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  • Tribes And Trust

    Only Tribes held together by a group feeling can survive in a desert.
    –Ibn Khaldun, 14th century Arab historian

    Time to chuck into the dustbin the cosmopolitan notions so celebrated at global conferences: a world run by wise men of the United Nations, science-driven socialists or their ostensibly more pragmatic twins, global free marketers. We are leaving the age of abstractions and entering one dominated by deep-seated ethnic, religious and cultural loyalties, some with roots from centuries and millennia ago.

    The 14th century Arab historian Ibn Khaldun noted that what most holds people together is biology and shared history. These create the critical bonds of kinship and trust and a sense of common purpose that have animated every ascendant group from the days of the Greeks and Romans through the British empire, America and modern day China.

    You rarely hear such notions discussed by academics, policy wonks and politicians. The well-behaved shy away from the hoary reality that people usually put the interests of their extended family ahead of others.

    Yet the more we struggle to be true cosmopolitans, the more humanity expresses our fundamentally tribal nature. In the two decades since I wrote my book Tribes, in-group loyalties appear to have become stronger and more dominant.

    Take the Arabs, Ibn Khaldun’s own tribe, now blending ethnic nationalism and religion into a powerful, epoch-shaping mixture. Much as in the 7th or 8th centuries.

    Arab Muslim tribalism will remain a powerful force, if for no other reason than their dominance of easily accessible fossil fuel resources. You see signs of a renewed, self-conscious Arab civilization in the new mosques, shining cultural edifices, mega-hotels and office spires sprouting across Kuwait, Dubai, Qatar and Abu Dhabi.

    With Arabs, like others, intense tribal feelings can often get out of control. Racial pride and religious fervor have chased many productive cultural minorities–Armenians, Christians, Jews–from once cosmopolitan cities like Damascus, Cairo and Beirut. The Shiite Iranians have followed a similar unfortunate course. Even some in Israel feel an uncontrollable urge to exclude, as evident in a proposal to allow ultra-orthodox Haredi rabbis to determine who is–and who isn’t–a Jew.

    The power of the new tribalism is particularly evident among the Chinese. Maoism might have been a radical internationalist movement, but today’s Chinese are seeking to revive the great 15th century “middle kingdom” that led the world in industriousness and commerce, and briefly even “ruled the seas.”

    The Han are easily the world’s largest tribe with a common history, language and mythology, and they constitute over 90% of China’s billion-plus population. In contrast, India, the other great rising super power of our time, remains a patchwork of diverse ethnic, linguistic, caste and religious groupings.

    The new Middle Kingdom, as Martin Jacques warns in his influential When China Rules the World, may well prove extraordinarily ethno-centric and self-referential. The newly powerful Han may find little use for other races except as customers and suppliers of raw materials.

    Despite huge internal pressures, the Chinese are increasingly scornful of the Western business model. A good example of this change of mood: the downgrade of American and European debt by the Dagong rating agency earlier this month.

    Other tribes, meanwhile, are waning: Take the Japanese. The Japanese ascendency last century was was built upon imagination, courage and military, followed by a corporate, esprit de corps.

    Nothing speaks to tribal decline more than Japan’s shocking birth dearth. The Japanese are running out of new blood about as quickly as any nation on earth. They also seem constitutionally incapable of making the demographic shortfall with immigrants. By 2050 more than one in three Japanese will be over 60, and the workforce 40% smaller than in 2000. The same fate may await some of their Asian cousins, but Japan’s demographic time bomb will go off first.

    Europeans face similarly bleak demographic prospects. Many traditional linchpins of trust–national pride, family and religion–have weakened. Lacking some sort of “group feeling,” today’s Europeans seem unmotivated about creating a great future, as shown by their unwillingness to start businesses or create offspring.

    The trendy concept of “European” may also need to be dismissed as archaic given the mounting rift between the frugal and productive north and the anarchic south. After all, how can you speak of one Europe when the Belgians themselves remain congenitally divided between their French and Dutch speakers.

    So what other tribes, besides the Chinese, are on the upswing? Best look at the arc of rising countries across Asia–from Turkey and India to Vietnam. All appear to be entering an aggressive, expansive phase.

    The new dynamic has restored one historic aspect in the role of cities as hosts for a gathering of tribes. Singapore, for example, has evolved into a modern-day Venice: a convenient, authoritatively ordered place hosting Chinese, Malays, Indians, Vietnamese and those Westerners who want in on Asia’s action.

    Many well off Indians, Chinese and others scour the globe for the prospect of a better life–easier admission to college or the prospect of owning a large flat or even a single family house in the suburbs. This lures them to London, New York, Los Angeles, the Bay Area or Houston. Chinese yuppies still fork out big bucks to have their babies born in California.

    Tribalism has spread even to that paragon of modernism, Silicon Valley. In the end, technology often fails to trump family and cultural ties. Chinese investors push firms to set up shop with their ethnic compatriots in Taiwan, Singapore or China; the Indians for Bangalore, Chennai or Hyderabad; the Israelis for expanding Tel Aviv.

    In our informational age, of course, not all trust networks are based on ethnic DNA. The Mormons have thrived as a tribe based on theology and their remarkable culture of mutual self-help. More than half of the “Saints” now live outside of America, but still Salt Lake City serves as their own ecclesiastical Mecca.

    Even decidedly secular groups increasingly display tribal characteristics. Green activists are united by a passionate “group feeling” as powerful as that which mobilized Mohammed’s followers; just substitute “sustainable” for holy.

    Smaller tribes like investment bankers, techno-geeks or gays each share their own iconography, rites of passage, tastes in politics and culture. They cluster not only in cyberspace, but in the same neighborhoods, conferences and resorts, and increasingly intermarry.

    These secular tribes often insist they, unlike ethnic groups, are motivated by a more enlightened spirit of science, global consciousness or individual self-awareness. But don’t be taken in by such protestations. Nothing could be more tribal.

    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: TwOsE

  • Top Secret Edge Cities

    Here’s three items from the Washington Post’s “Top Secret America” series:

    The Series: We’ve long known that high-security businesses warp the statistics describing Edge Cities. No matter how sophisticated the data source you go to, you find anomalies in which the numbers just wildly do not match the office buildings, retail locations and expensive homes you can plainly see. You know you’re in this territory when the GPS in your car starts giving you screwy results — because it’s being jammed. Now my former Washington Post colleagues Dana Priest and William H. Arkin and a platoon of their associates have done an astounding job of lifting the veil. In their two-year investigation, “Top Secret America” — sure to win a Pulitzer — they’ve put together an authoritative data base of government and private job locations where 854,000 people with high-level clearances work. (That’s one and a half times the population of the District of Columbia.) They call it “an alternative geography” of the United States, and they’re right. Here’s the home page for the sprawling report.

    Some Numbers: Howard County, Md., has the largest secret Edge City in the United States and the numbers are eye-popping. The headquarters of the National Security Agency — the communications intercept spooks — is 6.3 million square feet – about the size of the Pentagon – and is surrounded by 112 acres of parking. It’s on its way to 14 million square feet. (Downtown Memphis is 5 million square feet.) And that doesn’t count the miles and miles of super-secure commercial office buildings housing the corporations in the NSA orbit. Finally we get more than rumors about why this is one of the richest counties in the U.S. We’re talking a $20 billion payroll much of which doesn’t show up in other data. In fact, most of the wealthiest counties in America turn out to have Top Secret Edge Cities.

    The Map: Check out the interactive U.S. map of where the Top Secret Edge Cities are. Zoom around. These are the Edge Cities where “the extrovert is the one looking at somebody else’s shoes.”

  • We Trust Family First

    Americans, with good reason, increasingly distrust the big, impersonal forces that loom over their lives: Wall Street, federal bureaucracy, Congress and big corporations. But the one thing they still trust is that most basic expression of our mammalian essence: the family.

    Family ties dominate our economic life far more than commonly believed. Despite the power of public companies, family businesses control roughly 50% of the country’s gross domestic product, according to the research firm Gaebler.com. Some 35% of the Fortune 500 are family businesses, but so too are the vast majority of smaller firms. Family companies represent 60% of the nation’s employment and almost 80% of all new jobs.

    And despite the glowering about impersonal corporate agriculture and the overall decline in the number of farms since the 1950s, almost 96% of the 2.2 million remaining farms are family-owned. Even among the largest 2% of farms, 84% are family-owned. The recent surge in smaller, specialized farming may actually increase this percentage in the future.

    Family life also often determines the economic success of individuals–something widely understood since the controversial 1965 Moynihan Report linked poverty among African-Americans to the decline of intact family units. Today more than half of black children live in households with a single mother, a number that has doubled since the 1960s, and they are much more likely to live in poverty than non-blacks. When you consider intact African-American families the so-called “racial gap” diminishes markedly.

    The confluence between upward mobility and strong family networks remains extraordinary not only among African-Americans but among all groups. Only 6% of married-couple families live in poverty, and most of them, like previous generations of newcomers, are likely to climb out of that state. “Families,” suggests Nobel Prize-winning economist James Heckman, “are the major source of inequality in American social and economic life.”

    The critical importance of family runs against the mindset of pundits, corporate marketers and planners. Starting with Vance Packard’s 1972 bestseller A Nation of Strangers, Americans have been sold the notion of a more atomized, highly individualized future. Similar alarms have been issued both on the left, from the late Jane Jacobs, and by conservative observers, like Francis Fukuyama and William Bennett.

    Yet despite these predictions, our mammalian instinct to trust family first has remained very strong. Some 90% of Americans, notes social historian Stephanie Coontz, consider their parental relations close.

    This back-to-family trend has been building for at least a decade. For example, over the past 30 years the percentage of households with more than one generation of adults has grown and now stands at the highest levels since the mid-1950s. Meanwhile the once irrepressible growth of single-family households has begun to slow down, and has even dropped among those over 65. Meanwhile the numbers of adults aged 25 to 39 living with their parents jumped 32% between 2000 and 2008, before the full impact of the recession; the increase in single-centric Manhattan, notes The New York Times’ Sam Roberts, was nearly 40%.

    Unlike the typically “nuclear” families of the mid-20th century, the current crop, much like earlier generations of American families, tend to be more “blended.” In its contemporary form this includes same-sex partners, uncles, aunts, grandparents and stepparents.

    Today childrearing extends beyond the biological parents and is often shared by divorced parents, their new spouses and other family members. Grandparents and other relatives help provide care for roughly half of all preschoolers, something that has not changed significantly over time and is unlikely to do so in the future. This is even true in the Obama White House, where Marian Robinson, the First Lady’s mother, has moved in to help raise the couple’s two children.

    Of course, some still celebrate the purported demise of the family unit to support various feminist, green or dense urbanist agendas. They point out with enthusiasm that barely one in five households consists of a married couple with children living at home, even though these households account for more than one-third of the total population ,according to the Census. Yet they miss one critical point: Parents usually continue to care for and be deeply involved with their offspring even after they leave the nest.

    When people move somewhere, for instance, they tend not to do so because it is closer to their favorite jazz club or a Starbucks or even because they would get a better job–instead, their main motivation for moving is to be closer to kin. Family, as one Pew researcher notes, “trumps money when people make decisions about where to live.”

    These nesting patterns are being further buttressed by hard times. People who might have struck out on their own are staying close to home–if not at home.

    Last year Pew reported that some 10% of people under 35 moved back in with their parents. Pressed by the bad economy, the number of adults 18 to 29 who lived alone dropped from nearly 8% in 2007 to 7.3%. People are less likely to form new households in tough times.

    Similarly if people are looking to start a business, they are more likely to do so within the family. In a time of constricted credit from banks, Pew also reports a growing dependence on family members for loan. In bad times, who else can you trust besides your kin?

    Of course, the very affluent can afford to have it all–easy credit, a country house and ease of travel between their “places.” But for the middle and working classes, family ties often trump all other considerations. Real estate agent Judy Markowitz, once explained to me that being close to parents remained the primary motivation for young people staying in neighborhoods like Bayside or Middle Village in Queens, N.Y. “In Manhattan they have nannies,” she explained. “In Queens we have grandparents.”

    These basic trends are not likely to be reversed once the economy recovers. For one thing, our increasingly non-white populations remain very committed to inter-generational living; over 20% of African-Americans, Asians and Latino households–compared with 13% of whites–live in such households. Many minorities, particularly immigrants, also often tend to own small family businesses, which rely on credit and labor from extended family networks.

    And then we have to consider the new generation. The millennials, note researchers Morley Winograd and Michael Hais, are very family-oriented. Indeed three-quarters of 13-to-24-year-olds, according to one 2007 survey, consider time spent with family the greatest source of their own happiness, rating it even higher than time spent with friends or a significant other. More than 80% think getting married will make them happy, and some 77% say they definitely or probably will want children.

    Anyone looking into the future of the country’s economy cannot do so without considering the continued importance of the family. Americans’ most important decisions–where to move, what to buy, whether to have children–will continue to revolve largely around the one institution most can still trust: the family.

    This article originally appeared in 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: driki

  • CA State Treasurer Skeptical of High-Speed Rail

    California High Speed Rail officials and the Governor’s office seem to be suffering from selective hearing. Lawmakers and experts at the University of California’s Institute of Transportation continue to challenge the high-speed rail project’s viability due to precarious statistical projections on ridership and cost. One wonders if developers will reconsider upon hearing California treasurer Bill Lockyer’s recent criticisms.

    Lockyer’s first major issue lies with the basics: the ability to raise enough capital from private sources needed to complete the project. The Rail Authority claims it would need $10 to $12 billion from private investment alone, although some analysts think that, like most of the monetary figures associated with the rail line, this number will ultimately grow. Investors are reluctant to fund such a risky venture, as nothing proposed in this project has proven stable or certain. If investors do indeed close their checkbooks, there is no way the Rail Authority will complete the project.

    Lockyer doesn’t think selling the idea in smaller chunks would work either. He questions the willingness of anyone to buy state bonds for the HSR, even though voters approved $9.95 billion worth in November 2008.

    Despite these reservations, Governor Schwarzenegger is protecting the funding promises made in the 2008 ballot measure. The Rail Authority is also ignoring the warnings of Lockyer and others. They are also trying to start building in the Bay Area in order to meet deadlines for federal funding. But the way things are going, it looks as if federal funding is all they will get. As more and more powerful people add their names to the list of skeptics, the high-speed rail line seems that much closer to complete failure.

    Rather than overriding their critics and spending money they may not get, the Rail Authority should invest in consumer confidence. They need more concrete plans and more promising statistics to create a market for this line because right now, most think the project will turn out to be nothing more than a huge budgetary debacle.

  • California: Bad for Business

    Looking for a business-friendly state? You had better skip California. Extensive regulations, high taxes, and high worker’s compensation rates have made California unappealing for resident and out-of-state businesses alike in the past two years. However, according to the business relocation coach, 2010 marks an economic “emergency” as there have already been 84 instances in California of companies either closing their factories, moving their headquarters out of state, or investing heavily in another out-of-state location. This nearly doubles the 2009 total of 44 instances, and more than doubles the 2006-2008 total of 35. California is losing its economic luster at an alarming rate, which does not bode well for job seekers.

    Some of the companies moving or hedging their bets by shifting operations elsewhere include Google, Apple, Genentech, Facebook, and Hilton. Orange County, Los Angeles, and Santa Clara counties have suffered the most in 2010 with 25, 19, and 16 company moves respectively. Santa Clara in particular houses some of the big tech names like Google, Hewlett Packard, and Apple. In 2009, Los Angeles had the largest number (and the only county in double digits) of company moves with 12. California is not only losing out economically, but it is also losing some of its character as the technology-hub of the US.

    This exodus follows recent trends emerging during the recession. The states benefitting most from California’s high taxes and strict regulations include Texas (with 18 events), Colorado (17 events), Arizona (11 events), Nevada (10 events), and North Carolina (10 events). Increasingly, these states have established themselves as promising havens for job seekers and have fared better during these tough times.

    The state that once drew thousands of hopeful migrants during the Great Depression is now stifling growth opportunities. This is a bleak and unfortunate reversal, particularly for a place struggling to stay afloat in the recession.

  • Distilling China’s Development

    The economic rise of China has created two growth industries pulling in opposite directions. There’s either the school of blind praise of ‘The China Miracle’ or its opposite, apocalyptic predictions about the country’s impending implosion.

    On the surface, it appears as if the fundamentals of China’s modernization are similar to what the Western nations went through in the past, that is, a mass migration of farmers from the countryside to the urban centers to work in factories and construction sites. Taking into account the enormous scale at which this migration is happening, the country seems to be moving toward what some observers are dubbing the ‘Chinese Century’.

    Similarities aside, however, China’s development is uniquely Chinese. Whereas the U.S. was built upon the backs of immigrants from outside of its borders, China’s development owes its current success to its own huge population. China will never become a nation of external immigrants and will remain a homogenous behemoth long into the future.

    China’s current condition and its immediate future remain shrouded in a state of unsettling mystery. Having lived and worked as an architectural designer in China for nearly a year now, my own fervent curiosity has hardly been assuaged. There are a few things I’ve learned though that should be clarified regarding China’s development. Following, I will attempt to belie some common misconceptions.

    Misconception: As China continues develop, it will become more open to outside influence and the government system will reform itself to become more democratic and free.

    To the naive Western observer, China’s continued economic evolution means that the country must allow more democratic freedoms in order to remain competitive in the future. This assumption is extraordinarily dubious. China’s model is top-down, centralized planning and it has proven to be successful. To argue that it will not continue to work for China is a biased Western-projected fantasy.

    A pre-existing culture of collectivism constitutes one reason why state-driven development continues to blaze forward totally unhinged. When it comes to sensitive issues like media censorship or human rights, most Chinese citizens passively shrug their shoulders knowing full well that protesting will ultimately prove futile and self-defeating. Furthermore, most citizens are too busy hustling to make money and pull themselves up the socioeconomic ladder to be concerned with such matters.

    Perhaps the past two centuries of Chinese history will offer some clues into why the status-quo is so apathetically accepted. China’s experience of 19th and 20th Centuries consisted largely of a series of hardships: the Opium Wars to the fall of the Qing Dynasty, the subsequent Japanese Invasions and Chinese Civil War, and concluding with Mao’s Cultural Revolution. It is obvious that China is much better off now than it has been for the past 200 years.

    This might explain why China’s populace is now seizing the unique opportunity of “reform and opening” to make the best out of the current situation. It might also explain why people are reluctant to disrupt the established order. Thought about in this way, China’s current system of rule is not so much a ‘big-brother’ entity as it is an unspoken collective social contract to keep peace.

    Misconception: China’s rise to global prominence is over estimated. The looming real estate bubble in China means that economic collapse is imminent.

    Doomsday predictions about China’s collapse have become something of a growth industry. Commentators like Gordon Chang and hedge fund manager James Chanos are placing their bets on China’s demise. Many of these criticisms stem from what is speculated to be a coming crash in the real estate market.

    To the central government, constructing new buildings is much more than just providing new and modern accommodations for the populace; it stands for social stability. It doesn’t take an economist to acknowledge that city-building is an important part of economic growth. But what is often overlooked is how city-building is a key part of the modernization process, employing rural migrants and giving them opportunity to earn substantially more than they could as farmers.

    In China, real estate development is only one part of economic growth equation. Chinese leaders are well aware that the mad pace of constructing new buildings cannot last forever and already there seems to be an overabundance of supply in the residential and commercial sectors in first-tier cities like Shanghai and Beijing. Yet China is not anywhere near finished with its construction boom as 2nd, 3rd and 4th tier cities race ahead to catch up with their 1st tier counterparts.

    Looking into the future, China’s leaders are preparing to shift the economic growth to more information-based sectors. The city I live in, Chengdu, the capital of Sichuan province, has already recruited American heavy-hitters such as Cisco and Intel. Chengdu has been successful in doing this by investing in new infrastructure and developing a series of high-tech industrial zones that give foreign companies the option of lower operational costs than found in the increasingly pricey coastal cities.

    Misconception: Revaluing China’s currency will help bring manufacturing jobs back to the U.S.

    China’s economy would not be the success it is today without the foreign investment that flooded through the gates since they first opened in 1978. The number of foreign enterprises directly benefitting from the low cost of labor in China has expanded greatly since that time. China’s maintaining a low valuation of its currency, the Renminbi (RMB), has been a key factor in attracting and keeping investment from overseas businesses.

    Yet the talking heads in Washington have taken to pressuring China to revalue the RMB in order to help ‘rebalance the global economy’. Just ahead of the G20 last month, Treasury Secretary Timothy Geithner told Congress that China’s RMB peg to the U.S. dollar is an ‘impediment to sustainable global growth.’ Responding to the pressure, China announced that it would in fact let the RMB appreciate against the dollar.

    Following China’s announcement, the RMB rose a whopping .4% in value leading to what Economist Paul Krugman called the ‘Renminbi Runaround’. Krugman is correct to call out China on its currency manipulation- but it should be no surprise that what China is doing is simply looking out for its own national interests. A rapid rise in RMB value would cause some serious damage to the Chinese economy.

    American politicians know this but will continue to pressure China to raise the RMB value to score brownie points with their constituents. The reality is that both China’s economy and foreign companies using Chinese labor benefit from the low value of the RMB. For instance, companies such as Apple would not be able to sell their much coveted iPads at reasonable prices if it were not for cheap Chinese labor.

    Pressuring China too much could result in a trade war which would in fact not only hurt Chinese exporters but the American consumer as well. Politicians are also deluded into thinking that manufacturing jobs will come back to the U.S. if China’s RMB goes up. On the contrary, companies will move manufacturing operations to some other place where regulations and labor costs remain substantially lower.

    Conclusion: China’s accomplishments over the past two decades are unprecedented and fascinating. The scale at which change is happening means that complexity and uncertainty are unavoidable facts of life. Many challenges lie ahead, both for China’s domestic issues and its relationship with the rest of the world. As far as China has come, there still is a long way to go as millions still aspire to a better life.

    Adam Nathaniel Mayer is a native of California. Raised in Silicon Valley, he developed a keen interest in the importance of place within the framework of a highly globalized economy. Adam attended the University of Southern California in Los Angeles where he earned a Bachelor of Architecture degree. He currently lives in China where he works in the architecture profession. His blog can be read at http://adamnathanielmayer.blogspot.com/

    Photo by DavidM06

  • US Leads World in Greenhouse Gas Reduction

    For years, the United States has been portrayed by both international and domestic interests as an environmental outlaw, because of its high rate of greenhouse gas (GHG) emissions. The United States, Canada and Australia have the highest GHG emissions per capita in the world. Further, the United States has historically had the highest overall GHG emissions, until having recently been passed by China.

    It is likely to come as a surprise that the US has become a model for its reduction in GHG emissions over the last decade. According to a report by the Netherlands Environmental Assessment Agency, GHG emissions per capita fell more in the United States from 2000 to 2009 than in any other area reviewed. The Agency also reported that there had been no growth in global GHG emissions in 2009.

    Per capita GHG emissions fell 16% in the United States from 2000 to 2009. This is half again as large as the 11% reduction in the highest income portion of the European Union (EU-15). Among EU-15 nations for which data was provided, per capita GHG emissions were down 14% in the United Kingdom, 12% in France and Italy, and 11% in Germany. Spain, where economic reality is forcing a reduction in support for its highly touted “green” energy program, reduced per capita GHG emissions by little more than one-third the US rate, at 6%. The Netherlands achieved a 3% reduction (Figure).

    In both the United States and Europe, the deep recession contributed to a reduction between 2008 and 2009. Between 2000 and 2008 (pre-recession), US GHG emissions per capita declined 9%, while EU-15 emissions declined 7%.

    Canada’s GHG emissions declined 9% from 2009 to 2009, while Japan’s per capita GHG emissions declined at one-half the US rate (8%). Australia’s emissions rose 1%, while emissions per capita rose 18% in South Korea.

    GHG emissions per capita increased in all of the developing nations surveyed except for the Ukraine (-12%) and Brazil (-1%). Such increases are not surprising, as people in developing nations move from the countryside to urban areas and as they seek greater affluence.

    There was more good news for the United States. Biofuel use in road freight transport was more than double that of the European Union (EU-27). This is significant because road transport volumes in the EU-27 are nearly the same as in the United States.

    Photograph: Southern Greenland (by the author)

  • How Texas Avoided the Great Recession

    Lately, Texas has been noted frequently for its superior economic performance. The most recent example is the CNBC ratings, which designated the Lone Star state as the top state for business in the nation. Moreover, Texas performed far better than its principal competitor states during the Great Recession as is indicated in our How Texas Averted the Great Recession report, authored for Houstonians for Responsible Growth.

    Introduction: How Texas averted the Great Recession:

    One reason that Texas did so well is that it fully escaped the “housing bubble” that did so much damage in California, Florida, Arizona, Nevada and other states. One key factor was the state’s liberal, market oriented land use policies. This served to help keep the price of land low while profligate lending increased demand. More importantly, still sufficient new housing was built, and affordably. By contrast, places with highly restrictive land use policies (California, Florida and other places, saw prices rise to unprecedented heights), making it impossible for builders to supply sufficient new housing at affordable prices (overall, median house prices have been 3.0 times or less median household incomes where there are liberal land use policies).

    The Great Recession: The world-wide Great Recession was the deepest economic decline since the Great Depression: This downturn hit average households very hard. According to Federal Reserve Board “flow of funds” data, gross housing values declined 9 quarters in a row through the first quarter of 2009. The previous modern record is a single quarter. From the peak to the trough, household net worth was reduced a quarter, which is more than 1.5 times the previous record decline.

    Texas Largely Avoided the Great Recession. Texas has largely escaped the economic distress experienced around the nation, and especially that of its principal competitors, California and Florida. By virtually all measures, Texas has performed better in growth of gross domestic product, employment, unemployment, personal income, state tax collections, and consumer spending This is in part due to much less mortgage distress in Texas. At the bottom of the economic trough, the Brookings Institution Metropolitan Monitor ranked the performance of the 6 largest Texas metropolitan areas among the top 10 in the nation. The latest Metropolitan Monitor ranked each of the 6 metropolitan areas in the highest performance category.

    Throughout the past decade, Texas has experienced far smaller house price increases than in California, Florida and many other states. During the bubble, California house prices increased at a rate 16 times those of Texas, while Florida house prices increased 7 times those of Texas. As a result, after the bubble burst, subsequent house price declines were far less severe or even non-existent in Texas. Texas had experienced its own housing bubble in the 1980s, however even then overall prices did not exceed the Median Multiple of 3.0 (The Median Multiple is the median house price divided by the median household income).

    Unlike Texas, all of the markets with steep house price escalation had more restrictive land use regulations. This association between more restrictive use regulation and higher house prices has been noted by a wide range economists, from left-leaning Nobel Laureate Paul Krugman to the conservative Hoover Institution’s Thomas Sowell. It is even conceded in The Costs of Sprawl —2000, the leading academic advocacy piece on more restrictive land use controls, which indicates the potential for higher house or land prices in 7 of its 10 recommended strategies.

    Comparing Texas and California: Unlike California, housing remained affordable in Texas. California’s housing affordability – in relation to income – largely tracked that of Texas (and the nation) until the early 1970s (Figure). After more restrictive land use regulations were adopted prices started to escalate. This relationship has been well demonstrated by William Fischel of Dartmouth University. Other factors have had little impact. Construction cost increases have been near the national average in California. Other factors, like underlying demand as measured by domestic migration, have been lower in California than in Texas..

    Comparing Texas and Florida: The contrast with Florida is similar. Housing affordability in Florida was comparable to that of Texas as late as the 1990s. However, with strict planning control of land for development in Florida, land prices rose substantially when profligate lending increased demand.

    Comparing Texas and Portland: Further, the Texas housing market avoided the huge price increases that have occurred in Portland (Oregon), which relies on extensive restrictive land use regulation. In 1990, Portland house prices relative to incomes were similar to those of the large Texas metropolitan areas. At the recent peak, the median Portland house price soared to approximately 80% above Texas prices. Portland did not experience the price collapses of California, but due to the greater price volatility associated with smart growth price declines in relation to incomes that were five times those of Texas.

    How the Speculators Missed Texas: Speculation is often blamed as having contributed to the higher house prices that developed in California and Florida. This is correct. Moreover, with some of the strongest demand in the United States, Texas would seem to have been a candidate for rampant speculation. After all, it happened back in the 1970s when a huge oversupply of housing, industrial, retail and office space collapsed in the face of falling energy prices.

    But it did not happen this time, despite solid population growth. During the housing bubble, Dallas-Fort Worth and Houston ranked second and third to Atlanta in population increases among metropolitan areas with more than 5 million population. Austin is the nation’s second fastest growing metropolitan area with more than 1 million population. Each of these metropolitan areas had strong underlying demand, as indicated by domestic migration data.

    Yet the speculators were not drawn to the metropolitan areas of Texas. This is because speculators or “flippers” are not drawn by plenty, but by perceived scarcity. In housing, a sure road to scarcity is to limit the supply of buildable land by outlawing development on much that might otherwise be available.

    However, the speculators did not miss California and Florida. Nor did they miss Las Vegas or Phoenix, where the price of land for new housing rose between five and 10 times as the housing bubble developed. Despite their near limitless expanse of land, much of it was off limits to building, and the exorbitant price increases were thus to be expected.

    The Threat: Yet, despite the success of the less restrictive land use policies in Texas, there are strong efforts there to impose more smart growth policies. The impact could be devastating, especially from strategies that ration land that would raise land and house prices, as has occurred in California and Florida. In 2009, Governor Perry vetoed a bill that would have required the state to promote smart growth. Federal initiatives, under proposed climate change and transportation acts could do much to destroy not only the affordability of Texas metropolitan markets, but could also make Texas less competitive in the decades ahead.

    Photograph: Suburban San Antonio (by the author)

    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.”

  • Civic Choices: The Quality vs. Quantity Dilemma

    Advocates on opposite sides of urban debates often spend a great deal of time talking past each other. That’s because there’s a certain Mars-Venus split in how they see the world. In effect, there are two very different and competing visions of what an American city should be in the 21st century, the “high quality” model and the “high quantity” model One side has focused on growing vertically, the other horizontally. One group wants to be Neimans or a trendy boutique and ignores the mass market. The other focuses more on the middle class, like a Costco and Target. It should come as no surprise that there’s seldom agreement between the two.

    America’s “High Quality” cities are the traditional large tier-one metro areas, but also include smaller cities like Seattle and Portland. They stress high wage activities such as finance, high tech, and luxury consumption. In this model, traditional growth in areas like population, jobs, or the size of the urban footprint are less important and even seen as a negative. Understandably so. It’s difficult to see, for example, how another million people living in the Bay Area would improve the fortunes of companies like Google or Facebook, or another million Angelenos helping Hollywood.

    Indeed many residents would oppose such growth due to increased traffic, infrastructure spending, and other of the challenges associated with it. In effect, the anti-growth agenda that dominates the culture of many of these places is not based simply on environmental concern, but the economic interests of their dominant regional elites. These places have already achieved the size to support their urban amenities.

    Another reason not to press the growth button: on measures of urban quality such as economic output and income, most are clearly doing very well. Most of these places generate GDP per capita far above the US metro average of $41,737. With the exception of Chicago, they are also growing at a pace that beats the US average. These cities also boast incomes – although often a cost of living – generally well above average, though have been mixed in performance on that metric over the last decade.

    “High Quality” Cities
      Quality Indicators Quantity Indicators
    MSA 2008 Real GDP per Capita Percent Change in GDP per Capita, 2001-2008 2008 Per Capita Income as Pct of US Average PCI Change vs. US Average 2009 Pop. Pop. Pct. Change 2000-2009 2009 Jobs Percent Change in Jobs 2000-2009
    Boston 57916 11.50% 137 -1 4589 4.20% 2408.1 -5.10%
    Chicago 45463 5.50% 113 -4 9581 5.10% 4291 -6.10%
    Los Angeles 47214 16.90% 111 6 12875 3.80% 5200.9 -4.80%
    Miami 40447 15.60% 107 2 5547 10.40% 2201.9 2.10%
    New York 57097 17.60% 137 6 19070 3.90% 8304.5 -1.10%
    Portland 47811 22.40% 99 -9 2242 15.80% 972.4 -0.10%
    San Francisco 60873 10.50% 156 -8 4318 4.40% 1908.8 -10.20%
    San Jose 82880 20.90% 146 -35 1840 5.80% 855.6 -18.10%
    Seattle 55982 11.30% 126 -1 3408 11.60% 1668.7 1.30%
    Washington 61834 15.20% 141 5 5476 13.60% 2950.2 10.10%

    But if these areas are doing well, for those who can afford to live them at least, they tend to do poorly on quantity measures. Many of them have anemic population growth, albeit from a large base. And virtually all of them actually destroyed jobs in the last decade. The ravenous maw of Washington, DC of course, being the great exception.

    This mixed performance isn’t surprising. High end activities are by definition exclusive. The specialized environments they require, and the high value and wealth they create, create expensive places to do business. Unless you have to be in one of these places, such as to take advantage of industry clusters or specialized labor markets, it doesn’t make sense to pay the price to do so. Clearly, mass employers have voted with their feet.

    Four data points from Silicon Valley sum it up. Between 2001 and 2008, the San Jose MSA’s: a) real GDP per capita increased by 20.8% b) total real GDP increased by 25.9%, c) real GDP per job increased by 39.6%, BUT d) total employment declined by 9.4%. That’s the high quality city dynamic in a nutshell.

    America’s “High Quantity” cities follow the opposite pattern. They might have their occasional claims to fame, but few feature the high end business or glamorous lifestyles of America’s premier metros – even though some have spent big bucks on vanity projects to polish their reputations. Rather, what these cities do well is provide quality workaday environments for the middle class. And create jobs – lots of jobs, the Great Recession notwithstanding.

    This is again backed up by the numbers. These cities fare well on quantity measures such as population growth, where they crush the US average of 8.8%, and job growth, where several of them actually managed to post double-digit gains during the generally anemic 2000s.

    “High Quantity” Cities
      Quality Indicators Quantity Indicators
    MSA 2008 Real GDP per Capita Percent Change in GDP per Capita, 2001-2008 2008 Per Capita Income as Pct of US Average PCI Change vs. US Average 2009 Pop. 2009 Jobs Percent Change in Jobs 2000-2009
    Pop. Pct.
      Change
      2000-2009
    Atlanta 43020 -6.00% 95 -16 5475 27.90% 2290.3 0.50%
    Austin 43819 8.50% 93 -16 1705 34.70% 758.2 12.70%
    Charlotte 59191 0.70% 99 -11 1746 30.20% 810.2 5.70%
    Dallas 50067 5.10% 104 -9 6448 24.10% 2864.3 3.70%
    Houston 49182 3.60% 114 1 5867 23.80% 2539 12.60%
    Nashville 43891 9.90% 99 -5 1582 20.10% 723.7 3.30%
    Orlando 42353 13.30% 89 -3 2082 25.70% 1009.5 10.60%
    Phoenix 38009 2.80% 90 -5 4364 33.10% 1719.6 8.90%
    Raleigh 41681 -3.70% 99 -16 1126 40.00% 499.7 14.10%
    Salt Lake City 46453 9.30% 95 0 1130 16.20% 610.8 8.00%

    But all is not well with these cities just because they are adding jobs and people. Their GDP per capita is generally above average, but is growing slowly. Their per capita income may be lower than some, but their cost of living is rock bottom, enabling a high quality of life. But worryingly, those incomes are often not keeping pace with the US average.

    These two dynamics reflect what has happened throughout America, from retail to media, where there has been a great “hour glassing” effect in the marketplace. A small but significant high end is thriving, almost everywhere but particularly in the quality oriented cities. The low end is also doing well, particularly in the quantity oriented cities. Neimans and Wal-Mart, indeed.

    In the future, both models face big challenges. The high quality cities continue to become more exclusive. The problem with getting high end on a smaller base is that your market is asymptotically zero. And as high quality talent gets squeezed out – by being not quite elite enough, for lifestyle, affordability or other reasons – the quantity cities start to poach great people and start stealing even more market share. It’s always easier to climb up the value chain than go down it. At some point, these cities could run out of room to shimmy up the flag pole.

    Some high quantity cities may face even greater risks. America’s great elite metropolises have proven they can stand the test of time. New York, Boston, Chicago, San Francisco – all have made it through many economic cycles, fundamental transformations, and even great physical disasters. Few of the high growth cities have proven they’ve got staying power after exhausting their first great growth phase. Detroit, Cleveland, and other Rust Belt burgs were yesterday’s Sun Belt boomtowns. They serve as a cautionary tale about the risks of not having a quality calling card to fall back on when your allure as a growth story fades

    Partisans of these two models need to learn how to learn from each other. The high quality cities need to learn again the lessons of their youth about the importance of growth. And the high quantity cities need to create environments that will sustain them after they’ve lost greenfield advantages. An hourglass America is not one most of us want to live in for the long term. Maintaining a stable commonwealth for the long term means striving again to restore some new 21st century version of our lost middle ground.

    Data Sources:
    Real GDP per Capita (in 2001 chained dollars) is from the US Bureau of Economic Analysis
    Per Capita Personal Income as a percentage of the US average is from the US Bureau of Economic Analysis.
    Population is the from the annual mid-year estimates from the US Bureau of the Census.
    Total jobs from the US Bureau of Labor Statistics Current Employment Statistics program.
    Data changes are calculated.

    Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

    Photo by Werner Kunz (werkunz1)

  • Locals Flee from New South Wales

    A newspaper headline “Fleeing locals ease population pressure on New South Wales” highlights a trend over the last few years. Since 2002 the Australian state of New South Wales, the country’s most populous with over seven million residents, has been losing its residents to other states at some 20,000 per year.

    During the year ended December 2009, 0.2 per cent of the New South Wales population moved to other Australian states. By contrast the State of Queensland, gained 0.3 per cent. Total population growth (consisting of net immigration, natural increase and net interstate movement) in the states of Victoria, Queensland and Western Australia was 2.13, 2.44 and 2.65 per cent respectively. By contrast New South Wales grew a desultory 1.64 per cent.

    The main reason ascribed to the exodus from New South Wales is the cost of housing in Sydney. The 6th Annual Demographia Housing Affordability Survey shows that its capital city Sydney has the second highest housing costs of the cities in the six countries surveyed, behind only Vancouver, Canada. For many people, 9.1 years of median family income required to purchase a median family home Sydney is becoming too expensive to live in.

    The Demographia Survey indicates that a price/income ratio of 3.0 can be considered affordable and 9.1 severely unaffordable. As a result many people, especially the young, will never be able to aspire to the Great Australian Dream of owning their own home. For those who can afford a home, the average wait time to save for the required deposit is 6.2 years. The newly appointed Federal Sustainable Population Minister recently is quoted as saying “people have said all I can see for my kids is they’re never going to be able to afford to live in this suburb because of what’s happening with housing prices”.

    The high cost of housing has significant social impacts. The Demographia Survey estimates that in Sydney 57% of median gross family income would be required to make mortgage repayments for a current median priced house. This may be compared with the 20 per cent figure applicable in Atlanta or Dallas-Fort Worth. There are already some 11,000 homeless persons in New South Wales and some 4,000 sleeping rough.

    Why is the cost of housing in Sydney so high? The Demographia Survey portrays a widespread relationship among the cities studied between high housing cost and overly restrictive planning regimes. New South Wales is among the most restrictive. In order to implement a high-density policy it has restricted the release of greenfield housing sites from an historic average of 10,000 lots per year to an average over the last five years of only 2,250. This is in the face of a annual state population increase of some 115,000. It is staggering to consider this constraint in a continent-sized country of which only some 0.3 per cent is urbanised.

    The scarcity resulting from the miserable allocation of greenfield lots has been most notable in land price, whose share of housing costs has increased from 30 per cent to 70 per cent of the total cost. The result has been an increase of overall prices some three times what it was ten years ago.
    Only seven per cent of people, wish to live in apartments. However, in order to implement its high-density policy the State Government intends to force this lifestyle on reluctant consumers. It plans 460,000 extra dwellings within the existing footprint of Sydney by 2031. In practice the production rate of these high density units has fallen well short of that planned.

    These high-density planning policies result in a dwelling scarcity which enables developers to make large profits on apartments. Developers now comprise by far the largest group (29.5 percent) among Australia’s 200 richest people. They have the resources to make sizable donations to both major political parties. Donations help fund election campaigns and in the past have helped keep the politicians who promote these policies in power. Numerous cases have been documented that show a large donation being made to a governing party shortly before permission was granted for a particular development.

    The shortage of land also impacts commerce and industry. Higher housing costs result in higher rentals or mortgage costs. Workers have to make ends meet and so businesses have to pay higher wages. Additionally employers must shell out for higher commercial rentals. The cost of industrial land in Sydney is roughly 70 per cent greater than in the other Australian large cities. Recently there have been a number of well publicised instances of industries closing their factories in Sydney and moving to Victoria, the state located to the south.

    Communities in Sydney are now paying the price for misguided state planning policies. Concrete, bitumen and tiles dominate vast areas where streetscapes of flowers and foliage once reigned supreme. There is a rising consciousness of disasters resulting from the government’s high-density planning policies. as Along with the topic of unaffordable housing, traffic gridlock, disintegrating public transport, frequent power blackouts and a city running out of water hit the headlines with increasing frequency. Dissatisfaction is escalating.

    The latest Newspoll puts the primary vote for New South Wale’s ruling Labor Party at 25 per cent, the lowest ever recorded. It faces a devastating defeat in the forthcoming March 2011 election. There can be little doubt that ill-advised planning policies are a major factor underlying this pending electoral calamity. But will politicians ever learn?

    (Dr) Tony Recsei has a background in chemistry and is an environmental consultant. Since retiring he has taken an interest in community affairs and is president of the Save Our Suburbs community group which opposes over-development forced onto communities by the New South Wales State Government.

    Photo by Nelson Minar