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

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

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

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

    Planned and tightly controlled cities are not “real”.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  • Public Pension Troubles Loom for State and Local Governments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  • A (New) Place to Call Home

    A recent survey by Pew Research finds that nearly half of Americans (46%) “would rather live in a different type of community from the one they’re living in now,” with those living in cities expressing the highest desire to live elsewhere.

    Even though many Americans say they are interested in giving somewhere new a try, most of us seem to think that our current communities aren’t so bad. According to Pew, over 80% of respondents rated their current community as excellent, very good, or good. The survey also reports that “ideal community type” was not dominated by any one class of place, with 30% preferring small towns, 25% suburbs, 23% cities, and 21% rural areas.

    Pew also asked those surveyed about their interest in living in specific big cities. Denver came out on top, with 43% of respondents stating that they would be interested in living in its metro area. Other western cities also fared quite well, with seven of the top ten “popular” cities being located in the west. The remainder of the top ten was made up of southern cities. Cities in the north and east lagged behind in popularity, with the rustbelt cities of Detroit and Cleveland registering the lowest popularity. (8% and 10%)

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

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

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

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

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

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

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

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

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

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

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

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

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

  • Obama: Only Implement Green Policies that Make Sense in a Time of Crisis

    With the exception of African-Americans, the group perhaps most energized by the Barack Obama presidency has been the environmentalists. Yet if most Americans can celebrate along with their black fellow citizens the tremendous achievement of Obama’s accession, the rise of green power may have consequences less widely appreciated.

    The new power of the green lobby — including a growing number of investment and venture capital firms — introduces something new to national politics, although already familiar in places such as California and Oregon. Even if you welcome the departure of the Bush team, with its slavish fealty to Big Oil and the Saudis, the new power waged by environmental ideologues could impede the president’s primary goal of restarting our battered economy.

    This danger grows out of the environmental agenda widening beyond such things as conservation and preserving public health into a far more obtrusive program that could affect every aspect of economic life. As Teddy Roosevelt, our first great environmentalist president, once remarked, “Every reform movement has a lunatic fringe.”

    Today, the “green” fringe sometimes seems to have become the mainstream, as well. While conservationists such as Roosevelt battled to preserve wilderness and clean up the environment, they also cared deeply about boosting productivity as well as living standards for the middle and working classes.

    In contrast, the modern environmental movement often seems to take on a different cast, adopting a largely misanthropic view of humans as a “cancer” that needs to be contained. Our “addiction” to economic growth, noted Friends of the Earth founder David Brower, “will destroy us.” Other activists regard population growth as an unalloyed evil, gobbling up resources and increasing planet-heating greenhouse gases.

    For such people, the crusade against global warming trumps such things as saving the nation’s industrial heartland, which is largely fueled by coal, oil and natural gas, even if it means the inevitable transfer of additional goods making it to far dirtier places such as India and China. Of course, the current concern over global warming could still prove to be as exaggerated as vintage 1970s predictions of impending global starvation or imminent resource depletion.

    Certainly experience suggests we should not be afraid to question policies advocated by the true believers — particularly amid what threatens to be the worst economic downturn in generations. Actions taken now in the name of climate change could have powerful long-term economic implications.

    We don’t have to imagine this in the abstract; just look at the economies of two of the greenest states — Oregon and California — whose land use, energy and other environmental policies have helped contribute to higher housing and business costs as well as an exodus of entrepreneurs.

    Bill Watkins, head of the forecasting project at the University of California, Santa Barbara, notes that these two environmentally oriented states now have among the nation’s highest unemployment rates, pushing toward 10 percent — ahead of only the Rust Belt disaster areas farther east. In some places, such as central Oregon, it could hit close to 15 percent next year.

    Many green activists, along with “smart growth” advocates and new urbanists, laud Oregon’s long-standing strict land use controls as a national role model. Recently imposed land use legislation in California, concocted largely to meet the state’s restrictions on greenhouse gas, has been greeted by them with almost universal hosannas.

    Of course, there is nothing wrong at all with trying to curb excessive sprawl or energy use. Promoting a dense urban lifestyle is also commendable, but it is an option that appeals to no more than 10 percent to 20 percent of the population. This is even truer of middle-class people with children, few of whom can hope to live the urban lifestyles of the Kennedys, Gores and other elites — much less also afford one or two country homes to boot.

    Tough land use policies are not only hard on middle-class aspirations, but they appear to have played a role in inflating the extreme bubble that affected the California and Oregon real estate markets. Limiting options for where people and business can locate, notes UCSB’s Watkins, tends to drive up the prices of desirable real estate beyond what it would otherwise cost.

    Perhaps worst of all, it is not at all certain that a forced march back to the cities would necessarily produce a better, more energy-efficient country. Sprawling and multipolar, with jobs scattered largely on the periphery, most American cities do not lend themselves easily to traditional mass transit; in many cases, this proves no more energy efficient than driving a low-mileage car, using flexible jitney services or, especially, working at home. Big cities also have a potential for generating a “heat island” effect that can result in higher temperatures.

    Energy policy represents another field where hewing too close to the green party line could prove problematic. Obama already has endorsed California’s approach as exemplary. And indeed, some things — like imposing tougher mileage standards, stronger conservation measures and more research into cleaner forms of energy — could indeed bring about both short-term and long-term economic benefits.

    However, there are also downsides to adopting a California-style single-minded focus on renewable fuels such as solar and wind. Right now, these sources account for far less than 1 percent of our nation’s energy production. Even if doubled or tripled in the next few years, they seem unlikely to reduce our future dependence on foreign oil or boost our overall energy supplies in the short, or even medium, term.

    Looking at the experience of these two states, bold claims about vast numbers of green jobs created by legislative fiat seem more about offloading costs to consumers, business and taxpayers than anything else, particularly at today’s current low energy prices. In contrast, new environmentally friendly investments in natural gas, hydro, biomass and nuclear are more likely to find private financing and may work sooner both to reduce dependence on foreign fuels and to keep energy prices down.

    The Obama administration certainly should listen to the arguments of environmentalists. But given the clear priority among voters to deal first with the economy, the president should implement only those green policies that make sense at this time of crisis. A sharp break from the Bush approach is certainly welcome, but not in ways that promise more pain to ordinary Americans and our faltering economy.

    This article originally appeared at Politico.

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

  • Housing Prices Will Continue to Fall, Especially in California

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  • New York Should End Its Obsession With Manhattan

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    “One and half million.”

    “And how did he pay for it?”

    “His dad.”

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

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

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

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

    This article originally appeared at Forbes.

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

  • Cleveland, Part II: Re-Constructing the Comeback

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  • Connie Loden