities also make California a wonderful place to live for those who can afford it.  So, wealthy people come to or stay in California, and then try to close the gate behind them.  Our cities become ever more divided between the older haves and the younger have-nots, between opulent consumption and not-so-much consumption.

    So who will provide jobs for 21st Century Californians?  In a single word the rich and upper middle class affluents. When they come as tourists, they spark demand for leisure and hospitality jobs.  Consequently, this sector has been California’s second most rapidly growing sector with over 15 percent (239,400 jobs) growth since the beginning of the recession in October 2007.  Only healthcare grew faster or created more California jobs.  Since it is hard to guide tourists or change bed sheets remotely, these are non-tradable services jobs. 

    The resident rich will also create jobs.  We see this already in places like Santa Barbara, where there are types of jobs that were unimaginable until recently.  People will come to your house to cook your gourmet meal, clean your house, bathe your dog, trim your toenails, and supervise your exercise. They’ll even bring an athletic gym in the back of a truck.  There are doggy day care centers, with web cams to watch your puppy while you’re separated.  There is a pet cremation center.  There is a dog bakery.  Some people make a living walking other people’s dogs, while some people make a living taking older, apparently poorly-motivated, people for exercise walks.   

    Huge amounts of money are spent on homes, and not just on the purchase.  Remodels are almost perpetual for some, and they are happy to pay huge sums for quality craftsmanship.  So it is with cars.  Car collectors used to be hands-on.  Today, many hire someone to restore their cars.

    The list of services that wealthy people are willing to pay for is unlimited.  Rich people, indeed all of us if we could afford it, enjoy paying someone else to do even mildly unpleasant chores. 

    This has resulted in rapid-for-California growth in non-tradable services jobs.  According to the California Employment Development Department, non-tradable services jobs grew 14 percent since 2000, while tradable-goods jobs declined by 24 percent.

    We’ve seen this before.  Domestic service was a large sector in Victorian England, peaking about 1891 when internal combustion engines and automobiles brought renewed economic growth.  This provided new opportunities for workers and raised the cost of service workers.

    California won’t see a new burst of economic or job growth in tradable sectors, particularly when the current tech boom evaporates. This is because California’s coastal elites will more successfully restrain growth than did their Victorian predecessors, perpetuating and increasing the state’s income inequality. 

    While the Irish Potato Famine and popular pressure forced the Corn Laws’ repeal, California’s elite face no such pressure.  In California’s one-party system, environmental purity easily trumps economic opportunity, and since California is only a state, it has a relief valve for disaffected citizens.  They can easily leave, and everyone that leaves increases the sustainability of the Coastal Elite’s no-growth, consumption based economy.

    California’s bureaucracy will provide plenty of jobs too.  When the bureaucracy decides everything, as it does in California, it’s a unique source of middle class jobs.  Working for California’s bureaucracy pays well, but other options can be more profitable.  Lobbying and fighting the bureaucracy can be big business.  As it is, every California community has people whose only job is to help businesses and people navigate the local bureaucracy.

    California’s formidable tech sector will diminish as a source of jobs and economic growth.  Venture capital’s changing economics and California’s ever-increasing costs will drive new growth to up-and-coming centers of innovation, places like Austin.  As it is, Austin, with 73.9 percent growth in tech-sector jobs between 2004 and 2014, saw more rapid growth in tech-sector jobs than San Jose, with 70.2 percent growth in tech-sector jobs over the same period.

    We’ll be left with a bunch of rich people and a big bureaucracy and the people who serve them.  California will still be a beautiful place, but it’ll hide an increasingly ugly social reality.

    Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org.