New Geography

Tag: middle class

  • Melbourne: Government Seeking Housing Affordability

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Are Australian House Prices in a Bubble?

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

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

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

    —–

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

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

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

  • Ownership Subsidies: Dream Homes or Disasters?

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

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

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

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

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

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

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

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

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

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

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

  • The Decline and Revival of an American Suburb

    In 1952, a white Protestant couple from Pasadena, California along with their newly born first child, moved 22 miles east to a small town called Covina. There, among acres of open space and endless rows of orange, lemon, and avocado trees, the young family was able to purchase a plot of land and build a brand-new home with swimming pool for a total of $20,000.

    Not far away, in an unincorporated area of Los Angeles County straddled by the towns of La Puente, Baldwin Park and West Covina, a Mexican-American Catholic couple from central Los Angeles with two small daughters purchased a newly built 3-bedroom, 2-bath home with a large backyard for $15,000. The young husband had served in the Navy during World War II, allowing the couple to buy their home with the help of the G.I. Bill. The year was 1956.

    The two couples featured are my paternal and maternal grandparents. Both were young families of the prosperous post-war years claiming their stake on the middle class American Dream. My paternal grandfather worked as a sales representative for Drackett Products (the creators of Drano and Windex- now part of S.C. Johnson & Son) while my maternal grandfather worked as unionized welder at an aerospace plant in Burbank. Both grandmothers were career stay-at-home moms.

    The place they chose to call home is the San Gabriel Valley- a sprawling expanse east of Los Angeles comprised of 47 independent municipalities and unincorporated areas. Today, the region is a demographically diverse melting pot of more than 2 million residents. To a casual visitor heading east towards the Inland Empire on one of the Valley’s three main east-west arteries (the 210, 10 and 60 freeways), the separate municipalities-with names like Glendora, Rosemead, and Duarte-are virtually indistinguishable. Aside from Pasadena, the oldest city in the Valley and famous for its Rose Parade and accompanying Rose Bowl Game, most San Gabriel Valley cities are largely forgettable in terms of architecture or town planning.

    Such failings in the built environment were not a consideration back in the 50s and 60s. My father describes his childhood setting as ‘heaven on earth’ where he could ride his bike with friends for miles from his home exploring rolling hills, untouched rivers and endless citrus groves.

    My mother describes her childhood neighborhood as what Life magazine once dubbed ‘kidsville. She recalls the neighborhood kids playing a variety of games outside in the street after school. Most often, she would not even be allowed inside the house until 5 pm when dinner was promptly served. On special occasions, her parents would take her and her siblings, my aunt and uncle, to a new fast-food joint called In-N-Out Burger. The now iconic chain had their first location literally just around the corner from their home.

    By the mid 1970s, both of my parents had left the San Gabriel Valley for another valley in Northern California where they met and later got married. My younger sister and I were raised in the Bay Area’s Silicon Valley, but we would still make the drive down to Southern California at least once a year to visit relatives.

    This trip always prompted mixed feelings from my parents.

    My father later explained to me that over the course of 25 years the San Gabriel Valley had devolved from an idyllic bedroom community to a crowded and polluted assortment of endless strip-malls. The year he left, 1973, had one of the worst air-pollution levels on record. Most days it was impossible to even see the majestic San Gabriel Mountains towering over the Valley. Sometimes, my father tells me, his high school football practices had to be canceled due to the inability of the players to catch their breath.

    Today the air-quality is significantly improved (thanks in large part to the introduction of catalytic converters to automobiles).

    The demographic make-up is also drastically different. My mother’s childhood street, which was about 50-50 split between Mexican-Americans and white Americans is now predominately populated by Central American immigrants. Long gone are the children playing on the street and neighbors socializing with each other. Now, most homes have unkempt front lawns surrounded by chain-link fences and windows and doors with security bars on them. On commercial streets nearby, strip malls are dominated by small restaurants and grocery stores with signs in Spanish catering to the local Latino community.

    In the neighboring city of West Covina, the present demographics are markedly more mixed. About half of the population is of Hispanic origin while the remainder is split between white and Asian. The Asian influx to West Covina is a recent phenomenon, taking place over the past two decades. This is physically visible in several strip malls throughout the city catering to Chinese immigrants and Chinese Americans.

    The growing Asian population is part of a larger trend in the greater San Gabriel Valley region. Already, cities in the western part of the Valley, including Alhambra, Monterey Park, San Gabriel, and even the upscale enclave of San Marino, are majority Asian. Die-hard foodies of Southern California claim this area has the most authentic Chinese food in North America.

    I can’t blame my parents for wondering what happened to the suburban utopia of their youth. Many other Baby Boomers across the U.S. probably share similar sentiments about the communities where they grew up.

    Yet if the dream seems endangered, or even delusional, to many sophisticated Americans, many other people, particularly immigrants from outside of America’s borders, want a piece of it.

    Ultimately these newcomers may be the ones to save suburbs like those in the San Gabriel Valley. They are the ones now starting businesses, improving their houses, and building the new cultural institutions. This may not be the suburbia of my parent’s childhood but it is not the doomed dystopia imagined by many urbane observers.

    These newly energized suburbs will also not depend as much on the center city. More residents now work closer to home, and fewer commute to the core of Los Angeles, which has lost hundreds of thousands of jobs over the past decade.

    Instead these towns are reviving along the lines of ‘suburb as village’, building on now underutilized downtown areas with charming mid-century structures that once served as commercial hubs for their respective towns. A growing emphasis on locality, as well as a renewed interest in civic identity, may help these places find their individual character once again – even if the signs of revival may be in Mandarin or Spanish as well as English.

    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 BurlyInTheBay

  • 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

  • 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

  • How Obama Lost Small Business

    Financial reform might irk Wall Street, but the president’s real problem is with small businesses—the engine of any serious recovery. Joel Kotkin on what he could have done differently.

    The stock market, with some fits and starts, has surged since he’s taken office. Wall Street grandees and the big banks have enjoyed record profits. He’s pushed through a namby-pamby reform bill—which even it’s authors acknowledge is “not perfect”—that is more a threat to Main Street than the mega-banks. And yet why is Barack Obama losing the business community, even among those who bankrolled his campaign?

    Obama’s big problems with business did not start, and are not deepest, among the corporate elite. Instead, the driver here has been what you might call a bottom-up opposition. The business move against Obama started not in the corporate suites, but among smaller businesses. In the media, this opposition has been linked to Tea Parties, led by people who in any case would have opposed any Democratic administration. But the phenomenon is much broader than that.

    The one group that has fared badly in the last two years has been the private-sector middle class, particularly the roughly 25 million small firms spread across the country. Their discontent—not that of the loud-mouthed professional right or the spoiled sports on Wall Street—is what should be keeping Obama and the Democrats awake at night.

    Small business should be leading us out of the recession. In the last two deep recessions during the early 1980s and the early 1990s, small firms, particularly the mom and pop shops, helped drive the recovery, adding jobs and starting companies. In contrast, this time the formation rate for new firms has been dropping for months—one reason why unemployment remains so high and new hiring remains insipid at best.

    Here’s one heat-check. A poll of small businesses by Citibank, released in May, found that over three quarters of respondents described current business conditions as “fair or poor.” More than two in five said their own business conditions had deteriorated over the past year. Only 17 percent said they expect to be hiring over the next year.

    It’s not hard to see the reasons for pessimism. Entrepreneurs see bailed-out Wall Street firms and big banks recovering, while getting credit remains very difficult for the little guy. In addition, many small businesses are terrified of new mandates, in energy or health, which makes them reluctant to hire new people. Small banks—not considered “too big to fail”—fear that they will prove far less capable of meeting new regulatory guidelines than their leviathan competitors.

    The small business owners I’ve spoken to—like most of the public—generally don’t seem convinced about the effectiveness of the stimulus, even if the administration claims it helped us avert an economic “catastrophe.” Barely one fourth of voters, according to a recent Rasmussen poll, think it helped the economy.

    Obama’s troubles with the bigger firms are more recent. Initially, President Obama wowed the big rich, leading The New York Times to dub him “the hedge fund candidate.” By the time he won the election, he enjoyed wide support from the Business Roundtable, the Silicon Valley venture community and other titans.

    Initially, big business was happy with Obama’s stimulus plan, and more or less was ready to acquiesce to both his health-care reforms and cap and trade. After all, most large companies generally provide some health coverage to their employees. For Wall Street, cap and trade represents just one more wonderful way to arbitrage their way to more profits.

    Of course, some corporate titans will remain loyal to the White House. Take the lucky folks from Spanish- based Abengoa Solar, who are now getting $1.45 billion in federal loan guarantees for an Arizona solar plant that will create under 100 permanent jobs while providing expensive, subsidized energy to perhaps 70,00 homes. If this is stimulus, it’s less jarring than a decaf from Starbucks. Also let’s dismiss those on Wall Street who whine about the administration’s occasionally tough anti-business rhetoric. Wolves should have thicker skins. The Obama administration and Congress have delivered softball financial reform dressed up as major progressive change. They should be grateful, not petulant.

    But there’s clearly something more serious than hurt feelings at play here. The pain felt by small businesses is hitting the big boys, too. After three straight bad years, small businesses buy a lot less stock, business services, and equipment. Big companies can hoard their money and sport big profits, but ultimately they have to sell to consumers and small firms. Maybe that’s something that the media moguls—who after all have to sell to the hoi polloi—have been picking up on, too.

    This has led some Obama allies, like GE’s Jeffrey Immelt, to grouse that Obama does not like business, and vice versa. “Government and entrepreneurs are not in sync,” he explained to reporters in Europe. So, too, has Ivan Seidenberg, the head of the once Obama-friendly Business Roundtable, who denounced the administration recently for creating “an increasingly hostile environment for investment and job creation here in this country.”

    Among businesses of all sizes, there is now a pervasive sense that the administration does not understand basic economics. This is not to say they believe Obama’s a closet socialist, as some more unhinged conservatives claim. That would be an insult to socialism. Obama’s real problem is that he’s a product, basically, of the fantastical faculty lounge.

    For the most part, university professors do not much value economic growth, since they consider themselves, like government workers, a protected class. Many, particularly in planning and environmental study departments, also embrace the views of the president’s academic science adviser, John Holdren, who suggests Western countries undergo “de-development,” which is the opposite of economic growth.

    Of course, such ideas, if taken seriously, have economic consequences. You want to see the future? Come to California, where the regulatory stranglehold is killing our economy. Subsidizing favored interests also is not a winning strategy. There’s simply not enough money to maintain a federal version of Chicago-style baksheesh. The parlous state of Obama’s home state of Illinois—which manages to make even California or New York appear models of prudent management—demonstrates the futility of the subsidize-the-base game.

    The worst part is that none of this was necessary. A stimulus plan that helped workers and communities by recreating a WPA for the unemployed youths might have gained wide support on Main Street. Credits for hiring, reductions in payroll taxes or a regulatory holiday for small firms also might have bolstered business confidence. Business people, particularly at the grassroots level, would also like to see a return for the detested TARP in a freer flow of credit for their firms. They are not so much hostile to Obama as puzzled by his inability to address their needs.

    But for now, the stimulus is widely seen as a wasted opportunity and proof of Washington’s enduring incompetence. As a result, roughly 80 percent of Americans, according to Pew, say they don’t trust the federal government to do the right thing, which does not bode well for a second round of pump-priming.

    This leaves business turning back to the Republicans. Not because most see them as competent or even intelligent; GOP rankings are also at a low ebb. Business owners across the spectrum are forced to embrace the “party of no” because Obama and the Democrats have given them so little to say “yes” to.

    This article originally appeared in The Daily Beast.

    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.

    Official White House Photo

  • The Democrats’ Middle-Class Problem

    Class, the Industrial Revolution’s great political dividing line, is enjoying Information Age resurgence. It now threatens the political future of presidents, prime ministers and even Politburo chiefs.

    As in the Industrial Age, new technology is displacing whole groups of people — blue- and white-collar workers — as it boosts productivity and creates opportunities for others. Inequality is on the rise — from the developing world to historically egalitarian Scandinavia and Britain.

    Divisions are evident here in the United States. Throughout the 2008 presidential campaign, Barack Obama lagged in appealing to white middle- and working-class voters who supported Hillary — and former President Bill — Clinton.

    Now, these voters, according to recent polls, are increasingly alienated from the Obama administration. Reasons include slow economic growth, high unemployment among blue- and white-collar workers and a persistent credit crunch for small businesses. These factors could cause serious losses for Democrats this fall — and beyond.

    This discontent reflects long-term trends. Since 1973, for example, the rate of growth of the “typical family’s income” in the United States has slowed dramatically. For men, it has actually gone backward when adjusted for inflation.

    The past few years have been particularly rough. About two in five Americans report household incomes between $35,000 and $100,000 a year. Right now, almost three in five are deeply worried about their financial situation, according to an ABC poll from March.

    This should give Democrats an issue, theoretically. But to date, Obama and his party seem incapable of harnessing the growing middle- and working-class unrest.

    In fact, according to recent polls, these have been the voters that Democrats and the president have been losing over the past year as the economic stimulus failed to make a major dent in unemployment.

    Part of this problem lies with the party’s base, which the urban historian Fred Siegel once labeled “the coalition of the overeducated and the undereducated.” Major urban centers like New York, Chicago and San Francisco might advertise themselves as enlightened, but they have lost much of their middle class and suffer the highest levels of income inequality.

    Representatives from these areas now dominate the party and reflect their bifurcated districts. They often stress the concerns of the educated affluent on issues like climate change and gay marriage, while their economic policies focus on the public-sector workers, “green” industries and maintaining the social welfare net.

    Not surprisingly, this agenda does little for the middle-class — mostly suburban — voters.

    Sen. Scott Brown (R-Mass.), for example, won his margin of victory in largely middle- and working-class suburbs, where many voters had backed Obama in 2008, according to demographer Wendell Cox. Brown lost by almost 2-to-1 among poor voters — and also among those earning more than $85,000 a year.

    Given the danger revealed by these numbers, Democrats and other center-left parties around the world should refocus their policies on issues — such as taxes, private-sector job creation and small business — that affect such voters.

    For this growing class divide can be found globally: In China, for example, technological change and globalization have produced a new proletariat that, unlike in the past, is disinterested in warmed-over Maoist ideology.

    Perhaps nothing demonstrates this more clearly than the unrest at the Foxconn Technology Group. Workers produce cool products — for companies like Apple, Dell and Nintendo — but under such oppressive conditions that some have been driven to suicide.

    Mounting protests about Foxconn’s employment practices, and a recent rash of strikes in China’s Honda plants, reveal the disruptive potential of this class conflict.

    Even as China’s corporations and government become richer, inequality is widening. Indeed, over the past 20 years, China has shifted from an income-distribution pattern like that of Sweden or Germany to one closer to Argentina’s or Mexico’s. By 2006, China’s level of inequality was greater than that of the United States or India.

    Not surprisingly, class anger has reached alarming proportions. Almost 96 percent of respondents, according to one recent survey, agreed that they “resent the rich.”

    China’s class divides may be extreme, but similar patterns can be found almost everywhere. From India to Mexico, economic growth has led to a striking increase in the percentage of urbanites living in slum conditions.

    In 1971, for example, slum dwellers accounted for one in six Mumbaikars. Today, they are an absolute majority.

    This almost guarantees greater class conflict in the future, even as India’s economy booms.

    “The boom that is happening is giving more to the wealthy,” said R.N. Sharma of Mumbai’s Tata Institute of Social Sciences. “This is the ‘shining India’ people talk about. But the other part of it is very shocking — all the families where there is not even food security.We must ask: ‘The “shining India” is for whom?’”

    This growing inequality in the developing world is already shaping global politics. The failure of the Copenhagen climate change conference can be largely ascribed to the unwillingness of China, India, Brazil and other developing countries to sacrifice wealth creation opportunities for ecological reasons.

    Like their counterparts in New Delhi and Beijing, politicians in wealthier countries also face class conflict.

    In Britain, for example, even a massive expansion of the welfare state has done little to stop the U.K. from becoming the most unequal among the advanced European democracies.

    Alienation among white working-class voters — particularly those in the public sector or with modest small businesses — may have contributed to the Labour Party’s poor showing in the recent elections, according to Liam Byrne, the former Labour treasury secretary.

    A similar phenomenon appears in Australia. Labor Prime Minister Kevin Rudd, an icon among upper-class liberals, resigned in large part because of a precipitous decline in the polls among middle- and working-class suburban voters.

    What is not clear is whether conservative parties can abandon their often slavish devotion to big corporate interests to take advantage of these new dynamics. For years, these parties have relied on divisive social issues, like immigration, to win working- and middle-class voters. But it’s possible that a focus on profligate government spending might yet increase the right’s appeal among mid-income voters.

    As this current shift to greater inequality continues, the self-styled “popular” parties’ tendency to ignore class issues could prove disastrous.

    Unless they start addressing class issues in effective ways, they may lose not just their historical base but the political future.

    This article originally appeared in Politico.

    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 Febuary, 2010.

    Official White House Photo by Pete Souza

  • The Economic Significance of Village Markets

    Flea markets and garage sales have been around for years. But for most New Zealanders, produce markets have been associated with old European villages, or the ethnic markets of Hong Kong and other exotic locations. Village markets focus on locally made crafts, while Flea Markets are essentially centralized garage sales.

    At the true Farmers’ Market vendors may sell only what they grow, farm, pickle, preserve, bake, smoke, or catch themselves from a defined area. There are now over 50 “official” Farmers’ Markets in New Zealand. But when all the flea markets, village markets, and less formal markets are tallied up there must be hundreds throughout New Zealand.

    When I grew up they simply didn’t exist – unless we count the school “Bring and Buy” and Church fétes. We simply shopped in shops. Why is this? Why did my parents feel no need for such markets? I suspect my parents would have regarded such markets as somewhat old-fashioned and even primitive. This was the sort of thing our forebears left behind in Ireland in the 1830s.

    However, they are now a part of our lives. For the last few years I have routinely – effectively every Saturday Morning – shopped at our local market at Mangawhai, a nearby coastal village in Northland. It’s where people sell their own produce, but also sell books, bric-a-brac, power-tools, and other bits and pieces. The market works for me because it is just across the road from my excellent butcher, and next door to the local lending library.

    So what’s the new appeal? The conventional theory is that the rise of these markets reflects a desire for fresh healthy food, and fruit and vegetables grown locally, and in-season rather than imported from far away. It’s also considered green to buy local and support local cultivars, and growers of eco-sourced native plants and so on.

    These markets are also a good place to meet for a chat, and they also provide a convenient means of selling off numerous “priceless objects” now growing mould in the garage.

    Indeed, last weekend, my wife and I decided to win back some space and earn some ready cash. Setting up a stall at the Mangawhai market was easy. We simply phoned the market organizer (from the local Cheese Shop) and booked a trestle table.

    We thought our real cash-cow would be the plants and seedlings but the biggest and most regular seller was our collection of vinyl records dating from US pressings of jazz giants from the sixties. Our first major sale was a high-quality Akai turntable. It was fun to see grandmotherly types shuffle up to the table and enthuse over early discs by Oscar Peterson, Miles Davis, and Billie Holliday. As a bonus we gave the turntable buyer a 1950s 10 inch LP of Bill Hayley and his Comets – Don’t Knock the Rock.

    The last time I thought about these markets was two weeks ago when I wrote the sad story of the urban Onehunga Market that had to close because Auckland City demanded a resource consent that would have cost maybe $30,000 dollars.

    I presume our Mangawhai market operates without such costs because it is housed in the Village Hall, on public ground, shared with the Library and the Museum. Consequently our stall space and trestle cost us only $10 for the morning. But if the Council had demanded say $30,000 for a land use consent, then a twenty-trestle market at $10 a trestle would take 150 weeks to recover just the consenting cost. Obviously, there would have to be many more spaces, or the rental would have to be much higher.

    On our first morning we netted only about $80. (Being newcomers, we were outside and it rained) But even this represented about $20 dollars an hour – not huge but better than the minimum wage. On the other hand it was an $80 dollar return on our $10 dollar capital investment (using simple “homespun” economics). Remember the stuff we were selling had negative value, and I drive back and forth from the village every Saturday anyhow.
    And it was fun. But could such markets become an endangered species? As in so many areas, the culprit is heavy-handed regulation. The high costs of land and development, and the burden of consenting and development contributions already make it nearly impossible for small corner stores to make any return on capital.

    Yet, the stall renter’s capital-productivity is massive. But many regulators cannot stand to see such an opportunity slip from their grasp. So the Onehunga market had to close.

    These village markets remind us of the “power of markets”. As the heavy-handed regulators drive down capital productivity, entrepreneurs have responded by rediscovering the outdoor markets of much earlier times when capital was scarce and labour was plentiful. Market economies are like water-beds – push down on one corner and they bounce up in another.

    We are beginning to see similarly ad hoc responses in the residential and commercial property markets. The regulators have so severely constrained the supply of coastal land in New Zealand that people like my parents, who bought a batch at on the coast at Tairua out of their working class income, no longer have a hope of enjoying the sprint from the Kiwi bach straight into the sea.

    Those who have generated this scarcity then complain that only foreigners can afford to buy our coastal land. But many of us really do want to occupy a beach side property for the best weeks of summer, and then return home to our rural dwellings in the regional towns and villages. Enter the motor home.

    As farmers become more and more regulated by central planners who know nothing about agricultural economics but instead are determined to ‘save the planet’, enterprising farmers will look for new ways to supplement their incomes.

    Well, here’s one way we can solve our mutual problem. First, buy a quality self-contained motor home. Then use Google Maps to find what looks like an ideal bay, with a farm track connecting the main road to the beach.

    Then approach the farmer and negotiate a “right to occupy” this little patch of heaven. It could be no more than the right to park on the spot for perhaps eight weeks a year, but could include an obligation to fence off the area to contain any children or pets. No resource consent, no title, no lease – just a right to drive on to the farm, park on the spot, and drive away if it rains.

    Farmers supplement their income and Kiwis reclaim the low cost beach. The Environmental Puritans will gnash their teeth at the prospect of so many people having fun – but this time we might be ready for them. Markets and human ingenuity can still win in the long run.

    Owen McShane is Director of the Centre for Resource Management Studies, New Zealand.

    Photo of Mangawhai Village Saturday Market by Sids1

  • The Urbanist’s Guide to Kevin Rudd’s Downfall

    The political execution of Prime Minister Kevin Rudd by his own Australian Labor Party colleagues was extraordinary, the first time a prime minister has been denied a second chance to face the voters.

    According to the consensus in Australia’s mostly progressive media establishment, Rudd fell victim to his “poor communication skills”, a somewhat Orwellian take since until recently he was hailed as a brilliant communicator. What went wrong?

    Certainly, Rudd’s style of communication was a factor. Yet the media’s disjointed interpretations avoid what, for them, is an inconvenient truth. As much as any defects in the man himself, Rudd’s linguistic meltdown can be traced to deep socio-economic divisions wracking today’s Australian Labor Party.

    Australia has its own version of the American red and blue state dichotomy. But with a much smaller, highly urbanised population, and only six states, the social fault line runs through major metropolitan regions rather than state boundaries. Left with a fractured support base, federal Labor often struggles to hold onto majority support. Rudd clearly underestimated the persisting social divide, and his obsession with a media driven solution was disastrous.

    In Australia, post-war suburbanisation and gentrification played out differently than in the US. Since in the 1970s, Australian cities have experienced a broad geographic sorting along class lines. On the one hand, rising land values and car ownership dispersed the old industrial core, and its working class population, to the middle and outer suburbs. On the other, a booming generation of university graduates, many immersed in the counter-culture, and employed in expanding government agencies, flooded into inner-city tenements.

    Lacking the racial frictions of some American cities, and typically adjacent to attractive harbour foreshores (Australia’s major cities are all coastal), these nineteenth century streetscapes were ripe for gentrification. Before long, all remnants of the old working class gave way to restaurants, upscale bars, coffee shops, cinemas, bookshops, art galleries and other favourite amenities of a new upper middle class.

    Over time, urban polarisation has far-reaching political consequences. While the new professional class voted Labor, and transformed the Labor Party in their own image, they dominated only a handful of electorates (electoral districts). Most of these are in the inner precincts of Sydney and Melbourne. The overwhelming majority of electorates are suburban or regional, populated by blue-collar, routine white-collar and self-employed private sector workers. Whether former inner-city residents, or newly arrived migrants, they embraced the suburban ideal of reward for work, free-standing homes on a quarter acre block and the prospect of upward mobility, particularly for their children. Later, social commentators labelled them “aspirationals”.

    Increasingly, inner-city elites and suburban aspirationals inhabited different worlds. By 1996, many aspirationals felt Labor had lost touch with their priorities. Apart from his poor record on inflation and interest rates, sensitive issues in the mortgage-belt, then Prime Minister Paul Keating became a champion of the elite’s obsession with race and gender. Having infiltrated Labor’s apparatus, progressives now seized control of the party’s policy agenda.

    Ultimately, Labor’s historic bond with working people was severed at the 1996 election, when masses of aspirational voters defected to the conservative John Howard. Howard retained their support over four terms in office. During this time they acquired another label – “Howard Battlers” (an antipodean variant of Reagan Democrats).

    Labor spent these years wavering between elite and aspirational programs, failing to reconcile their deep-seated differences. Successive leadership changes were a flop. Not until 2006, when Howard showed signs of running out of steam, was victory finally in sight. Leaving nothing to chance, the popular Rudd was installed as leader, and handed the task of herding both progressive and aspirational voters into Labor’s camp. Rudd’s strategy may have won him the election, but it bore the seeds of his destruction.

    On sensitive issues, Rudd resorted to an elaborate form of doublespeak: headline rhetoric crafted for aspirationals with policy small print pitched at progressives. He was confident enough in his mastery over the media cycle to pull this off. And he assumed aspirationals were too unsophisticated to catch on. He was proved wrong on both counts, but only after winning office.

    Take his handling of housing, transport and urban development. Housing affordability and traffic congestion loomed as hot topics in the 2007 election. Before the late 1990s, Australian cities had generally liberal approaches to land release and suburbanisation, and the motor vehicle was supreme. Urban planning was the province of state governments, which had long considered motorways the wave of the future, given the country’s increasingly dispersed patterns of residential, commercial and industrial development.

    As the century drew to a close, however, sentiment in the planning profession, including state officials, many now religiously green, shifted from growth to consolidation (“smart growth“) and the revival of rail transport. More recently, the climate panic accelerated this trend. On the whole, state governments, mostly Labor in the decade to 2007, proved compliant. Considering that Australian cities were experiencing high rates of population growth, in part due to very high levels of immigration, land values and house prices soared and roads, particularly in the middle to outer suburbs, couldn’t cope with traffic volumes. These problems were especially bad in Sydney. For the first time, many Australians feared that their children would never achieve the dream of home ownership.

    Leading up to the election, Rudd took to calling housing affordability “the ultimate barbeque stopper”, a subject on everyone’s lips. He convened a Housing Affordability Summit, and released a strategy paper. His campaign launch speech, weeks out from polling day, reminded voters that Labor had “put forward a national housing affordability strategy – so that we can keep alive the great Australian dream of one day owning your own home”. Rudd’s rhetoric on “infrastructure bottlenecks” was just as high-blown. “For 11 years”, he said repeatedly, “Mr Howard’s government has failed to provide leadership in developing our nation’s infrastructure”. References to traffic congestion were made in this context.

    But the policies didn’t match the rhetoric. Since elite sentiment was, by this stage, in the grip of climate alarmism, there was little way Rudd would address the root causes of these problems. Restricted land supply and urban growth boundaries, to contain Australia’s “ecological footprint”, combined with population growth, were driving up land values and inducing developers to bank their land holdings rather than release them. Rudd’s plan just tinkered around the edges. There were to be tax breaks on capped home saver bank accounts, subsidised rental accommodation for low income earners, and a massive boost in social housing stock. Conceived by activists who saw housing as a welfare issue, these measures did little for the mass of aspirationals or their children. A later boost to the existing “first home buyer grant” probably inflated prices further. Far from saving the great Australian dream, Rudd cast it into the dustbin.

    After the election, the small number of infrastructure projects selected for funding had limited potential to ease traffic congestion. In his landmark October 2009 speech on urban policy, Rudd had more to say on shifting motorists out of cars and onto trains than upgrading roads to improve traffic flows. For Sydney’s long-suffering commuters, there was no sign that “missing links” in the Orbital Motorway Network ring road would be completed.

    Well into 2010, house prices had been escalating for over a year, and mortgage interest rates began to creep up again, having been slashed during the financial crisis. More and more Australians thought Rudd’s performance, on a broad range of policy fronts, was falling short of his elevated rhetoric. He was “all talk and no action”. When his opinion poll ratings plummeted, with no revival in sight, Labor Party power-brokers feared their government would be thrown out after just one term, a first since 1932. Either Rudd or the Labor government had to go. They chose Rudd.

    John Muscat is a Sydney lawyer and co-editor of The New City (www.thenewcityjournal.net), a web journal of urban and political affairs.

    Photo by London Summit