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  • Melbourne: Government Seeking Housing Affordability

    Once a country known as “lucky” for its affordable quality of life, Australia has achieved legendary status as a place where public policies have destroyed housing affordability for the middle class. Draconian land rationing policies (called “urban consolidation” in Australia and more generally “compact city” policy or “smart growth”), have made it virtually illegal to build houses outside tightly drawn urban growth boundaries that leave virtually no room for new construction beyond the urban fringe. As a result, house prices have increased to the point that Australia now suffers one of the most unaffordable markets in the world.

    The consequences of this may finally be dawning on some governments. The state of Victoria, for example, is expanding its urban growth boundary around Melbourne.

    Severely Unaffordable Australia: The Reserve Bank of Australia (the central bank) has described the considerable extent to which house prices have increased relative to incomes since the 1980s. The annual Demographia International Housing Affordability Survey makes similar findings, showing that the price of housing has doubled or tripled relative to household incomes over the past quarter century. All major markets in Australia are “severely unaffordable.” This has occurred in a country that has long boasted one of the largest home ownership shares in the world, which epitomized the “Great Australian Dream.” Until urban consolidation policies were widely adopted and strictly enforced, Australia’s housing affordability (measured by the Median Multiple, which is the median house price divided by median household income) was virtually the same as that of the United States.

    That has changed radically. Over the past two years, the median house price in Melbourne, has risen by 30%.

    Expanding Melbourne’s Urban Growth Boundary: In this environment, it comes as welcome news that the Brumby Labor government has enacted an expansion of the Melbourne urban growth boundary. The initiative attracted broad based support, including that of the Liberal-National opposition in the Victoria (state) parliament. The government expects that the expansion will “maintain” housing affordability.

    There was, not surprisingly, the kind of hysteria that has become typical of Australian land use debates. Suburban Casey Mayor Lorraine Wreford expressed concern that the expansion would consume agricultural land and increase food costs. In fact, the higher costs that Melburnians are paying for housing as a result of the urban growth boundary is more than enough to pay grocery bills for the neighbors on both sides.

    The “loss of agricultural land” argument is even more daft in Australia than in the United States. Australia’s agricultural production continues to improve, which has permitted huge amounts of land to be abandoned and returned to its natural state. Since 1981, an area nearly the size of New South Wales has been taken out of agricultural production. Lest anyone think that urbanization is a factor, this is more than 50 times the land area of all the urbanization that has developed in Australia since western colonization began.

    Will it be Enough? The risk, however, is that the urban growth boundary expansion may not be enough to materially improve housing affordability. The expansion is modest, at less than 170 square miles (440 square kilometers*). Worryingly, the government indicates that this will be the last urban growth boundary expansion in this generation.

    How Much Land is Needed for Housing Affordability? However, US experience indicates that a surprisingly small amount of developable land beyond the urban fringe may be enough to keep land and house prices from escalating.

    For example, Portland’s urban growth boundary appears to have had little cost escalation impact on house prices until the 1990s, when urban fringe developable land within the urban ground boundary fell to less than 10% compared in relation to the already developed urban footprint (Note). This is the equivalent of a developable ring around Portland of less than one/half mile (0.8 kilometers in Portland).

    As the developable land became more scarce, house prices escalated. Now, Portland house prices are more than one-third above the historic Median Multiple norm of 3.0 and they peaked at more than 60% above during the housing bubble.

    Similarly, there are virtual urban growth boundaries in Las Vegas and Phoenix. These development constraints are defined by circumferential government owned land, which has been released to the market at rates intended to maximize revenues, which means they minimize housing affordability. Yet these constraints appear to have had little impact on prices until developable fringe land dropped to below 20% relative to the urban footprint.

    Strengthening Melbourne’s Competitive Position? The Victorian action may have been impelled by a recognition that the affordability-driven economic stagnation already existent in Sydney could well spread. This could help to restore Melbourne to its role as Australia’s principal urban area, more than a century after having been dethroned by Sydney. Bernard Salt, one of the nation’s leading demographers, has predicted that Melbourne’s population will exceed that of Sydney by in less than 20 years.

    Offering Australia’s future generations the chance to live out the Great Australian Dream by improving housing affordability could not only expand Melbourne’s competitive edge over Sydney, but could even neutralize fast-growing Brisbane’s trajectory. Ross Elliot has suggested that the new Southeast Queensland Regional plan could seriously retard growth in that vibrant area.

    Are Australian House Prices in a Bubble?

    There is a raging debate over whether Australia’s housing price boom is an asset bubble. International financial analysts Edward Chancellor, who correctly predicted the Great Recession, believes that Australian housing is a bubble that will burst before long. Others disagree. Either way, Australia loses.

    • If Australia’s price boom is a bubble, history says it will burst (as virtually all do), likely inflicting serious damage to the economy. In this regard, Australia could be more at risk than the United States was in its housing bubble burst, since housing in virtually every market, large and small, has been driven up to unsustainable levels. In the United States, the bubble was contained within markets accounting for about one-half of housing, where Australian-type planning policies were in operation. Other markets, such as Houston, Dallas-Fort Worth, Atlanta and much the Great Plains did not experience the bubble.
    • If Australia’s planners have simply succeeded in raising the long term price of housing and there is no bubble (as many Australian analysts suggest), then future generations of Australians will have much less money to spend and their standard of living will lower than it would otherwise have been.

    Regrettably, the spirited debate over an Australian “bubble” is far different that the public deliberations that preceded the adoption of urban consolidation policies in Australia. For the most part, state governments and planning academics carefully avoided any discussion of the housing affordability consequences. Perhaps this was out of ignorance. But whatever the intentions, the smart growthers have imposed great costs on both present and future generations of Australians.

    —–

    Note: This is a far smaller area than recent research suggesting a relationship between geographic constraints (mountains and other undevelopable land) and higher house prices. Research by Albert Saiz at Wharton uses a 50 kilometer (30 mile) radius from the urban core to identify the share of land that can be developed. The data in the research would indicate that more than 1,750 square miles are developable, yet Portland is among the more geographically constrained according to this analysis. This seems to be an unreasonably large area for measuring the impact of geographical constraints. It is nearly 4 times the urban footprint of Portland and is nearly 60 times the developable land area that exhibited virtually no impact on housing affordability in Portland in the early 1990s and is more land area than covered by all but 8 of the world’s largest urban areas. It is to be expected that that politically imposed development constraints (strongly enforced as in Portland and Australia) render any more remote geographical constraints irrelevant.

    Photo: Inside the expanded urban growth boundary: Western Freeway toward Melton (photography by author)

    *The original version of this essay read 17 square miles and 44 square kilometers.

  • It’s Mine

  • Can The Suburban Fringe Be Downtown Adjacent?

    For many suburban Americans, the thought of migrating to a center-city environment holds an intriguing appeal, fueled by urbanists who tout the benefits of stunning cityscape views, walkability, proximity to civic and cultural amenities, and street vibrancy. I happen to be among those suburbanites who have harbored a secret fantasy of living in a dense downtown environment, replete with throngs of creative millennials roaming the streets, fancy coffee houses, and close access to fine dining. A decision to move from suburban Sacramento to Denver has been the result.

    The urban/suburban residential conundrum has generated epic debates that match the joys of city living against the benefits of suburbia. Terms such as “sprawl,” “drivable urbanism,” and the “slumming of suburbia” appear in the news regularly, often in an attempt to sway the pendulum in favor of dense city living.

    The tsunami of hoopla around “urban livability” has been of growing interest to my family and me as we prepare to relocate to Denver. I’ve come to believe the accuracy of the assertion, often voiced on this site, that America’s interest in suburbia has not abated. It has become abundantly clear from the brisk interest of potential buyers of our current Folsom, California residence, that living in a suburban locale still holds a special appeal. The environmentalist clamor aside, what people really want from a community is amenities that appeal to their specific interests. Folsom, a city of 72,000 nestled on the outskirts of Sacramento, offers myriad advantages for leisure — such as boating and biking — to basic requirements like low crime rates and quality schools.

    For us, the move to Denver is a transition from suburbia that’s been a challenge. Despite steady buyer interest, our 3100-square-foot house is still on the market. Suburban critics, like Urban Land Institute-fellow Christopher Leinberger, would likely cite a potential cause as being declining interest in what are affectionately known as McMansions, those big cumbersome houses replete with big lawns, big mortgages, and big utility bills. Demographic trends also show a steady rise in the number of adults without children, who are presumably less likely to purchase a big house. And, as a real estate professional pointed out to us, people are holding out for a windfall deal these days amid the abundance of foreclosures in the Sacramento metro area.

    Finding a family home in Denver has been even more interesting. While the downtown Lo-Do District has great appeal to us because of its vibrancy, civic amenities, and proximity to Coors Field (Rockies Baseball), Invesco Field (Broncos Football) and the Pepsi Center (Nuggets Basketball and Avalanche Hockey), it simply doesn’t strike my wife and me as the ideal environment for raising our seven-year-old daughter. The questionable schools in the city-center core were the deal breaker, and the catalyst for our decision to explore quasi- suburban areas on the fringe of downtown.

    As is the case with many downtowns across the country, real estate values in central-city Denver have taken a severe beating. With tepid demand, large inventories of condos have sat vacant for months, leading some developers to convert them into rentals.

    After several exploratory trips and careful consideration of our options, particularly since our house in California is still on the market, we elected to rent in a neighborhood called Cheeseman Park. An eclectic, diverse enclave just on the outskirts of downtown, the area offers the hybrid urban/suburban environment that we were seeking. It also has a top-notch elementary school for our daughter.

    Our choice of location within the Denver area seems to support a national trend that was much discussed at the recent Urban Land Institute Summit/ Spring Council Forum in Boston; namely, that the vast majority of population growth in U.S. urban regions will occur not in downtown cores, but in suburbs, and of those, most notably the close-in suburbs exuding an urban feel.

    This is something that leaders in our current home region of Sacramento failed to grasp recently. The City Council made the decision to pursue a mixed-use project with 256 housing units in the downtown core, over a more ambitious proposal outside of downtown featuring a complex with live music, a year-round farmer’s market, and a venue showcasing California’s rich agricultural history. The choice seems ill-advised, since previous downtown housing projects have failed, in part due to tepid residential demand.

    In the end, urban living has its benefits, although decisions to reside in a denser environment should be sprinkled with a dose of pragmatism. The large population is one factor that maintains Denver’s robust spectator sports scene, which is a huge draw for me personally. And, like many bigger cities, it also offers a wider selection of social and cultural activities than that of the Sacramento region. While urban housing has captured the imagination of many Americans, downtowns may be best suited for the role of civic and cultural centers – places that people come to visit, rather than where they reside.

    Photo by Michael Scott of a “suburban” neighborhood in Denver.

    Michael P. Scott is a Northern California urban journalist, demographic researcher and technical writer. He can be reached at michael@vdowntownamerica.com.

  • Alaska: Caribou Commons Or America’s Lost Ace?

    The most serious collateral damage from the BP spill disaster could very likely be in the far north, along the Alaskan coast. The problem is not a current spill but the Obama administration’s ban on offshore drilling and what many fear may be a broader attempt to close the state from further resource-related development.

    Such an approach could harm both the local and national economies for decades to come.

    Locking up of this vast northern state–which is home to some 700,000 people and has more coastline than the rest of “lower 48″combined–would be tantamount to the U.S. throwing away a strategic ace in the hole. Alaska contains many of the strategic assets–oil, zinc, lead, gold and, perhaps most critically, rare earth metals–critical in the increasingly multipolar battle for global prosperity.

    The move by some in the administration and green activists to freeze the last frontier recalls Frank and Mary Popper’s proposal to turn the Great Plains into a “buffalo commons” for wildlife, Native Americans and grasslands. In this case, this new Alaska could be labeled “the caribou commons.”

    By now it’s clear that the Great Plains region has value well beyond accommodating vast herds of bison, which have indeed been expanding. According to a recent Portfolio.com survey, four states either completely or partially in the Plains–North Dakota, Texas, South Dakota and Nebraska–rank among the top six states in economic performance.

    Alaska–buoyed in large part by energy production and its spinoffs–ranked second on the list, its residents doing far better than those in what the locals call “the outside.” Yet for all its wealth, Alaska has a peculiar challenge that stems from the fact that the vast majority of its land is owned by the federal government.

    Right now oil drilling represents the most important and contentious issue. Sixteen billion barrels of the black tea have come out of the North Slope alone since the 1980s, more than originally expected. An estimated 56 billion additional barrels exist, much of it in coastal waters.

    For decades, oil has driven Alaska’s prosperity. Before the discovery of the Prudhoe Bay field in 1967, Alaska suffered a per-capita income some 20% below the national average. Today it ranks eighth.

    Roughly 100,000 Alaskans work for energy companies, either directly or indirectly. Jobs in the oilfields, as well as the mines, pay an average of between $70,000 and $100,000 a year. These industries have helped it rise as one of the national leaders in producing good middle-class, blue-collar jobs.

    University of Alaska economist Scott Goldsmith estimates that oil accounts for two-thirds of the state’s growth since it became a state in 1959. Just eliminating the vast fields on Prudhoe Bay tomorrow, he estimates, would wipe out roughly one-third of all the state’s jobs. Oil-related taxes account for roughly 84% of the state’s total revenues.

    Alaska has other industries, such as tourism and fishing, but these pay far lower average wages than energy. “Without oil, we are essentially a third-world country,” notes Dan Sullivan, mayor of Anchorage, home to nearly half the state’s population.

    Not surprisingly, many Alaskans believe a ban on new energy and mining projects would end their relative prosperity. Goldsmith, for one, envisions the state turning into something akin to Maine (ranked 30th in per-capita income), a tourism-dominated playground for the visiting rich scarred by grinding poverty.

    Already oil-fueled revenues that fund government employment have fallen dramatically. Since its peak in 1988 oil flowing through the Alaska pipeline has dwindled from 2 million barrels a day to barely 700,000. This total could fall to under 600,000 by 2018.

    Without the development of new fields, Alaska, which now enjoys the country’s largest rainy day fund, could face a huge fiscal crisis. According to recent University of Alaska estimates, the state could confront California-style insolvency within a decade or two.

    Of course, most Alaskans do not want to see energy–or mining–expanded without strenuous controls. Many of them live in this isolated, often brutally cold place in order to enjoy its natural splendor and bounty. Climate change–irrespective to this summer’s chilly weather–also is a wide concern among people who live adjacent to retreating glaciers and worry about depleting arctic fisheries.

    Yet if Alaskans passionately want to preserve their staggeringly beautiful environment, they also are unlikely to embrace a vision of pristine poverty. Having suffered the depredations of international energy, mining or fishery companies, they also are not anxious to leave their fate to the Environmental Protection Agency or litigation-happy, trust-fund groups such as the Center for Biological Diversity.

    “A lot of people in the lower 48 [states] want us to pay for their sins,” suggests Alaska Sen. Con Bunde, reflecting a widely felt sentiment. “They may never come to Alaska, but knowing it’s there keeps them warm inside at night.”

    To protect their economy, Alaskans will need to learn new skills. For a generation they relied on powerful, now retired longtime Sen. Ted Stevens to protect their industries and make them the largest per-capita beneficiaries of federal largesse.

    Best suited for this role are the powerful Alaska-based, native-owned corporations. Unlike the oil companies run from Dallas, Houston or London, these companies are locally rooted. Together the top 13 native-owned firms possess some $4 billion in assets, a billion-dollar payroll and 12% of the state’s land.

    Taking control of their destiny may also mean changing attitudes common in a society that combines the most rugged individualism with what many call “an entitlement mentality.” After all, this is a place where big oil pays most of the bills and every individual receives an $1,300 annual check from the energy-funded Personal Dividend Fund. “The typical Alaskan doesn’t give a damn about what happens as long as they get their PDF check,” observes Dan Robinson, an economist with the McDowell Group, a local consulting firm.

    To maintain its long-term prosperity, Alaska needs to shift from petro-welfare to investing its energy wealth in the growth and diversification of its key industries. The state, for example, has huge potential for wind, geothermal and tidal production and should be a hub for both new fossil fuel technology as well. It also can use its locale on a key Pacific trade route as a center for advanced logistics (Anchorage Airport carries the world’s fifth-largest cargo tonnage).

    The rest of the country also has a big stake in the fate of America’s Far North. Lost production of energy and mineral resources would make us more dependent on other, often unfriendly countries. With exploration shifting to far less environmentally sensitive places like Mongolia or Africa, you also can count on greater net ecological damage as well.

    Alaska’s concerns may seem remote those in the “lower 48.” But how the 49th state fares may determine whether the rest of America can build a more sustainable and prosperous economy in the decades ahead.

    This article originally appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    Photo: Unhindered by Talent

  • Resort Towns Becoming Neo-Company Towns

    Over the past few years resort communities – communities ideal for a ski vacation, a beach week, a hiking excursion or the like – have been hard hit by the downturn in real estate.

    The key question is how these communities can be revived. If the issues involved are successfully addressed head-on, these small towns are able to provide significant amounts of affordable housing, viable and productive public transportation networks, and public functions such as parks, schools, police, and fire, despite limited financial and physical resources.

    Resort towns face growth-related issues not usually associated with such perceived idyllic settings. Many of these involve concerns over sprawl, workforce housing and lack of basic infrastructure. In the wake of the financial fallout that has affected both primary and second homes, there is an opportunity to address a quiver of such issues. Resort communities are still hard pressed to provide adequate housing stock for their workers, despite vacancies and stalled projects throughout their respective regions.

    Most stalled or dead projects were geared to higher-end buyers searching for second, or third or fourth, homes. As the lenders and creditors seize these assets and write down their values after taking heavy losses, perhaps there is an opportunity to reposition them and solve both worker housing demand and over supply of second homes.

    Indeed, post-write down, these places can become profitable through the conversion of costly amenities, like golf courses, in to less capital and maintenance intensive community amenities, such as walking trails or greenbelts. Note, however, that many of these communities can be relatively remote, so assessing transportation systems for workers will be necessary. This, too, can become an opportunity, as concentrated and growing communities provide growth centers for transportation systems.

    There is an added bonus to such an approach, often overlooked by competing sides of the battle over “sustainability” that weighs ever more heavily in regions whose economy is built primarily on the natural environment. The environmental lobby, which likely opposed such communities from the onset, may be too hostile to embrace the conversion to workforce housing. But, whatever their wishes, these communities are not going away; few will become 21st Century ghost towns. They are already built, with their infrastructure laid in. The question will be how to promote “creative destruction” without destroying the physical environment.

    Populating such areas with local workers also addresses the oft-ignored social, political and economic end of the sustainability equation. There is an opportunity to promote the evolution of true communities, with neighbors and stakeholders likely to take up the cause, among other things, of protecting the natural environment in their community and promoting transportation alternatives. Indeed, the “green” movement gains by putting existing buildings to better use than simply being second homes for the affluent. And, in the amenity region, they could grow their constituency. This should be a win-win for environmentalists, families, new purchasers and indeed everyone, except perhaps the original developer.

    Such resort communities may have started as a ski or golf resort, but they can certainly be transformed into something far less ephemeral. These places would remain amenity-based, but not in the same sense that a golf community uses the golf course as a sales and marketing pawn. Instead, they could evolve much like the company towns of the industrial era, with the difference being that a single, centralized corporation is not the hub of the wheel.

    A series of public and private institutions, unique to that particular place and not replicable, will become the anchors. These intstitutions would provide the central “amenities” that provide for the needs of the expanding number of home-based or spin-off businesses and the services they require. In this sense, a new hub of economic development can emerge. The remaining tourists at the resorts, as well as groups such as students and visiting faculty at universities, could bring some dynamism to both local residents and businesses.

    So, what exactly is the market for real estate sales in these communities? College towns and resort towns have inherent advantages. One key consideration will be physical access to larger communities, airports and other key transport facilities. Another will be to make sure that high levels of communications technology – internet, cell phones, laptops, etc. – are installed. Although there is still no substitute for face-to-face contact, technology can enable markets to attract the quality-of-life-seekers who nonetheless want to and need to feel as if they can get where they need to go.

    Thus, these “neo-company” towns need airport access and the ability to easily and quickly connect to large international airports. For example, the mountain communities of the west need air connections to Salt Lake City or Denver. The physical connectedness complements the technological connectedness to overcome the isolation that has made the countryside so difficult for business activities. Those seeking lifestyle-driven locales are the same demographic groups, marketers, merchandisers and trendwatchers often considered major trendsetters, along with Generation Y, or the millennials, and the Baby Boomers. The millennials are getting in to their 30s and many want a better environment than the suburbs for themselves and their kids, but they still want the quality schools and range of housing types often unavailable or unaffordable in major core urban areas such as Washington, New York or Los Angeles. On the other end of the age spectrum are the Baby Boomers, a huge cohort that has been re-writing demographic trends as they age. The Baby Boomers are working in large numbers beyond the traditional retirement age. They are, however, slowing down and cutting back on work hours, focusing increasingly on their own lifestyle. Educated, motivated, active and relatively worldly, a large portion of Baby Boomers should be attracted to the amenities and activities in resort communities for their primary residences.

    Lastly, combining both the millennials and the Baby Boomers allows for greater proximity within family units. Both the millennials and boomers make location choices based not only on lifestyle, but family consideration, as well. As aging parents make lifestyle choices and decide to relocate, their children are increasingly following, concerned about their care and also taking advantage of grandparents able to provide daycare. This is particularly critical for dual income households.

    These locational decisions by two enormous demographic cohorts have the potential to profoundly shape the built environment. The reconfigured resort communities could create new communities, new economic vitality and a powerful constituency to preserve local character and environment. Rather than a legacy of abandoned, foreclosed, slow-selling or otherwise underutilized developments, we can create a harvest of new, sustainable communities for a broad spectrum of generations and incomes.

    Howard Kozloff is Manager of Development Strategies and Director of Operations at Hart Howerton, an international strategy, planning and design firm based in New York, San Francisco and London.

    Photo by caribb

  • Evangelicals: Preventing and Causing the Housing Bubble

    The International Monetary Fund has published some of the most peculiar econometric research in recent history in Irrational Exuberance in the US Housing Market: Were Evangelicals Left Behind? In it, Christopher Crowe associates the financial behavior of Evangelical Protestant Christians with more stable US markets during the housing bubble. It is well known that the housing bubble was concentrated in some metropolitan areas and largely missed others, such as Dallas-Fort Worth, Atlanta, Houston, Indianapolis and many others, most of them with stronger underlying demand than in the metropolitan areas with huge house price increases. Crowe’s research raises the possibility that Evangelicals kept house prices down by not speculating, due to their religious beliefs.

    Evangelicals generally believe in missionary and conversion activities and tend to hold to beliefs that were largely liberalized in large portions, but not universally in the “mainstream” Protestant churches (such as Episcopal, United Church of Christ, Lutheran, Presbyterian, Methodist, Baptist and Disciples of Christ churches) during the first half of the 20th century. In recent decades, Evangelical churches have grown strongly, Evangelical membership is now 50% greater than that of “mainstream” Protestantism (even with its Evangelical remnants), which has been relegated to “mainstream” in name only.

    The Crowe thesis is generally that Evangelicals, allegedly with an “intense” belief in “end times” theology (such as the “imminent” return or the “second coming” of Jesus Christ) were less inclined to speculate in housing, which kept house prices from rising strongly in metropolitan areas with larger concentrations of Evangelicals.

    There are some rather substantial difficulties with the thesis.

    The first problem is relates to speculation. Rising prices are needed for there to be any incentive to speculate. If, for example, the numerous Evangelicals in Dallas-Fort Worth had undertaken a furious speculative frenzy, prices would not have gone up, instead more houses would have been built. This is because the liberal land use regime in Dallas-Fort Worth permits housing to be built in response to demand and nullifies any potential for speculative gain. Evangelicals, of course, like Catholics, Mainstream Protestants, Jews and Atheists are not stupid and were no more inclined to speculate on housing in the plentiful Dallas-Fort Worth market than they would have been climb over one another to offer higher prices for sand on the beach.

    Another difficulty is that Crowe’s characterization of Evangelical beliefs is a caricature. In fact, the nation’s 40 million Evangelicals, including 15 million Southern Baptists more than 2 million Missouri Synod Lutherans, more than 1 million members of the African Methodist Episcopal Zion Church, non-denominational megachurch members and others behave similarly to other Americans in the economic sphere. Crowe hypothesizes that “that a belief in the end times reduces incentives to save simply because agents put a lower expectation on the future being realized.” It would have been equally reliable to conjecture on the subsurface geology of an undiscovered planet.

    Evangelicals like nice houses. They like nice cars. They like their children to be well clothed and to go to good schools. They do not refuse raises offered by their bosses because they expect shortly to be caught up into heaven like the prophet Elijah. True, some “end times” Christians have sold their property and trekked to mountaintops or otherwise awaited dates wrongly prophesied by their leaders. It happened in 1844 and in 1914, but these were not Evangelicals.

    While Crowe’s research suggests an Evangelical stabilizing effect on housing markets, an opposite, but no less improbable thesis was advanced in an Atlantic Monthly article entitled “Did Christianity Cause the Housing Crash?” This article suggests that the “prosperity” gospel preached in some Evangelical churches led parishioners to take on obligations they could not afford, leading to the bursting of the bubble, though it is mercifully devoid of spurious regressions. Author Hanna Rosin names names, such as Joel Osteen of Houston’s Lakewood Church and Rick Warren, whose Saddleback Church in Southern California hosted President Obama as a candidate. It would not be surprising if a future article in The Atlantic pontificated about abandoned suburban megachurches.

    One can only wonder what the other nearly 90 percent of Americans were doing while Evangelicals were simultaneously causing and preventing the housing bubble.

    Wendell Cox a contributing editor of newgeography.com is the son of an Evangelical clergyman (Pentecostal), became Presbyterian and later an Episcopalian.

    Photo: Hollywood Presbyterian Church: An Evangelical Church in a Mainstream Protestant Denomination (by the author).

  • Ownership Subsidies: Dream Homes or Disasters?

    Home ownership has been considered an integral part of the American Dream for as long as anyone can remember. Now it has come under scrutiny, notably in a June Wall Street Journal piece by Richard Florida, which claims that that home ownership reduces employment opportunities for young adults, since it limits their mobility. To support ownership, others — particularly Wendell Cox — have argued that home ownership levels do not correlate with the economic productivity of cities, and cite the rapid suburban development in the Sunbelt as evidence that home ownership is as valuable as ever.

    My inclination is that the truth lies somewhere in between the two sides of the debate. For the sake of simplicity, I’ll refer to them as New Urbanist supporters versus Smart Growth opponents (I realize these are broad generalizations). While they disagree on the merits of home ownership, there’s an interesting point of agreement: both sides oppose subsidies to homeowners. I’d argue that both sides should focus on getting the issue of discontinuing subsidies onto the national agenda.

    Like many 20-something young professionals, I have no aspirations towards home ownership. I ditched my car when I moved out of the suburbs, and I refuse to sign a lease that lasts more than three months. This affords me the flexibility that my life as a freelancer requires. If I were in a profession that didn’t call for a great deal of mobility, perhaps home ownership would be appealing. When North America was a manufacturing powerhouse, most people were in that situation. But an increasingly dynamic labor market requires an increasingly mobile workforce… to an extent.

    For those of us in the 18-30 demographic who work in fairly mobile industries, home ownership isn’t necessarily as big a hindrance as Florida suggests. There are people like me who work in volatile industries and simply can’t be tied down to one city, but we’re in the minority. For the majority, it really depends on the location. If your home is within commuting range of a major city, it should be possible to find work in your field without uprooting.

    But jobs come before home ownership in order of priority. In a scenario where state and local governments create a fiscal climate inhospitable to economic growth, rather than chase cheap housing, people migrate to the strongest economic region (for example, the Sunbelt).

    While home ownership isn’t going to be obsolete any time soon, in decaying cities like Detroit and Buffalo, and in towns far from urban centers, it can be a major hindrance to finding a job. Home owners invest a large amount of their net worth in their homes, and it becomes difficult to simply abandon unsellable homes and pay rent in a new city, though this does happen. There are roughly 90,000 abandoned homes in Detroit alone. Old manufacturing and resource town centers are especially vulnerable, since their economies typically lack the diversity to attract new employment opportunities. This isn’t a fault of government policy, but an unavoidable economic reality.

    Incentives such as the omnibus of initiatives created by the Bush administration’s Ownership Society led to an increase in home ownership levels. But no good can come of home owner subsidies; they lead to inflated prices and distorted patterns of urban development. A survey of first time homeowners in 2009 by Keller Williams Research found that 10% of first time home buyers were primarily motivated to purchase a home because of the $8000 tax credit. A further 4% were primarily motivated by low interest rates. This may seem trivial, but it should be pointed out that the average age of first time US home buyers has decreased to 26. That is a full 8 years younger than in the UK, where the average age is on the upswing. While higher home costs in the UK (partially due to more stringent land use regulations) are probably a major factor, one cannot help but think that the First Time HomeBuyers Tax Credit and subsidized mortgages contributed.

    Subsidies for home ownership are incongruent with the ideological underpinnings of both New Urbanists and Smart Growth opponents (who are mainly conservatives and libertarians). Some Smart Growth opponents are likely to be in favor of these subsidies, since they buy the rationale behind the Ownership Society model. Namely, they believe that ‘pride of ownership’ leads to flourishing communities. On this point, they are probably correct. But the ‘pride of ownership’ argument is based on the ‘broken window theory’ that blight leads to an increase in crime. Ownership Society partisans argue that since owners have more of an incentive to maintain their homes, high home ownership rates should lead to less crime. There is quite a bit of evidence to support this theory. Then again, apartment renters do not control yards or frontage, so the ‘pride of ownership’ argument seems far less relevant with respect to high density development.

    Both sides should take a time out to get the issue of ending housing subsidies on the national agenda. In the wake of a major recession caused partly by misguided housing and mortgage policies, this is an issue that could gain traction with the electorate. The two sides will have plenty of time — and issues — to fight over later.

    “Mid-Century Suburban Home,” Paradise Palms Home, Las Vegas, Nevada by Roadsidepictures

    Steve Lafleur is a public policy analyst and political consultant based out of Calgary, Alberta. For more detail, see his blog.

  • Health Care Development in Central Florida

    By Richard Reep

    In this still cooling economy, Florida seems to be continually buffeted by a perfect storm of unemployment, record foreclosures, and stagnant population growth. As the state continues to suffer, the health care industry has unfolded two planning efforts aimed at building some economic momentum.

    Florida Hospital’s Health Village, an urban revitalization of one of Orlando’s older core neighborhoods, is one planning effort to watch. The other, Lake Nona, is a classic suburban mixed-use campus planned around R&D facilities gilded with stellar names like Scripps and Nemours, occurring in the southeast periphery of Orlando. The vastly different values of their developers underscore the striking contrasts between the development strategies of Health Village and Lake Nona.

    Lake Nona, a small lake just east of Orlando’s airport, is a new development centered around six major research facilities, four of which are under construction. Financing came from a 2006 program, the Florida Capital Formation Act, that has contributed millions to start up biomedical research in the state. Florida’s state venture capital fund lured Scripps, Nemours, Burnham, and M. D. Anderson. Two state universities are also participating, as well as the Veterans Administration with a new facility. This taxpayer investment was supplemented by Tavistock, the master developer of Isleworth fame, and smaller contributions by city, county, and other private investors all creating the impetus to develop this campus.

    Lake Nona’s Robert Adams described his “model” as San Diego’s biomedical cluster, which combines commercial, clinical, research, and educational facilities forming. Employment, in the form of the research facilities, was preceded by a country club and an indistinct mix of Florida residential building types – estate homes, smaller single family homes, and multifamily clusters that are sprinkled amongst golf courses, pretty lakes, and remnant pockets of old Florida wilderness. It’s obvious upon visiting the campus that this is first and foremost a real estate development scheme. Like most developers, Tavistock programmed the uses and zones as if all the land, being flat, were relatively equal in nature except for the slightly more lucrative edges of lakes and the even more lucrative engineered waterways. Currently, the Town Center is an open, flat D-shaped parcel conveniently accessed from Orlando’s beltway, the 417. A comfortable, safe land development scheme with all the usual regulatory battles is underway, and eventually Orlando will find a new, attractive community themed around medical research competing with other new developments for market share.

    In contrast, Florida Hospital selected, among its multiple sites in the state, about 96 acres squeezed between two close, parallel roads (Orange Avenue and Interstate 4) in a dense part of the city where the Adventist Health System quietly bought up dozens of individual parcels of 1930s era Orlando. Like most neighborhoods still suffering in the shadow of Eisenhower’s grand interstate system, this one has languished, and Florida Hospital intends to convert this neighborhood into a Health Village campus anchored by its adjacent hospital campus in a slow, organically grown and financed process.

    Orange Avenue bisects this Health Village, with towering hospital facilities on one side and an aged, mostly 2-story commercial neighborhood on the other. Much of the older residential stock is past its useful life, and owners, grateful for a buyer to release them from the ragged edge of Interstate 4, quickly sold out and left. Inserting the Burnham Institute’s Clinical Research Institute for Diabetes will be the latest revitalization project, and the interior land is intended for residential development catering to hospital professionals and staff within walking distance.

    With 17 hospital locations in Florida alone (the Adventist Health System operates medical facilities throughout the South and Midwest), the choice to locate a health village in a congested urban site is an interesting one. The city deal-making involved in such a move is reminiscent of the negotiations for New York’s Lincoln Center near Columbus Circle in the 1960s, and is rare in Florida where land is cheap. At first glance, it seems like Florida Hospital willingly hamstrung itself with this strategy, as compared to the huge blank slate being developed by Tavistock in Lake Nona.

    Tavistock also has eyes firmly watching the global health care market, and hopes to compete with San Diego, Research Triangle, Dubai’s Medical City, Singapore’s Biopolis, and other stellar research clusters. Lake Nona’s growth potential is relatively large, assuming a smooth flow of funding and continuation of markets. The science-themed real estate development brochures for Lake Nona exude a breezy, hip confidence, putting biomedical research in the background and projecting an alluring lifestyle in the foreground.

    Instead of amping up its marketing campaign to overcome its vastly smaller size, Florida Hospital’s Health Village eschews marketing altogether, as if it is too busy developing it to talk about it. The Adventist Health System is not visibly interested in the temporal nature of global markets, and its stated position as a Christian health care institution quietly suggests that reviving a struggling neighborhood – an exercise most developers would shy away from – is worth the effort. Florida Hospital’s ultimate end appears to be planned on a much longer timescale.

    Both projects are refreshing pathways for Florida, as they represent an attempt to develop future jobs away from the dependence on tourism and second home development. Of the two, right now Lake
    Nona seems much more poised for growth. With a vision for 16,000 jobs at maturity, Lake Nona hopes to capture a substantial portion of the real estate growth attached to those jobs, which is the tried-and-true Old Florida model. Shopping areas, recreational activities, and lifestyle creation will add one more new neighborhood cluster to a multipolar, decentralized region at the expense of 7,000 acres of Florida’s natural environment.

    In contrast, Florida Hospital’s urban build out will benefit existing neighborhoods, certainly a new concept for Floridians. In this respect, Florida Hospital’s tiny contribution to growth (some 800 new residential units are proposed to replace the 150 existing homes) is more than offset by its larger contribution to Orlando’s development as a city. And it delivers this at no expense to Florida’s natural environment.

    Each model offers something to a revived Florida. Florida Hospital’s campus in congested Orlando is instructive as a model for economic activity in the urban future. Religious institutions may become a more important force in the community, given the lack of wealth creation by the standard players in Wall Street and real estate speculation.

    Tavistock could contribute as well, particularly as a move towards a new modality of wealth creation that transcends the traditional Florida focus on consumption activities: shopping malls, hotels, and theme parks. Placing the region on the world stage as a contender in health research can move Florida away from its failed model and towards a future shaped by important diversifications of its employment base.

    Richard Reep is an Architect and artist living in Winter Park, Florida. His practice has centered around hospitality-driven mixed use, and has contributed in various capacities to urban mixed-use projects, both nationally and internationally, for the last 25 years.

    Photo pf Lake Nona development by saikofish

  • Deepwater Dreams: Drilling The Psych of Oil Execs

    For more than fifteen years, I spent a considerable amount of my professional time in the company of oil men. For years I ate lunch with them, traveled with them to places like Scotland and Russia, listened to their war stories over drinks, watched them unfurl seismic charts on board tables, read their budgets, and marveled at their forecasts — all of which predicted finding the next Prudhoe Bay, North Sea, Bass Strait, or Caspian Sea, no matter where they looked. In one meeting, I heard of a vast store of gas under, alas, the walls of old Jerusalem.

    The oil men of my acquaintance had names like Swede, Red, Junior, Clint, and Roge. To a man they believed that oil could be found through satellite images, wildcat drilling, 3-D seismic surveys, or, in one case, a careful reading of select Biblical passages.

    All they ever needed to realize their dreams was about $25 million, a few drilling rigs, a handful of outside experts (all of whom charged $2000 a day to pour cement, decode seismic, or spud wells), and then to be left alone until the crude came bubbling to the surface, as it does in the opening scenes of “The Beverly Hillbillies”.

    The stories of British Petroleum’s Deepwater Horizon have reminded me that the industry runs on the fumes of dreams, what Sigmund Freud called “the future of an illusion.”

    According to the mainstream media accounts, which read like a Frank Norris novel, the petroleum industry is an octopus that has wrapped its stranglehold around all aspects of America’s economic and political life. It’s methodical, logical, all-encompassing, and evil.

    In practice, most oil companies are lotteries with gas stations.

    Yes, the Gulf oil spill is a cautionary tale of what happens when wily corporations strong-arm regulators, scoff at environmental impact statements, and ignore safety regulations to bleed the world of its precious energy reserves, all for extortionate profits.

    That said, the Deepwater Horizon sounds like every oil deal I ever heard described, with the exception that the shareholders and management of BP were willing to fund the diving rods with millions in actual front money. In most cases, petroleum deals do not get past the sketches drawn on restaurant napkins.

    The only way to go into the oil business, at least on the upstream (exploration) side, is to think big. Downstream (refining, gas stations, Jiffy Lube and the like) is closer to banking or life insurance, a narrow-margin turnover business. Upstream is the stuff of wildcat dreams, where the right drilling rig (which can cost $100,000 a day) and the right well (some as deep as several miles) will unlock a gusher.

    Large oil companies, however, rarely go it alone when developing a new field. In places like the North Sea and the Caspian, they syndicate participations to other oil companies in order to reduce capital requirements and spread around the risk.

    With the Deepwater Horizon, apparently BP thought they had a sure thing and held on to a majority. If you’re tapping into Paradise, why bring in outside angels?

    Doubt is not an emotion that I associate with oil men; think of BP’s chief executive, Tony Hayward, who said, “I think the environmental impact of this disaster is likely to have been very, very modest,” and then rode out the media storms on his yacht. I am sure BP’s executives who planned the Gulf drilling are no different from those that I met who preached the gospel of untapped petroleum wealth in Sudan, Mongolia, the Democratic Republic of Congo, and Albania.

    Whenever I would ask about the risks or costs of a venture, the oil men at the table would look at me as if I were shoe salesman who was trying to understand the finer points of neuroscience. My job as a banker was to find the money to sink the drills. Beyond that, I was on a “need not to know” basis.

    How often do oil men hit oil? Obviously, many wells hit pay dirt. Nonetheless, I spent fifteen years following drilling adventures and no one I came across ever shouted “Eureka!”. Instead, I was introduced to the concept of the “dry hole,” a noble but unsuccessful effort to tap into the riches of the earthen core, which costs about eight million dollars a whack.

    When a hole comes back empty, oil men generally agree that failure is key to the industry, that the faults were not their own, and that next time, with another eight or eighty million to sink into the ground, they will do things differently, such as actually study the geological formations, consult earlier drillers, prepare a budget, or call some top notch oilman who has retired to Wyoming. Many oil meetings end with someone saying, “Let’s get Swede over here.”

    As best I could tell, drilling is done on a wing and a prayer. I am sure this was the case for BP as much as it was for my biblical geologists, despite all of the “beyond petroleum” spin, Maybe the company did not consult the Bible after it anchored the Deepwater Horizon, but otherwise it might well have followed the script from the Book of Revelation (‘The sea is turning into blood and everything is dying’).

    Another central belief of the petroleum industry is that losses measure an oil man as much as does success. Bankers hate bad loans, and retailers loathe getting undercut. Oil men, however, take a fair amount of pleasure in losing huge sums of money. It’s part of the culture to have lost $100 million in the Caspian or $300 million in the Black Sea. It shows the world that their pockets are as deep as their drill bits.

    I am not saying that BP wanted its well to blow out or its crude to pollute the Gulf of Mexico, although failure does have its rewards. I am sure that many oil men, including a number inside BP, are having what might be called “a good spill.” It has been as munificent as holy water to all the consultants earning $4000 a day for their opinions on caps, relief wells and blowout preventers.

    If properly maintained, wells produce oil and gas for years. That does not take away the go-for-broke, extreme risk element that is critical to the industry’s emotional DNA, and probably it’s success.

    I remember one wildcat deal in the former Soviet republic of Georgia. In meeting after meeting, specialists from Texas, Aberdeen or Egypt poured over budget projections showing billion dollar profits, the largest gas field in Central Asia, the next East Texas in Tbilisi.

    It was a liquid gold mine, and for “$2 million, $5 million, okay, $15 million” it could be reached with a few rigs shipped in from Israel. (As John the Geologist wrote in Revelations: “I will give unto him that is athirst of the fountain of the water of life freely.”)

    In the end, the investors put up $45 million for three dry holes. The reasons for failure were endless: the seismic was old, the Soviets had ruined the wells, the reservoirs were fractured, water had diluted the oil, the Georgians were siphoning the oil into their cars, you name it. After that, the drillers blamed the owners for “failing to support the project” and walked away.

    Who was right? I have no idea, although I was impressed by the insight of one executive who had gone to many planning meetings. Earlier in his career, he might even have worked for BP. “Well,” he said, “they didn’t find any oil or gas, but they certainly got their $40 million worth of fun.”

    U.S. Coast Guard photo by Petty Officer 3rd Class Patrick Kelley of Deepwater Horizon Flaring Operation, posted by DVIDSHUB

    Matthew Stevenson is the author of Remembering the Twentieth Century Limited,winner of Foreword’s bronze award for best travel essays at this year’s BEA. He is also editor of Rules of the Game: The Best Sports Writing from Harper’s Magazine. He lives in Switzerland.

  • In the Hunt for a Red October

    California’s precarious budget situation appears to be driving the state closer to potential fiscal ruin. The state is now 28 days into a new fiscal year, operating without a budget, and the deadlocked legislature in Sacramento appears unable and/or unwilling to strike a deal on a new budget able to cover the state’s massive $19 billion deficit.

    With no fix on the immediate horizon, California faces a cash shortage. State Controller John Chiang claims that at current burn rates, the state will find itself out of cash by October if the budget impasse continues. In order to sustain the state’s remaining reserves for as long as possible, Chiang plans to start issuing IOUs to contractors “in August or September to preserve cash”.

    Today, in another effort to defer the date the state will run out of funds, Gov. Schwarzenegger issued an executive order requiring state employees to “take three unpaid days off per month.” This move comes in the wake of the Governor’s proposal to impose minimum wage pay on state workers to save money, currently stuck in the courts.

    If the state legislature is unable to find a solution to the deficit, and creditors prove unwilling to accept more IOU’s, California may be forced to effectively default on its debts. According to Newgeography contributor Bill Watkins, under such a scenario bond issues could fail, state operations grind to a halt, and the “mother of all financial crises” might be unleashed. Even if California is able to find ways to juggle debt load and convince creditors to accept IOU’s while the budget impasse drags on, such stop-gap actions may place its already shaky credit rating at risk of being slashed further towards junk status. The state, legally unable to declare bankruptcy, must find some solution to its budget dilemma or it will become the first state to default since the Great Depression.