New Geography

Tag: middle class

  • Racing China: The Australia Housing Bubble

    “The writing is on the wall for the Australian dream,” according to Professor Joe Flood at the Flinders University Institute for Housing, Urban and Regional Research. That was before recent predictions that Australia’s overheated housing market may be headed for even higher prices. Real estate experts have recently predicted a doubling of house prices in all five of the largest metropolitan areas over the next decade.

    Sydney, the largest metropolitan area, according to Australian Property Monitors (APM), can be expected by 2019 to experience a median house price increase to $1.124 million in 2019. This would double the 2009 figure of $569,000 (Note). Sydney is already the second most unaffordable metropolitan area in the English speaking world , according to our Demographia International Housing Affordability Survey, with a Median Multiple (median house price divided by median household income) of 9.1, trailing only Vancouver. Sydney’s higher priced housing has been blamed for stunting economic growth and job creation and appears to be a major factor in the continuing migration out of the state of New South Wales. One of Australia’s leading demographers, Bernard Salt, has projected that Sydney could fall to second largest in the nation, behind Melbourne in less than 20 years.

    Melbourne median house prices are also expected to rise above $1.1 million according to projections by property expert Michael Yardney. This would represent more than twice the $480,000 price in 2009.

    Brisbane, which has generally been less unaffordable than Sydney, would have a median house price equal to that of Sydney by 2019. This is more than double the 2009 price of $430,000.

    Perth would experience the greatest house price inflation, also rising to above $1 million, compared to the 2009 figure of $460,000.

    Adelaide would also see house prices rise to more than $1.2 million, according to APM. In 2009, the median house price in Adelaide was $370,000.

    Australia’s Race with China: Recent data indicates that prices are rising furiously toward the doubling the experts have projected. The Australian Bureau of Statistics (ABS) House Price Index indicates that prices have risen 20% over the past year. This is more than 1.5 times the 12% annual rate posted in China’s house price bubble that has its government and so many of the world’s leading economists so concerned.

    As of the 1st quarter, the greatest annual price inflation was in Melbourne, at 28%, a rate that would place it 3rd out of 70 metropolitan areas if it were in China. Prices in Sydney were up 21% from a year ago, which would also rank it 3rd out of 70 in China. At this rate, Sydney could become less affordable than Vancouver within six months and could even surpass high-priced Hong Kong. Brisbane, Adelaide and Perth all experienced price increases between 10% and 15%, and would all place in the top 20 out of 70 Chinese metropolitan areas.

    ABS indicated that the house prices increased more than in any other annual period in the 8 year history of its House Price Index. According to the Wall Street Journal’s Marketwatch, Economist Glenn Maguire of SocGen Asia Pacific in Hong Kong said “These are bubble like numbers … It’s the type of return that basically encourages speculation.” Marketwatch also predicted, on the basis of the house price trend, that the Reserve Bank of Australia (RBA) would raise interest rates, which it did a day later.

    Working for the Mortgage: Meanwhile, because variable rate mortgage loans predominate in Australia, the interest rate increase places an immediate burden on thousands of Australian households. The Housing Industry Association indicates that interest rate increases over the past six months will result in a first-home buyer mortgage payment increase of more than $300 per month.

    This is not good news for the large numbers of households already in mortgage stress, defined by the government when 35% or more of the budget goes to housing expenses. Just six months ago, a median income household purchasing the median income house in Sydney or Melbourne would have had mortgage payments that consumed 50% to 57% of their gross income. Now, the figure would be 60% to 67%. Needless to say, the median priced house is well beyond the means of the median income household. By contrast, if Melbourne and Sydney had the same housing affordability as faster growing Atlanta and Dallas-Fort Worth, the median income household would pay at least $25,000 less in annual mortgage payments for the median priced house.

    Rigging the Market: The housing affordability crisis is the direct result of excessive land use regulations that have artificially limited the supply of land, driving up house prices and fostering speculation. Before these regulations (called “urban consolidation” or “smart growth”) were adopted, housing was as affordable in Australia as in Atlanta or Dallas-Fort Worth. Median Multiples across the nation were 3.0 or below. Now the Median Multiple is between 6.7 and 9.1 in the five largest metropolitan areas. Analysts often suggest that Australia’s population growth rate is driving up prices. While Australia is growing, it grew faster over the 20 years following World War II, and still accommodated a quickly increasing home ownership share. Further, much faster population growth in Dallas-Fort Worth and Atlanta has not driven prices up. Since 2000, these two American metropolitan areas added 40% more population than the five largest Australian metropolitan regions, despite having a smaller combined population.

    This also impacts the other side of the housing equation, the ability of consumers to afford mortgages. The Urban Task Force says that Sydney’s especially onerous regulations have driven up the price of consumer goods while dampening income and employment growth. Australian Property Monitors economist Matthew Bell says that the answer to the housing affordability problem is to increase the supply of housing, a view shared by the Reserve Bank of Australia. The political reality, however, suggests that “The shortages are going to get much, much worse in Sydney” as Jason Anderson, a senior economist with BIS Shrapnel told Agence France-Presse.

    Professor Flood noted that “The country that promised limitless land, cheap housing and near universal home ownership to all comers now has the most expensive housing in the world amid very tight housing and land markets and little prospect of restoring the balance.” Flood’s research indicates a dramatic decrease in home ownership among younger households over the past 20 years.

    Alternate Futures

    Not everyone thinks that house prices can continue their stratospheric rise. US investment expert Edward Chancellor believes that the housing market is overdue for a price collapse, noting that house prices are well above historic measures. Chancellor won the George Polk award for his 2007 article Ponzi Nation, which warned of the housing collapse in the United States and the international damage that could follow. Of course, a housing collapse in Australia would have much less impact on international markets than the one that rocked the much larger US economy, but could do great damage at home.

    The good news is that house prices could be brought under control if there was a change in policy. The state government of Victoria (Melbourne is the capital) is about to significantly expand its “urban growth boundary, allowing more house construction and lower new house prices. Policies such as these could provide a preferable soft landing for the housing market. But this would require state and local governments finally to turn their backs on 20 years of devastating social engineering.

    Note: The Australian dollar is currently worth about US$0.90. The latest (2008) data indicates that Australia had a gross domestic product of $37,400 per capita (purchasing power parity), which compares to $46,500 in the United States, according to the OECD.

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

    Photograph: Detached housing conforming to plan in suburban Perth

  • Twenty-first Century Electorate’s Heart is in the Suburbs

    Even as the nation conducts its critically important decennial census, a demographic picture of the rapidly changing population of the United States is emerging. It underlines how suburban living has become the dominant experience for all key groups in America’s 21st Century Electorate.

    While suburban living was once seen as the almost exclusive preserve of the white upper-middle class, a majority of all major American racial and ethnic groups now live in suburbia, according to the newest report on the state of metropolitan America from the Brookings Institute. Slightly more than half of African-Americans now live in large metropolitan suburbs, as do 59% of Hispanics, almost 62% of Asian-Americans, and 78% of whites. As a result the country is closer than ever to achieving a goal that many thought would never be achieved: city/suburban racial/ethnic integration. This is particularly so in the faster growing metropolitan areas of the South and West.

    The trend is likely to continue for the foreseeable future. A majority of Millennials live in the suburbs and 43% of them, a portion higher than for any other generation, describe suburbs as their “ideal place to live.”

    The nation’s one hundred largest metropolitan areas have grown twice as fast as the rest of the country in the last decade. That growth was heavily concentrated in lower density suburbs, which grew at three times the rate of cities or inner ring suburbs. At the same time, one third of the nation’s overall population growth was due to immigration. As a result about one-quarter of all children in the United States have at least one immigrant parent. In 2008, non whites became a majority of Americans less than eighteen years old, a demographic milestone that underlines just how fast and how dramatically the country is changing. Any political party that wants to build a lasting electoral majority must align its policy prescriptions with these new demographic realities to attract the votes of a younger, more ethnically diverse population, most of which now lives in the suburbs.

    Economic opportunity continues to be the major driver in determining where people want to live and work. Five of the six fastest growing metropolitan areas in the last decade were also among the top six in job growth according to data from the Census and the Bureau of Labor Statistics analyzed by the Praxis Strategy Group. The same five metropolitan areas – Phoenix, Riverside (CA), Dallas, Houston and Washington, D.C – also ranked high in the diversity of their population, differing only in the degree of educational attainment their residents have achieved.

    With America experiencing the first decade since the 1930s in which inflation adjusted median income declined and job creation slowed to levels not seen in decades, this movement to where the jobs are located is likely to intensify, as current migration to economically buoyant Texas cities and Washington, DC suggests. This crucial factor is often overlooked by urban planners who argue that cultural amenities and sport complexes are the key to attracting new residents. In fact, metropolitan areas that focus on job creation for Millennials (young Americans born 1982-2003) and minorities have the best chance of gaining population in the next decade.

    Clearly providing higher quality public education experiences is a key part of any such economic strategy. The arrival of stealth fighter parents at local school district meetings across the country only reflects the passion among young families about the quality of education their children receive. They are unwilling to allow Boomer ideological debates to delay the changes needed to properly prepare their children for a higher educational experience that increases the odds of economic success. The traditional separation between municipal partisan politics and nominally non-partisan schools is increasingly outdated when so much of a city’s economic success depends on the quality of the education its residents receive.

    Safe neighborhoods of single family dwellings with a surrounding patch of land continue to attract families of every background to the nation’s suburbs. Metropolitan areas that provide such an environment to all of their residents are the furthest along in achieving a more integrated society. Los Angeles, for instance, which is often decried by non-residents as simply an aggregation of suburbs with no central core, has a suburban population whose demographic profile almost exactly matches the city’s population. The fact that most of its housing reflects the tract developments of the 50s and 60s, as well as the city’s low crime rates – down to levels not seen in five decades – are two key reasons for this polyglot profile.

    Rather than fighting this desire on the part of America’s 21st Century Electorate to live comfortably in the suburbs, politicians of all stripes should find ways to embrace it and advocate policies that reflect our new economic realities. For instance, rather than insisting on higher density housing and light rail systems as the only answer to the nation’s appetite for foreign oil, the federal government should adopt tax incentives that encourage telecommuting and continue policies to foster more energy efficient automobiles. If all Americans worked from home, as many Millennials prefer to do, just two days a week, it would cut that portion of our nation’s gas consumption by more than a third. The FCC’s recently announced broadband policy will help put in place the infrastructure required to make such a lifestyle possible and even more productive.

    Three out of four commuting trips involve a single individual driving their car to work and this isn’t likely to change in the foreseeable future. But putting as much emphasis on making our nation’s highways “smart” as in creating a smart electrical grid would make it possible for the existing highway system to shorten commuting time and reduce the quantity of fuel used in such trips. Recent developments in mobile technology makes this a practical, near term solution if state and local governments are prepared to invest in upgrading an infrastructure that is already designed and deployed to connect people’s homes to their workplace.

    Aligning the message at the heart of a party’s programs with the values and behaviors of America’s 21st Century Electorate is the best road towards achieving political victory –for either party – or years to come.

    Morley Winograd and Michael D. Hais are fellows of the New Democrat Network and the New Policy Institute and co-authors of Millennial Makeover: MySpace, YouTube, and the Future of American Politics (Rutgers University Press: 2008), named one of the 10 favorite books by the New York Times in 2008.

    Photo by delbz

  • The Broken Ladder: The Threat to Upward Mobility in the Global City

    Since the beginnings of civilization, cities have been the crucibles of progress both for societies and individuals. A great city, wrote Rene Descartes in the 17th Century, represented “an inventory of the possible”, a place where people could create their own futures and lift up their families.

    In the 21st Century – the first in which the majority of people will live in cities – this unique link between urbanism and upward mobility will become ever more critical. Cities have become much larger. In 1900 London was the world’s largest urban center with seven million people. Today there are three dozen cities with larger populations.

    No longer do a handful of western cities represent the only, or even the most critical, front in the battle for social progress. Mexico City and Mumbai, two cities we have studied, have three times London’s 1900 population. Indeed, of the world’s twenty most populous regions, the preponderance are located in third world or developing countries. The urban drama will play out on a truly global stage, with the most decisive developments taking place in the growing mega-cities of the developing world.

    It is first and foremost in these great cities of the human future that upward mobility must be most accelerated. Urban agglomerations such as Beijing, Shanghai, New Delhi, Sao Paulo, Mumbai, and Mexico City daily stand witness to one of the most rapid expansions of prosperity in history, as well as to wrenching examples of deep seated misery.

    Urbanity in the advanced industrial world is an increasingly interdependent system. The established centers of the global urban culture – New York, Los Angeles, London, Paris, Tokyo, Berlin – provide the critical markets, capital, and technological assistance that drive economic growth in the developing countries, whose growth in turn provides new opportunities for the citizens of the advanced cities.

    These established centers are often seen as occupying the Leninist “commanding heights” of the global economy. Is the kind of centralization we see in these cities, and in other mega-cities around the world, truly inevitable? And is their growth universally desirable? The answers to these questions are vital, notably because it is particularly in these locations that upward mobility now appears to be increasingly stalled. The stasis is reflected in both income trends and popular opinion in the leading centers of advanced world, including the United States, Japan and the United Kingdom.

    Optimists like historian Peter Hall believe that “neither western civilization, nor the western city, shows any sign of decay”. A recent World Bank report insists that large urban concentrations – the more dense the better – are the harbingers of opportunity and wealth creation. “To spread out economic growth”, it argues, is to discourage it. And it is certainly true that as countries modernize, they also urbanize, often quite rapidly. As a result, cities in the developing world – which also receive a great deal of international investment and aid – tend to be growing far more quickly than peripheral regions.

    Yet, in the longer term, the impacts of dense urbanization may not be universally useful at promoting either poverty alleviation or upward mobility. In advanced countries, this is already evident in large urban areas. Indeed, even the strongly pro-urbanist World Bank report acknowledges that as societies reach certain affluence levels, they begin to deconcentrate, with the middle classes in particular moving to the periphery.

    This process reflects a shift in economic and social realities over the past few decades. After nearly a half century of sustained social progress in most advanced countries, income growth for the middle class, even among the best-educated, has slowed considerably, and by some measurements has even turned negative. As we will see, the effects have been particularly tough on the urban middle and working classes in cities as diverse as Toronto, Los Angeles, Tokyo and London.

    Such concerns have been heightened by the current deep recession, which has caused wages to fall in both developing and developed countries. Yet concern over upward mobility was developing even in the relative “boom” times of the recent past, particularly in the advanced western countries, but also in the developing ones. Since 1973, for example, the rate of growth of the “typical family’s income” in the United States has slowed dramatically, and for males has actually gone backwards when adjusted for inflation. This diminishment has been particularly marked in major urban centers such as New York, Chicago, San Francisco and Los Angeles.

    Similar developments can be seen in a host of European cities, including London and Berlin, and even in Tokyo, which long has been seen as distinctly middle class. In all these cities, the middle class appears to be diminishing, while the population living in poverty has increased.

    The reasons for this trend include the impact of technology, aging demographics, globalization, and greater government indebtedness. A critical factor may also be opposition to the very idea of economic growth, something first seen in the 1970s and now increasingly persuasive, at least within large portions of academia, the media, and even parts of the financial community. This attitude is vividly and forcefully expressed, for example, within sectors of the ecology movement.

    Polls of popular opinion in the United States and the United Kingdom find ecological concerns well down the list, behind such issues as the economy, immigration, crime, unemployment and even the state of morality. Yet the agenda to address anthropogenic global warming promotes policies that seem likely to depress economic growth, particularly in cities, through further declines of productive industry, unaffordable housing prices and high levels of taxation.

    As recently seen at the global climate change conference in Copenhagen, few governments in the developing world are anxious to adopt any policy that weakens their ability to spark income and job growth in the near future. The pressing concerns of these cities remain focused on basic issues: sanitation, alleviation of poverty, industrial growth, infrastructure development and employment.

    Policies that prolong poverty and depress mobility seem likely to delay the necessary social consensus needed to enact long-term environmental improvements. When concern for the sustenance of families grows, focus on environmental issues tends to decline, as is already clear in recent surveys in the advanced countries. The much overworked term “sustainability” needs to include both economic and social components, as opposed to strictly ecological ones.

    Within the developing world, as the focus remains on basic economic issues, middle class residents of noted megacities appear to be more optimistic about personal advancement than their counterparts in the advanced countries. This may reflect the fact that countries such as India, China and Brazil have experienced rapid economic growth over the past decade, and expect more of the same in the decades ahead.

    Yet this does not suggest that the rising cities of the Second and Third World are growing in ways that do not deepen inequality. With rapid economic growth, these locations have seen considerable expansion of gaps between rich and poor, particularly with the decline of socialist institutions. Similarly, in some developing cities – Mumbai, Bogota and Sao Paulo, for example – there may be a widening gap between economic success and population density, as growth shifts to places with better infrastructure, less congestion, and less crime.

    In order to look in depth at differing attitudes among urban dwellers, we have focused our research on three megacities that represent different stages of economic development. We start with London, arguably the world’s most important global city, and explore the prospects for upward mobility there.

    Then we look at Mexico City, a city that represents the broad “Second World” of urban centers that have enjoyed some rapid growth but now face increased competition from China and other ascendant locations. Mexico City represents some of the realities that emerging urban centers in the Third World will face as they achieve higher levels of economic development.

    Third, we focus on Mumbai, India’s premier commercial city and financial center. Mumbai reflects the dichotomy of a rapidly growing city in the developing world: increasing wealth and rising expectations among its expanding middle class, with the continued creation of huge populations of destitute slum-dwellers.
    Yet for all the differences between these three great cities, we also find some commonalities. First, their future vitality depends largely on the future of their middle classes. Second, the critical issue for all these places remains how to sustain economic growth to meet the needs and aspirations of their citizens.

    Finally, they share the challenges of the current great economic revolution – what has been called the “post-industrial” era by Daniel Bell or the “third wave” by Alvin Toffler – on the nature of class. The increasing primacy of technology and education, once seen as liberating, could make widespread class mobility far more difficult than in the past.

    As occurred in the early stages of the industrial revolution, the current economic transformation threatens massive displacement of existing classes. Just as the machine age undermined the status of weavers, artisans and small farmers, the current technological epoch could well have similar impacts on not only industrial workers, particularly in the West, but on the supposedly ascendant educated middle class as well.

    This leads us to suggest a primary focus by all great cities on basic economic issues. Current concerns among the dominant cognitive classes in the media, the academic world, and the policy elites, particularly in the First World, have tended to center on aesthetics and “green” issues, as well as on who can draw ‘the best and the brightest”, rather than on how to employ the vast middle or working classes.

    We will explore some of the common challenges that will face all mega-cities as they evolve. Increasingly, they may find that their scale, long seen as an advantage, also produces inherent problems. In a globally interconnected urban environment, they must successfully compete not only with each other, but with smaller scale, and often more efficiently organized, urban areas throughout both the advanced and developing world.

  • The Limits Of The Green Machine

    Environmentalism is strangely detached from the public’s economic goals.

    The awful oil spill in the Gulf–as well as the recent coal mine disaster in West Virginia–has added spring to the step of America’s hugely influential environmental lobby. After years of hand-wringing over global warming (aka climate change), the greens now have an issue that will play to legitimate public concerns for weeks and months ahead.

    This is as it should be. Strong support for environmental regulation–starting particularly under our original “green president,” Richard Nixon–has been based on the protection of public health and safety, as well as the preservation of America’s wild spaces. In this respect, environmentalists enjoy widespread support from the public and even more so from the emerging millennial generation.

    Conservatives who fail to address this concern will pay a price, even more so in the future. The Bush administration’s apparent clubbiness with conventional energy interests has undermined the GOP’s once-proud legacy on environmental causes. The oil spill could prove a great campaign issue for Democrats assigning blame for the disaster on lax Republican regulators and their oil company chums.

    But there’s also a danger for Democrats who tilt uncritically toward “green” policies. Instead of following the environmentalists’ party line, they should adopt a balanced approach adding both economic and social needs to their concept of “sustainability.”

    Sadly, many in the administration seem anxious to extend environmental regulation into virtually every aspect of life. Legitimate concerns over pollution and open space preservation, for example, have now been conflated with a renewed drive to strangle suburbia in favor of forced densification.

    The administration’s “livability” agenda, as suggested by Transportation Secretary Ray LaHood, for example, proposes policies that favor dense urban development over the dispersed living preferred by most Americans. This, notes analyst Ken Orski, represents an unprecedented federal intrusion over traditional local zoning and local decisions.

    This centralizing tendency supports a wide array of interests, notably big city mayors and urban land speculators, and also is eagerly promoted by many architects, the media and planning professors. Not surprisingly, less intrusive ways to reduce energy use, such as telecommuting or the dispersion of worksites closer to people’s homes, have elicited very little administration support.

    Herein lies the Achilles heel of environmentalism–its profound disconnect from public preferences and aspirations. By embracing such a radical social engineering agenda, the greens may end up undermining their own long-term effectiveness.

    The first sign of this pushback, notes analyst Walter Russell Mead, can be seen in growing skepticism about climate change policies both here and in Europe. At a time of severe economic challenges, greens and their political allies need to consider how specific environmental costs threaten an already beleaguered middle and working class.

    Voters, for example, may support strong penalties and stricter controls of energy giants such as British Petroleum or Massey Energy, but roughly six in 10, according to a post-spill NBC/Wall Street Journal poll, continue to back the idea of expanded offshore oil drilling. Voters may embrace new environmental improvements but they also want to keep their jobs.

    This conflict will be on display in the coming struggle over the “cap and trade” proposals in the Senate. Strongest opposition comes from those states and regions most adversely impacted by strict limits on carbon, clustered in the south and Midwest.

    Mitch Daniels, governor of coal-dependent Indiana, even has denounced such proposals as Washington “imperialism.” But Daniels’ opposition also is shared by many Democrats from fossil-fuel-rich states such as North Dakota, West Virginia and Louisiana. Cap and trade even manages to offend many on the left, who see it as yet another opportunity for Wall Street to profit from complex federal regulation.

    On the state level, more draconian mandates on shifting to renewable fuels, such as those in place in California, could also cause future power shortages, as the state auditor warned recently. Such concerns are routinely brushed aside by environmentalist and their prodigious PR machines who prattle on about our coming economic salvation through the creation of “green jobs.”

    In reality, given their dependence on massive subsidies from both taxpayers and rate-payer, it’s unlikely that renewables, as opposed to relatively clean alternatives such as plentiful natural gas, will produce a net positive impact on the economy for years or even decades. Certainly highly aggressive subsidies for wind and solar have not proved any kind of elixir in countries like Spain, where such policies have been long in place but now are being scaled back due to their drain on both the economy and the public budget.

    To some extent, the hype over “green jobs” sometimes appears as something of a PR smokescreen. Prominent greens have long been opposed to the very idea of economic growth and wealth creation, particularly in advanced industrial countries. For decades John Holdren, President Obama’s science advisor, has favored what he calls “de-development” of Western countries in order to preserve natural resources and reduce pollution.

    This approach appears to be gaining support even as the pain of economic dislocation has devastated the advanced countries of the West. Boston University sociologist Juliet Schor, writing in the influential left-leaning The Nation, even attacks “progressive economists”- such as those calling for a second New Deal- for focusing on “climate destabilizing growth” as a way to create new jobs and raise middle class incomes.

    In the Huffington Post one-time investment banker Ann Lee, now an economics professor at NYU, has called for “a new economic ideology” that focuses on “human dignity, creative and degrees of freedom” instead of following traditional measurements of material well-being. This “new” economy, she argues, would provide greater returns to favored groups like artists and, of course, teachers, who she considers severely underpaid.

    This kind of low-carbon academic “esteem” economy appeals to people who already enjoy considerable material wealth and can count on the support of the state. It is not so promising on the West’s aspirational middle and working classes, particularly those employed in the private sector, whose individual strivings would now be compensated by a deadly combination of high taxes and slow growth.

    Until the issues of growth are tackled honestly, the green movement will continue to depend on tragic events such as the Gulf oil spill to maintain its public support. But in the long run, environmentalism will not remain politically “sustainable” if it fails to balance a green future with the economic aspirations of current and future generations.

    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 Febuary, 2010.

    Photo by just.Luc

  • Santa Fe-ing of the World

    This is part one of a two-part piece. Read Part two.

    Human settlements are always shaped by whatever is the state of the art transportation device of the time. Shoe-leather and donkeys enabled the Jerusalem known by Jesus. Sixteen centuries later, when critical transportation has become horse-drawn wagons and ocean-going sail, you get places like Boston. Railroads yield Chicago – both the area around the “L” (intraurban rail) and the area that processed wealth from the hinterlands (the stockyards). The automobile results in places with multiple urban cores like Los Angeles. The jet passenger plane allows more places with such “edge cities” to rise in such hitherto inconvenient locations as Dallas, Houston, Seattle and Atlanta and now Sydney, Lagos, Cairo, Bangkok, Djakarta, and Kuala Lumpur.

    The dominant forms of transportation today are the automobile, the jet plane, and the networked computer. What does adding the networked computer get you? I think the answer is “the Santa-Fe-ing of the World.” This means the rise of places where the entire point of which is face-to-face contact. These places are concentrated and walkable, like villages. Some are embedded in the old downtowns – such as Adams Morgan in Washington, or The Left Bank of Paris, or the charming portions of what in London is referred to, somewhat narcissistically, as “The City.” Some are part of what have traditionally been regarded as suburbs or edge cities, such as Reston, Virginia, or Emeryville/Berkeley, California.

    Santa Fe, New Mexico, is a remarkable example of this trend. Home to a world-renowned opera, charming architecture, distinguished restaurants, great places to buy used boots, quirky bookstores, sensational desert and mountain vistas and major diversity, it is also little more than a village of 62,000, far from the nearest major metropolis.

    This “Santa-Fe-ing” means urbane well beyond the current definition of urban. It means aggregation and dispersal. As with all innovation, its impact is first seen among people with enough money to have choices.

    The logic of this hypothesis starts with the question: “In the 21st century, is there any future for cities of any kind?”

    After all, some would have us believe that with enough bandwidth, each of us can wind up on his or her own personal mountaintop in Montana, being lured down into the flatlands only to breed.

    That’s a preposterous view of human nature, of course. There’s a reason solitary confinement is a punishment. We are social animals. But still, many of the historic reasons for human concentration are gone. It’s been a century since you’ve had to live within walking distance of your factory. Today, you often don’t even need be within driving distance of your office – as anyone with a cell phone knows. You certainly don’t need a metropolis to acquire anything a dot-com is willing to sell – which is a very big deal now and growing exponentially.

    Absent a cataclysm of biblical proportions, I think this means the one and only reason for congregation in the near future is face-to-face contact. Period. Full stop. The places that are good at providing this will thrive – think Oxford, England. The ones that are not will die. Cities are not forever. You have not heard much lately from the Babylon chamber of commerce.

    There are nearly 100 classes of real estate out of which you build cities, according to William J. Mitchell, the former head of the architecture and planning department at MIT. They are all being transfigured. The classic example is bookstores. If all you want to do is exchange money for a commodity, the path with least friction is often Amazon. In backwaters where, just ten years ago, buying or even borrowing a non-best-seller was a chore that took weeks, hundreds of thousands of titles are now within one click. Does this mean bookstores have disappeared? Of course not. The half of them that have survived and even grown since the ‘90s, however, have morphed. The critical elements are no longer the shelves. They are the couches, cappuccino machines, and cafes. Bookstores have become places to loiter, face-to-face, among like-minded people.

    What about grocery stores? What happens when it becomes cheaper for the supermarket to deliver your toilet paper to you than it is to heat, light and pay rent and taxes on its store? Under what circumstances would you ever again get in your car to drive to market again? For me, the answer is that I want to have face-to-face contact with my tomatoes – or anything else you might find in a social setting like a farmers’ market. I’m not sure I’d trust the kid at the dot com to pick out my spare ribs. If the grocer wants to ship me my barbecue sauce, however, I won’t mind. Ninety-five percent of everything one finds in a supermarket is flash-frozen, shrink-wrapped, and nationally advertised. We are in the midst of a burgeoning freight revolution, in which the stuff is coming to us, rather than us going to the stuff – as anybody who has Christmas shopped lately may have noted. In fact, I can’t think of anything in an entire Wal-Mart that I would regret having delivered to me in a big brown van. Visiting a Wal-Mart doesn’t give me enough of a psychic boost to justify a drive now. Of course, if big-box retail migrates into the digital ether tomorrow, we’ll have an enormous challenge figuring out the adaptive re-use of their buildings. What will we make of them? Roller skating rinks? Greenhouses? Non-denominational evangelical churches? Artists lofts? Whatever the answer, I doubt their passing will be mourned.

    What about college campuses? Is there any future for those? After all, the University of Phoenix, the online learning establishment, became one of the hottest growth stocks of the early 21st century. Internet MBAs abound from some of the world’s most distinguished schools. Why bother ever getting out of your pajamas to learn?

    Again, the answer is face-to-face contact. After all, distance learning is nothing new. Benjamin Franklin engaged in correspondence classes. The United States military is awash in senior officers with advanced degrees from the University of Maryland, which has pioneered its outreach programs to people in remote locations.

    However, distance learning will always be everyone’s second choice. It works best for people who do not have the time or money for the conventional academic experience. First choice remains the traditional universities. Getting into them has become insanely competitive and expensive. Why are they so desirable? Because sitting in class absorbing information from a lecturer is only a tiny part of the college experience. College is where many people meet their first spouse. It’s where they develop a network of friends that they’ll likely maintain for life. It’s an entertainment center and an athletic center. Oh, and as for learning – most of the stuff that has stuck with me came out of dorm sessions at one in the morning, engaging in face-to-face contact with smart people.

    As we shall see, the impact of face-to-face on urban calculations includes office space, and even home locations. But why is this transformation occurring now?

    It all starts with Moore’s Law, first stated by Intel co-founder Gordon Moore As the core faith of the entire global computer industry, it has come to be stated this way: The power of a dollar’s worth of information technology will double every 18 months, for as far as the eye can see. Sure enough, in 2002, with a billion-transistor chip, the 27th doubling occurred right on schedule. The 30 consecutive doublings of anything man-made that we have achieved at this writing – an increase of well over 500 million times in so short a time — is unprecedented in human history. This is exponential change. It’s a curve that goes straight up.

    For sure, railroads also changed everything they touched. They transformed Europe. North America was converted from being a struggling, backward, rural civilization mostly hugging the East Coast into a continent-spanning, world-challenging, urban behemoth. New York went from a collection of villages to a world capital. Chicago went from a frontier outpost to a brawny goliath. The trip to San Francisco went from four months to six days. Distance was marked in minutes. Suddenly, every farm boy needed a pocket watch. For many of them, catching the train meant riding the crest of a new era that was mobile and national. A voyage to a new life cost 25 cents.

    Of course, as railroad expansion ran out of critical fuel – including money and demand for the services – things leveled off, and society tried to adjust to the astounding changes seen during the rise of this curve. The last transcontinental railroad completed in the United States was the Milwaukee Road in 1909. In part, that was because of the rise of a new transformative technology: The one millionth Model T rolled off the assembly line in 1915.

    In contrast, the curve predicted by Moore’s Law did not stop. The computer industry still regularly beats its clockwork-like 18-month schedule for price-performance doubling.

    The effect of Moore’s Law on the built environment is and will become ever more profound.

    For example, will we ever need offices outside our homes? After all, haven’t we all heard plenty about telecommuting?

    Sure, but how many of us have discovered with some chagrin that the most productive five minutes of our work day has occurred around the shared printer? Somebody asks what we’re working on. Conversations ensue. “Oh really? Did you know that Jane was working on something like that?” “There’s this guy you’ve got to talk to; I’ll send you his phone number as soon as I get back to my desk.” “I was just reading about that very subject; I’ll ship you the name of the book.”

    This kind of casual face-to-face contact is irreplaceable no matter how cheap or immersive video technology gets. Humans always default to the highest available bandwidth that does the job, and face-to-face is the gold standard. Some tasks require maximum connection to all senses. When you’re trying to build trust, or engage in high-stress, high-value negotiation, or determine intent, or fall in love, or even have fun, face-to-face is hard to beat.

    This would seem to argue that some old patterns endure, and that’s true. But think of the twists suggested by this new premium on human basics. Suppose you decided that you could get all the face-to-face you needed two days a week. Would that influence where you lived? Would the mountains or the shore start looking good to you? Suppose you decided that you could get all the face-to-face you needed three days a month. Would the Caribbean start looking good to you?

    Residential real estate is being transformed for these reasons. In the U.S., the explosive growth is in places far beyond any metropolitan area, like the Big Sky Country of Montana, the Gold Country of the California Sierras, the Piedmont of Virginia and the mountains and coasts of New England. For eons, when we’ve visited a nice place on vacation, we’ve asked ourselves, “Why am I going back?” Now, however, we have a new question: “Why am I going back?” Santa Fe is more than 800 miles from Los Angeles, yet it is only semi-jokingly referred to as L.A.’s easternmost suburb. To find out why, check out the nearest airport – in this case Albuquerque – any Monday morning.

    Joel Garreau is Lincoln Professor of Law, Culture and Values at the Sandra Day O’Connor College of Law and the Lincoln Center for Applied Ethics at Arizona State University. He is a fellow at The New America Foundation in Washington, D.C., and author of several best-selling books including Radical Evolution, Edge City and The Nine Nations of North America.

  • Jobs, Environmental Regulation, and Dead French Economists

    The debate over the repeal of California’s global-warming regulation, AB32, has degenerated into a shouting match, each side claiming economic ruin if the other side wins. A couple of long-dead French economists can help us think about the debate.

    The great French economist Leon Walras (1834-1910) showed that perfect markets result in an allocation of goods and services that can’t be improved on, in the sense that no one could be made better off without someone else being made worse off.

    Of course, we don’t have completely unfettered markets. In fact, they have never existed. They will never exist. In particular, we economists like to talk about what we call negative externalities. These occur when I do something, but an unintended consequence is that it hurts you, and you have no recourse.

    An example may make things clearer. Suppose I have a factory that spews out a deadly chemical, one that destroys all life downwind for ten miles. Obviously I’ve reduced the property values for the downwind property owners. (We’re simplifying here. There are many other issues.) There is no market for the damage I’ve done, and downwind landowners may not be able to afford to sue me, and there was a time when they would have likely lost such a case.

    Society’s solution to the problem of negative externalities has been regulation. Until recently, the concept of negative externalities has been the rationale for most environmental regulation. Negative externalities’ victims have also been extended to include non-humans: flora, fauna, and “mother earth.”

    Climate change regulation, though, is a bit different. In the first place, we don’t know how much of its justification, the claim of manmade global warming with long-term negative economic impacts, is accurate. Some, the “non-believers” completely deny the possibility of man-caused global warming. Others, “the believers” believe in man-caused global warming with a fervor that matches that of any religious zealot. Another group, me included, believes that manmade global warming is a possibility that should be considered as a factor in making long-term economic policy.

    If manmade global warming was a certainty, you could reasonably argue that negative externalities justify regulation, the parties being hurt are just not yet born. That’s essentially what the believers are trying to say when they point to the imminent destruction of all life on earth.

    However, once the existence of manmade global warming becomes a probability, it becomes an insurance question. This dramatically increases the level of complexity of the problem, and it dramatically complicates the political problem of reaching consensus about what to do.

    So, proponents of climate-change regulation have tried to simplify the issue. One approach has been to turn everyone into believers, either by attempting to convince the skeptical—as it turns out by using gross exaggeration if necessary—or, failing conversion, excommunicating even the mildest skeptics from civil society.

    Climate-change regulation proponents have also tried, with success, to use the novel argument that climate-change regulation is not only costless but will generate economic growth. The most enthusiastic proponents of this argument, California’s Governor Schwarzenegger among them, describe a utopian future of happy people enjoying previously-unknown prosperity in a pristine earthly heaven.

    Sadly, this better-than-a-free-lunch deal is not likely to materialize. It is true that clever economists have constructed models where such an outcome is possible—models having to do with large-scale inefficiencies existing because of historical accident—but large-scale unrecognized opportunities are unlikely in today’s economy.

    It is also true that some economists have found some evidence of small un-captured gains. I’ve participated in this literature. However, those gains are also unlikely to be of the scale necessary to achieve the promised new economic age. Indeed, most economists doubt their existence, arguing, reasonably, that the researchers failed to measure all of the relevant costs. Economists have a hard time believing that markets are so bad that unrecognized profitable opportunities exist in abundance.

    Today, California is considering the repeal or postponement of its landmark global-warming regulation, AB32. Oddly, both sides are using the same argument. The forces arguing against the repeal of AB32 argue that the repeal will cost jobs. Those arguing for the repeal argue that failure to repeal will cost jobs.

    They are both correct, and they can both prove it with their warring models, which brings us to our second great dead French economist.

    Frederick Bastiat (1801-1850), not long before his death, wrote a piece What is Seen and What is Not Seen. In the essay, Bastiat gives the example of jobs created by breaking windows. The broken window creates work for the glazier, a multiplier is attached to that work, and it looks as if economic activity has increased. However, society is not better off. The problem is that we see, and account for, the work, but we do not see or count the costs associated with the initial destruction of capital.

    So it is with California’s regulation. Proponents of the regulation have research to support their claim of job creation. The “green jobs” created by the regulation are seen and counted. The jobs lost to the regulation are not seen and are not counted.

    The opponents of California’s regulation have estimated the jobs lost to the regulation, mostly a consequence of higher energy costs, but that research—the portion I’m aware of at least—has been criticized for ignoring the jobs created by the regulation. More importantly, they do not see the jobs that might be lost if global warming kills jobs. They only see, and show, the jobs lost to failure to repeal the regulation.

    Creating jobs is easy; creating real economic growth is harder. Banning the use of any productivity-enhancing technology will create jobs, but this could occur at the cost of societal well being. We could achieve full employment by banning all agricultural technology created after the 17th century. There is no unemployment in a Malthusian economy. We’d all have “idyllic” jobs on the farm, yet this would in reality be back-breaking work. Many people would live on the edge of starvation. I don’t think anyone really wants that outcome. It is also easy to create subsidized jobs, even if those jobs add nothing to, or worse detract from, society’s well being.

    Instead of jobs, the argument should focus on such things well being, consumption, income, probabilities, and the like. It is complicated by the uncertainty surrounding the theory of manmade global warming, and the uncertainty surrounding the economic impacts of any warming. But, the stakes are high. People’s lives will be changed. The debate deserves a higher-level of discourse than we’ve seen. Frenetic predictions of job losses or overly optimistic projections of employment created by a green economy will not do. Instead, let’s recognize the complexity of the issue and have a reasoned discussion.

    Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org.

    Photo by Diogo Martins.

  • A Carbon Added Tax, Not Cap and Trade

    Paul Krugman devoted a recent lengthy New York Times Magazine article to the promotion of a disastrous “cap and trade” regime for reducing carbon emissions. Though he doesn’t outright endorse it, he strongly suggests that the Waxman-Markey bill that passed the House would be acceptable to him. Krugman then proceeds to pooh-pooh the carbon tax idea, one that I believe has far more merit.

    Cap and trade would be a debacle for a slew of reasons. The most important is that it won’t even reduce carbon emissions. Two of the EPA’s own San Francisco attorneys dismissed the Waxman-Markey cap and trade regime as a “mirage” that would not reduce carbon because of the ability of polluters to obtain fictitious carbon offsets, among other problems.

    Even if cap and trade would require American producers to reduce carbon emissions, it would do nothing about overseas polluters. An American manufacturer could escape cap and trade simply by moving production to China. Given China’s massive coal-based electricity infrastructure and other notoriously polluting practices, carbon emissions would likely only get worse as a result, in addition to the US jobs lost.

    Krugman suggests this can be fixed with a carbon tariff, but that’s dangerously naïve. There’s no guarantee a carbon tariff would be put in place after cap and trade passed. In effect, it requires two completely separate policy mechanisms be put in place and kept synchronized over time, which seems dubious. Our trading partners would surely chafe at any carbon tariff, which would be vulnerable to challenge under international trade treaties.

    Cap and trade also has huge distortive impacts within the United States. The Brookings Institution crunched the numbers and found that cap and trade costs vary widely across the country. Compliance costs would be minimal in California and rest of the West and Northeast, while the Midwest, Mid-Atlantic, and the South get pummeled. It should come as no surprise that it is California Rep. Henry Waxman who’s pushing the bill. One can’t help but suspect these regional disparities are the real implicit goal of the bill. Indiana Gov. Mitch Daniels denounced cap and trade as “imperialism”.

    Perhaps the most diabolical part of cap and trade is in its very name. The operative word is “trade”. Who do you think will be doing the trading? Why, none other than the very people who got us into the economic mess we’re in today. Cap and trade is a gigantic giveaway to Goldman; it’s yet another instrument for speculation; it’s another way for the profiteers on Wall Street to line their pockets at our expense.

    So in a sense it’s also another way that, perhaps unintentionally, the richest sectors, the upper classes, and the financial centers like New York, Boston and San Francisco are being favored over the poor Main Street rubes who have taken it on the chin during this recession without a bailout. If you think things are bad now, just wait until CDS stands for “carbon default swap”. It’s pouring fuel on the fire of inequality between the haves and have nots.

    Cap and trade is nothing more than another tranche in the never-ending merry-go-round of bailouts for the financiers. And didn’t we learn anything from Enron’s electricity trading shenanigans? When an Iowa farmer opens up in his electric bill that’s suddenly spiked, or has to pay double to fuel his farm equipment, it’s not too much to ask that it be in the service of actual carbon reduction, not houses in the Hamptons, owned by people to whom the added cost is not material given their wealth.

    There is a better way, and that’s the Carbon Added Tax. Similar to a European-style Value Added Tax, a CAT tax would directly tax the quantity of carbon emissions added to the atmosphere in each stage of the production cycle. The tax could be set at a level that would provide certainty of price such that investments in lower carbon technologies are financially feasible right now, not decades from now.

    Also, similar to the US income tax system, the CAT would apply to the carbon emitted globally, not just in the United States. A deduction would be permitted for any bona fide carbon taxes paid in a foreign jurisdiction, up to the level of the US tax. A true-up on the carbon tax due would be paid at the point of import into the United States. That is, an importer would have to pay the CAT on products brought into the country, less any deductions for foreign carbon taxes paid, at the port of entry.

    While this global approach is a widely, and correctly, maligned feature of the US income tax code, it has important benefits from a carbon reduction perspective. First, it is location neutral. Since the tax is the same whether the carbon is emitted in China or the United States, it doesn’t encourage business to move offshore. But it also doesn’t discriminate against foreign producers. (Like any anti-carbon regime, it would raise costs in the US, affecting both domestic consumers and the competitiveness of exports).

    The CAT is also functionally equivalent to a carbon tariff, but is a unitary regime. That is, you don’t have to figure out how to bundle in or pass a separate carbon tariff as part of implementing a domestic cap and trade system. You simply pass a CAT on global carbon emissions and you are done.

    And this system allows each country to decide on its own level of carbon taxation. If countries like China want to have no tax, that’s their choice. Or, European countries could decide to have a higher tax. The complexity would come in figuring out the allowed deductions for emissions in countries that adopted other schemes like cap and trade, but this should be a readily solvable technical issue.

    There will still be divergent regional domestic impacts under a CAT. This is unavoidable in a nation where carbon emissions are unevenly distributed. But by preventing the financiers from skimming off the top, the total burden is reduced, and a CAT is a more location neutral, transparent mechanism for carbon reductions.

    A Carbon Added Tax is a far superior way to reduce carbon emissions than a cap and trade system only a Wall Street trader could love.

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

    Photo by Gilbert R.

  • How Tough Times May Lead to Better Architecture

    By Richard Reep

    While Ben Bernanke fantasizes about the Recovery, most people in the building industry – especially in overbuilt Florida – will correct this gross error immediately and emphatically. The recession may be over for the Fed Chairman, but unemployment in the design and construction professions is probably in the 25-30% range, matching that of the Great Depression.

    Even so, tiny glimmers of light shine in what many design professionals call the “microeconomy” of building – small commercial renovations, house additions, tenant improvements, and other projects normally too small to even be counted. Although they lack the whallop, or the profits of big stuff – hotels, hospitals, or new towns – these do count, and are anecdotally turning towards local vernacular design and even contemporary architectural design as a strategy to beat the system, possibly pointing the way for the future.

    Architectural styles are a slow-moving parade of fashions, too often divorced from climate, regional characteristics, or the cultural backgrounds of those who choose them. For most commercial and residential architecture that sprang up around neighborhoods, a mix of Victorian and Spanish Mediterranean styles seemed to be universally implemented by developers trying to please the largest quantity of people in the shortest period of time. Homes with terra cotta tiles and beige arches seemed to lurk behind bland Victorian Main Streets that sprouted everywhere from Montana to Alabama, betrayed by skin-tight fixed windows and paper-thin detailing. As branding elements, these styles nationalized what was once regional and climate-specific design.

    Once again, we seem to be repeating history. In the 1870s and 1880s, suburbs began in many cities, and for the first time homeowners could choose custom-designed houses rather than production homes. Relative peace and prosperity begat a rush to consumerism matched only by our recent ambitions, and the Victorians became well known for an architecture and interior design style that promoted fussy detailing, the display of ornate and exotic materials, and homes overlaid with a frenzy of patterned wood siding, stained glass, carved woodwork, and high-pitched rooflines so that even the roof shingles could be a place to show off wealth. Furniture makers and material suppliers invented new products to feed the demand for consumer goods.

    Yet this all crashed right at the turn of the 20th century, mostly because of the economic transitions suffered going back to the Panic of 1893. Suppressed until that time, modernism came out as a style in the Edwardian era that was much more sensitive to the modest budgets of homeowners building in the 20th century. Even Frank Lloyd Wright, whose career was famously independent of the vagaries of fashion, conceded that affordability was part of the appeal of his style – his “usonian” architecture reveled in simplicity and he took low-budget commissions to prove that good design need not be cluttered with doodads.

    Today, after a similar consumerist run-up, residential architecture is suffering from a similar hangover, as we recover from the granite countertops and carved stone lions of the pre-recession era. These egregious displays of affluence may be gone for a long, long time. But people are still going about the business of adjusting their homes and businesses to suit their needs – and there is a steady microeconomy of residential and small commercial construction.

    Cost, however, is the single overriding factor in most small projects today, and a focus on localism favors the budget. For one thing, a region’s vernacular style usually responds best to the climate, and typically employs materials that can be locally sourced – no stone from Chinese quarries is necessary. In Florida, for example, the vernacular style suspends the floor over a crawl space and includes deep roof eaves extending over the walls – both in response to the combination of harsh sun and heavy rains that task the building envelope. The benefit of this style is lower construction cost (gone are all the elaborate carved woodworking pieces, the high rooflines with multiple dormers and turrets) and also lower energy costs.

    Other clients are waking up to the simple fact that contemporary architecture costs less. Like the Edwardians before who developed a taste for the modern, owners building homes and additions in today’s economy have a newfound simplicity in their styles. With a few choice materials around the entry, some simple, strong lines, and a restrained approach to details, contemporary architecture is making a comeback in the residential market. Midcentury modern, a residential style all but forgotten in the McMansion era, was particularly suited to the returning GIs after World War 2 who desired a home but possessed the most modest of budgets. This affordability is the key driving factor to the rise of this style, and is also a naturally “green” architectural style because of what it does without. Modernist Mies Van Der Rohe’s dictum “less is more” can mean here that less ornament and fussy detailing means more money in the owner’s pocketbook at the end of the day.

    Even more interestingly, house additions and remodeling still seems to exist in this economy. Owners are taking advantage of the construction market’s reduced material costs, are building in more home offices, and enlarging their homes to accommodate a multigenerational lifestyle – parents living at home, or grown children living at home. Larger family clusters within single residences point to reduced mobility, and an evolving, relatively easy re-densification of suburbs that have been winnowed by a plethora of empty nesters.

    This new respect for budget has some naturally green outcomes, as families cluster together to save money and energy, and home offices save commuting. By adapting a home in a budget conscious way, taking advantage of vernacular architecture and developing a taste for simple, clean design, many owners are unconsciously working with sustainable strategies already. If sustainability means the preservation of future generation’s choices, then by conserving money and aggregating closer together, owners have already implemented their own sustainability policy.

    Green design should be seen as a grassroots response to the local climate, rather than a prescriptive code forced down from above. And it can produce a magnificent architecture in a timeless style. No federal program or international design guru can impact this like the microeconomy; instead people are making pragmatic choices, and once again discovering that the local vernacular architecture has a lot of good, commonsense clues about how to live a sustainable lifestyle.

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

    Photo by cliff1066™

  • Can David Cameron Close the Deal?

    With the Labour Government exhausted and its supporters dismayed, why isn’t the Conservative Party leader David Cameron sailing home to victory?

    Under the leadership of Prime Minister Gordon Brown, all the weaknesses of the Labour Party have been painfully exposed. British Prime Ministers are elected by the House of Commons, and the Members of that Parliament by the people; so when Brown’s predecessor Tony Blair resigned, his replacement as Labour Party leader became Prime Minister without a general election. In the country, Brown had been a popular figure – if only because he seemed to be the more trustworthy next to the mercurial Blair. But once he took office, Brown’s weaknesses were on view.

    Just as much as Blair, Brown was the architect of the ‘New Labour’ project that shed the party’s welfare state socialist image for a ‘Third Way’. Modelled on Bill Clinton’s revamp of the Democratic Party, the programme demanded that Labour stop using government to provide for its urban poor and trade union constituencies – supporters who would frighten away more aspiring middle class voters.

    But clearing the old-school socialists out of Labour’s policy-making bodies left an ideological vacuum that was filled by environmentalists, the culturati and NGO-enthusiasts for action over the third world. New Labour had freed itself of its traditional socialism only to become beholden to the enthusiasms of the educated political classes. Attention-grabbing ‘humanitarian interventions’ into third world countries were avowedly not in Britain’s national interests, but in pursuit of an ethical foreign policy. Money was directed into subsidising arts centres and other cultural projects.

    Government took on policies that protected the environment, but damaged industry: ‘traffic-calming’ measures – bus and cycle lanes, speed restrictions, congestion charge zones – were put in place with the express purpose of dissuading people from using the roads. Meanwhile road building was put on hold; licenses for new power stations were withheld, so that the country is facing blackouts in six years’ time; bans were put in place on use of GM crops.

    Labour did listen to the City of London’s financial lobby – Goldman Sachs’ Gavyn Davies was a close advisor, as was ‘Shrieky’ Shriti Vadera of UBS Warburg. Labour kept the Conservatives’ banking deregulation but retained Britain’s extraordinary legal controls on land development, so that credit to buy homes was readily available, but very few were built. Anyone sentient could have predicted the result: prices went sky-high putting home ownership beyond the reach of working class people.

    Given his subservience to the City, it was not surprising that when British banks over-extended position led to collapse in late 2008, Brown bailed them pushing public debt into the trillions. Labour’s traditional working class supporters were asking why their party was subsidising million pound bailouts to banks, while their own jobs were disappearing. Most Britons are proud of their armed services, but they had to ask why they were losing their lives in Afghanistan and Iraq. And they wondered how it was that the income gap between rich and poor was getting so much worse under Labour.

    Public disaffection with the political class reached fever pitch when newspapers published details of the Members of Parliament’s own expense claims. MPs were seen to have lied about their addresses to get the taxpayer to pay the mortgage, just as they put their relatives down as researchers and assistants.

    David Cameron ought to have been in the best possible place to take advantage of the government’s difficulties. But Cameron has proven for too much in the same mould as Gordon Brown, and Tony Blair.

    Cameron got to be Tory Party leader after three successive general election defeats. The lesson that the party drew from its experiences in 1997, 2001 and 2005 was that it was the Tory Party’s core brand that was at fault. Cameron was chosen largely by saying that the party should imitate Blair’s ideology-lite, environmentally-conscious, caring, dash for the ‘middle ground’. The Conservatives had to get over their ‘nasty party’ image.

    Cameron dropped a lot of the party’s traditional MPs, and invited people who were not mainstream Tories on board. Cameron’s remodelling of the Conservative Party followed the Brown-Blair model of pushing the core constituency aside to let in new faces. But the new faces that rushed in had the same gentry-liberal preoccupations as those that had taken over the Labour Party in 1997.

    Here’s an example of the new Conservative. As well as running an organic hobby farm, Zac Goldsmith is Cameron’s dashing prospective Tory Party candidate for Richmond Upon Thames. For the last ten years he has been proprietor and editor of The Ecologist magazine, Britain’s foremost green media voice. Zac inherited £300 million from his father, asset-stripping financier Sir James Goldsmith, using the proceeds to finance his pet causes through his own grant-making bodies, the JMG Foundation and the Isvara Foundation. He gives money to his own small-farmers groups FARM, which is committed to stopping private housing developments, has underwritten the Ecologist’s debts of £864,675. He has financed his own web-site SpinWatch to ‘expose’ corporate lobbying – though as Private Eye pointed out, its attack on the nuclear industry was curiously selective, mentioning no Tories, only Labour-backing investors (26 May 2006).

    Well-heeled voters in Richmond might not be too bothered that Zac has written a book The Constant Economy saying we need an end to growth, because they are already enjoying theirs.

    Another key Cameron supporter is advisor Philip Blond whose manifesto Red Tory bemoans the loss of England’s traditional charm under the twin evils of state socialism and the free market ideologies he blames upon the (conveniently foreign-sounding) Milton Friedman. Blond’s traditionalist fantasy of Merrie England is drawn from the backward-looking dreams of G.K. Chesterton and Hilaire Belloc, who railed against modernity back in the early twentieth century.

    Blond’s call for people to rely less on the state is well-made, but his anti-capitalism must have alarmed the party’s core supporters: ‘economic liberalism has often been a cover for monopoly capitalism and is therefore just as socially damaging as left-wing statism.’ Blond’s solution, though, is some state-enforced localism, with legal controls to redirect investment into municipal authorities – what he calls a ‘distributist state’. If this is David Cameron’s big idea, redistributing wealth through local government, it is not surprising that he has not made a great deal of headway in the polls given that everyone understands the real issue is the penurious state of the country’s finances.

    Throughout the election, Cameron has led in the opinion polls, but not by enough to guarantee a majority in parliament. When the country held its first ever televised leaders debate, something that the Tory leader had demanded, he was up-staged by Nick Clegg, leader of Britain’s third party, the Liberal Democrats. In truth Clegg’s appeal is not programmatic – he is pretty much more of the same as the other two. But what he did very effectively was to position himself as the outsider, not a part of the old two party system, a kind of younger, more attractive Ross Perot.

    Clegg’s appeal to the politically disaffected ought to have worked for David Cameron. But Cameron’s failing lies in the fact that he simply has replicated the New Labour project, just as the public were falling out of love with it. Environmentalism, stopping urban sprawl, and ‘restoring communities’ are the preoccupations of a narrow strand of British society: the kind of people who occupy the lower rungs of government service. It is not that most Britons want to trash the environment, or concrete over the countryide, nor indeed support community breakdown. It is just that they do not understand why their own self-betterment always has to give way to those concerns.

    Tragically, the only party that has made an issue of Britain’s chronic housing shortage is the far-right British National Party. Neither the Tories, nor Labour, less still the Liberal Democrats, have the courage to face down the NIMBY opponents of new building. The Tories’ own supporters (like the Lib Dems) have made it to the suburbs and do not want to share or expand them. Labour cannot give up its grip on government planning laws. With no-one willing to free up land for development, the BNP’s call to drive immigrants out is the loathsome conclusion of anti-growth sentiment.

    When they look at the Eton-educated front bench team that Cameron is putting up, voters see the kind of people who have made (or inherited) their stash, and now are pulling up a drawbridge behind them. All of the pious talk about looking after the poor sounds like parish charity, not giving people a chance to help themselves.

    David Cameron’s Conservatives are still the favourite to win the General Election, the only puzzle is why are they finding it so hard to close the deal – a puzzle until you look at their policies, that is.

    James Heartfield works for the Audacity.org think tank, and most recently wrote Green Capitalism: Manufacturing Scarcity in an Age of Abundance (Mute, 2009). His website is at www.heartfield.org

    Photo by: conservativeparty

  • The Muddled CNT Housing and Transportation Index

    The Center for Neighborhood Technology (CNT) has produced a housing and transportation index (the “H&T Index”), something that has been advocated by Secretary of Housing and Urban Development (HUD) Shaun Donovan and Secretary of Transportation Ray LaHood. The concept is certainly worth support. Affordable housing and mobility are crucial to the well-being of everyone, which translates into a better quality of life, more jobs and economic growth. Surely, much of the internationally comparatively high standard of living enjoyed by so many middle and lower income households in the United States has resulted from inexpensive housing (often on the urban fringe) and the ability to access virtually all of the urban area by quick and affordable personal transportation.

    CNT has developed an impressive website, with “tons” of data and maps that are both impressive and attractive. Maps can be adjusted to look at approximately 40 demographic indictors for “block groups” in the nation’s metropolitan areas. Block groups are neighborhoods (smaller than census tracts) defined by the Bureau of the Census and have an average population of approximately 1,500.

    CNT uses the HUD “housing burden” at 30% of household income as a maximum for affordability and further says that housing and transportation should not exceed 45%. The maps show neighborhoods that CNT finds to be affordable and not affordable by these criteria.

    But for all of its superficial impressiveness, the H&T Index is subject to serious misinterpretation and suffers from methodological flaws that neutralize the usefulness of its affordability indices.

    The H&T Index: Potential for Misinterpretation

    The H&T Index: Not a Neighborhood Index: The H&T Index is particularly susceptible to misinterpretation by ideological interests contemptuous of America’s suburban lifestyle, who would use public policy to force people to live in higher densities. While the H&T Index reports data at the neighborhood level, it is not a neighborhood index. However, the H&T Index does not compare neighborhood housing and transportation costs with neighborhood incomes. Rather, the H&T Index uses the metropolitan median household income.

    As a result, low income neighborhoods appear to be affordable, because their less costly housing is compared to the higher metropolitan area median income. Higher income neighborhoods appear unaffordable, because their higher housing costs are compared to the lower metropolitan area median income.

    Press reports, such as in the Washington Post have failed to clearly describe this issue. Without clear reporting, the H&T Index is could play into the popular fiction that suburbs are filled with households unable to cannot afford their housing and transportation. In fact, the vast majority of suburban homeowners can afford their transportation and housing and an appropriate portrayal of neighborhood data (with the corrections noted below) would illustrate this. The high level of recent foreclosures that have occurred in some suburbs are simply a reflection of the fact that “easy money” enticed some people to take on obligations that were beyond their means (just as central city developers built condominium towers that have been foreclosed upon or offered as rentals, with unit prices discounted 50% and more).

    The potential for misinterpretation is illustrated by examining three neighborhoods in Dallas County (Table 1), one low income, one middle income and one high income (2000 data).

    • The H&T Index indicates that housing costs are 8% of incomes in the low-income West Dallas neighborhood when compared to median metropolitan income. However, when the neighborhood income is used, the share of income required for housing is 57%, nearly twice the HUD maximum standard.

    It might be thought that people should move to West Dallas from the suburbs to take advantage of the low housing prices. However, any such migration would quickly escalate land prices up to eliminate any advantage (and to force the low income residents to move, as happens in “gentrifying” neighborhoods).

    • In the middle income (Garland) neighborhood, housing costs as a share of income are 24%, whether measured by the metropolitan or neighborhood income, both within the HUD 30% maximum
    • In the high income (University Park) neighborhood, CNT finds housing costs to be 102% of median metropolitan incomes. When neighborhood income is used instead, housing costs drop to 25% of incomes, well within the HUD 30% maximum.
    Metropolitan & Neighborhood Housing & Transportation Indices: 2000
    Factor Low Income Neighborhood: West Dallas Middle Income Neighborhood: Garland High Income Neighborhood: University Park
    Median Household Income: Metropolitan (PMSA) $48,364 $48,364 $48,364
    Housing Cost Share 8% 24% 102%
    Median Household Income: Neighborhood $6,989 $48,594 $200,001
    Housing Cost Share 57% 24% 25%
    Base data from H&T Index

    The H&T Index: Criticisms of the Methodology

    (1) Missing the Housing Bubble? CNT places more emphasis on transportation costs than on housing costs. This is evident in the H&T Index attention to rising transportation costs from 2000 to 2008. The housing bubble and its impact on household costs appears nowhere among the 40 indicators (Note).

    Yet, there is every indication that housing costs have risen substantially more than transportation costs since 2000. For example, in Kansas City’s core Jackson County, the Census Bureau’s American Community Survey data indicates that the increase in average housing costs was nearly 60% greater than CNT’s transportation cost increase. In Portland’s core Multnomah County, the increase in average housing costs was more 125% greater than CNT’s estimated increase in transportation costs (Figure).

    (2) Exaggerating by Mixing Averages and Medians: The H&T Index compares average housing and transportation costs with the median household income. Averages and means are not the same things. Median income data is “middle” score, with one half of households having incomes above the median and one-half having incomes below the median. On the other hand, “average” housing costs and transportation costs are the total housing and transportation costs divided by the total number of households. High incomes and high priced housing skews averages up. Mixing medians and averages is inherently invalid. For example, in 2008, average housing costs were 19% higher than median housing costs. This means that, on average, where the H&T Index reports a 30% housing affordability figure, it is really substantially lower, at 25% (30% reduced by 19%).

    Thus, the net effect of comparing average housing costs to median incomes makes the housing element of the H&T Index worse than it really is.

    (3) Exaggerating by Leaving Some Households Out: The H&T Index excludes home owning households without a mortgage. The average housing expenditures of households without mortgages are smaller than those of households with mortgages. However, this is a material omission, since housing costs include utility payments. In Multnomah County, excluding households without mortgages raises average housing expenditures by nearly 10% (in 2008). Households without mortgages are households too. The net effect of excluding households without mortgages is to increase housing costs, making the housing portion of the index higher than it would otherwise be.

    (4) Exaggerating by Mixing Data from Different Years: The H&T Index provides 2008 estimates for neighborhood transportation costs, using modeled data. Transportation costs have surely increased since 2000, reaching their peak in 2008 due to the highest ever gasoline prices. CNT again compares these average costs to median household income, but not for 2008. CNT uses 2000 income data. In Jackson County and Multnomah counties, the use of 2000 instead of 2008 data exaggerates transportation’s share of household income between 20% and 25%.

    Each of the above methodological issues is sufficient to render H&T Index outputs to be unreliable.

    Housing’s Role in Housing & Transportation Affordability

    While both transportation and housing costs are important, housing costs have dented household budgets far more than the increase in transportation costs. Even after the house price declines of the last few years, house prices remain well above their historic ratio to household incomes. This will only get worse, if, as many expect, mortgage interest rates rise from their present lows and as rents rise to follow higher house prices.

    In contrast, transportation costs are more susceptible to reduction than housing costs. Once the mortgage is signed, the cost of the house will not be reduced. Once the lease is signed, there is little chance that the rent will be lowered. But transportation costs will be reduced in the future by the far more fuel efficient vehicles being required by Washington. Some people can work at home part of the time. People also change cars more frequently than they change houses. If costs become an issue, perhaps the next car is a compact rather than an SUV.

    CNT’s focus on trends in transportation costs rather than housing costs is consistent with its related study, Penny Wise Pound Fuelish, which advocates expansion of prescriptive land use (smart growth) policies to encourage core urban development and make much suburban development illegal. Yet, these very policies played a dominant role in driving house prices up three times as fast relative to incomes as in metropolitan areas that did not adopt them.

    Genuine advocacy for affordability requires addressing both transportation and housing costs. It also requires recognition of the significant damage done to affordability by prescriptive land use policies. An extra dollar that a household must pay for housing is just as valuable as one spent on transportation.

    All of which leaves us where we started. The nation could still use a reliable housing and transportation index.

    Note: CNT provides no 2008 data for housing costs. Such costs will not be available at the neighborhood level from the American Community Survey until 2012 or 2013. However, it would likely have been no more difficult for CNT to model updated housing data by neighborhood than it was to model 2008 data for transportation costs at the neighborhood level.

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

    Photograph: Hartford Suburbs