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  • The Financial Crisis: Bubbles Deflating Worldwide

    The mortgage meltdown is much more than an American affair. Real estate bubbles have developed in all major English speaking countries – US, Canada, UK, Ireland, Australia and New Zealand.

    Over the past year, house prices have dropped 12 percent in the United Kingdom. The annual decline is approaching 10 percent in Ireland, while median house prices have dropped six percent in New Zealand. In each of these countries, the price declines started after the United States. Further, each of these nations has experienced massive nationwide housing inflation, in part, I believe, as a result of highly restrictive land use policies. These policies, often known as ‘smart growth’ have made it virtually impossible to build new housing on the fringe of urban areas inexpensively.

    Where prices will finally settle, no one knows. Some analysts soothe the market claiming that the bottom is near. But many, including The International Monetary Fund, predict the worst of the mortgage crisis is yet to come in the United States. Similarly, former chairman of the council of economic advisors, Martin Feldstein suggested last week that prices would fall to their pre-bubble levels, as did I in this space as well. That’s what bursting bubbles is all about – prices that drop to pre-bubble levels.

    Canada is another story. Like the United States, housing costs remain within historic norms where there is traditional land use regulation, while restrictive land use regulation has led to a housing bubble in some markets. This is especially true in Vancouver, where there has been some minor price softening in recent months. Bank of Nova Scotia officials have indicated that they do not expect the kind of bubble bursting in overpriced Canadian markets that has occurred in the United States, at least partially because there was a lower volume of profligate lending (subprime, etc.) in Canada.

    Janet Albrechtsen, a columnist for The Australian writes in The Wall Street Journal that the Australian financial system also is healthier than America’s, at least in part because of more stringent mortgage regulation. If her analysis is right, Australia could be spared the mortgage meltdown that is engulfing America, the United Kingdom, Ireland and New Zealand. Thus, far, there is little indication of declining house prices in Australia.

    That does not mean there is no bubble. Even with strong banks, Australia has a problem. A housing bubble as pervasive as the United Kingdom has developed in Australia, despite its wiser financial regulation, House prices have risen to from two to three times the historic Median Multiple (median house price divided by median household income) norm of 3.0.

    The Australian bubble, like in the United Kingdom, Ireland and New Zealand (as well as parts of the US) has been spurred by overly restrictive land use regulation, which forces land prices up and causes them to explode even with moderate increases in demand. In response, the Median Multiple has increased to more than double the historic norm in all major capital cities. As a result, younger and future Australians have to pay far more of their income for housing than those who came before. So, while superior regulation may have kept Australia’s banks healthy, the prospects of many younger members of society have been greatly diminished. They will have been the victims of the largest inter-generational transfer of wealth in the nation’s history.

    Despite Ms. Albrechtsen’s optimism, it is not yet clear that Australia’s bubble will not eventually burst. Certainly falling commodity prices could hurt the employment situation, particularly for middle and working class Australians who are now struggling to pay ever higher percentages of their incomes for housing. Australia may have remained ‘the lucky country’ so far in terms of real estate. But whether that will persist in the coming months is still open to question.

    Note 1: http://www.demographia.com/dhi.pdf.

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

  • Obama: A Campaign Model for the Information Age

    Senator Barack Obama has run the first campaign of the information age, and win or lose he has set the standard for how campaigns will be run from this point forward.

    He has parlayed his inspirational speeches and personal appeal to the millennial generation into a base of small donors likely unequaled in modern election history. His campaign understood the power of the Internet and social networking and successfully used it as a resource to create political buzz about him and build a fundraising juggernaut.

    It was the breadth of Obama’s fundraising base that positioned him to bring the Clinton campaign to its knees in the months following Super Tuesday. Clinton’s “big dollar” donors had “maxed out” expecting a quick and decisive victory in February. The lack of financial resources available to Clinton in the months after Super Tuesday allowed Obama to campaign in the marginally significant electoral states and build his delegate count using tens of thousands of $25 contributions.

    It was the Obama campaign’s ability to replenish its coffers, spend and reload again and again that was a — it not the major — factor in derailing the Clinton nomination that a year ago seemed all but inevitable. Obama was able to fight a protracted war, because he has built long supply lines. Clinton went for the early knockout and ran out of gas.

    Obama’s fund raising advantage has reflected more the way he built his base of support than the momentum he had at that point in the campaign. According to the Center for Responsive Politics, Obama had raised $454 million as of August 31, 2008. The website www.opensecrets.org reports that 94 percent of Obama’s funds come from individual donors and 51 percent of Obama’s contributions are $200 or less.

    When compared with John McCain’s base, Obama has much more in reserve. Obama has amassed 95,000 more small contributions than McCain. He has 10,700 more contributions of $2,300 plus than McCain, but this number represents only 30 percent of Obama’s total compared to 49 percent of McCain’s total in this category. And, 16 percent of McCain’s contributors are “maxed out” as compared to 9 percent of Obama’s.

    It is even more interesting when you break it down to gender. Female donors comprise 42 percent of Obama’s base and 28 percent of McCain’s base of financial support. Females donors account for 71.6 percent of the total contributed by males to Obama while McCain’s female donors reflect only is 38.3 percent of total male giving. In the category of donors from $200 – $499 Obama’s base of female donors outpaces McCain’s by a ratio of 3.4:1.

    Obama has built his political organization around his fund raising base rather than vice versa as is usually the case in political campaigns. This is critical in building his “machine” in states like Virginia, North Carolina, New Hampshire, and Colorado, where he is either winning or close to it.

    The beauty of this model is that after the television ads have gone dark and the radio ads ring hollow, Obama is only a mouse click away from continuing the conversation with his base.

    On Election Day, Obama will have more than 2.5 million investors who are almost certain to vote. The campaign infrastructure that he has built will enable him to contact them and focus them as a resource throughout Election Day. This may well decide the election for Obama. But win or lose he has set the bar for future candidates in terms of building a base of fund raising support.

    Dennis M. Powell is president and CEO of Massey Powell an issues management consulting company located in Plymouth Meeting, PA.

  • Nevada’s Decline

    A recent article in the Las Vegas Review-Journal lamented the economic decline in the state according to a report by the Rockefeller Institute of Government in NY. The Rockefeller report cited a growth index released by the Philadelphia Fed, but reset the index to a baseline of January 2007, singling out Nevada as the worst performing state in the nation over that period.

    Interested in the bigger picture, I looked up the original index from the Philadelphia Fed and charted it back to its original baseline of July 1992. The results show a much more interesting picture for the state of Nevada.

    We see a meteoric rise in economic activity in Nevada, far surpassing any state since 1992. Then as late as November 2007, the bottom began to fall out. The recent decline in Nevada is certainly serious, but we can always benefit by putting as much data into the picture as possible. What if the Rockefeller report had chosen January 2005 as a baseline? It would have shown Nevada as about flat, but obscured the detail of its true growth trajectory.

  • State Economic Growth Index, 1992 – 2008, Federal Reserve Bank of Philadelphia

  • Restless Americans: Migration and Population Change, 2000-2007

    Americans may be less mobile than in the past, but millions since 2000 have continued to be on the move, reshaping the landscape and economy of the nation. Three maps will be briefly discussed: one of population change by county, 2000-2007, one of net internal migration by county, and one of net immigration from abroad. We will then focus on the “extremes”, unusually large levels or intensities of net internal migration and of immigration.

    Overall population growth

    As was true in the 1990s, big growth has concentrated overwhelmingly in selected metropolitan regions — and within them, primarily in their suburbs and exurbs. The big growth areas are concentrated in Texas (Houston, Dallas-Fort Worth, San Antonio, Austin), greater Atlanta, North Carolina (Charlotte-Raleigh), most of Florida, the Virginia and Maryland suburbs of Washington-Baltimore, the desert Southwest (Riverside-San Bernardino, Las Vegas, Phoenix, Tucson). Substantial exurban or spillover growth was common, with the Bay Area extending into California Central Valley, in far exurban New York and Pennsylvania as well as in largely once rural counties around such places as Salt Lake City, Denver, Portland, Seattle, Minneapolis, Chicago, Kansas City, Nashville, Indianapolis and Columbus.

    Many smaller metropolitan areas grew, especially in the south and west. Many counties with universities appear to have also grown, notably in the South. Many rural or small-town counties with substantial growth boasted environmental amenities and a strong ‘quality of life’ appeal.

    The only big population losses were New Orleans and vicinity, but there were also vast rural small town areas with small losses, characterized by continuing out-migration, but often also by natural decrease, more deaths than births (870 counties), and covering the Great Plains, but also much of the Midwest, Appalachia and the Northeast.

    Overall the population grew by 20 million, 12 million from natural increase, and 8 million from immigration. Around 80 million Americans “migrated” (moved across a county line), 28 percent of the population, resulting in net gains of over 10 million in gaining areas, and net losses of the same 10 million to losing areas.

    Immigration

    Net immigration into the US was almost 8 million in seven years, raising the legal/known share of the foreign born to almost 12 percent of the population. There were hundreds of counties — rural, small town and small metropolitan — where immigrants landed to take agricultural and industrial jobs or to work in service jobs or in construction. This trend is exemplified by a set of counties in far southwestern Kansas (which also had high internal out-migration—mostly Hispanics moving to meat-packing jobs) and to environmental amenity ski-resort counties in Colorado (construction, service).

    The largest immigration flows continued to flow to metropolitan areas, including many large core central counties, many of which were losing heavily among domestic migrants to their suburban and exurban fringe counties. The 21 largest losing counties lost a net of 4.7 million, but gained 3.5 million immigrants. Some 40 percent of the 8 million immigrants were destined for just 8 metropolitan cores, most notably Los Angeles-San Diego, New York City, Miami-Fort Lauderdale, San Francisco-Oakland-San Jose, Chicago, Dallas-Fort Worth and Houston.

    Internal Migration

    The story of gains and losses from internal migration is a little more complex. Gaining counties attracted around 45 million migrants and sent out around 35 million, for a net gain of over 10 million. One obvious feature from the maps is the “donut” phenomenon, the prevalence of large central county net out-migration, surrounded by a ring of substantial suburban and exurban net in-migration (about two-thirds of which is from the central core counties).

    This pattern is particularly marked in Houston, Dallas, Miami, Minneapolis, Washington, DC., Atlanta, Denver, Portland, Kansas City, Memphis, Nashville, and Indianapolis. In the cases of Los Angeles, San Francisco, Seattle, New York and Philadelphia, the ring of growth has pushed beyond the suburban counties to adjacent areas – as to the Central Valley of California or to NE Pennsylvania and Delaware.

    Some core areas did gain, mostly and Southern communities such as Phoenix, Las Vegas, San Antonio, Charlotte and Raleigh, NC, and Knoxville, TN — southern and of more recent importance. In many of these areas the “core” county also includes many areas which might be considered suburban. In this sense, the fastest “urban growth” took place in relatively low-density, auto-dominated regions as opposed to traditional urban cores. Finally, and most obvious on the map, is the continuing high growth of central Florida across most counties.

    In contrast there are places so hurt by de-industrialization that the entire (or most) of the metropolitan areas have substantial out-migration. These include places like Detroit, Cleveland, Pittsburgh, Buffalo, Rochester, and Boston. In some places, notably Pittsburgh, even suburban areas are losing population.

    Rural and small towns also show their own dynamics. There is also continued net-out-migration for almost half of rural small –town counties in all parts of the country, but especially in the Great Plains and Midwest and in the Mississippi delta. But on the other hand, we can see continuing f net in-migration to environmentally attractive areas, often for retirement or recreation, notably in parts of the west, but also in the Ozarks and other areas in the south, upper Midwest and Northeast.

    Conclusion

    The constants here are (1) the restless mobility of the population, (2) the dominance of suburban growth; and (3) the continuing decline of more than half of rural small-town counties. Prominent in recent years, but uncertain in the longer run are (4) our strong dependence on immigration (40 percent of net national growth), (5) the locus of fastest growth in exurbia, (6) the decline of northeastern and Midwestern industrial regions; (7) the rapid growth or rural environmental amenity counties and (8) the specific set of fast-growing metropolitan areas.

    Given the severity of economic conditions, immigration could begin to slow as a result of declining employment opportunities or political opposition. Similarly exurban expansion could slow because of the housing credit collapse. It is not impossible that older industrial areas could partially recover (ample plant and housing stock) while environmental amenity areas could be hurt by recession and the housing collapse. This could also apply to some of the fastest gaining areas 2000-2005 — notably Florida and southern California — that have been the hardest hit in the 2007 on housing debacle.

    But I believe American society is resilient, and even with needed constraints on excessive housing finance abuses, and even if we are indeed approaching the era of “peak oil,” the geographic settlement pattern of recent decades most likely will persist. People will continue to migrate for the same reasons they have for decades — in search of cheaper, larger houses, for jobs, warmer weather or scenic beauty. So we can expect, as the financial crisis gradually recedes, continued growth in suburban, exurban and satellite zones of metropolitan areas, and a net flow southward and to amenity areas.

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

  • United States Net Domestic Migration Map, 2000 – 2007

  • United States Immigration Map, 2000 – 2007

  • United States Population Change Map, 2000 – 2007

  • Florida: The Music Has Stopped

    And those without chairs will be standing for an awfully long time

    By Richard Reep

    Florida real estate, which boasts a notorious tradition that dates back to Ponce de Leon’s search for the Fountain of Youth in 1513, has recently exceeded even its own flaky reputation. Quality of life here will suffer in the near term. In the long term, Florida’s economy will recover its viability, but in a new form.

    The immediate future will be difficult. By referendum, Florida enacted multiple property tax cuts in a state already known for low taxes. Now, with declining property values, the state legislature has drastically less money to spend on infrastructure, services, and capital improvements. Business, mostly tourism and land development, suffers from the economic turmoil. But it is the nonprofits who probably struggle the most. Floridians, known as the least generous donors to nonprofits, have now even less to donate, causing more holes in the safety net, reduced care for the needy, and reduced funding for the arts. It’s going to be a tougher state, particularly for the poor.

    Consider the Gulf coast town of Sarasota. Once known for its high-net-worth retirees, Sarasota diversified and prospered in the 1980s and 90s. Sarasota sported world-class public art along the waterfront, terrific galleries, and an affinity for contemporary architecture rare in the Southeast. Downtown was surrounded by a necklace of authentic, unique neighborhoods ranging from the Ringling School of Art in the north to Towles Court in the south. Sarasota County also boasted a mix of marine/industrial, agricultural, and tourism economies.

    Little of this has been sustainable in the current boom/bust cycle. Florida’s growth management dictates that each county submit a Comprehensive Plan for development. Once submitted, this Plan may be amended by the county Planning Commission if a landowner has sufficient cause to challenge it. Sarasota County’s Comprehensive Plan historically focused on coastal development. The pressure to add massive tracts of subdivisions, however, amended the Plan multiple times, diluting this concentration and allowing eastern inland regions of agricultural land to be rezoned for single-family houses. “It’s as if a company’s business plan could be changed at will by any employee of the company”, commented one county staff member recently, “making this Plan totally meaningless.” Sarasota threw away its own special sense of place, to its own detriment.

    As a result, the cultural life of Sarasota has perceptibly declined. Art galleries are closed, the public art venue is vacant, and waterfront redevelopment has stalled. In an effort to chase high-tech jobs, the county ignored the needs of a major local employer, causing the employer to relocate thousands of jobs out of the county. No high-tech companies were recruited in the process. Sarasota will need a great effort to pull out of this dive.

    Orlando, in the northern center of the peninsula of Florida, is a quintessential Ephemeral City, supporting private, world-class family entertainment. Orlando has suffered from similar issues as Sarasota, but somewhat less dramatically. Unlike Sarasota, Orlando can expand in all directions and has earnestly done so, encompassing three counties and two million people.

    Orlando seems to live in Disney’s bright shadow. Getting to know the older, denser parts of Orlando in more detail takes time. This mostly-ignored area offers an authentic and beautiful place that is relatively livable in terms of affordability, access, and social life.
    When the music was playing, downtown politicians were giving tax incentives to unique arts-oriented businesses that moved downtown. Today, they offer similar tax breaks to big box retail. Like downtowns of many primary and secondary cities, Orlando has sprouted multiple – mostly empty – condominium towers, but the city escaped the egregious situation of Miami (20+ empty towers). Nearly all surrounding communities have emulated this condition, with even sleepy Sanford (population 39,000) displaying an empty downtown condominium.

    Spreading out from downtown Orlando are older suburbs – including College Park, Thornton Park, and Old Winter Park – where marvelous pockets of sustainable mixed-use streets are interlaced with lakes and diverse residential neighborhoods. The saddest counterpoint to these jewels is the half-brownfield efforts of developers from Texas, North Carolina, and Atlanta. Large tracts of older building stock in these neighborhoods have been bought and scraped clean, with billboards advertising bland, residential-over-retail “town centers.” Without residential buyers, these projects have stalled, leaving empty wastelands of sand poignantly anchored by lonely sales trailers likely to remain dormant for years.

    Central Florida is also the breeding ground of garish New Urbanism developments, most notably Celebration and its facsimiles. These form-obsessed developments issue patternbooks for architecture, hoping that front porch control will instill community values and social order among those able to afford their mortgages and community association dues. Planners of these neighborhoods seem to find the industrial-era “streetcar suburb” to be the best America has had to offer. Every advance or innovation since then is regarded as too ‘modern’.

    At the same time, the social dimension of New Urbanist development has been very disappointing. Promoted in its early phase as a way to integrate multiple income levels into one community, New Urbanism is instead an excuse to ratchet up home sizes, lot sizes, and property prices to the highest possible threshold. There may be far more diversity in post-1950s suburban tracts than in these Celebration look-alikes.

    Further out, Orlando’s more conventional new subdivisions are in a similar condition to those of Phoenix and parts of California. All these trends make for a mixed prognosis for the livability of this region, and the State of Florida overall, after the unsold inventory is finally distributed and occupied.

    Yet despite the global factors working against them, both Orlando and Sarasota still have areas of interesting, special, and authentic quality for which locals and visitors express genuine affection. People who care about the quality of their built environment always seem to find a way to improve it, whether by overt investment in downtowns or in more covert fashion by staging cutting-edge art events in abandoned warehouses. The spirit of a good community seems to be alive, despite the uncertain future of Florida. Due to the intrinsic appeal of warm weather and beaches, a broad cross-section of people will continue to relocate here.

    Florida real estate will certainly continue its colorful tradition, but who will profit in the long run? I think communities that invest in the basics – good education, good jobs, and well-planned infrastructure – will find themselves leading the state’s next resurgence.

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

  • Richard Reep