New Geography

Tag: Phoenix

  • The Worst Cities for Job Growth

    One of the saddest tasks in the annual survey of the best places to do business I conduct with Pepperdine University’s Michael Shires is examining the cities at the bottom of the list. Yet even in these nether regions there exists considerable diversity: Some places are likely to come back soon, while others have little immediate hope of moving up. (Please also see “Best Cities For Job Growth” for further analysis.)

    The study is based on job growth in 336 regions – called Metropolitan Statistical Areas by the Bureau of Labor Statistics, which provided the data – across the U.S. Our analysis looked not only at job growth in the last year but also at how employment figures have changed since 1996. This is because we are wary of overemphasizing recent data and strive to give a more complete picture of the potential a region has for job-seekers. (For the complete methodology, click here.)

    First let’s deal with the perennial losers, the sad sacks of the American economy. Mostly cities in the nation’s industrial heartland, these places have ranked toward the bottom of our list for much of the past five years. Eleven of the bottom 16 regions on our list are in two states, Ohio and Michigan. In fact, the Wolverine State alone accounts for the bottom four cities: Jackson, Detroit, Saginaw and Flint.

    Unfortunately, there’s not much in the way of short-term – or perhaps even medium- or long-term – hope for a strong rebound in those places. President Obama seems determined to give the automakers, for whom Michigan is home base, far rougher treatment than what he meted out to ailing companies in the financial sector.

    In addition, new environmental regulations may not help auto production, since it necessitates some carbon-spewing and therefore perhaps unacceptable levels of greenhouse gas emission.

    However, not all of Michigan’s problems stem from Washington or the marketplace. Many of the locations at the bottom of the list remain inhospitable to business. To be sure, housing is cheap – in Detroit, property values are fast plummeting toward zero – but running a business can be surprisingly expensive in these hard-pressed places.

    In fact, according to a recent survey by the Tax Foundation, Ohio has an average tax burden roughly similar to New York, California, Massachusetts and Connecticut. But while the others are comparatively high-income states, Ohio residents no longer enjoy that level of affluence.

    Can these places come back? It is un-American to abandon hope, but there needs to be a radical shift in strategy to focus on creating new middle-class jobs. Some Midwestern cities, like Kalamazoo and Indianapolis, have made some successful efforts to diversify their economies, encouraging start-ups and trying to be business-friendly.

    But those are exceptions. Cleveland, one of our worst big cities, could spark a renaissance by revamping its port and nearby industrial hinterland. Once the world economy improves, it could re-emerge – building on the existing knowledge and skills of its production- and design-savvy population – as a hub for manufacturing and exports.

    But right now, Cleveland does not seem to be pursuing such opportunities. As Purdue’s Ed Morrison has pointed out, local leaders there seem to “confuse real estate development with economic development.”

    So Cleveland will focus on inanities such as convention business and tourism, believing we all fantasize about a week enjoying the sights along Lake Erie. Yet even high-profile buildings like the Rock and Roll Hall of Fame and Museum, completed in 1986, have not transformed a gritty old industrial town into a beacon for the hip and cool.

    Old industrial cities like Cleveland are better off focusing on their locational advantages – access to roads, train lines and water routes – while offering a safe, inexpensive and friendly venue for ambitious young families, immigrants and entrepreneurs.

    Meanwhile, cities with formerly robust economies – like Reno, Nev., Las Vegas, Orlando, Fla., Tampa, Fla., Fort Lauderdale, Fla., West Palm Beach, Fla., Jacksonville, Fla., and Phoenix – are more likely to rebound. These areas topped our list for much of the 2000s; their success was driven first by surging population and job growth and later by escalating housing prices.

    But the collapse of the housing bubble and a drop in large-scale migration from other regions has weakened, often dramatically, these perennial successes. “We could rely on 1,000 people a week moving into the area,” notes one longtime official in central Florida. “These people needed services, houses and bought stuff. Now the growth is a 10th of that.”

    Instead of waiting for the real estate bubble to return, these areas should choose to focus on boosting employment in fields like medical services, business services and light manufacturing. In much of Florida and Nevada, there’s also a need to shift away from a reliance on tourism, an industry that pays poorly on average and is always subject to changes in consumer tastes.

    We can even be cautiously optimistic about some of these former superstars. After all, observes Phoenix-based economist Elliot Pollack, the existing reasons for moving to Arizona, Nevada or Florida – warm weather, relatively low taxes and generally pro-business governments – have not disappeared. “There’s no change in the fundamentals,” he argues. “It’s a transition. It’s ugly, and there’s pain, but it’s still a cycle that will turn.”

    Once the economy stabilizes, Pollack says he expects the flow of people and companies from the Northeast and California to Phoenix and other former hot spots will resume, once again lured by inexpensive real estate, better conditions for business and a generally more up-to-date infrastructure.

    The Problem with California
    So what about California? The economic well-being of many metropolitan areas in the Golden State has been sinking precipitously since 2006. This year, three California regions – Oakland, Sacramento and San Bernardino-Riverside – have sunk down into the bottom 10 on the large cities list. That’s a phenomenon we’ve never seen before – and never expected to see.

    Like other Sun Belt communities, California suffered disproportionately from the housing bubble’s bust, which has devastated both employment in construction-related industries as well as much of the finance sector. But some, like economist Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University, where I teach, think a real estate turnaround may be imminent.

    Among the first to predict the potential for a real estate bubble back in 2005, these days Adibi is more upbeat, pointing to rising sales of single-family homes, particularly at the lower end of the market. California’s inventory of unsold homes is now down to about six months’ worth, a figure well below the national average of 9.6 months.

    It seems not everyone is ready to abandon the Golden State – but still, recovery in California may prove weaker than in surrounding states. One forecaster, Bill Watkins, even predicts unemployment could reach 15% next year, up from about 11% today. California, most likely, will see only an anemic recovery in 2010 even if growth picks up elsewhere.

    Much of the problem lies with the state’s notoriously inept government. The enormous budget deficit will almost certainly lead to tax increases, which will fall mostly on the state’s vaunted high-income entrepreneurial residents. Stimulus funds won’t do much good either, Adibi notes, since “the state is grabbing all of the federal stimulus money” to keep itself afloat.

    A draconian regulatory environment also could dim California’s prospects for growth. Despite double-digit unemployment, the state seems determined not only to raise taxes but also to tighten its regulatory stranglehold.

    This is a stark contrast to what happened in the 1990s during the last deep recession. At that time, leaders from both political parties pulled together to reform the state’s regulatory and tax environment. Almost everyone recognized the need to improve the economic climate.

    But an even deeper recession, it seems, hardly troubles today’s dominant players – public employees, environmental activists and gentry liberals who largely live along the coast. The state has recently passed a draconian Assembly bill aimed to offset global warming by capping greenhouse gas emissions – a measure that seems designed to discourage productive industry.

    “This is becoming a horrible place to produce anything,” says Watkins, who is executive director of the Economic Forecast Project at the University of California, Santa Barbara.

    California’s lawyers, though, might stay busy. Attorney General Jerry Brown has threatened to sue anyone who grows their business in unapproved, environment-threatening ways. To be sure, this promise may have relatively little impact on the more affluent, aging coastal communities – but it could wreak havoc on younger, less tony areas in the state’s interior. Many of the local economies there still rely on resource-dependent industries like oil, manufacturing and agriculture.

    It’s sad because California has the capacity to recover more quickly than the rest of the country if the state moderates its spending and stops regulating itself into oblivion. This current round of legislation is so dangerous precisely because it could eviscerate the heart of the economy by slowing down entrepreneurial growth, the state’s greatest asset.

    Even in hard times, there are people with innovative ideas trying to bring them to market – and not just in Hollywood- and Silicon Valley-based industries but in a broad range of fields, from garments to agriculture, aerospace and processed foods. The desire to increase regulation reflects a peculiar narcissism and arrogance of the state’s ruling elites, who believe the genius of San Francisco’s venture capitalists and Los Angeles’ image-makers alone are enough to spark a powerful recovery.

    This is delusional. True, California still has a lead in everything from farm products to films to high-tech manufacturers. But it has been slowly losing ground – to both other states and overseas competitors. CEOs and top management might stay in the Golden State, but they increasingly send outside its borders all jobs that don’t require access to the local market, genius scientists or talented entertainers.

    “There’s a feeling in California that we will come back, no matter what, because we are California,” Watkins says. “The leadership is swallowing Panglossian Kool-aid. Some very smart people, a beautiful climate and nice beaches is not enough to guarantee a strong recovery.”

    This article originally appeared at Forbes.

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

  • Cash, Not Pretense: An Entrepreneur’s Guide to the Credit Crisis.

    Compared with most businessmen, 41-year-old Charlie Wilson has some reason to like the economic downturn. President of Salvex, a Houston-based salvage firm he founded in 2002, Wilson has seen huge growth in the bankruptcy business over the past year. It is keeping his 10-person staff, and his 55 agents around the world, busy.

    But the credit crunch still creates headaches for Wilson. With loans hard to secure, many would-be customers cannot bid on the merchandise in his inventory. “We are booming with more deals because people are defaulting,” Wilson notes, “but the buyers are gun-shy because they can’t get the money to pay.”

    So what do you do in these circumstances? Charlie Wilson is taking a back-to-basics approach. Rule No. 1: Stay away from people who rely on credit, not cash. This means private companies – including many outside the U.S. – are often better customers than larger, but now cash-strapped, public ones. “The further away I get from Wall Street, the better I feel,” Wilson says.

    Cheap is the new hip. Focus on cutting costs and streamlining operations. Don’t spend money on unnecessary employees or hard infrastructure; use the Internet wherever possible. It helps, Wilson says, to be located in an affordable building and in a place, like Houston, where taxes, regulatory costs and rents are generally cheap. “I work out of a Class C building,” he says, “and now everyone thinks it’s sexy.”

    Expand your range of customers. Look for new customers who have cash resources and access to markets that are still growing. This has led Wilson to look outside the U.S, to places like India or China, where many companies still have cash and see the current crisis as a great opportunity for bargain hunting.

    These three trends – the growing importance of cash, cost cutting and expanding one’s customer base – are defining entrepreneurial response to the credit crash. All three trends can be seen in the strategies of entrepreneurs who are focusing on burgeoning, often cash-oriented immigrant markets.

    Consider the success of La Gran Plaza, a massive Latino-themed shopping center on the outskirts of Ft. Worth, Texas. Not so long ago, La Gran Plaza was a failing suburban shopping center. Now it’s thriving, but only after being regeared to service the cash economy of the local Latino community. Similar success can be seen elsewhere in the country, even in Southern California, which has been hard-hit by the recession but where ethnic malls and supermarkets continue to thrive.

    Some urbanists, like scholar Richard Florida, maintain that the post-crash environment favors densely populated (and very expensive) cities like New York. But in fact, it may make more sense for entrepreneurs concerned with costs to work out of places like Houston, or even the Great Plains states, where local governments are more business-friendly. And everything, from housing to energy, tends to be less expensive.

    Indeed, over the past few recessions, the basic pattern has been that cities come into the downturns late and stay in them longer. In the last decade, many big cities have become very dependent on Wall Street and asset inflation. In 2006, for instance, financial services accounted for a remarkable 35% of all of New York City’s wages and salaries, compared with less than 20% 30 years earlier.

    So it seems likely that the credit crisis will hit pretty hard in those places most addicted to credit – places like New York, San Francisco and Chicago. This occurred early 1980s, the early 1990s and will occur again now. It might even be worse this time around. The federal takeover of the banks will mean lower salaries and bonuses, which will make such places less attractive to ambitious young people. If you are limited to $250,000 a year, it’s much easier to “get by” in Charlotte or Des Moines than it is in Manhattan.

    The biggest hope for New York, Los Angeles and other big cities lies with immigrants and the fact that lower property prices could keep some talented individuals from migrating elsewhere. But the one expensive big city really well-positioned for the credit crunch may be Washington, D.C., since it “creates” its own credit. As key financial decision making shifts to the capital, we can expect to see some financial-industry titans (and their retainers) spending more time in, or even moving to, the capitol. Washington, it’s time for your close-up.

    Beyond the beltway, the credit crunch will eventually benefit places with lower costs of living – including Houston. High rents, strong regulatory restraints and prestige spending make little sense in a cash-short environment. Now, fancy high-rise offices in elite areas are an albatross for even the strongest business.

    The remade economy may hold some much-needed good news for hard-hit sun-belt markets. Some places, like Phoenix, may be poised for a comeback. “Phoenix is paying for being overbuilt, but [lower] prices will attract people back,” explains local economist Elliot Pollack. “The fundamentals that drove the growth are still here with the return of lower costs – the ease of doing business, lower taxes and the attractiveness of the area.”

    But the real winners may be the people now leaving big companies to start new firms. Unburdened by bad habits developed in the bubble, they will be able to fit their business models in lean times. Many won’t mind being in an un-fancy building or neighborhood. Whether they are forming new banks, energy companies or design firms, they will need to do it more efficiently – with less overhead, smarter use of the Web and less pretension.

    “People are watching their companies go under. You get three vice-presidents who get laid off but know their business,” Wilson says. “They start a new company somewhere cheap that is more efficient and streamlined. These are the companies that will survive and grow the next economy.”

    This article originally appeared at Forbes.

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

  • Housing Price Bubble: Learning from California

    In a letter to The Wall Street Journal (February 6) defending California’s greenhouse gas (GHG) emissions policies, Governor Arnold Shwarzenegger’s Senior Economic Advisor David Crane noted that California’s high unemployment is the result of “a bust of the housing bubble fueled by easy money.” He is, at best, half right.

    The “bust of the housing bubble” occurred not only because of “easy money,” but also because of the very policies California has implemented for decades and is extending in its battle against GHG emissions.

    The nation has never had a housing bubble like occurred in California. The Median Multiple (median house price divided by median household income) in California’s coastal metropolitan areas had doubled and nearly tripled over a decade. Housing costs relative to incomes reached levels twice as high as those experienced in the early 1990s housing bubble, which was bad enough.

    This is all the more remarkable because even before the bubble the Median Multiple in the Los Angeles, San Francisco, San Diego and San Jose metropolitan areas was already elevated at 1.5 times the historic norm.

    “Easy money,” by itself, does not explain what caused the unprecedented housing bubble in California. If “easy money” were the sole cause, then similar house price escalation relative to incomes would have occurred throughout the country.

    Take, for example, Atlanta, Dallas-Fort Worth and Houston. These are the three fastest growing metropolitan areas in the developed world with more than 5,000,000 population. Since 2000, these metropolitan areas have grown from three to 15 times as fast as Los Angeles, San Francisco, San Diego and San Jose. While 1,800,000 people have moved out of the four coastal California metropolitan areas to other parts of the country, 700,000 have moved to Atlanta, Dallas-Fort Worth and Houston from other parts of the country. This is where the demand would have been expected to produce the bubble. But it did not. House prices remained at or near historic norms and average house prices rose one-tenth that of the California coastal metropolitan areas.

    These three metropolitan areas were not alone. Throughout much of the nation, in metropolitan areas growing both faster and slower in population than coastal California, house prices simply did not explode relative to household incomes.

    In touting “smart land use” as a strategy for greenhouse gas emissions, Crane misses the other half of the equation. Indeed, it is so-called “smart land use” (“smart growth”) that intensified the housing bubble in California. “Smart land use” involves planners telling the market where development will and will not occur. In the process it ignores the price signals of the market. Owners of land on which development is permitted naturally and rationally raise their asking prices, while owners of land not so favored can expect little more than agricultural value when they sell. The result is that the land element of housing prices exploded, fueling the unprecedented bubble. Restrictions on supply naturally lead to higher prices, whether in gasoline, housing or anything else.

    California has placed restrictions on development with a vengeance. For nearly four decades, California has woven a tangled web of land use restrictions that have made the state unaffordable. When the demand rose in response to the “easy money” the land use planning systems were unable to respond and a rapid escalation in housing prices followed. The same thing occurred in other areas with excessive land use regulation, such as Las Vegas, Phoenix, Seattle, Portland, New York, Washington and Miami, though the house price escalation was not so extreme as in coastal California.

    On the other hand, where land use still allowed a free interplay of buyers and seller (consistent with rational environmental requirements), the housing bubble was largely avoided. Average house prices in Atlanta, Dallas-Fort Worth and Houston rose only one-tenth that of Los Angeles, San Francisco, San Diego and San Jose.

    When the bubble burst, the far higher house prices naturally tumbled more than in other areas. The price was paid well beyond California and the other “smart land use” markets around the nation. From Washington to Wall Street to Vladimir Putin and Chinese Premier Wen at Davos, everyone knows that the international finance crisis was precipitated by the US mortgage meltdown.

    It all might not have occurred if there had been no “smart land use” markets with their exorbitant and concentrated losses. Overall, the “smart land use” markets represent little more than 30 percent of the nation’s owned housing stock, yet produce more than 85 percent of the housing bubble values at their peak. California style “smart land use” intensified the overall mortgage losses by more than five times. If the losses had been more modest, there might not have been anything like the current mortgage meltdown. With more modest losses, the world financial system might have been able to handle the damage without catastrophe, just as it did with the “dot-com” bubble earlier in the decade. The many households that have lost much of their life savings or retirement income would not be facing the future with fear. And even personally frugal taxpayers of the world would not be the principal stockholders in failing banks.

    California needs to wake up and face the reality. The intensity of the housing bubble was of its own making. More “smart land use” is just what California does not need. This is the lesson the rest of the nation needs to learn rather than repeat.

    Sources:
    David Crane letter to the editor: http://online.wsj.com/article/SB123381050690451313.html
    Domestic migration data: http://www.demographia.com/db-metmic2004.pdf
    Analysis of the housing bubble: http://www.heritage.org/Research/Economy/wm1906.cfm
    House price losses by peak Median Multiple: http://www.demographia.com/db-usahs2008y.pdf
    Las Vegas Land Market Analysis: http://www.demographia.com/db-lvland.pdf
    Phoenix Land Market Analysis: http://www.demographia.com/db-phxland.pdf

    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.”

  • Understanding Phoenix: Not as Sprawled as You Think

    Phoenix may be one of the nation’s most misunderstood urban areas. The conventional wisdom is that Phoenix is one of the most suburbanized (or if the pejorative is preferred, “sprawling”) urban areas in the United States. Not so. According to 2000 U.S. Census data, Phoenix ranked number 10 in population density out of the 36 urban areas with more than one million in population.

    At this point it is appropriate to define terms. An urban area is an urban footprint, the area that would be outlined in lights from an airplane at night. Urban areas are also called urbanized areas or urban agglomerations. Urban areas do not include any rural territory — they are the continuously built up or developed territory. Urban areas are considerably different from metropolitan areas, a difference often missed by journalists and others. Metropolitan areas are labor markets, are defined using county or town (in the six New England states) boundaries and always include rural areas and more distant exurbs.

    The Phoenix urban area had a population density of 3,683 per square mile, with 2,907,000 residents living in 799 square miles. What may be even more surprising is that only one Eastern urban area — New York — was more dense and only one Midwestern urban area was more dense — Chicago. In the South, only the Miami urban was more dense than the Phoenix urban area. On the other hand, in the highly automobile-oriented newer West, six urban areas were more dense than Phoenix. Portland, despite local and international marketing efforts to portray that area as the ultimate example of urbanization, was not one of them. In 2000, Phoenix was nearly 10 percent more dense than Portland. As is shown below, this gap may have widened since 2000.

    All of that does not change the fact that Phoenix and its suburbs seem to stretch on forever. That is the nature of large urban areas. What makes Phoenix one of the nation’s most compact urban areas is that its population density declines from the center to the urban fringes at a much lower rate; the outer rings tend to be not much less dense than the inner city.

    This contrast can be best seen in comparison to the Boston urban area, widely perceived as one of the nation’s most dense urban areas. Nothing could be further from the truth. Central Boston, including such municipalities as Boston, Cambridge, and Somerville clearly fit this description and rank among the highest density areas in the United States outside the four highly urbanized boroughs of New York City. The densest part of the Boston urban area (in land area) has a population density of 28,000 — more than double that of Phoenix (nearly 14,000) and even more in comparison to Portland (12,000).

    But there is much more to an urban area than the urban core. The big difference is in the suburbs. Most Boston suburbs developed as low-density communities. Land restrictions, often imposed at the town and village level, are far tighter than in similarly sprawled part of the greater Boston area. Indeed, beyond the dense core and the inner suburbs, the sprawl is so extensive that the Boston urban area covers more land area than the Los Angeles urban area, which has nearly three times as much population. The outer suburbs of Boston also are slightly less compact than the outer suburbs of Atlanta — the world’s lowest density large urban area.

    Overall, the Phoenix urban area has a density that is more than 50 percent higher than that of Boston’s. A comparison of the population density profiles of the Phoenix, Portland and Boston urban areas illustrates these differences, with higher densities in Phoenix and Portland than in earlier developing, but much more suburban Boston.

    The key to the higher density of the Phoenix urban area (and other higher density urban areas of the West, such as Los Angeles, San Francisco, San Jose, Riverside-San Bernardino, Las Vegas and Denver) has to do with the greater power of the market in newer cities. In Boston, Washington, Philadelphia and a number of other Eastern and Midwestern urban areas, suburban land use regulations required large lot zoning creating far larger urban footprints than would have occurred otherwise.

    In the Phoenix urban area, comparatively dense development continues all the way to the urban fringe — and that densification seems to be accelerating. The U.S. Bureau of the Census American Community Survey indicates that the density of the Phoenix urban area (within its 2000 definition) rose 11 percent between 2000 and 2006. This is more than double the rate of densification nationwide. Only Riverside-San Bernardino, Atlanta, Houston and Las Vegas densified at a greater rate. Further, based upon the new data, the Phoenix urban area — John McCain’s political base — is now more dense than Senator Barack Obama’s Chicago region.

    Resources:

    2000 Urban Area Data

    Comparison of Atlanta and Boston urban areas

    Wendell Cox is principal of Demographia, an international public policy firm located in the St. Louis metropolitan area. He has served as a visiting professor at the Conservatoire National des Arts et Metiers in Paris since 2002. His principal interests are economics, poverty alleviation, demographics, urban policy and transport. He is co-author of the annual Demographia International Housing Affordability Survey.

  • The Phoenix Lament (with apologies to J. K. Rowling)

    Fifty years ago, Phoenix was Tiny Town in the Desert, smaller than Oshkosh or Santa Fe today. Now, it is larger than Philadelphia and the metro area has the bulk of Arizona’s population. That does not mean it gets any respect; on the contrary, it is, to many, a joke, with all of Los Angeles’ traffic and smog but without the ocean, the celebrities or the Lakers. When it surpassed the City of Brotherly Love, Pennsylvania newspaper columnists waspishly described the Valley of the Sun as ‘‘a loose accumulation of crummy vinyl-sided houses occupied by sunburned retirees who happen to share a zip code.”

    They went on to note that “Phoenix has no downtown. . .and neighborhoods? None to speak of… [it] doesn’t rate as an actual city. . .it’s more like a place where a lot of people happen to live. Phoenix would kill to have a walkable city the way we do.’’ More recently, an anonymous commentator in The Economist reported that crime and other social ills were turning the city into an inhospitable and ungovernable mess. Time to roll up those sidewalks and move on—oh, that’s right, there are none. The worst opprobrium is generally reserved for the audacity, or insanity, of growing a city in a desert. As a blogger on the Grist site recently wrote, Phoenix is “a poster child for environmental ills.”

    Phoenix is hardly perfect, and it certainly violates most traditional urban principles. A city of over three million, it possesses virtually no corporate headquarters. In a globalized world, Phoenix seems a nonentity, with virtually no corporate financial institutions. Home to the world’s sixth largest airport, it has few direct links to the rest of that world with the exception of a handful of daily flights to Toronto, Mexico City and London. This is the same airport that closed one summer when the temperature reached 122 degrees.

    So then, why do people keep moving here? It is usually best to follow the advice of sociologist Juliet Schor and try not to start with the assumption that people are idiots. So, let’s rationally examine what keeps the place growing. The first factor is the weather. There is none. For half the year, it is warm, and for half it is hot. It rarely snows, and there are no tornadoes or hurricanes. It rains and it floods, but the water disappears by the next day.

    The ground may be hot, but it’s also securely tethered—the earthquake risk is about as high as that for ice storms. This may seem trivial, but consider that liabilities from natural catastrophic events throughout the U.S. have exceeded $300 billion since 1988, and nearly three quarters of that can be attributed to tornadoes and tropical storms. Viewed this way, lots of people live in the wrong place but Phoenix is not one of them.

    But what about the folly of living in the desert? How sustainable is that? Well, more so that you might think. A home in Minneapolis has to be heated from zero 60 degrees to maintain comfort, and must use energy for six months, 24 hours a day. A home in Phoenix needs to be cooled for less than five months, typically for 12 hours a day, in order to bring the temperature down from 110 to 80 degrees. Cooling devices are more efficient, and use less energy.

    Research undertaken by Michael Sivak shows that the most energy efficient cities, like San Diego and Miami, are coastal, although these are also among the most vulnerable to catastrophic natural events. The least efficient are cold—Minneapolis, Chicago, Denver. In addition, Phoenix and Las Vegas come in right in the middle of the pack.

    What about water? Like its neighbor Las Vegas, Phoenix loves to display fountains and other water features. The largest of these is the Tempe Town Lake, an entirely artificial recreational pond that evaporates the equivalent of five-acre feet each day. Where does this water come from? Largely from the development of agricultural land devoted to intensive irrigation, which consumes far more water per acre than suburban houses. Of course, this cannot go on forever—if nothing else, evaporation is a waste. But when water is properly priced, creating a natural incentive for conservation, it will be used more appropriately.

    And what about the fundamental criticism, namely that Phoenix is a dreadful example of sprawl? Clearly Phoenix epitomizes a large, low-density city. But sprawl also occurs when people leave the downtown and move to the suburbs, as we see, for instance, in Detroit. In Phoenix, a growing population is filling up Maricopa County; we have few of the neglected areas that are common in many Northeastern and Midwestern cities.

    Overall, the average journey to work is comparable with other American metro areas. And most important, low-density development is cheap development. Phoenix remains one of the most affordable large housing markets in the country, even after housing speculators from California took their equity and drove up costs in Arizona and other parts of the West in 2005-07. Current estimates suggest that when the dust settles, the median new house price will once again fall below $200,000.

    Sprawl is perhaps one of the easiest insults to fling at any city. It is associated with everything from the collapse of civic life to the rise of obesity. Yet in Arizona, low-density development, which involves building large number of homes on raw land, is cheap development. Sprawl clearly involves the cost of new infrastructure, but that has to be placed against the high costs of renewing infrastructure in existing urban neighborhoods, which can involve deep excavation, specialized equipment and higher risks (like the cranes that keep collapsing in New York).

    In the end, Phoenix’s growth machine succeeds in offering a commodity that people need—an affordable home. Few families want to live in small expensive apartments—many want the amenities of a low-cost house, and in Phoenix, that can mean as little as $150,000. It is easy to demand an end to sprawl, as has been tried in California and Oregon, but the result frequently is to price single family homes out of reach for most households. In a society that offers little to its working and middle class in terms of necessities like health care, it seems uncaring to demand an end to affordable single family housing as well.

    Phoenix and its desert neighbors do not match up to the 19th century city. They lack the grand rail termini, the city halls, the cathedrals and the parks. The grandeur of the modernist era does not extend to these experiments in low-density private space—malls, office parks, homeowner associations. Yet they succeed brilliantly as bastions of successful low-cost development for middle class families. In the future they can also serve as laboratories for alternative energy usage, water recycling and, in time, more efficient transportation. The challenge is to let them change on their own terms, not make a vain effort to reconstitute them along the lines of older cities like New York, Chicago and Paris.

    Andrew Kirby is the editor of the interdisciplinary Elsevier journal “Cities.”This is his 20th year as a resident of Arizona.

  • Phoenix: Is John McCain’s Hometown Down for the Count?

    By Joel Kotkin and Mark Schill

    Much has been said about the rootlessness of our two Presidential aspirants, but both men have spent their political lifetimes representing real places and specific constituencies. Newgeography.com has already looked into the realities shaping Senator Barack Obama’s adopted hometown of Chicago. Now we turn to the city that has most shaped Senator John McCain’s career: Phoenix.

    In many ways, Phoenix today is what Chicago was in its earlier days: a rambunctious entrepreneurial town subject to sometimes wild swings in its real estate market. This has led some outsiders to predict that the city — known for its sprawling development — is now destined for a long-term decline, a notion that economist Elliot Pollack heartily rejects in his article for us.

    The current decline scenarios for Phoenix echo the “death of suburbia” mantra so eagerly adopted by much of the media and academia since the mortgage crisis and the steep rise in gas prices. A particularly wistful thought in the Great Lakes Region — Obama’s putative home base — is that lack of water will force wayward Midwesterns out of places like Phoenix and back up North where they belong.

    This is nothing new. Phoenix, as Pollack notes, has been down before, as recently as the early 1990s — and to quote the old Rodney Dangerfield line doesn’t “get much respect.” Indeed the entire Phoenician ethos has something to do with poking the folks back east (and sometimes us mild weather weenies here in California) in the eye. There’s a maverick, “you can knock me down but never knock me out,” quality that Senator McCain would no doubt relate to but this sentiment is more epitomized by the city’s greatest political figure, the late Senator Barry Goldwater.

    To many easterners, Phoenix has never been considered a respectable place to build a city. Arizona, to U.S. Senator Benjamin Wade, was “just like hell, all it lacks is water and good society.” Phoenix’s city fathers included “Jack” Swilling, an often inebriated Confederate Army deserter -turned -promoter, and a sturdy group of Mormon farmers, who shared Swilling’s outsider status, if not his taste for alcohol.

    Like Los Angeles, in Phoenix the Second World War accelerated the development of new technology and business service firms. Initially, the desire to base more production further from potentially vulnerable sites on the coasts brought several thousand skilled engineers and scientists to the area. However, later, the city itself — its low-density lifestyle, its brilliant sunshine, its lack of social constraints — brought waves of high-technology firms to the region.

    By the turn of the century, the city not only ranked among America’s fastest growing cities, but also as one of the most attractive to burgeoning high technology and business service firms. In its development pattern, Phoenix essentially followed the model of Los Angeles, but without the beaches, Hollywood or Caltech.

    Like its Californian counterpart, Phoenix epitomized all the clichés of plasticity and impermanence associated with the new American city. In addition, like Los Angeles before it, Phoenix gathered in ambitious newcomers seeking a better life. In the 2000 census, almost a third of residents had arrived only five years or less before.

    Local entrepreneur Deb Weidenhamer, who came to the Valley of the Sun in 1970 and opened an auction business, says the rapid growth and basic openness to newcomers has created unprecedented opportunities for her. “We came with nothing,” she recalls.” We came here because it had wealth that was increasing. You can find opportunities. People come here for a new start and come with ambitions. Longevity here does not matter here. You can be here ten years and it’s like you’re an old fogy – in the east coast you’d be like a newcomer.”

    Virtually all of Weidenhamer’s employees, she notes, also come from outside the region. They create what she calls a “multiplier” effect, with each person bringing new ideas and new energies. “In San Francisco or New York you would have to compete with entrenched companies. Here you can always market the new people,” she suggested at her crowded warehouse. “There’s always a new zip code to service.”

    Much less impressed, however, have been many leading urban thinkers, including many local dignitaries. Its sprawling array of separate districts and its relatively weak downtown has led some critics, like the prominent new urbanist Andres Duany, to conclude that Phoenix is a place where “civic life has ceased to exist.” Duany, like Ralph Waldo Emerson a century earlier, hailed Boston as an example of a superior kind of community.

    Yet for America’s urban future, it is likely that Phoenix, not Boston, or even Chicago, represents the predominant form of the multi-polar flexible metropolis. Like many older metropolis, Chicago and Boston have been either losing residents — particularly middle class families — or growing slowly over the last decade. At the same time, virtually all the fastest growing cities have been places like Phoenix – chock-full of kids and thirty-somethings. That tells you something. As Pollack puts it, “People vote with their feet.”

  • Phoenix: “Not Dead Yet!”

    To paraphrase Mark Twain, “The report of Phoenix’s death has been greatly exaggerated.” To be sure, the Phoenix metropolitan area, for the first time in years, is suffering through a period of economic distress both in absolute and relative terms. However, the distress is purely transitory, caused primarily by the ripple effects of a 75 percent decline in building permits over the last three years combined with the national slowdown in economic activity. The underlying fundamentals remain strong as does the long-term outlook.

    Builders in greater Phoenix, like in many communities, overbuilt during the boom. This creates an oversupply that has been made worse by poor conditions for home sales in places like California, or Michigan, primary places from which people come to Phoenix.

    Yet it’s critical not to confuse today’s short-term setback, as many in the national media do, with setting the table for long-term stagnation. This pattern has been seen during previous recessions, notably between 1988 through 1992. After that, greater Phoenix came back with job growth during the expansion that started in November 2001 at three and a half times the national average.

    The fundamentals that drove that recovery have not changed. These include factors such as climate; lifestyle; geographic location; pro-growth attitude; competitive tax structure; focused incentives; and relatively low cost of living. The long-term dynamics remain in place.

    Why do we Grow?
    Let’s consider why some places within the United States grow and others do not. The first test is simple. Do the people want to live in that area?

    The quality of life factor, of course, lies in the eye of the beholder. Fortunately, there is an objective measure: people vote with their feet. People simply want to be there. This explains why areas of the country that supposedly have great business climates, South Dakota, with some exceptions, do not enjoy rapid population growth.

    A second factor lies with the business climate relative to the area’s competitors. Are there specific local policies that result in constraints on work practices and the application of better production methods? Can firms operate profitably relative to alternative locations? Does the area embrace business expansion and competition?

    Greater Phoenix wins here too. Boiled down it’s a matter of whether the government is getting in the way? Specific local policies can result in constraints in work practices and the ability of individual firms to earn a reasonable profit. For the most part, Phoenix remains a good place to grow a business.

    All Jobs are Not the Same
    These factors are critical in the formation of “export jobs” as opposed to domestic sector jobs. Export sector jobs are generally higher paying jobs. They are created because a company’s product is sold primarily outside of the local area. On the other hand, domestic sector companies serve local markets so they have to locate locally. A domestic sector company; a retailer, insurance agency, title company, lawyer, or barber; are chasing local income. It’s the export jobs that matter most. Think of the ghost towns of the old west. They blew away because their reason for existence — a mine, a rail crossing, or farming — lost their relevance.

    Greater Phoenix thrives because it generates many “export” jobs in manufacturing, tourism and export service base Why these base industry companies locate in Greater Phoenix as opposed to another city stems from actors described in the book “Barriers to Riches.” The region provides a competitive advantage in their ability to implement the latest technologies and make a reasonable profit — without a great deal of costly government interference. Yes, there are other relevant factors such as proximity to markets but the key lies in our ability to attract sufficiently skilled labor that can be applied and earn reasonable profits.

    The Real Estate Outlook
    Phoenix appears to be taking a beating in terms of relative growth this year. A correction is in order. But over the next two years or so the excesses of the sub-prime mortgage crises will have worn off and Phoenix’s intrinsic strengths will assert themselves again.

    This recovery will include many of the newer areas. The press is asserting that areas at the edge of the metro area will no longer grow due to gasoline prices. This is a vast overstatement. These communities will change, and so will the habits of the people who live in them. They will replace their pick-up trucks and SUVs for Priuses and their hybrid competitors. Some will work full or part-time at home. Companies may move more of their operations closer to the outer suburbs, if that’s where the majority of their workforce lives.

    Critically, keep in mind that jobs opportunities tend to follow people. Unlike many cities, greater Phoenix does not have one job core, it has several. And, jobs tend to migrate out to where the labor shed is. That will continue to be the case. Many of the areas that are the outlying today will be the job centers of tomorrow.

    On the other hand, the market for dense development — the favorite of planners and pundits — may be limited. Even during the strongest period of housing starts on record, high-rise condos only accounted for 2.2 percent of all the housing construction in greater Phoenix. But that market has fizzled. Many high-rise projects throughout the area have been put on hold or have been cancelled due to market conditions. Some will never be built. Others (in Tempe and Downtown Phoenix) may be turned into student housing. Indeed, since 2001, 7,400 units have been added to the high-rise condo inventory. Only 3,700 of those are sold or have a hard contract and 3,700 remain unsold or unreleased. That compares to total single-family housing starts during that period of 330,000 units.

    High-rise condos will continue to be a niche market, accounting for a relatively small percentage of total housing. The predominant housing style in greater Phoenix will remain a single-family home on a 45 to 75 foot lot on the periphery of town where land is plentiful. Phoenix will remain a place where people can have their piece of the American dream — and with the end of the bubble it will become affordable once again.

    Greater Phoenix Outlook
    A combination of events — the national recession, the local housing bubble, and the rapid rise in food and oil prices — have all worked against greater Phoenix in the short term. But, the national economy will recover as it always does. Housing supply and demand will get back into balance. If oil prices remain high, people will substitute vehicles that get better mileage. But although greater Phoenix is going through a difficult period at present, do not bet against it in the long run.

    Elliott D. Pollack is Chief Executive Officer of Elliott D. Pollack and Company in Scottsdale, Arizona, an economic and real estate consulting firm established in 1987, which provides a broad range of services, specializing in Arizona economics and real estate.