New Geography

Category: Suburbs

  • Euroburbia: A Personal View

    The image of the European city as a tourist’s paradise of charming inner-city neighborhoods interconnected by high-speed rail networks is not entirely false, but it does not give the full picture of how most Europeans live. Contrary to the mythology embraced by romantics among planners and ‘green’ politicians, urban areas of Europe sprawl just as much as any American or Western city.

    Of course, there are the wealthy and often childless few who live in the renovated urban cores – but at much lower density than at any time in their history. Instead of crowding picturesquely into city, the teeming hordes of the middle class have sought their refuge in the arboreal outskirts. They drive from their single-family homes and townhouse developments to their offices in old city centers, in business parks on the edge of the center and to other villages with massive industrial parks attached to them.

    As a result Germany has long since ceased to be the country that one sees in Grimm’s Fairy Tales or Goethe. Much of it looks like America or Canada. Freeways interconnect exurban villages swelling with housing developments and industrial parks. The German dream is a lot like the American one, only with more rules.

    The most interesting factor is the diversity of these suburbs. They are still predominantly German, but then again so is the country. I live in an exurb of Nuremberg in northern Bavaria. It was the city of Dürer and Hans Sachs as well as the infamous Nazi rallies and post-war trials. It still has castles from the Medieval past, but the need for labor to rebuild destroyed cities – and eventually the resulting prosperity – in the post-war years saw new faces and cultures arrive with immigrants from countries like Turkey.

    Just like in America, many of these newcomers worked until they retired and decided that they wanted to stay. Some of their children are having trouble but not all of them. The children that move out of their neighborhoods to the suburbs integrate better because their parents tend to be more prosperous and thus resent Germany less. The other reason is the fact they are more exposed to the language. Cem Ozdemir was just elected as leader of the Green Party here and he does not speak the pidgin common among a lot of Turkish immigrants. I moved to the suburbs for much the same reason. My wife and I are both non-native speakers but we know that if our children are going to succeed they will need to speak German well and act like Germans. Ideally they will become hyphenated Germans, as in American-Croat-Germans, which is roughly what they would be.

    Of course, some recent newcomers still huddle in their ghettos here, the soulless housing estates built to satisfy Le Corbusier’s destructive urban fantasies. But a lot of them are moving out and up. Their ultimate dream is not a castle or a turn of the century apartment. They want their own house. They want decent schools for their kids, a place to park their cars and easy access to work. That is why they are here and not in their old neighborhoods.

    But diversity is a relatively new benefit of German suburbs. We also moved here for a basic need of space. We had lived in the inner city in a charming apartment but one that simply could not hold kids. It felt cramped just as our offspring popped out.

    There’s also one often-unrecognized advantage to our suburbia: a stronger feeling of neighborhood. Germany is a country of renters. It can be fairly alienating when the residents have little vested interest in where they live. A lot of rental apartments are in buildings that are anything but charming. Here in the suburbs of Germany almost everybody owns their own home. One street is actually named Eigenheimstraße, which translates to Privately-owned-home Street. It is an indication of the pride that Germans have in being able to say that a house belongs to them. They also lovingly tend their yards and fill them with garden gnomes – some harmless, some borderline obscene – and other bric-a-brac that fills countless yards across the urban expanses of America.

    Then there are the schools. The school system here in Germany is fairly uniform with secondary schools more or less standardized. Performance at the elementary school level is vital: children are clearly, quickly and brutally sorted here. At the age of ten, the teachers decide if a child is going to go to college, vocational school or rot in the festering hell of the Hauptschule. The latter is nothing more than a storage facility for tomorrow’s losers.

    We moved to make sure that our neighborhood was mainly German. We wanted to make sure that our children were comfortable with the language and they needed friends who spoke German to feel that way. Most immigrant children fail for the simple reason that they don’t speak German at home, and in pre-school most of their friends speak their parents’ native language as well. This means that they speak Turkish or Russian well but can barely express themselves in German. This then puts them at a disadvantage when working their way through the school system. They have to take remedial language courses. The suburbs allow them to avoid all that.

    The last reason is a place to park our cars. Germans love cars. They love engineering and are very proud of their car industry. They design cars that are the epitome of luxury and performance. Most Germans do not drive cars like this, yet stubbornly continue to own cars despite the government’s multiple efforts to make it too expensive. We pay hefty gas taxes in an effort to fight the “Green House effect,” but most of us feel that it’s just an excuse for the government to steal our money in order to pay for its bloated welfare system.

    Car-ownership in Europe is almost at American levels and Europeans, despite the much-ballyhooed efforts to introduce bikes in Paris, will continue to drive. As in America, the anti-car and anti-suburban ideologues are loud and active, but as long as people prize security, privacy, space and mobility, it’s likely Europe’s version of the suburban American dream will continue to thrive for years ahead.

    Kirk Rogers resides in Bubenreuth on the outer edges of Nuremberg and teaches languages and Amercan culture at the University of Erlangen-Nuremberg’s Institut für Fremdsprachen und Auslandskunde. He has been living in Germany for about ten years now due to an inexplicable fascination with German culture.

  • Can Millennials Turn around the Housing Bust?

    Many of the nation’s youth (and a few of their elders) are expecting a magical turnaround of America’s economic fortunes as soon as their candidate for President, Barack Obama, is sworn in on January 20th 2009. But the Millennial Generation, born between 1982 and 2003, may be more the source of the country’s economic salvation as any initiative the new President might propose.

    Millennials are the largest generation in American history, more than 91 million strong. They are coming of age just in time to join the workforce, enter the housing market, stabilize home prices, and buy the nation’s expanding inventory of durable goods to furnish their new homes. Despite being burdened with student loan debt and graduating just when the job market is shrinking, this group of optimistic, civic-minded young Americans is ready to demonstrate that it is not only capable of electing a President, but also helping to resolve the country’s housing crisis.

    The “helicopter parents” of Millennials constantly hovered over their children as they grew up in order to protect them from anything that might harm their self-esteem. As a result, many older Americans, especially the 27 to 43 year old members of Generation X, think the Millennials’ “can do” attitude will crumble once they are confronted by the “realities of the real world.”

    But this ignores the cyclical nature of generational change. The GI Generation – the Millennial civic generation’s great-grandparents who came of age in the 1930s and 1940s – were raised in much the same way and acquired many of the same values cherished by Millennials. These members of what have come to be called “the Greatest Generation” were able to draw upon a deep reservoir of confidence and determination to lead America’s recovery from the Depression and later win the struggle against both fascism and communism.

    To give Millennials the same opportunity to rescue America, the new Obama administration should give the emerging generation the same attention in its policy initiatives that it expended getting their votes. Certainly the opportunity is there, particularly in rescuing the now devastated housing market.

    One unintended collateral benefit of the rapid drop in housing prices across the nation is to put many suburban homes within reach of first time home buyers, something that has not occurred for at least a decade. Even in pricey California, for example, the ratio between income and cost of housing has begun to drop dramatically, notes a recent paper by Chapman University graduate students Gil Yabes and Jason Goforth, with the ratio between income and mortgages dropping by one half or more in Orange, Riverside, and San Bernardino Counties, close to pre-bubble levels.

    That’s a big opportunity, one that President-elect Obama’s “Home Ownership Initiative” should seize on. The Millennials could well be the demographic that could buy these more affordable homes and staunch the rise of foreclosures threatening the U.S. economy.

    It’s not that these young people don’t want to own homes. A 2004 study of students enrolled in a four-year university, a community college and an historically black college found that about the same 40-percent plurality in each group preferred to live in a “suburban community, single family home,” upon graduation. The second choice of these Millennials was to live in a “rural area, with large lots and open space.” Only about a quarter wanted to live in an “urban setting with mixed housing styles.” Luckily for them, five years later, their preferred housing stock has just become imminently more affordable.

    Now the Democratic Congress and President Obama should enact a significant tax credit incentive for first time homebuyers, many of whom would be Millennials. By rapidly expanding the universe of potential homebuyers, this program would help stabilize housing prices in the critical lower cost housing market. At the same time it would help stem foreclosures among existing homebuyers, whose loss of home equity has made abandoning mortgages more rational economically than keeping up payments.

    In 1934, during an earlier time of far greater economic pain, the Federal Housing Agency (FHA) was created to provide financing for a new type of mortgage requiring a lower down payment with the loan to be paid off over 25 or 30 years. The federal agency’s financing authority was greatly extended through Title II of the Housing Act of 1949, which provided federally guaranteed mortgage insurance and helped a flood of returning GIs own a home. Now it is time for Fannie Mae and Freddie Mac to be given the authority to finance a new mortgage structure for homebuyers under thirty.

    By lowering down payment requirements for this select group of home buyers to 10% and stretching the terms of mortgages to the number of years these young people are likely to be active in the workforce, forty, monthly payments on starter homes could be brought in line with the Millennials‘ ability to pay. Initially, this combination of tax credits and new types of mortgage financing would slow the decline in home prices that triggered the problems in the country’s financial markets. In the longer run, it will make sure that the benefits of widespread homeownership will expand to a new generation of Americans.

    One young Millennial to whom we talked recently was concerned that the hours her retail employer wanted her to work were being cut as holiday shopping continued to sour. She expressed concern that there was still “more than a month before Obama gets sworn in and everything turns around again.”

    Her statement exhibits the kind of economic naiveté that frustrates some older Americans, but does provide an important lesson – political as well as economic – for the incoming administration. The Millennial Generation, whose votes were key in nominating and then resoundingly electing President Obama, want to see things improve rapidly. After all, they lack either the experience or the equity that Baby Boomers have acquired over the years.

    Once in office, President Obama should embrace the impatience of America’s youth as one way to insure that his economic policies are enacted quickly. By making an explicit appeal to America’s largest generation’s desire for homeownership, he would not only take a big step toward ensuring the popularity of his economic program, but its effectiveness as well.

    Morley Winograd and Michael D. Hais are fellows of NDN and the New Policy Institute and co-authors of Millennial Makeover: MySpace, YouTube, and the Future of American Politics (Rutgers University Press: 2008), named one of the New York Times 10 favorite books of 2008.

  • The Housing Bubble and the Boomer Generation

    Much of the commentary on the current economic crisis has focused on symptoms. Sub-prime mortgages, credit default swaps and the loosening of financial regulations are not the root cause of the financial crisis. They are symptoms of what has recently become a surprisingly widespread belief that individuals, families and even entire nations could live indefinitely beyond their means.

    The crisis has reminded everyone that, in the end, market fundamentals like supply and demand still matter and that ignoring traditional virtues like thrift and long-term planning can lead to grief. But what does this have to do with boomers?

    Ultimately, this economic crisis shines some light on some of the most important yet unresolved and paradoxical aspects of American culture as it developed in the wake of the economic, social and political upheavals of the late 1960s and early 1970s.

    Children coming of age in the 1950s and 1960s were born into families that, on average, enjoyed the greatest material prosperity and the best housing the world had ever known. The security offered by an enormously expanded and comfortable middle class allowed these children to crusade on behalf of various causes. Those who called themselves “progressive” pushed to expand individual civil rights, sometimes at the expense of what others perceived as community rights or duties, but at the same time they were often deeply suspicious of capitalism and markets and for this reason pushed to restrict the rights of private property owners in order to expand on their own notions of community rights.

    The result was, on the one hand, a massive effort to empower racial and ethnic minorities, women, gay people and many others. This aspect of the revolutions of the 1960s era has always been highly controversial, with conservatives fighting the “reforms” every step of the way. On the other hand, starting about 1970, there was an explosion in regulations on the use of land including tighter zoning and building codes, regulations governing environmental matters, historic preservation and land conservation, growth and building caps and growth management schemes. It became harder to build at the urban edge because of the environmental rules and efforts to limit “sprawl.” It also became harder to build at the center because of substantial down-zoning and other regulations to “preserve neighborhood character,” particularly in affluent neighborhoods. This aspect of the 1960s progressive agenda has led to grumbling about NIMBYism but has otherwise generated surprisingly little negative commentary.

    Nevertheless, this movement has created one of the most paradoxical legacies of the 1960s as programs justified in the language and logic of “rights,” have turned into bulwarks for the status quo and a mechanism to transfer wealth from younger families of modest income to more affluent older families.

    In the 1950s and 1960s developers in America built a huge amount of housing, primarily on cheap land at the suburban edge of almost every city in the country. This housing was remarkably inexpensive and, together with liberal financing terms, allowed millions of Americans to enter into the ranks of home ownership and the middle class. It provided the underpinnings for the enormous wealth of the boomer generation.

    Starting in the 1970s, though, particularly in some of the most desirable markets in the country, the same people who most benefited from the developments of the early postwar years turned against those development practices. They advocated regulations for many things that most people, then as now, would agree were desirable – conserving scenic areas and wetlands, protecting coastlines and animal habitats and preserving open space, historic buildings and neighborhood character.

    Yet the net effect of all of these regulations was to limit severely the supply of land for urban uses. Even more important, existing homeowners, what I have elsewhere called the “Incumbents’ Club,” created a political system that allowed them to dictate how much growth and what kind of growth would be permitted in their cities.

    This shift of decision-making about development from private developers and individual property owners to public planning bodies, almost always controlled by homeowners, was hailed by many observers as a triumph of democratic process. The community rather than the developers, so this line of thinking went, would henceforth dictate the growth of the community. The problem with this equation was that it failed to consider who was speaking for the community and whose voices were not heard or to calculate the costs and benefits of these policies.

    For existing homeowners in affluent communities like Boulder Colorado, or Nantucket Island or San Francisco, this regulatory rush turned existing land ownership into pure gold. By limiting the supply of land for development and driving up the costs of development where the land was available, it pushed up the perceived value of all houses, including their own.

    Take the case of the Bay Area, where land prices were on par with urban areas elsewhere in the country up until 1970. Then, as the area pioneered in land use regulations of every kind, house prices started a steep climb. Where the rule of thumb had long been that the average American family in any given urban market would expect to pay about three times its annual salary for an average house, by the early years of the 21st century it had reached the point where that average house in the Bay Area would be the equivalent of ten, eleven or even twelve years of the average family’s income. At the same time, however, in lightly regulated urban areas, even extremely dynamic ones like those of Atlanta, Houston or Phoenix, house prices registered no comparable rise against incomes.

    Nor was this all. There was at the same time an increasing movement around the country to push the cost of what had been considered public goods, like new roads, street lights, sidewalks and sewers, even parks and schools, onto the developers who then passed these costs on to the eventual buyers. As a result, existing owners who enjoyed infrastructure paid for by previous generations no longer had to pay for the infrastructure of their children’s and grandchildren’s generation.

    Finally, this elaborate edifice of protection of the interests of existing landowners was capped by a series of tax revolts starting in the 1970s, particularly Proposition 13 in California. This made it possible for members of the incumbent’s club to enjoy the benefits of rapidly escalating house prices without paying a corresponding share of the property taxes that financed most municipal services.

    These land use regulations and real estate tax policies have made possible, at least in certain highly regulated markets, one of the greatest transfers of wealth in American history. The primary beneficiaries have been existing landowners including a very large percentage of affluent boomers. The ones who have paid have been less affluent renters, younger people and all future generations of prospective homeowners.

    The existing homeowner in the Bay Area could watch the value of his house soar from a few hundred thousand dollars up into the millions without lifting a finger. Meanwhile the dramatic rise in land prices, because it has not been accompanied by a corresponding increase in salaries, has devastated the prospects of young couples, many of whom were forced to either leave the area or obliged to take on huge mortgage debt just to afford an entry level house. These same people are now bearing the brunt of the steep decline in housing prices and the wave of foreclosures washing over the country.

    One of the most remarkable things about this enormous transfer of wealth has been how little most people were aware that it was happening or what caused it. A few people – notably Bernard J. Frieden in his book The Environmental Hustle from 1979 – had sounded the alarm. More recently Wendell Cox and Hugh Pavletich at Demographia.com have made a similar case using substantial data from cities in the English speaking world. Although all of these observers have been dismissed as free market enthusiasts, more mainstream commentators – like Edward Glaeser of Harvard and Joseph Gyourko of the University of Pennsylvania – have embraced this theme. Even the noted liberal economist Paul Krugman has joined the chorus, comparing the moderate land prices in the “flatlands,” meaning lightly regulated places like Texas, with the extremely high prices in the “zoned zone” or places like heavily regulated coastal California.

    This leads us to the great challenge we face now keeping families in their homes. The sad truth is that in areas where housing prices have vastly outstripped incomes there may no easy way to do this. In many markets either housing prices will need to fall quite a bit further or income will have to rise substantially, and there is little likelihood – particularly with this weak economy – of the latter happening any time in the near future.

    One good thing that might come out of the current crisis, though, is a recognition that regulations, however well-intentioned, can come at a price, sometimes a high one, for some parts of society. I doubt very much that the boomer generation ever intended to create the current housing bubble or enrich itself at the expense of less affluent families and generations to come. This was the unanticipated consequence of a genuine desire to create a better life for everyone by individuals who, probably inevitably, defined the good life as the kind of life they themselves wanted. In many ways they succeeded all too well. We can only hope this downturn will at least open up a new chapter in the discussion of the bittersweet story of a generation that set out to remake the world.

    Robert Bruegmann is a professor of Art History, Architecture and Urban Planning at the University of Illinois at Chicago. His most recent book, Sprawl: A Compact History, published by the University of Chicago Press in 2005, has generated a great deal of discussion worldwide.

  • Redrawing the Electoral Map? Not so fast.

    With Barack Obama’s historic presidential win there has been much celebratory talk about redrawing the electoral map. Obama himself boasted that he was the only Democratic candidate who could accomplish this feat.

    However, actual voting results suggest the map only shifted slightly at the margins from the 2000 and 2004 elections and that our geographic voting patterns may be more durable than we think. Here is a comparison of the famous red-blue divide:

    Exit polls show that Obama received roughly two-thirds of the non-black minority vote and about 95% of the black vote. On top of that he got more than two-thirds of the 18-29 age cohort. But none of this data captures the electoral geography that drives the Electoral College results. The true shift from red to blue was actually driven by a slight shift at the margins of the divide. The tipping point was in the suburbs where middle and upper class suburbanites congregate and 49% of the electorate resides. These voters shifted to the Democratic candidate and tipped the balance in those swing states of Florida, Ohio, Iowa, Indiana, Colorado, New Mexico, Virginia and North Carolina. They found Obama more convincing on economic matters and fundamental change from the previous administration, but it would be a mistake to assume this means they embrace a radically new governing ideology.

    To examine the results more closely we can compare the demographic characteristics of counties won by Obama and McCain and also compare these to Bush and Kerry in 2004. The following maps illustrate county vote shares in shades from blue to purple to red to show how the underlying vote compares between 2004 and 2008. Not a big difference, is there?


    The following table compares the demographic profiles of 3115 counties and how they voted in the past three presidential elections. We can see that Obama captured more suburban counties outside the urban core than either Gore or Kerry. These counties not only have lower population densities but also higher incomes and more white inhabitants. So much for race.


    This conclusion is confirmed by looking only at those counties that flipped from red to blue (Bush to Obama) or blue to red (Kerry to McCain). Is this case we can see that Obama won more populous, whiter, and richer counties than McCain. Interestingly, the older, female heads-of-household gravitated slightly toward McCain.


    Finally, we can look at an important subset of metro counties, meaning those counties that border the 50 largest metro areas in the country. There are 417 of these counties and they are classified by concentric rings from the urban core outward to the exurbs.


    These data confirm where the major shift took place. Obama had gains of roughly 5-6% over Kerry’s results in suburban counties. Obama won handily in the mature suburbs where Bush and Kerry had evenly split. This is also where much of the non-black minority support for Obama resides. On the other hand, we again see a consistent monotonic relationship between party preference and population density: as we move outward from the urban core voting preferences shift from blue to purple to red. This suggests that the urban-rural split in American politics is still very much with us. This should not surprise us if these political differences are based on lifestyle preferences that do not change from election to election or candidate to candidate.

    *State and county maps courtesy of Mark Newman: http://www-personal.umich.edu/~mejn/election/2008/

    Michael Harrington is a political scientist, policy analyst and writer living in Los Angeles. He has extensively researched the red-blue divide of the past three presidential elections by focusing on county level census and voting data.

  • Michigration: It’s Not About Out-migration in Michigan

    Pertaining to brain drain hype, Michigan has no equal. So profound is the out-migration that a local broadcasting network coined a term: Michigration. This was in January of 2008. I did a little digging and discovered the fuel for the story was a United Van Lines study about Michigan’s net loss of residents.

    Net population loss is often confused with emigration. Upstate New York, another brain drain case for a future article, is no exception. The Federal Reserve Bank branch in Buffalo issued a report that tried to clear up the confusion, explicitly stating the challenge is attracting more people instead of the assumed issue of retention.

    Michigan is in the same boat. There is nothing remarkable about the rate of out-migration from the state. What is shocking is the lack of newcomers. Most of the Rust Belt has a problem with a distinct lack of in-migration.

    Another oversight of the media is the aging population. Rarely does natural decline make the news. Of course, that “problem” doesn’t lend itself to political gain. That is too bad because making better use of an aging workforce is a missed opportunity. Shouldn’t talent retiring in Michigan be celebrated?

    A third misconception about shrinking cities is that the best and brightest are heading to hip out-of-state destinations. The truth is many graduates go no further than the suburbs, resulting in the donut pattern of urbanization. Those that venture beyond likely end up in the next state over, not halfway across the country. A lot of talent moves from one Rust Belt city to another. Much of the rest – although perhaps not the offspring of the remaining economic and cultural elite – shifts to those areas that have been creating jobs, particularly places like North Carolina, Texas and, before the recent bust, Arizona and Florida.

    In and of themselves, reports of Michigration are harmless. But popular perception is often used to push various initiatives such as Michigan’s Cool Cities:

    Building vibrant, energetic cities that attract jobs, people and opportunity to our state is a key component of Michigan Governor Jennifer M. Granholm’s economic vision for Michigan. Governor Granholm kicked-off the “Cool Cities” initiative in June, 2003 throughout the state, in part as an urban strategy to revitalize communities, build community spirit, and most importantly, retain our “knowledge workers” who are leaving Michigan in alarming numbers.

    The promise is that cooler cities will keep talent from leaving the state. I challenge Governor Granholm to list the top-10 Cool Cities in the United States and their respective out-migration rates. How do Michigan cities compare? How do you quantify “alarming numbers”?

    US cities with the fastest growth rates in population tend to have the highest rates of emigration. Ironically, shrinking cities have relatively weak out-migration. Furthermore, the college educated are much more likely to leave any state or metro than people with just a high school education. Knowledge workers leaving Michigan is normal. The low number of knowledge workers arriving, from out of state, is abnormal. Neither better urban place-making nor more tolerance on its own shows any strong positive correlation with less brain drain. In fact, the opposite may be true. Cool Cities simply hasn’t delivered.

    We do understand that knowledge workers are geographically fickle. But Governor Granholm fails to put the attraction of talent on top of the agenda. She continues to play to fears of Michigration as justification for significant investment in the state’s cities. I’m not anti-urban. On the contrary, I’d like to witness the revitalization of Rust Belt downtowns. But sprucing up an aging downtown in a region with massive job losses will not get the job done.

    The most promising research I’ve read comes from Edward Glaeser, an urban economist at Harvard University. The best investment of public money would seem to be in human capital, education. What would attract well-educated parents would be better schools, something the suburbs have mastered. Inner city Detroit’s main competition for talent is the communities ringing around it.

    Michigration will not be stemmed by being “cool” but by providing some sort of opportunity for a decent middle class life. If Michigan could combine its excellent Universities, skilled workforce and low housing costs with a decent business climate, and significant school reform, perhaps the state would again become a beacon for entrepreneurs and knowledge workers.

    Read Jim’s Rust Belt writings at Burgh Diaspora.

  • California’s Inland Empire: Is There Hope in the Heart of Darkness?

    Few areas in America have experienced a more dramatic change in fortunes as extreme as Southern California’s Inland Empire. From 1990-2008, the Inland Empire (Riverside & San Bernardino counties) has been California’s strongest job generator creating 20.1% of its employment growth. The area also consistently ranked among the nation’s fastest growing large metropolitan areas. However in 2008, the mortgage debacle has sent this area, which had not seen year-over-year job losses in over four decades, into a steep downturn. Understanding what happened and how to put the region back on its historical growth path offers an important public policy perspective not only for the Inland Empire but for other once fast-growing metropolitan areas.

    The Economic Problem. The California Employment Development Department (EDD) reported an Inland Empire loss of 17,900 jobs from August 2007-2008. The bulk of this was directly tied to the housing meltdown. Within shrinking sectors, the loss was 32,600 with 82% (26,800) tied to the demise of residential construction. This included construction losses (-16,000); non-vehicle manufacturing (mostly building materials: -5,600), non-vehicle retail sectors (mostly furniture or home supplies: -3,200); and financial groups like escrow, title, insurance and real estate (-2,000). By September 2008, unemployment was 9.1%, the highest in 49 metropolitan areas with over 1,000,000 people.’


    Note: EDD’s report is an underestimate as more accurate U.S. Bureau of Labor Statistics data show the area began 2008 with job losses 61.7% higher than EDD’s estimates.

    Housing Market Creates A Recession. Some history is necessary to understand how the housing sector got into trouble and set off the inland recession. The last housing downturn ended in 1996. Analysts agree that from 1997-2003, California’s many building restrictions prevented housing supply from matching demand by families needing homes. Prices rose to chase away excess potential buyers:

    • Seasonally adjusted homes sales rose from 13,227 quarterly units in early 1997 to 25,328 by late 2003, an annual rate of 10.1%.

    • In this period, median price increased from $105,643 to $246,807, an annual rate of 12.9%.

    Starting in 2004, speculators began wanting to capitalize on these 12.9% gains by buying and flipping homes. Simultaneously, foreigners awash in dollars from U.S. trade imbalances started flooding investment markets with cash looking for “safe” returns. A belief that home prices never fall led to the development of variable rate mortgages with extremely low “teaser” rates and loose underwriting standards, plus AAA rated mortgage backed securities based on them. The low rates financed the speculators and convinced many families to buy over-priced homes or borrow newly found “equity.” Thus:

    • Median home prices increased even more aggressively from $246,807 in late 2003 to a $404,611 peak in third quarter 2006, up at a 19.7% compound rate.

    • Seasonally adjusted sales increased from 25,328 in late 2003 to a peak of 29,670 in fourth quarter 2005, up a modest 2.29% compound rate.

    • However, by first quarter 2006, volume began declining as affordability reached just 18% and even speculators no longer saw much upside.

    • By the price peak in third quarter 2006, seasonally adjusted sales were down 27.6% to 21,478 units.

      Once the fall in demand became evident, median prices started down. The descent began slowly. However, by mid-2007, with the myth of ever-rising prices debunked:

      • Housing demand plunged.

      • Housing supply took-off as sub-prime mortgages began resetting from teaser to market rates with investors and homeowners trying to sell homes they could no longer afford.

      • Price declines thus accelerated causing ever more homeowners to be upside-down on their homes.

      • Unable to sell, many houses entered foreclosure and were aggressively marketed by the lenders, further accelerating price declines.

      By 2008, the market began changing:

      • Supply, with 60% of inland activity from foreclosures, continued to overwhelm demand with prices falling to a median of $237,784 by third quarter, equal to the mid-2003 level.

      • Demand hit a trough in late 2007 at 11,398 units. By third quarter 2008, lower prices caused it to rebound to 18,453, up 61.9%, equal to volume in 2001.

      • Demand rose as inland housing affordability reached 50% (assuming 3% down, 6.19% mortgages, 1% taxes, $800 property insurance, 0.5% FHA insurance, payments 35% of income).

      Crucially, by third quarter 2008, home construction all but halted as price competition from foreclosures caused developers to lose money on every unit built -even with land treated as free. Hence, the steep downturn and a 9.1% inland unemployment rate. In the short run, conditions will worsen as office construction stops once existing projects are completed. Already, the loss of tenants in fields like escrow and finance has pushed vacancies from 7.0% to 19.9%.

      The Routes Out? With the Inland Empire’s construction sector shutting down, economic hardship has spread far beyond those whose terrible decisions created the crisis. This is also is true in numerous markets, particularly in Arizona, Florida and Nevada.

      Until national action reduces the rising flow of foreclosures into the supply side of the nation’s housing market, supply will continually overwhelm demand sending prices downward. Residential construction will not return until markets see fewer foreclosures and prices move to higher levels. Two strategies are available:

      • Mortgage servicers can lengthen the term of mortgages and reduce rates. allowing families to afford staying in homes. However, given the principal owed, they will not be able to move until prices return to recent highs. Many are thus walking away.

      • Servicers can reduce the principal owed, allowing families to refinance and both remain in their homes and have equity in them.

      Modern housing finance has generally barred the second and more effective strategy. When banks originate mortgages, they typically sell them to Fannie Mae, Freddie Mac or investment houses to get their money back and make more loans. They are paid to service loans they no longer hold. Meanwhile, secondary mortgage holders often formed them into groups and then sell “mortgage backed securities” (MBS) worldwide. Both the originating bank and those creating MBS’s signed contracts barred them from harming investors. Unless a servicer owns 100% of a mortgage or MBS, they cannot lower mortgage principals.

      Unless national policy can convince secondary mortgage holders and/or MBS investors to allow the principal owed them to be reduced, the foreclosure crisis and residential construction depression will persist … prolonging the recession. The state attorneys general, Congress, some major banks and the FDIC have tried to lure mortgage investors to allow this or to buy them out. The results have been very mixed. The idea of allowing bankruptcy judges to lower principals has been offered as a club to force this result. Yet this raises fear of long term damage to international belief in the consistency of U.S. contract law.

      Finally, at the local level, officials could favorably impact construction costs through the developer impact fees imposed on new homes. These are justified by the need to build the infrastructure required by population increases. Inland Empire fees are $40,000 to $50,000 per home. An analysis shows that at today’s low prices, a fee holiday of 80% by local agencies and 40% by schools would put the industry profitably back return to work. The re-imposition of fees could be tied to an index like median existing home prices.

      So far, the reaction of local decision makers has been that this is legally, programmatically and politically impossible. Their traditional worry is not having the money to build the infrastructure needed as new homes cause population growth. However, for construction dependent economies like the Inland Empire, the choice appears to be temporarily foregoing such funding, or finding a broader source of infrastructure financing. Otherwise, they must face the reality of a multi-year deep recession with double digit unemployment.

      John Husing, Phd. is president of Economics & Politics, Inc. based in Redlands, CA

  • Island of Broken Dreams

    A The New York Times editorial wonders why foreclosure rates are so high in the two Long Island counties it rightly calls the “birthplace of the suburban American Dream.” After all, the area has “a relative lack of room to sprawl.” which in Times-speak should be a good thing, since “sprawl” is by definition both bad and doomed.

    Yet it is precisely the constraints on new housing that has served as a principal cause for Long Island problems. Long Island was the birthplace of the suburban American Dream, in principal measure because new housing development was permitted to occur at land prices reflecting little more than its agricultural value plus a premium to the selling farmer. The same financial formula expanded the American Dream throughout the country and many parts of the world, at least until urban planners were able, in some instances, to drive the price of land so high that housing was no longer affordable to average households.

    Indeed, land use regulation throughout the New York suburbs downstate, in New Jersey and Connecticut has long since rationed land for development. As a result, once loose mortgage loan standards became the practice, house prices escalated. Throughout the New York metropolitan area, the Median Multiple – median house prices divided by median household incomes rose from 3.2 to 7.0, in the decade ending in 2007. In traditionally regulated markets – like Long Island in the past and still much of the country in the present – the Median Multiple has been 3.0 or less for decades.

    Various regulations have led to this precipitous decline in the area’s housing affordability, virtually all of them falling under the category of “smart growth.” There are the regulations that have placed large swaths of perfectly developable land off limits for housing. There are large lot zoning requirements that have forced far more land than the market would have required to house the same number of people, producing an entirely artificial “hyper-sprawl.” Much of this ostensibly has been done in the interests of controlling “sprawl.” Where quarter acre lots would have been the market answer, planning authorities often have required one-half acre, one-acre and even more as minimum lot sizes.

    In fact, however, Long Island’s housing cost escalation has not been visited anywhere with more traditional liberal land use policies. From the first world’s three fastest growing metropolitan areas of Atlanta, Dallas-Fort Worth and Houston, to much of the South (excluding Florida), to the Midwest, housing prices rose little relative to incomes during the period of profligate lending. The difference, of course, was that the liberal land use regulations in these places allowed sufficient housing to be built that supply kept up with demand, thus accommodating new demand. Speculators saw no potential windfall profits to bring them into the market.

    The Times is not alone in misunderstanding the dynamics of land use regulation and housing affordability. But there is a very clear, demonstrated relationship – where land use regulations constrain development, prices are forced upward. This is because scarcity raises prices of goods that are in demand.

    Fortunately, not everyone at the Times shares the wrongheaded views of its editorial department. Had the editors walked down the virtual hall of their own department, or taken the train down to Princeton, where he lives, they would have encountered someone who understands all this. He is Paul Krugman, Times economic columnist and, much more importantly, Nobel Laureate. In August of 2005, Krugman noted that house prices had escalated strongly in the more regulated markets, but had changed little in the less regulated markets. He further rightly associated the less regulated markets with more sprawl, not less. In January of 2006, Krugman noted: that the highly regulated markets accounted “for the great bulk of the surge in housing market value over the last five years.” Krugman further predicted “a nasty correction ahead.”

    Meanwhile the non-Nobelist Times also make a point to bemoan the high levels of racial segregation on Long Island. Is it beyond them to understand that the very policies they favor are at fault? When one considers that ethnic minorities tend to have lower than average incomes and that land rationing nearly doubled the price of housing relative to incomes, it’s not surprising that they have not moved en masse to expensive places like Long Island, with the exception of Hempstead and a few other pockets. There are costs to restrictive land use regulation. One of the most pernicious consequences is the denial of the American Dream to groups of citizens that have so long been excluded from the economic mainstream.

    It is time to recognize that the regulations that raise the price of housing – however well-intentioned – work against housing affordability and represent one of the prime contributors to the high levels of foreclosures in many communities across the country.

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life”

  • The Geography of Change: Election 2008

    As an old radical Democrat, I remained fearful that this fall would see another 2000 and 2004. But instead there was a massive shift of perhaps 10 million votes, or about 7 percent to the Democratic side.

    Yet in some ways the “red” and “blue” map of results doesn’t look very different than in the past – a vast interior sea of red, although close inspection reveals some important shifts from red to blue. But the second map, of change – 2008 compared to 2004, is astounding: now a sea of blue across the North and West (except for the Arizona due home state effect). There was also a fascinating (Bible?) belt of counties that became redder than in 2004, if that were possible, from Appalachia, the southwest tip of PA, through WV, TN and northern AL, then west across the border South through TN, AR, ands OK.

    The 2008 election clearly reinforced and amplified some trends already apparent in 2006, a Democratic ascendancy based first in large metropolitan areas, but now extending far into suburbia and even exurbia, and dominated by an intellectual and professional class, and second, traditional racial and ethnic minority areas, urban or rural.

    Now these are joined by a third group, a dramatically larger Obama vote from the under thirty, and probably enough to have shifted several critical states – CO, IN, IA, NH, NC and VA – the Democrats. The three groups overlap, of course. Except in those anomalous border states, the relative shift was about the same in rural small-town America as in the large metropolitan areas. However, the turnout certainly increased more for minorities and for the under-30 than for us white non-Hispanic adults. Frankly, along with other political geography experts, I underestimated the likelihood of the shift to the Democrats of VA, NC and IN.

    There are some fascinating details. First is the amazing success of Obama in counties dominated by colleges and universities, with switches in strongly Republican Whitman county in Washington (home of Washington State), or Gallatin, MT (Montana State, Bozeman) and Monongalia (Univ. West Virginia), or Tippecanoe (Purdue University), IN, and dozens of others. Second is the shift of many metropolitan core, suburban and exurban counties to Obama, including in California Ventura, San Bernardino, Riverside and San Diego (truly amazing), as well as Reno (Washoe), NV; Orlando (Orange), FL; Houston (Harris); TX; Birmingham, AL; and Raleigh, NC. Perhaps the most unusual were the switch of very long time Republican strongholds as Omaha NE, Cincinnati, OH, and Grand Rapids, MI. Third, Democrats also continued to carry even more counties with environmental in-migration, especially in the west.

    We may have seen a historic shift from the baby-boomer generation to a newer Millennial generation. But the Democrats should remember from 1994 that the American electorate is centrist, and any supposed realignment is fragile.

    Richard Morrill is Professor Emeritus of Geography and Environmental Studies, University of Washington. His research interests include: political geography (voting behavior, redistricting, local governance), population/demography/settlement/migration, urban geography and planning, urban transportation (i.e., old fashioned generalist)

    Election maps courtesy of Mark Newman, Department of Physics and Center for the Study of Complex Systems, University of Michigan

  • Of Houses, Castles and the Universal Dream

    As I sit here in Beijing Capital International Airport waiting for a flight to Taiyuan, I realize something universal about people. Whether in the suburbs of Shanghai, Beijing, Wuhan, Xi’an, Shenyang, Shenzhen, Guangzhou, Nanjing or even in the historical accident of Hong Kong, some of the most beautiful single-family detached housing in the world is here. It is not extensive, because it is not affordable to the great majority of Chinese. The Chinese call them “villas.” It is, however, the most expensive of housing and a goal to which many of the nation’s rising entrepreneurial class aspire.

    It may be that it was called a dream first in America, but its beginnings go back much further. For much of human history, most people who lived in large cities were forced to put up with virtually inhuman densities. By definition, large cities were compact. Indeed, they were often not a lot larger in their geographical expanse than smaller cities. Why? To be efficient labor markets, cities had to be small, so that all of the workers could get to all of the jobs – and in those days the only way to get around was by foot. As cities got larger, especially during the industrial revolution, densities rose in some neighborhoods to 200,000 and more per square mile. The lower East Side of New York topped out at 375,000 in the 1910 census and has since dropped by 75 percent.

    The lack of sewers, clean water and the rampant filth bred disease and discomfort far beyond that experienced by any in today’s America, or for that matter today’s Europe, Japan or any other developed world country. The residents put up with it because it was better than staying in the countryside where there were fewer jobs, opportunities, or any hope for a better life. It says much about how difficult rural life was.

    But not everyone lived in such crowded conditions. Throughout history, the most wealthy have had their castles, estates and mansions. This was true in the cesspool of 19th century American and European industrial cities, just as it was in Rome.

    The coming of mechanized transport, especially urban and suburban commuter rail systems changed all this. In the latter half of the 19th century the upper middle class began to enjoy a small modicum of estate life. These communities were set in places like Riverside in Chicago and Llewelyn Park in New Jersey and even the semi-detached housing suburbs of outer London. In these places, better transport made it possible for a larger share of the population to live without urban crowding, with their own private grounds, however humble.

    Transport was to get even better and, as a result, the suburban option spread. The popular, modern start of the mass-produced automobile oriented suburb was Bill Levitt’s Levittown, built in a Long Island potato field. These modest less than 750 square foot homes, with their yard, seemed nothing less than estates to the thousands of military personnel and others who gave the name to the American Dream. Levitt and Detroit had combined to make it possible. For the first time in history a large proportion of households to own their own, albeit miniaturized, castle.

    Although not quite estate link, the average home has grown, with the average size approaching 2,500 square feet. Many Levittown homes have been expanded to accommodate a more affluent lifestyle. All of it is what I like to call the democratization of prosperity – an unprecedented sharing of the wealth that started not far beyond the borders of New York City.

    For the traveler interested in seeing urban areas beyond the touristic haunts, it is clear that the dream has expanded far beyond America. This is not surprising, because human beings, in general, seem to prefer their own space and will buy it if they can afford it. The Great Australian Dream involves detached housing that is nearly as large as new housing in the United States – even as planners struggle to force new houses on lots so small that a fire in one will likely spread to others. The large urban areas of suburbs from Canada to the United Kingdom, France, Japan, Sweden, Germany and all other developed nations all have experienced a rapid expansion of suburban living.

    The extent of the Universal Dream becomes even more compelling when one travels the developing world. Virtually the same pattern is evident in new suburbs of Beijing, Jakarta, Manila, Bangkok, Istanbul and Cairo. All have a smattering of single-family detached housing. Unlike the developed world, however, it cannot be afforded by much of the middle income population.

    None of this is to suggest that there are not some who would prefer a condominium on the upper East Side of New York, or in Chicago’s Gold Coast or in the precincts of the ville de Paris or the core of Stockholm. These people, however, constitute a minority, at least in part because a quality urban life comes with a price tag often far higher than that of the suburbs. For most people with middle class incomes, the best option remains a house that offers comfort, privacy and space at a price they can afford.

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life”

  • Obama: Making History but Not Ending It

    Barack Obama won a mandate among younger voters so large that it literally defies comparison, and with it, we’re told, a mandate to retire tired old fights of little concern to this new generation. Yet in the long run, it may well be that his victory has only put on hold some enduring political conflicts and may even ignite new ones.

    Obama’s 34-point, 66-32 percent win among the group that made up about 20 percent of voters and 60 percent of new voters was nearly four times the margin of John F. Kennedy in 1960 and Clinton in 1992.

    This differential has been put down to the vast age gap between the first post-boomer candidate and his pre-boomer foe. A poll comparing support in an Obama-McCain race against a theoretical Clinton-McCain race in September, though, showed no gender gap in support for the respective Democrats, but a vast difference in the age of their supporters, with the Illinois senator faring 20 percentage points better than his New York counterpart among voters 35 and under, which was more or less cancelled out by Clinton’s 6-point lead among the larger pool of voters 35 and older.

    It’s clear that Obama’s victory represents, among other things, a generational transfer of power. What’s less clear is the oft-repeated claim that with it the culture wars of the 1960s have finally been “won,” or at least that the two sides have agreed to a cease-fire.

    Vietnam vets, pollster James Zogby points out, are oh-for-the-last-three elections, and vets overall oh-for-the-last five. Race has been put away, perhaps since Obama’s post-Wright speech and certainly since his election. (That particular cease-fire, as it were, was immeasurably aided by McCain’s decision, not always honored by his campaign, to stay clear of former Obama spiritual guide Reverand Jeremiah Wright in particular and race more generally).

    Gender? It turns out the Hillary supporters came around to Obama after all. When feminists blasted Sarah Palin for working despite having five children and conservatives insisted they’d never had an issue with unmarried teen pregnancies, it became clear that yesterday’s core principles had been reduced to this election’s politically expedient positions.

    The era-ending nature of Obama’s win has been vouched for by no less an authority of the old culture wars than William Ayers. Writing in These Times after the election, the Weatherman founder turned Hyde Park friend of the Chicago machine writes:

    “The idea that the 2008 election may be the last time in American political life that the ’60s plays any role whatsoever is a mixed blessing. On the one hand, let’s get over the nostalgia and move on.

    On the other, the lessons we might have learned from the black freedom movement and from the resistance against the Vietnam War have never been learned. To achieve this would require that we face history fully and honestly, something this nation has never done.”

    Ayers is right that we haven’t faced history, in part because Americans are always so busy trying to bury it. We have opted to use Obama – who referred to himself in The Audacity of Hope as “A blank screen on which people of vastly differently political stripes project their own views” – as a proxy for history. With his election, the old politics are behind us.

    Or not. As Mario Cuomo might say, it’s a poetic notion but it won’t survive four years of prose.

    By the time the election was called for Obama at 11:00 Tuesday night, it was already clear that the old racial, ethnic, gender, class and regional antagonisms remain very much in play.

    The heated and at times nasty name calling between blacks and gays (mostly aimed at the former by the latter) in the aftermath of Proposition 8’s passage in California even as those same voters gave Obama a 23-point, 2.6 millon vote win, represents one illustration. (Gays incidentally, preferred Clinton to Obama by more than 2-to-1 in the state’s primary, according to CNN exit polling). Arizona and Florida voters also passed referenda defining marriage as between one man and one woman, and Arkansas voters passed one prohibiting unmarried couples from adopting children or serving as foster parents.

    It’s clear that the strong generational consensus of equal rights for gays isn’t a broader American consensus just yet.

    New York Mayor Michael Bloomberg’s dismissal of the automakers’ appeals for federal monies (which spawned a predictable round of New York to Detroit: Drop Dead headlines) is another, representing both the clash of cities and regions for their share of the federal bailout funds, and the clash of wealthy Wall Street Democrats with what’s left of the old industrial union branch of the party.

    So too will be coming tension between the party’s urban core and vulnerable new exurban House members, who may not easily accept the urbanist green agenda embraced by the party’s city-oriented congressional leadership, and which would pass tremendous upfront and long term costs to industries ranging from airlines and aerospace to truckers and energy producers. Whatever the potential environmental and economic benefits down the road, this tack will prove politically difficult to implement if the economy continues to struggle and oil prices continue to fall.

    More generally, there’s the tension between the socially libertarian instincts of younger voters and their pro-big government tilt, especially but not exclusively on the environment, a dynamic that’s just now beginning to play out but augurs conflict to come.

    Then there’s the continued dissatisfaction of those Hillary voters who gritted their teeth while pulling the lever for Obama. What if the Republicans find a more effective and proven female standard-bearer than Sarah Palin?

    New black and Latino voters culturally closer to the religious right than to the wealthier liberals with whom they united in support of Obama have not had a chance to express those culturally conservative views. Perhaps a Bobby Jindal or some other non-white Republican figure could emerge to exploit these potential fissures once memories the anti-immigration fervor of the GOP primaries has faded.

    It’s critical to recognize that all these conflicts – regional, geographic, ethnic and philosophical – were suppressed this year by the economy, which drove voters of all stripes running to the Democrats. When the economy improves, or becomes the problem of the Democrats as opposed to George Bush’s cross to bear, many issues now considered resolved won’t be.

    Barack Obama may have made history but he did not end it. As we have seen over the past decades, the end of one set of conflicts often sets the stage for another. This is likely to be the case again.

    Harry Siegel is a contributing editor at Politico. hsiegel@politico.com