New Geography

Category: Urban Issues

  • Musings on Urban Form: Is Brooklyn the Ultimate City?

    It’s clear we need a new lexicon for emerging urban forms that are neither urban nor suburban in character. Yet when you raise that issue, you elicit some strongly held views — most of them negative — about whether anything other than a “real city” with its bad sections, panhandlers, and industrial areas can qualify as urban.

    I feel it is increasingly difficult to make such distinctions. This is particularly true as we observe the rapidly changing character of inner-ring suburbs in particular, as well as the innumerable “new towns” that have sprouted up in what would otherwise clearly be suburban or even exurban locales.

    One commenter suggested, thusly, that places like my home town, the City of Falls Church, Virginia, lacks the “authenticity” to be a real city:

    Planned and tightly controlled cities are not “real”.

    Real cities have panhandlers.
    Real cities have plenty of Class-D space.
    Real cities have ethnically diverse populations.

    Call me in 30 years and by then the City of Falls Church may be a real city

    Ironically, based on the foregoing litmus test, Falls Church is two-thirds of the way toward being a “real” city. It has both panhandlers and at least some “Class-D” space; however, it admittedly lacks an ethnically diverse population. As to the assertion that “real” cities are neither “planned” nor “tightly controlled,” with the exception of perhaps Houston, Texas, I cannot identify a single city in America that was not planned, and the extent to which growth is “tightly controlled” in these real cities is certainly subject to debate.

    So what makes a real city? On a recent visit to Brooklyn, once largely considered a suburban appendage to New York, I found what is perhaps the standard-bearer of what it means to be a “real” city. And, if anything, Manhattan is arguably becoming an “appendage” to Brooklyn.

    I suspect that the average person knows that the City of New York – comprised of five boroughs including Manhattan and Brooklyn – is the most populous city in the United States (although there are some who mistakenly believe it is the City and County of Los Angeles, confusing Los Angeles County’s population with that of the city by the same name). In fact, if Brooklyn were an independent jurisdiction – which it was until 1898 when it was consolidated with New York City – it would be the country’s fourth largest after New York, L.A. and Chicago, with a residential population exceeding 2.5 million. Interestingly, that number represents an increase of over 275,000 people since 1980 (277,884 to be exact, which is more than the entire population of St. Paul, MN), although it represents an overall decrease in population since Brooklyn reached it residential apex in 1950 at over 2.7 million.

    Moreover, based on population density, with over 35,600 residents per square mile (2,528,050 residents as of 2006, in a 71 square mile area), Brooklyn would be the densest city in America.

    By contrast, the population density of the rest of New York City (which includes somewhat less dense Queens and positively suburban Staten Island), San Francisco (at over 16,000 residents/sq. mi.), Chicago, Boston, Philadelphia, and Washington, D.C. – in that order – are all denser than L.A., which has a population density of less than 8,000 residents/sq. mi. or approximately 22% of the density of Brooklyn. Consider Brooklyn’s Brown-Wood Cemetery: If its “residents” were alive today, it would be the 24th largest city in the U.S., just ahead of Seattle but slightly behind Milwaukee.

    But neither total population nor population density makes the case for my suggestion that Brooklyn is America’s quintessential city, ahead of even Manhattan. First, Brooklyn reflects a much more holistic melding of complimentary land uses, with residential, commercial, institutional, recreational, and retail and entertainment in close proximity of each other in many of its neighborhoods.

    Manhattan, on the other hand, is much more Balkanized, with its various land uses much more clustered together, to the point of edging out other, potentially complimentary uses. That is not to say that there are no residential neighborhoods in Manhattan per se: However, Manhattan, like many of San Francisco’s nicer neighborhoods, is a great place to live only if money is not an obstacle. Finally, Manhattan has a much-more transitory culture, whereas Brooklyn has become a preferred place for “New Yorkers” of modest to moderate means to settle down and raise a family.

    Like a model city, Brooklyn manages to accommodate its density extremely well. First of all, like San Francisco, Brooklyn is a city of neighborhoods. Bedford Stuyvesant, Bensonhurst, Coney Island, Flatbush, Park Slope and Williamsburg are some of the more notable among Brooklyn’s 32 neighborhoods. It is remarkable, given Brooklyn’s density, that much of its housing stock is comprised of three and four-story brownstones, along with mid-rise apartment and coop buildings. For example, Park Slope and Carroll Gardens, with a combined neighborhood population of almost 105,000 (slightly more residents than South Bend, Indiana and just under the population of Clearwater, Florida), have a wonderful scale both to their residential streets and their main commercial thoroughfare, 5th Avenue. They achieve a very walkable and synergistic mix of homes and businesses, as well as public and institutional uses.

    However, it is arguably the incredible diversity of Brooklyn’s residents that define it as a “real” city. Less than 35% of the population of Brooklyn is white/non-Hispanic, over 36% is Black or African-American, and almost 20% is Latino or Hispanic. Almost 38% of Brooklyn’s population was born somewhere other than the U.S., almost 47% speak a language other than English at home, and a total of 110 ethnic origins are represented among its population.

    The median income in Brooklyn is just under $30,000 per year. However, the median price of a home (all types) is $490,000. The median price for co ops is $267,500, representing approximately 25% of the housing market. The median-priced condo is $514,216, representing approximately 28% of the market. Just under half of the Brooklyn for-sale market is comprised of one- to three-family dwellings, with a median sales price of $584,250. Not surprisingly, however, most of Brooklyn’s housing stock is rental housing.

    Without a doubt, Brooklyn is the melting pot of the world, with a tremendous amount of social, ethnic, and economic diversity, all coexisting in a 71 square mile area. So while there may be disagreement about how to best characterize the City of Falls Church in the suburban-to-urban spectrum, Brooklyn establishes the benchmark for a “real city,” even if it is not, in fact, a city in the legal sense of the word.

    Peter Smirniotopoulos, Vice President – Development of UniDev, LLC, is based in the company’s headquarters in Bethesda, Maryland, and works throughout the U.S. He is on the faculty of the Masters in Science in Real Estate program at Johns Hopkins University. The views expressed herein are solely his own.

  • Public Pension Troubles Loom for State and Local Governments

    We have watched with trepidation as the stock market declines and along with it the value of our retirement accounts. Yet with our personal accounts, it’s our own problem. When it comes to public pensions, it’s the taxpayer’s problem. Underfunded pensions could cut two ways, leading to much higher taxes and/or cuts in government spending.

    This is a particularly big issue here in my home state of Illinois. The Chicago Sun-Times just reported the Land of Obama has earned the dubious honor of having the most underfunded public pension plan in America.

    According to Professor Jeremy Siegel, the above-average returns of the stock market in the recent past have attracted the attention of public pension fund managers.

    The prospect of bigger returns has led managers to pour billions in public pensions into stock. Finance Professors Deborah Lucas and Stephen Zeldes report that the share of state and local (S&L) plan assets held in equities has greatly increased over time from an average of about 40 percent in the late 1980s to about 70 percent in 2007.

    In the current market environment, this exposure led to a loss of an estimated $1 trillion dollars over the past year. Are stocks likely to average annual returns of 10% for the next 20 years? Not likely, and that’s a big problem for both public pension funds, and for the poor taxpayer.

    Equity investing will see many challenges in the coming years. Here are some issues to consider. The reaction to Enron’s bankruptcy was much tighter regulation on corporate accounting. This led to the infamous Sarbanes-Oxley law which has made it far less desirable to run public investment funds and slowed the development of new IPOs. The result, as Joe Weisenthal reported in February of 2007, was a spectacular rise in private equity funds, such as the infamous hedge funds, which contributed mightily to the recent financial meltdown.

    Successful IPOs eventually join the major indexes which help the long run drive equity returns. Fewer IPOs mean less opportunity for investing in listed equities. This will make it harder for pension funds to enjoy higher returns.

    And then there are some demographic concerns. In 2008 the first cohort of baby boomers retired. Many more will follow. This will put increasing strains on all equity investors. Eventually, pension fund managers will have to be net sellers of equities to raise cash for the retiring boomers. No one can say with certitude when this trend will hit critical mass, but when pension funds become net sellers stocks are almost certain to go down.

    The giant bull market of 1982-2000 was driven not only by favorable demographics but also lower marginal income tax rates, cuts in capital gains taxes, and lower inflation. All three conditions could very likely be much higher in the next 20 years. President Obama has openly talked about higher capital gains taxes and the rich being obligated to fund expanded government programs. Recent increases in the money supply by the Federal Reserve Board point to potentially much higher rates of inflation and interest rates. Equities will perform poorly in such an environment.

    American equity investors are in a new era with the federal government making direct investments in private companies. What are the likely results of the federal government controlling an industry? Not good. The TARP program quickly expanded to taxpayers funding car companies that under normal market conditions would have been forced into bankruptcy. What other industries does the federal government have in mind for taking over? Is the medical industry next? Drug companies? Until recently these scenarios were unimaginable.

    All this uncertainty, at very least, is quite bad for equity investing.

    The TARP program is likely to have profound long-term affects on capital markets. With the government having a big stake in major banks, future business loans could potentially be influenced by politicians who regulate the banks. This will lead to a massive misallocation of resources. Will the federal government encourage more homeownership when the housing market has a huge supply? Only time will tell. Will a bank branch be allowed to close in a powerful Congressman’s district?

    As equities lose their attractiveness, public pensions may have to look to corporate bonds and real estate to get investment returns. Are these investments likely to produce historical rates of return that equities have? It’s very unlikely. Governments may be forced to conduct fire sales of their properties just to raise cash to meet their pension obligations.

    Something will have to change. Without a restored boom in stock prices, public pension funds will have a very hard time meeting their obligations. Either governments will have to increase taxes – perhaps dramatically – or force public employees to endure the same risks and potentially anemic returns the rest of us may be up against. Given the size of these funds, and the enormous political power of government workers, this may create one of the major political conflicts of the coming decade.

    Steve Bartin is a resident of Cook County and native who blogs regularly about urban affairs at http://nalert.blogspot.com. He works in Internet sales.

  • Reviving the City of Aspiration: A Study of the Challenges Facing New York City’s Middle Class

    For much of its history, New York City has thrived as a place that both sustained a large middle class and elevated countless people from poorer backgrounds into the ranks of the middle class. The city was never cheap and parts of Manhattan always remained out of reach, but working people of modest means—from forklift operators and bus drivers to paralegals and museum guides—could enjoy realistic hopes of home ownership and a measure of economic security as they raised their families across the other four boroughs. At the same time, New York long has been the city for strivers—not just the kind associated with the highest echelons of Wall Street, but new immigrants, individuals with little education but big dreams, and aspiring professionals in fields from journalism and law to art and advertising.

    In recent years, however, major changes have greatly diminished the city’s ability to both retain and create a sizable middle class. Even as the inflow of new arrivals to New York has surged to levels not seen since the 1920s, the cost of living has spiraled beyond the reach of many middle class individuals and, particularly, families. Increasingly, only those at the upper end of the middle class, who are affluent enough to afford not only the sharply higher housing prices in every corner of the city but also the steep costs of child care and private schools, can afford to stay—and even among this group, many feel stretched to the limits of their resources. Equally disturbing, even in good times, the city’s economy seems less and less capable of producing jobs that pay enough to support a middle class lifestyle in New York’s high-cost environment.

    The current economic crisis, which has arrested and even somewhat reversed the skyrocketing price of housing, might offer short-term opportunities to some in the market for homes. But the mortgage meltdown and its aftermath will not change the underlying dynamic: over the past three decades, a wide gap has opened between the means of most New Yorkers and the costs of living in the city. We have seen this dynamic play out even during the last 15 years, as the local economy thrived and crime rates plummeted. Despite these advances, large numbers of middle class New Yorkers have been leaving the city for other locales, while many more of those who have stayed seem permanently stuck among the ranks of the working poor, with little apparent hope of upward mobility. This is a serious challenge for New York in both good times and bad. A recent survey found the city to be the worst urban area in the nation for the average citizen to build wealth. For the first time in its storied history, the Big Apple is in jeopardy of permanently losing its status as the great American city of aspiration.

    This report takes an in-depth look at the challenges facing New York City’s middle class. More than a year in the works, the report draws upon an extensive economic and demographic analysis, a historical review, focus groups conducted in every borough and over 100 individual interviews with academics, economists and a wide range of individuals on the ground in the five boroughs. These include homeowners, labor leaders, small business owners, real estate brokers, housing developers, immigrant advocates, and officials from nearly two dozen community boards.

    Throughout the course of our research, the vast majority of New Yorkers—for the most part fierce defenders of the city—were alarmingly pessimistic about the current and future prospects of the local middle class. “What middle class?” was the quip we heard repeatedly after telling people about our study.

    But for all the valid concerns of those we spoke with, our conclusion is that a strong middle class remains in New York, and that there are considerable grounds for optimism about its future. In 2007, the city recorded the second highest total of building permits issued since it started keeping track in 1965, with Brooklyn and Queens hitting records—a clear sign that large numbers of people want to live in these long-time middle class havens. Home ownership rates in the city reached their highest levels ever in 2007, another testament to the city’s desirability—even if a not insignificant share of the recent housing purchases were driven by unfair and deceptive predatory lending practices. And in many communities, there have been long waiting lists for day care centers and private schools. While the economic crisis is already leading to sharp spikes in foreclosures, a precipitous decline in housing sales and, most troubling, a massive number of layoffs, it should not reverse the sense of many middle class families that New York now offers a safe environment to raise their kids—a key factor in the decision to stay in the city rather than decamp for the suburbs.

    “The perception of New York among young people is so phenomenal,” says Alan Bell, a partner with the Hudson Companies, a real estate development company that has built housing from the East Village to the Rockaways. “It used to be that automatically you’d get married and had kids and you were out to Montclair, New Jersey or Westchester. Now they want to stay. The question is how they stay since it’s so expensive.”

    Set against this picture of progress, however, are some alarming trends. Most of the people interviewed for this report told us of middle class friends, relatives or colleagues who had recently given up on the city. “I work with a lot of people who moved to Philadelphia and commute each day,” says Chris Daly, a media director at Macy’s who now lives with his wife and three kids in Tottenville, Staten Island but plans to move to New Jersey. “It’s the cost of living. You’re going to see more people moving to Philadelphia, the Poconos and commuting.”

    Unless we find ways to reverse some of the trends detailed in this report, the New York of the 21st century will continue to develop into a city that is made up increasingly of the rich, the poor, immigrant newcomers and a largely nomadic population of younger people who exit once they enter their 30s and begin establishing families. Although such a population might sustain the current “luxury city”—as Mayor Michael Bloomberg famously described New York—it betrays the city’s aspirational heritage. Further, a New York largely denuded of its middle class will find it nearly impossible to sustain a diversified economy, the importance of which is clearer than ever in light of the current finance-led recession.

    As a final consideration, a large and thriving middle class has always provided the ballast that a great city requires. Throughout modern history, such cities at their height—for example, Venice in the 15th century and Amsterdam in the 17th—have nurtured a large and growing middle class. But no city has had a greater history as a middle class incubator than New York. As the legendary urbanist and long time New York resident Jane Jacobs once noted: “A metropolitan economy, if working well, is constantly transforming many poor people into middle class people, many illiterates into skilled people, many greenhorns into competent citizens… Cities don’t lure the middle class. They create it.”

    Although some may suggest that this is a role New York can no longer play, we believe it is one that the city needs to address if it is to remain a truly great city.

    Released by Center for an Urban Future, this report was written by Jonathan Bowles, Joel Kotkin and David Giles. It was edited by David Jason Fischer and Tara Colton, and designed by Damian Voerg. Mark Schill, an associate with Praxis Strategy Group, provided demographic and economic data analysis for this project. Additional research by Zina Klapper of www.newgeography.com as well as Roy Abir, Ben Blackwood, Nancy Campbell, Pam Corbett, Anne Gleason, Katherine Hand, Kyle Hatzes, May Hui, Farah Rahaman, Qianqi Shen, Linda Torricelli and Miguel Yanez-Barnuevo.

  • Housing Prices Will Continue to Fall, Especially in California

    The latest house price data indicates no respite in the continuing price declines, especially where the declines have been the most severe. But no place has seen the devastation that has occurred in California. As median house prices climbed to an unheard-of level – 10 or more times median household incomes – a sense of euphoria developed among many purchasers, analysts and business reporters who deluded themselves into believing that metaphysics or some such cause would propel prices into a more remote orbit.

    Yet gravity still held. A long-term supply of owned housing for a large population cannot be sustained at prices people cannot afford. Since World War II, median house prices in the United States have tended to be 3.0 times or less median household incomes. This fact should have been kept in mind before – and now as well.

    By abandoning this standard, California’s coastal markets skidded towards disaster. Just over the past year, house prices in the Los Angeles, San Francisco, San Diego and San Jose metropolitan areas have declined at more than three times the greatest national annual loss rate during the Great Depression as reported by economist Robert Schiller.

    But the re-entry into earthly prices is just beginning. In the four coastal markets, the Median Multiple has plummeted since our third quarter 2008 data just reported in our 5th Annual Demographia International Housing Affordability Survey. The most recent data from the California Association of Realtors would suggest that the Median Multiple has fallen from 8.0 to 6.7 in San Francisco, in just three months. In San Jose, the drop has been from 7.4 to 6.3. Los Angeles has fallen from 7.2 to 6.2 and San Diego has slipped from 5.9 to 5.2.

    Yet history suggests that there is a good distance yet to go. California’s prices will have to fall much further, particularly along the coast. Due largely to restrictive land use policies, California house prices had risen to well above the national Median Multiple by the early 1990s, an association identified by Dartmouth’s William Fischel. During the last trough, after the early 1990s bubble and before the 2000s bubble, the Median Multiple in the four coastal California markets fell to between 4.0 and 4.5. It would not be surprising for those levels to be seen again before there is price stability.

    Using this standard, I expect median house prices could fall another $150,000 to $200,000 in the San Francisco and San Jose metropolitan areas. The Los Angeles area could see another $100,000 to $125,000 drop, while the San Diego area could be in store for a further decline of $50,000 to $75,000.

    Is there anything that can stop this? Yes there is – the government. This is the same force that caused much of the problem at the onset. Now with the passage of Senate Bill 375 and an over-zealous state Attorney General more intent on engaging in a misconceived anti-greenhouse gas jihad, it may become all but impossible to build the single-family homes that, according to a Public Policy Institute of California survey, are preferred by more than 80% of California. Instead we may see ever more dense housing adjacent to new transit stops – exactly the kind of housing that has flooded the market in recent years. Many of these units, once meant for sale, have been turned into rentals. Many others lay empty.

    In the short run, however, even Jerry Brown’s lunacy will have limited impact. The continuing recession will continue to reduce prices even though the supply remains steady. The surplus of dense condominium units will expand the swelling inventory of rentals, as prices continue to drop towards a 4.0 to 4.5 Median Multiple or below.

    The one place which may benefit from this will be some of the less glamorous inland markets, that are suddenly becoming far more affordable. Sacramento earns the honor of being the first major metropolitan area to reach a Median Multiple of 3.0, as a result of continuing declines. Riverside-San Bernardino is close behind, and should be in this territory within the next year.

    But many other overpriced markets have yet to experience this kind of pain. Prime candidates for big reductions include New York, Miami, Portland (Oregon), Boston and Seattle. These areas may not have suffered the extreme disequilibrium seen in California, but their prices have soared. As the economies of these regions – New York and Portland in particular – begin to unravel, prices will certainly fall, perhaps precipitously.

    This may not make Manhattan or Portland’s Pearl District affordable for the middle class but could drive prices to reasonable levels in the outer boroughs, Long Island or the Portland suburbs. This may be a disaster for the speculators, architects, developers and some local governments, but for many middle class families it may seem like the dawning of a new age of reason.

    HOUSING AFFORDABILITY RATINGS UNITED STATES METROPOLITAN MARKETS OVER 1,000,000
    Rank Metropolitan Area Median Multiple
    AFFORDABLE  
    1 Indianapolis 2.2
    2 Cleveland 2.3
    2 Detroit 2.3
    4 Rochester 2.4
    5 Buffalo 2.5
    5 Cincinnati 2.5
    7 Atlanta 2.6
    7 Pittsburgh 2.6
    7 St. Louis 2.6
    10 Columbus 2.7
    10 Dallas-Fort Worth 2.7
    10 Kansas City 2.7
    10 Mem[hios 2.7
    14 Oklahoma City 2.8
    15 Houston 2.9
    15 Louisville 2.9
    15 Nashville 2.9
    MODERATELY UNAFFORDABLE  
    18 Minneapolis-St. Paul 3.1
    18 New Orleans 3.1
    20 Birmingham 3.2
    20 San Antonio 3.2
    22 Austin 3.3
    22 Jacksonville 3.3
    24 Phoenix 3.4
    25 Sacramento 3.5
    26 Tampa-St. Petersburg 3.6
    27 Denver 3.7
    27 Hartford 3.7
    27 Las Vegas 3.7
    27 Raleigh 3.7
    27 Richmond 3.7
    32 Salt Lake City 3.8
    33 Charlotte 3.9
    33 Riverside-San Bernardino 3.9
    33 Washington (DC) 3.9
    36 Milwaukee 4.0
    36 Philadelphia 4.0
    SERIOUSLY UNAFFORDABLE  
    38 Chicago 4.1
    38 Orlando 4.1
    40 Baltimore 4.2
    41 Virginia Beach-Norfolk 4.3
    42 Providence 4.4
    43 Portland (OR) 4.9
    SEVERELY UNAFFORDABLE  
    44 Seattle 5.2
    45 Boston 5.3
    46 Miami-West Palm Beach 5.6
    47 San Diego 5.9
    48 New York 7.0
    49 Los Angeles 7.2
    50 San Jose 7.4
    51 San Francisco 8.0
    2008: 3rd Quarter  
    Median Multiple: Median House Price divided by Median Household Income
    Source: http://www.demographia.com/dhi.pdf

    Note: The Demographia International Housing Affordability Survey is a joint effort of Wendell Cox of Demographia (United States) and Hugh Pavletich of Performance Urban Planning (New Zealand).

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

  • New York Should End Its Obsession With Manhattan

    Over the past two years, I have had many opportunities to visit my ancestral home, New York, as part of a study out later this week by the Center for an Urban Future about the city’s middle class. Often enough, when my co-author, Jonathan Bowles, and I asked about this dwindling species, the first response was “What middle class?”

    Well, here is the good news. Despite Mayor Bloomberg’s celebration of “the luxury city,” there’s still a middle class in New York, although not in the zip codes close to hizzoner’s townhouse. These middle-class enclaves are as diverse as the city. Some are heavily ethnic, others packed with arty types, many of them more like suburbia than traditionally urban.

    This New York is vastly different from the one that appears in most movies. It is more like the New Jersey portrayed in “The Sopranos” or “All in the Family” (set in Queens) than Manhattan-centric “Seinfeld” and “Sex and the City”. Largely, this middle class stays in New York – despite the congestion, high taxes and regulatory lunacy – because that is where they are from, where they worship and where they are close to their places of work.

    In many cases, they live in Bay Ridge, Bayside, Brighton or Bensonhurst, in the vast sprawl that is Brooklyn and Queens. New York’s middle class is also highly diverse. In many areas, the descendants of Italians or Poles live cheek by jowl with newer groups such as Koreans, Chinese, Indians, Jamaicans, Russians, Israelis and Pakistanis. They stay and raise their children, in large part because of their extended family networks. As Queens resident and real estate agent Judy Markowitz puts it, “In Manhattan people with kids have nannies. In Queens, we have grandparents.”

    Some of the emerging middle class also cluster in places like Ditmas Park, a reviving part of Flatbush. The new population here is made up largely of information age “artisans” – musicians, writers, designers and business consultants who cluster in New York. They may have migrated there for the culture, but they stay because they find these neighborhoods congenial and family-friendly.

    “It’s easy to name the things that attracted us – the neighbors, the moderate density,” explains Nelson Ryland, a film editor with two children who works part-time at his sprawling turn-of-the-century Flatbush house. “More than anything, it’s the sense of the community. That’s the great thing that keeps people like us here.”

    For these reasons, New York’s middle class may be hard to displace, but they certainly are under considerable stress. Urban life may have improved from its nadir in the 1970s, but our findings show that net out-migration from the city, particularly as people get into their late 20s and early 30s, has continued.

    The now-imploding economic boom did not halt this pattern. Indeed out-migration in the last few years has been greater on a per capita basis than that of the early 1990s, when “escape from New York” was a recurring media theme. The reasons: the nation’s highest cost of living, poor public schools, inadequate transit, expensive housing, high taxes and lack of broad-based economic opportunity.

    Much the same process is occurring in other great cities from San Francisco and Los Angeles to Chicago and Philadelphia. Indeed, even as gentrification brings in wealthy childless couples and students (often supported by their suburban parents) to urban areas, the number of middle-class neighborhoods has continued to decline, as demonstrated by a 2006 Brookings Institution paper.

    This is true, for example, in the San Fernando Valley section of Los Angeles, where I live. Once overwhelmingly made up of home-owning, moderate-income earners, the Valley is becoming increasingly bifurcated between the affluent and a growing class of largely minority renters.

    The hollowing of the New York middle class has been even more rapid. In 2006, Manhattan, the cradle of gentry liberalism, had achieved the widest gap between rich and poor in the nation. Overall, New York has the smallest share of middle-income families in the nation: The city’s middle class – those making between $35,000 and $150,000 a year – fell to 53% between 2000 and 2005, while remaining steady nationwide at 63%.

    Up until now, these trends did not much bother New York’s media, business and political hegemons. Under its ruling Medici, Mayor Michael Bloomberg, New York has been shaped as a place for the masters and their servants. Such Bloombergian priorities as the Second Avenue subway, the taxpayer-subsidized construction of luxury-box-laden stadiums, as well as an orgy of a city-inspired luxury condominium construction and plans for ever more high-end office towers reflect this worldview.

    Of course Bloomberg’s “luxury city” is largely a Manhattanite vision, with a few tentacles spreading to the adjacent parts of the outer boroughs. It takes its sustenance from the enormous wealth generated by Wall Street as well as the presence of a large “trustifarian” class. This is very much the New York of The New York Times: fashionably liberal in politics, self-consciously avant-garde, and devoted, more recently, to “green” consumerism.

    At the height of the boom – say two years ago – some imagined there were enough folks such as these to sustain the city. They would now constitute a de facto new middle class, except their bank accounts would have extra zeros. When Jonathan and I interviewed a developer, he bristled at us for suggesting that New York’s middle class was shrinking. “Of course, there’s a middle class,” he stated flatly. “Why, my friend’s son just bought a place here in Manhattan.”

    “Oh really?” I asked, a bit incredulously. “And how much was the apartment?”

    “One and half million.”

    “And how did he pay for it?”

    “His dad.”

    Now, with Wall Street’s money machine in reverse and the Manhattan real estate market unraveling, the surplus capital to finance million-dollar condominiums for kids may well have evaporated. Similarly, the parade of top graduates from business and law schools could slow, now that the big bonus regime may be coming to an end. If you are going to be paid bankers’ wages, why not live somewhere cheaper?

    Yet despite the tough times, there is no real reason for New Yorkers to fear a return to the bad old days of the 1970s, as Reuters recently warned. New York used to have a diverse, middle-class economy that was remarkably recession-proof.

    It could have such an economy in the future as well. A modern version may be less reliant on manufacturing, but focused instead on the talents of its citizens in such things as design, marketing and data analysis. Still, it would be a small business-oriented economy – one that could flourish outside Manhattan.

    New York should cultivate such an economic shift and also turn its attention from the chic precincts to its middle-class neighborhoods. In the post-Wall Street era, the “luxury city” concept needs to be discarded just like other toxic manifestations from a discredited era.

    This article originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

  • Cleveland, Part II: Re-Constructing the Comeback

    Yesterday, in Part I, I talked about how, despite the Cleveland region’s significant assets, the Greater Cleveland Partnership’s strategy is failing to transform its economy. Today I’ll focus on the strategy’s five weaknesses, and how to fix them.

    First: The Wrong Approach To Achieving Scale
    To be effective, economic development initiatives have to be big enough to make a difference. Traditionally, this has meant building bigger organizations. The Cleveland leadership is following an economic development model based on hierarchies.

    What worked 30 years ago does not work so well today. Across the business landscape large, vertically integrated organizations are breaking apart. In economic development, this transition means that civic leaders need to build regional scale by developing networks. In a world of increasing economic complexity, regions that have strong, trusted networks will be more competitive. They will learn faster, spot opportunities faster, and will align their resources more quickly. And they will make faster and better decisions. Cleveland’s civic leadership can be far more effective if it learns the power of social networks. A number of good books explore this topic; The Tipping Point should be required reading.

    Second: Misunderstanding Public-Private Partnerships
    Over the past decade, Cleveland’s business leadership has revealed a startling misunderstanding of the nature of the two categories of public-private partnerships that drive economic development.

    Publicly-led and privately-supported investment projects typically involve large infrastructure, as well as projects in which public financing represents over half of the total development budget, such as stadiums, museums, libraries, and community sports complexes.

    The second category involves privately-led and publicly-supported investment projects. Here, the private sector takes the lead, but the public sector provides support and guidance. Good examples include tax increment financing districts, business improvement districts, and virtually all economic development incentives.

    Cleveland, during the Voinovich Administration, executed well on publicly-led and privately supported projects. A new baseball stadium, the Rock and Roll Hall of Fame, the Science Museum, the new basketball arena, and the Cleveland Browns stadium are all examples. Starting in the mid-1990’s this capability degraded rapidly, so that it has taken over ten years (with no end in sight) to complete the last of the Voinovich projects, the convention center.

    But when it comes to privately-led and publicly supported investment, the business community has proven itself inept. It took ten years for it to establish a business improvement district around the new baseball stadium and arena. The signature downtown shopping mall, Tower City, has no anchors, no street visibility, and terrible parking.

    The easiest way to learn how these partnerships can be successful involves visiting other cities. Not surprisingly, Cleveland’s civic leadership does not regularly take leadership visits, a common practice among dynamic metro regions.

    Third: No Strategic Framework, No Theory Of Change
    Foundations are fond of asking for a “theory of change”. In other words, they want their grantees to orient themselves within a broader system. They want a simple, clear explanation of how a proposed intervention will transform the system to better performance.

    Cleveland’s leadership has no apparent theory of change. Overwhelmingly, the strategy is now driven by individual projects. These projects, pushed by the real estate interests that dominate the board of the Greater Cleveland Partnership, confuse real estate development with economic development. This leads to the “Big Thing Theory” of economic development: Prosperity results from building one more big thing.

    The economy has shifted under the leadership’s feet. We are rapidly moving toward an economy of networks embedded in other networks. With an economy driven by knowledge and networks, economic development is more than land development, real estate projects, and recruiting firms that move from Michigan to Mexico.

    Today, economic development begins with brainpower in 21st-century skills, and Cleveland’s leadership largely ignores the role of developing brainpower. The next version of the Cleveland+ strategy should explain how the city-region will innovate to build these skills. The best places to look: Milwaukee, Cincinnati, Syracuse and Kalamazoo.

    Prosperous regions must also develop thick, trusted networks to convert this brainpower into wealth through innovation and entrepreneurship. Cleveland’s top-heavy development organizations need to shift toward network-based strategies that are more lean and agile. That will put investment toward more productive use. Good examples to follow: Ann Arbor Spark and the Milwaukee 7.

    In order to attract and retain smart people, regional leaders need to develop quality, connected places, “hot spots” that attract people and “smart growth” strategies that efficiently leverage scarce public investments. In Cleveland’s case, the city needs more coherence to its physical development, one that embraces the city’s inevitable shrinkage in the years ahead.

    To create a buzz, effective regional leaders build their brands, not with clever logos, but with powerful experiences and stories that help people to connect their past to a prosperous future. Action, authentic stories, and networks are changing Akron, Youngstown, Kalamazoo and Milwaukee, all cities facing the same challenges as Cleveland.

    Fourth: The Wrong Mindset For Making Decisions
    If you live in a world of hierarchies, you live in a world of two directions: top-down or bottom-up, with top-down the preferred direction. It’s the direction of command-and-control; of predictability and stability. Bottom up is the opposite. It implies disorganization and chaos, inefficiency and fragmentation, confusion and uncertainty. If you approach economic development from a top-down perspective, you want to limit and control public comment. Civic engagement is a carefully circumscribed event, not a process; a meeting, not a collaboration. Anyone who has attended a school board meeting understands this point.

    There’s only one problem. The top-down world does not exist in economic development. Complex public/private strategies are developed in a “civic space” outside the four walls of any one organization. Within the civic space, no one can tell anyone else what to do. Strategies born in a top-down mindset are doomed to fail.

    Networks have no top or bottom, only nodes and links. Strategy is an exercise of aligning, linking and leveraging assets across a network. Transformation takes place when enough people in the network align themselves toward a specific outcome, through purposeful conversation. To traditionalists, conversation is a distraction or a waste of time. In the years ahead, the challenge for places like Cleveland will be to manage complex conversations.

    At Purdue, we are developing the new disciplines of “Strategic Doing”, an approach to select and test transformative ideas in complex environments quickly. Traditional approaches of strategic planning are too linear, time-consuming, inflexible and expensive. Strategic Doing offers an alternative. By translating ideas into action quickly, the disciplines of Strategic Doing build both collective knowledge and trusted connections. They lead us to “link and leverage” strategies that multiply the effective power of our assets.

    Cleveland’s leadership has a long way to travel down this road. There’s a naive ineptitude in the civic deliberations on complex issues. For over ten years, the Greater Cleveland Partnership has been fiddling with a convention center decision. In the long run, the upside for the city is minimal, while the downside grows each day. By following traditional top down management models, the city’s leadership, if it’s lucky, will build a 30-year-old idea 10 years late.

    Fifth: Weak (Or Nonexistent) Metrics
    In traditional world hierarchies, metrics are the primary instrument of top-down control. It’s not surprising that, as a rule, economic development professionals tend to shy away from measurements. Relatively few regional strategies include them.

    In a networked world, metrics serve different and more important functions. They help clarify outcomes, and add coherence by promoting alignment. Visions are difficult to translate to action. More specific outcomes and metrics mark the direction in which we are heading. They help us learn “what works”. Economic development is inherently an inductive process of experimentation. Without measurement, we have no way of knowing whether or not our underlying assumptions are more right than wrong.

    Creating The Comeback
    Cleveland can find a new path to prosperity, but it will take new leadership committed to transparency and different ways of thinking and acting. With new leadership, Cleveland can do better. It will find prosperity with initiatives that embrace brainpower, creativity, innovation, sustainability, collaboration. These are the foundations on which Cleveland’s future can be built and created.

    Ed Morrison is an Economic Policy Advisor at the Purdue Center for Regional Development. This article draws from Royce Hanson, et.al, “Finding a New Voice for Corporate Leadership in a Changed Urban World”, a case study from The Brookings Institution Metropolitan Policy Program (September 2006).

  • Cleveland: How The Comeback Collapsed

    The Cleveland comeback has stalled. Once hailed as a shining example of rebirth in our industrial heartland, Cleveland now sits rudderless and drifting backward. Between 2000 and 2007, Cleveland suffered one of the largest proportional population losses in the country: the city shrank by 8%. Per capita income growth in Cleveland also lags behind cities like Cincinnati, Milwaukee, and Pittsburgh. Since the early 1990s, the gap between Cleveland and these other cities has widened. As a regional economy deteriorates, the pressure for social services goes up. It’s not surprising, therefore, that local tax rates in Cleveland are among the highest in the country. Political corruption also takes a toll; Cleveland sits in Cuyahoga County where federal law enforcement officials recently launched a sweeping probe of political corruption.

    The future doesn’t look much brighter. Cuyahoga County is often described as the epicenter of the foreclosure crisis; since 2000, it has had the highest per capita rate in the country. Overnight, foreclosures have decimated neighborhoods that took years to rebuild. In the Cleveland neighborhood of Kinsman, half of the mortgage properties are in foreclosure. In other neighborhoods foreclosure rates range from 25% to 30% and, not surprisingly, are concentrated in the lowest income neighborhoods, the places hardest to rebuild. About 72 hours after a house becomes vacant, vandals strip appliances, windows, and fixtures (scrap metal recycling is a booming business in Cleveland). Stripping the pipes renders the property a total loss.

    Meanwhile, the Cleveland Municipal School District is making improvements only at a glacial pace. According to a recent report by America’s Promise, Cleveland ranks 48th of 50 large school districts in high school graduation rates. Fewer than six in ten of Cleveland’s 9th graders will complete high school; dropout factories here include Collinwood and East Tech high schools, where only four in ten 9th graders graduate.

    Many older industrial cities face the same set of challenges, but few cities started three decades ago with the same promise of regeneration. The collapse of the steel industry in the late 1960s was the beginning of Cleveland’s spiral downward. It did not help that 40 years ago, when the Cuyahoga River caught on fire, Cleveland jokes became a staple of late-night television. The city hit bottom when it filed for bankruptcy in 1978.

    It turned the page with the election of George Voinovich as mayor in 1980. Voinovich, a tough minded Republican, challenged the business, labor and civic leadership of the city to transform Cleveland, and the business community responded. A core of corporate CEO’s organized Cleveland Tomorrow – modeled on the Allegheny Conference in Pittsburgh – which drove a focused agenda of urban transformation. By 1989, Fortune magazine applauded the new trajectory in “How Business Bosses Saved a Sick City”.

    The partnership between the city and the business community began to shift in 1990 with the election of mayor Michael White. While the business community worked with White to complete projects like a new baseball stadium and basketball arena that had been planned earlier, the relationship between the mayor and the business community gradually deteriorated. A 1995 community push for mayoral control of the city school system represented the last big collaboration. By the time White began his third term in ’97, the Voinovich momentum pushing public-private partnerships had evaporated.

    At the same time, dramatic changes were taking place in Cleveland’s corporate landscape. By the late 1990s, the city had lost five Fortune 500 headquarters. Manufacturing, the backbone of the region’s economy, shrank dramatically. As the influence of manufacturing declined, real estate developers emerged as important forces within Cleveland’s business circle. Entering the 2001 recession, Cleveland was clearly in trouble. The Cleveland Plain Dealer proclaimed a “quiet crisis”. The editors started pushing for a master plan for economic development to follow up on the momentum of the Voinovich years. As one editor noted, the region was about to face “economic extinction.” The business leadership responded by consolidating different business organizations — Cleveland Tomorrow (leading CEOs), the Greater Cleveland Growth Association (a chamber of commerce), the Cleveland Roundtable (a group focused on diversity issues), and the Council of Smaller Enterprises (a small business organization) — into the Greater Cleveland Partnership.

    The Partnership focused its economic development agenda on building a convention center, the last Voinovich era project. It also re-organized a set of affiliate economic development organizations for better control and (hopefully) impact. JumpStart (for start-ups), BioEnterprise (for life science companies), MAGNET (for manufacturing companies), Team NEO (a recruiting organization), and Cleveland+ (a new branding effort) were to drive the transformation of the city-region, renamed Cleveland+. The Partnership has been resourceful in financing. A close relationship with a new coalition of foundations, called Fund for our Economic Future, provides about $8 million a year for the affiliate organizations, and effectively operates as a financing arm for the Cleveland+ strategy.

    To finance the new convention center, the Partnership pushed County Commissioners to approve a sales tax increase for about $500 million. In July 2008, the Commission — cleverly skating past a public vote (which by all accounts would have rejected the plan) — increased the sales tax unilaterally…and in a hurry. The vote to finance a convention center took place without a development plan, or even a site, in place. So, in effect, Cuyahoga County taxpayers are already paying for a non-existent convention center. The reason for all the rush seems clear. Last July, on the eve of the Commission vote to raise the sales tax, the Federal Bureau of Investigation assembled a team of over 200 agents to launch a public corruption probe, with raids of county offices, the home of one commissioner, and the offices of several contractors. Federal prosecutors are looking into the close relationship between county officials and several contracting and real estate development firms.

    Amidst the turmoil, Cleveland’s leadership has drifted into a classic case of group think. By shutting themselves off from public scrutiny, they have tried to shield themselves from growing public opposition. But in the process, they have drifted into a dream world that is increasingly detached from underlying market realities. The City’s future, according to the leadership’s current thinking, hinges on a convention center. There’s only one problem: There is no evidence that this strategy will work (and plenty of evidence that it will not). Convention centers represent a formula for low-skill, low-wage employment and public operating deficits as far as the eye can see.

    Put the convention center aside for a moment. Despite the significant assets within the region, the Greater Cleveland Partnership’s broader strategy for Cleveland is failing to transform the city-region’s economy.

    There are five weaknesses in the current Cleveland strategy: The wrong approach to scale, to public/private partnerships, to theoretical underpinnings, to change, to decision-making, and to understanding metrics.

    In Part II, I talk about what went wrong in each of these important realms, and how to strengthen each one.

    Ed Morrison is an Economic Policy Advisor at the Purdue Center for Regional Development. This article draws from Royce Hanson, et al, “Finding a New Voice for Corporate Leadership in a Changed Urban World”, a case study from The Brookings Institution Metropolitan Policy Program (September 2006).

  • Report: Ontario, CA – A Geography for Unsettling Times

    These are unsettling times for almost all geographies. As the global recession deepens, there are signs of economic contraction that extend from the great financial centers of New York and London to the emerging market capitals of China, India and the Middle East. Within the United States as well, pain has been spreading from exurbs and suburbs to the heart of major cities, some of which just months ago saw themselves as immune to the economic contagion.

    Without question, the damage to the economies of suburban regions such as the Inland Empire has been severe. Foreclosures in San Bernardino and Riverside Counties have been among the highest in the country, while drops in real-estate related employment have resulted in the first net job losses in four decades. This has led some critics to suggest that the entire area is itself doomed, destined to devolve along with other suburban regions to “the new slums”.

    Yet our close examination of both short and longer-term trends suggests these perspectives are wildly off-base. For one, it is critical to separate different parts of the Inland region from one another. A place like Ontario retains many characteristics that make it far more able than other locales in the region to resist the negative trends. These advantages include a diversified economy, a powerful local job center, an excellent business climate and, most of all, a location perfectly positioned along the historic growth corridors of Southern California.

    These assets have already allowed Ontario to weather the current storm far better than many other Inland Empire areas. Foreclosure rates, for example, although far too high, have remained considerably below the average for the region, and far below those in communities that lack the same strong diversified economic base and close access to employment.

    More importantly, Ontario remains well-positioned to take advantage of both the eventual recovery of the Inland region and the greater expanse of Southern California. Housing prices – particularly the availability of single family homes – has been a driver of growth for the inland region for decades. As prices fall, the rates of affordability for the region – which had been dropping dangerously – will once again rise.

    Despite the claims of some theorists, the preference of most Californians for single family housing seems likely to be unabated, particularly as immigrants seek a better quality of life and the first generation of millennials enters the home-buying market. These are populations that have been heading east to Ontario, the surrounding “Mt. Baldy region,” and to the Inland Empire as a whole for decades, and there is no reason to suppose the flow will stop.

    As the Inland Empire restarts its growth cycle, Ontario will remain uniquely suited to take advantage. Significantly, despite the current downturn in energy prices, worldwide supply shortages as well as growing political demands for regulation on carbon emissions will lead businesses to look increasingly at procuring goods and services nearby. As the Inland Empire’s premier business and transportation hub, Ontario will be well-positioned to emerge as the epicenter of the entire Inland Region.

    At the same time, Ontario residents generally have short commutes, and the city sits astride the primary transportation routes of the region. Over time, well-planned developments such as the New Model Colony will offer a wide range of residents an opportunity to live, work and spend their spare time within a relatively compact, energy-efficient place.

    Business friendliness is also a key asset. Ontario enjoys a close working relationship with expanding companies in business services, manufacturing, logistics, medical services, and other industries not directly dependent on the housing sector.

    But more than anything, Ontario’s position rests on the city’s fundamental commitment to a balance of jobs and housing, and to a long-standing focus on economic growth. Unlike many communities in the region, Ontario has grown on a solid economic basis. As the fourth largest per capita beneficiary of retail sales in Southern California, the city has a considerable surplus to meet hard times .

    Although the immediate prospects for virtually all communities will be difficult, few places in Southern California can hope to ride out the current tsunami better than Ontario. And even fewer seem as well-endowed to ride the next wave of growth that will sweep through the region – as has occurred throughout the last century – when the economy once again regains its footing and customary vitality.

    See attached .pdf file for full report.

    Primary Authors: Joel Kotkin, Delore Zimmerman
    Research Team: Mark Schill, Ali Modarres, Steve PonTell, Andy Sywak
    Editor: Zina Klapper

    Photo courtesy of Valerita

  • Oregon’s Immigration Question: Addressing the Surge in the Face of Recession

    The men huddle outside the trailer, eyeing the passing traffic. Handmade signs stapled to telephone posts speak for them: “Hire a Day Worker!” The site, a fenced-in lot at Northeast MLK and Everett Street, was launched in 2007, a testament both to Oregon’s recent immigration boom and lack of federal reform.

    Since then, Obama’s historic campaign, several wars and a global recession have pushed the immigration question from the national headlines. But in Oregon – where the surging migrant population is on a crash course with a withering economy – the issue is bound to reignite.

    Oregon’s economic boom, which started later than that in the rest of country, has ended. Unemployment has risen considerably. Oregon’s 9.0 percent unemployment rate was the nation’s 6th worst in December 2008 according to the Bureau of Labor Statistics.

    At the eye of the storm have been losses in the construction industry, a major employer of immigrants. The hard times there will put new pressure on local legislators and law officials to “clean out immigrants”. Oregonians should not give in to such misguided temptations. Oregon’s immigrants have played a historic role in enriching the state’s economy and can continue to do so if given the opportunity.

    Oregon’s immigration explosion is relatively new. The state’s foreign-born make up 9.5 percent of the population, with more than 60 percent of the immigrant population arriving after 1990, according to 2005 census data.

    The influx of Latinos to the state is even more recent. Estimates place 75 percent of Latinos coming between 1995 and 2005. Unlike other immigrants who tend to concentrate to urban and suburban areas, Latinos are dispersing across Oregon. Between 1990 and 2000, the Latino population doubled in 21 of Oregon’s 36 mostly-rural counties. Agriculture employment, cheap housing, and existing Latino communities attract the rural migration.

    Within the Portland metro area, the largest concentrations of foreign-born population live in Southeast Portland (Ukrainians, Russians, Romanians), Northeast Portland (Vietnamese, Africans), and Central Portland (Asians, Eastern Europeans), according to a study by the Urban Institute. Notably, more Russians and Ukrainians moved to Oregon’s suburbs between 2000 and 2005 than to any other region in the nation, according to a recent University of Oregon study.

    Currently, immigrants total over 11 percent of the state’s labor force, up from 5.4 percent in 1990. Yet native unemployment did not increase during this time period.

    One reason for this, argues MIT’s Tamar Jacoby in a recent Foreign Affairs article, is that the immigrant workforce should be viewed as complementary rather than competitive to the native workforce. For example, the business owner who can hire housekeepers and landscapers can devote more time to growing his business, and to leisurely expenditures that support other local businesses.

    Oregon’s diverse agricultural industries – ranking third nationally for labor-intensive crops – offer a more concrete example of the complimentary nature of immigrants.

    The state is home to a $325 million dairy and cattle milk production industry, a $778 million nursery and greenhouse industry, a $380 million fruit and nut industry, and a $200 million wine industry. All are primarily staffed by immigrants. In this case, immigrant labor allows Oregon’s agricultural sectors to thrive in the face of fierce import competition.

    Immigrants have historically had a strong entrepreneurial spirit. Nationwide, 25.3 percent of technology and engineering companies had at least one foreign born key founder, based on a Duke University study. Often with few resources or formal education, immigrant entrepreneurship can foster new kinds of services. The abundance of landscaping businesses and nail salons is a testament to such ingenuity. In 2005, over 6,000 Latino and 400 Slavic entrepreneurs operated throughout the Portland metro area, according to one University of Oregon study.

    Beyond providing jobs and fueling local economies, immigrant entrepreneurs bring the benefits of globalization to places like Oregon. They encourage trade and investment from their connections abroad.

    Immigrants pay taxes, buy houses, food, cars, and clothes just like native residents. Even illegal immigrants – which many immigration-demagogues label as the real problem – have taxes withheld from their paychecks. They also otherwise bring money to the state through sales taxes on local purchases. A study by the Oregon Center for Public Policy found that undocumented immigrants contribute between $134 million and $187 million in taxes annually to Oregon’s economy. These numbers represent only those coming from undocumented workers and exclude the significant investments made through entrepreneurship, agricultural support and the continual purchase of goods and services.

    Yet serious immigration reform is needed. A large portion of immigrants spends only stints working in the states, frequently sending money back home. The consequences of this go beyond the obvious fiscal drain. The stint worker will invest minimally in learning English, will often share rent in decrepit neighborhoods, and spend as little as possible in order to maximize savings for abroad.

    The problem facing Oregonians is not immigration per se – or even illegal immigration, which constitutes only 10 percent of the migration to the state. The real problem is stint immigrants, who invest little in the long-term health of their new communities and the economy of the state.

    The curious delusion about this point is that current federal legislation includes temporary-worker permits as key to reform. By giving only temporary permits to immigrants who might otherwise be coaxed into permanent stay, Washington is explicitly discouraging acculturation and encouraging capital drains.

    In large part, the real solution to the downsides of immigration lies in the permanent integration of Oregon’s new residents. When these residents feel they may be here permanently – without constant threat of deportation – they will be more likely to invest in their new communities and futures.

    Even the state’s recent job-shedding should not derail Oregonians’ historic acceptance of foreign residents. Oregon’s immigrants will stabilize agriculture and other service industries by providing cheap labor through hard times.

    If the incoming administration manages the recession correctly, Oregon’s economy will soon recover. To rebound quickly, the state will need to employ thousands – natives and immigrants – in the infrastructure and Green packages coming from Washington. Oregon’s post-recession economy, like its pre-recession economy, will depend on immigrant labor.

    A comprehensive understanding of Oregon’s immigration question must go beyond viewing the huddle of men on MLK and Everett every morning as mere numbers, bodies for pay.

    A true understanding of the issue will surface only by looking beyond the numbers to recognize these men’s potential, resourcefulness and culture as indispensable components that once shaped our nation’s identity and will continue to mold its future.

    Ilie Mitaru is the founder and director of WebRoots Campaigns, based in Portland, OR, the company offers web and New Media strategy solutions to non-profits, political campaigns and market-driven clients.

  • New Survey: Improving Housing Affordability – But Still a Way to Go

    The 5th Annual Demographia International Housing Affordability Survey covers 265 metropolitan markets in six nations (US, UK, Canada, Australia, Ireland and New Zealand), up from 88 in 4 nations in the first edition (see note below). This year’s edition includes a preface by Dr. Shlomo Angel of Princeton University and New York University, one of the world’s leading urban planning experts. Needless to say, there have been significant developments in housing affordability and house prices over the past year. In some parts of the United States, the landscape has been radically changed by rapidly dropping house prices.

    Our measure of housing affordability is the “Median Multiple,” which is the annual pre-tax median house price divided by the median household income. Over the decades since World War II, this measure has typically been 3.0 or below in all of the surveyed nations and virtually all of their metropolitan areas, until at least the mid-1990s. There were bubbles before that time in some markets, but during the “troughs” most markets returned to the 3.0 or below norm.

    Unfortunately, the most recent bubble was and continues to be the most severe since records have been kept. The Demographia International Housing Affordability Survey rates housing affordability using five categories, indicated in the table below.

    Demographia
    Housing Affordability Ratings

    Rating

    Median Multiple

    Severely Unaffordable

    5.1 & Over

    Seriously Unaffordable

    4.1 to 5.0

    Moderately Unaffordable

    3.1 to 4.0

    Affordable

    3.0 or Less

    Median Multiple: Median House Price divided by Median Household Income

    At the height of the current bubble, some markets saw remarkable declines in housing affordability. In some Median Multiples exceeded three times the historic norm. Among major markets (metropolitan markets with more than 1,000,000 population), Los Angeles, San Francisco, San Jose and San Diego all reached or exceeded a Median Multiple of 10. Many other markets saw their Median Multiples rise to double the historic norm and beyond, such as New York, Miami, Boston, Seattle, Sacramento and Riverside-San Bernardino. Other major US markets – such as Portland, Orlando, Las Vegas, Providence and Washington, DC – rose to above 5, a figure rarely seen in any market before the currently deflating bubble.

    America has hardly been an exception. Outside the United States, virtually all major markets in Australia were well over 6.0, as well as London and Auckland in New Zealand. Vancouver was the most unaffordable major market, with a Median Multiple of 8.4. Of particular note is barely growing Adelaide, which nonetheless has seen its Median Multiple rise to 7.1.
    But, at least in the US, the unaffordability wave has crested. Generally, the house prices peaked in the United States in mid-2007. Since then the markets with the biggest bubbles took the lead in bursting. By the third quarter of 2008 (the Survey reports on the third quarter each year), the Median Multiple in San Francisco had dropped to 8.0, San Jose to 7.4, Los Angeles to 7.2 and San Diego to 5.9. Of course, even at these levels, housing affordability in these metropolitan areas remained worse than ever before. History would suggest that housing prices in these markets have a long way to go before they hit bottom.

    Other markets have improved affordability more substantially. Inland California markets like Sacramento and Riverside-San Bernardino have gone from the “seriously” to only the “moderately unaffordable” category, with rates now in the mid-3.0s. Data for the fourth quarter is likely to indicate that Sacramento will be the first major housing market in California to return to a Median Multiple of 3.0, a rather large fall from its peak of 6.6 in 2005.

    Outside California, other markets have experienced significant price declines. But some, like Miami still at 5.6, have a long way to go before they reach the historic norm of 3.0. Las Vegas and Phoenix (which nearly reached 5) may be closer, falling to the “moderately unaffordable ” category with Median Multiples of between 3.1 and 4.0. Seattle and Portland have fallen 10 percent or more as of the third quarter but remain severely overpriced, suggesting they, like Miami, have more price declines in the offing.

    Much of the blame for the bubble has been placed at the feet of a mortgage finance industry that passed out money as if it was not its own. Not surprisingly, the ready availability of money had its effect on the market. Demand rose sharply and included many who couldn’t afford to pay.

    But profligate lending practices represent only a relatively minor cause of the bubble. This was missed by all but a few economists, notably Dr. Angel’s Princeton colleague and Nobel Laureate Paul Krugmann. He could see that there was not one “national bubble” but a series of localized ones. The real villain, he noted, lay in land use regulations.

    In reality the bubble missed much of the country – from Atlanta to El Paso to Omaha and Albany. There were house price increases, of course, but they were generally within the Median Multiple ceiling norm of 3.0. There were a few exceptions, but even they did not exceed 3.0 by much.

    Rising demand was not the big problem. Housing affordability remained at virtually the same Median Multiple level in Atlanta, Dallas-Fort Worth and Houston, the three fastest growing metropolitan areas of more than 5,000,000 population in the developed world. Many other major markets across the South and Midwest experienced little price increase and maintained their affordability. Indianapolis, which has a Median Multiple of 2.2, continued to gain domestic migration from other areas and has a near Sun Belt growth rate. Kansas City, Louisville and Columbus remain affordable and are attracting people from elsewhere.

    Although there are signs of a correction in parts of California, Nevada and Arizona, some bubbles in high-regulation markets are still in the early stage of deflating. New York, Boston, Portland and Seattle particularly may be in danger; the worst consequences of their bubbles lie ahead.

    The longer-term question remains whether these and other still highly over-valued markets in California, the Pacific Northwest, Florida and the Northeast will return to affordability, at or near a Median Multiple of 3.0. The necessary price drops would be bad news for regional economies because of the losses homeowners and financial institutions would sustain.

    At the same time maintenance of the currently elevated prices would also be bad news. In the past 7 years, 4.5 million people have moved from higher-cost markets to lower-cost markets in the United States. The formerly attractive markets of the California coast alone have seen more than two million people depart for other places since 2000. For these areas, a return to historic levels of housing affordability may be a prime pre-requisite to restoring economic health.

    HOUSING AFFORDABILITY RATINGS UNITED STATES METROPOLITAN MARKETS OVER 1,000,000
    Rank Metropolitan Area Median Multiple
    AFFORDABLE  
    1 Indianapolis 2.2
    2 Cleveland 2.3
    2 Detroit 2.3
    4 Rochester 2.4
    5 Buffalo 2.5
    5 Cincinnati 2.5
    7 Atlanta 2.6
    7 Pittsburgh 2.6
    7 St. Louis 2.6
    10 Columbus 2.7
    10 Dallas-Fort Worth 2.7
    10 Kansas City 2.7
    10 Mem[hios 2.7
    14 Oklahoma City 2.8
    15 Houston 2.9
    15 Louisville 2.9
    15 Nashville 2.9
    MODERATELY UNAFFORDABLE  
    18 Minneapolis-St. Paul 3.1
    18 New Orleans 3.1
    20 Birmingham 3.2
    20 San Antonio 3.2
    22 Austin 3.3
    22 Jacksonville 3.3
    24 Phoenix 3.4
    25 Sacramento 3.5
    26 Tampa-St. Petersburg 3.6
    27 Denver 3.7
    27 Hartford 3.7
    27 Las Vegas 3.7
    27 Raleigh 3.7
    27 Richmond 3.7
    32 Salt Lake City 3.8
    33 Charlotte 3.9
    33 Riverside-San Bernardino 3.9
    33 Washington (DC) 3.9
    36 Milwaukee 4.0
    36 Philadelphia 4.0
    SERIOUSLY UNAFFORDABLE  
    38 Chicago 4.1
    38 Orlando 4.1
    40 Baltimore 4.2
    41 Virginia Beach-Norfolk 4.3
    42 Providence 4.4
    43 Portland (OR) 4.9
    SEVERELY UNAFFORDABLE  
    44 Seattle 5.2
    45 Boston 5.3
    46 Miami-West Palm Beach 5.6
    47 San Diego 5.9
    48 New York 7.0
    49 Los Angeles 7.2
    50 San Jose 7.4
    51 San Francisco 8.0
    2008: 3rd Quarter  
    Median Multiple: Median House Price divided by Median Household Income
    Source: http://www.demographia.com/dhi.pdf

    Note: The Demographia International Housing Affordability Survey is a joint effort of Wendell Cox of Demographia (United States) and Hugh Pavletich of Performance Urban Planning (New Zealand).

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”