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New York, Two States of Mind

4 hours 44 min ago

Is New York City helping or holding back Upstate New York?

Towards the end of times, when all of mankind congregates in a final purgatory to draw the main lessons of this grand adventure called Life, there will be special attention paid to the centuries’ long efforts at harmonizing individual happiness with the needs of the collective. There will be seminars on leadership and war. There will be a thick chapter on the blessings and dangers of science. There will be a long section, co-written by poets and undertakers, on the success of freedom and the failure of tyranny. There will be wonder and consternation about religion and the nature of the universe. And there will be, inevitably, extensive reporting on economic ideology.

Here, a slim primer on laissez-faire will easily outshine ponderous encyclopedic tomes on communism, socialism and other failed -isms. Capitalism, the word and the theory, will be presented as a zealous and perhaps unnecessary attempt at creating a code for laissez-faire, something that occurs naturally. Cronyism will be understood as the corruption and distortion of laissez-faire and the phrase crony capitalism will be dismissed as an oxymoron and an unwarranted amalgamation.

Finally, there will be a footnote on dirigisme, or the state’s effort at orchestrating and controlling economic growth by directing public and private funds towards its own selection of industries and businesses. Some will call it national industrial policy, or picking winners and losers. Others will deride it as a pretext for cronyism to assert itself under the guise of policy. There will be references to its various forms and intensities in France under De Gaulle, in Japan with MITI and in many other places.

It will be mentioned in passing by bemused Americans that it was also tried once upon a time in New York State and that it led to the same dead end of wasted resources and corruption. Among the evidence presented will be reports of public/private investments organized by the state’s government in the early 2000s and the uncovering of a scandal in 2016.

New York, Two States of Mind

Meanwhile, if we rewind and zoom in on present day New York, it is clear that there is no other state in the nation like the Empire State. It has New York City, a dynamic universal metropolis, and it has a huge land area Upstate that is demographically and economically stagnant. No other state is so economically polarized. In California, Texas and Florida, the population and wealth are less geographically concentrated.

On many measures, New York City and State have little in common. Consider the following:

New York City covers less than 1% of New York State’s land area and is home to 43% of the State’s population. Including downstate suburbs, the New York City metro area adds up to 65% of the state’s population.

In the City, 53% of people are white (including hispanics) and 37% are foreign-born. Outside the City, 83% are white and 11% foreign-born. If you exclude seven downstate counties that are near the City (see tables), the percentage of the Upstate population who are foreign-born drops to 5%. By way of comparison, the entire US population is 77% white and 13% foreign-born. So New York City is less white and much more foreign-born than the United States. And New York State is more white and much less foreign-born.

Because there is a higher percentage of poor people in the City, notably in the Bronx, the median household income at $52,737 is lower than the $58,687 for the state overall. However the average income is much higher in the City due to its high-paying jobs in law, media, finance and health care. The weight of the 1% or 5% highest earners would be more visible in the average than in the median. As shown in the table, the median income in the downstate suburbs is significantly higher than in the City or Upstate. The median household income in the United States is $53,482.


Home values are much higher in the City and surrounding counties than in the rest of the state. In the City, the median home value is $491,000 whereas a median home can be obtained in most counties Upstate for less than $200,000. The higher ratio of median home value to median income underlines the greater income disparity in the City.

In New York county (Manhattan), the median home value is $838,000 or 12 times the median household income of $72,000. This would be unsustainable if the average income did not deviate significantly from the median, or in other words, if there was not a small percentage of people earning large and very large incomes every year. In Manhattan, the average income of the top 1% is $8.1 million. And the average income of the bottom 99% is $70,468. The ratio of the first to the second is 116. (sources: Economic Policy Institutehowmuch.net).

By contrast, in Allegany county for example, the median home value is only 1.6 times the median income. The average income of the top 1% is $358,554 million and that of the bottom 99% is $25,595. The ratio of the first to the second is 14.

In the United States overall, the median home value is $175,500, or 3.3 times the median income. In 2013, the average income of the top 1% was $1.1 million and that of the bottom 99% was $45,567, resulting in a ratio of 25.


It is tempting to conclude from these figures that New York City is doing very well and that New York State is doing, depending on one’s perspective, as well or as poorly as the rest of the country. But on closer scrutiny, both the City and the state face some challenges that are unique to New York.

Stagnant Demographics

The most obvious is the fact that the size of New York’s population has barely budged in the past forty-five years except for getting older. In 1970, there were 18.2 million people in New York State and in 2015 only 19.8 million. This change amounts to an 8% cumulative increase over 45 years, a very low figure compared to the 58% growth in the US population over the same period.


If there had been instead a modest annual population growth rate of 0.5% due to new births, the cumulative growth over 45 years would have come to 25%. Further, because New York City is a magnet for new immigrant arrivals, one would expect that cumulative growth to have exceeded 25%. Instead, the 8% figure over 45 years means that there has been a steady large migration of New Yorkers towards other states.

New York State had 9% of the country’s population in 1970 and 6.2% in 2015. The state and City have not been choice destinations except for people seeking employment in specific industries or for recent immigrants looking for a social gateway into the United States via their own national communities.

Also worth noting is the fact that the state’s entire population growth (800,000 people) since 2000 has been concentrated in the City and downstate suburbs. The size of the population Upstate has flatlined for years while getting older.

Of course, this stagnation is partly explained by the large migration over several decades of Americans heading to sun belt and mountain states in the West, South and Southwest. No doubt the invention of affordable air conditioning and the expansion of the interstate highway network facilitated this exodus from North to South.

Other legacy large industrial states like Pennsylvania and Ohio also show weak single digit growth in the period 1970 to 2015. But neither has a large universal metropolis like New York City and neither shows as great a divide between its largest city and Upstate region. Meanwhile the populations of California, Colorado, Texas and Utah have doubled or more than doubled in 1970-2015, as have those of Southeastern states like Florida, Georgia and the Carolinas. Arizona has quadrupled and Nevada grown six fold, albeit from a low base in both cases.

A closer to home comparison is only marginally more comforting. If New York State was a state on its own today, its demographics would compare poorly to those of its neighbors. Next door Vermont and New Hampshire have both grown smartly despite lacking a significant industrial base and large metro areas. The largest employers in both states are IBM and a collection of ski resorts, hospitals, colleges, retail stores and insurers/banks/asset managers. New Hampshire has also benefited from its proximity to Boston, with some tax-minded commuters choosing to declare residence in the southeastern corner.

Part of this may be a public relations issue. Both New England states have done a better job than New York in associating their names with autumn foliage, winter sports and summer boating even though New York has similar colors, ski areas and lakes.

Vermont or Upstate New York?

And compared to New England, Upstate is rarely showcased in movies. Wikipedia has long lists of movies set in New England and in New York City but no such list for New York State. In the 1987 movie Baby Boom, management consultant J. C. Wiatt (Diane Keaton) escapes New York City’s chaos and complexity, and dumps New York State without a thought on her way to a simpler life in Vermont that ends up delivering not only space, beauty and peace but also greater wealth and even romance.

Weather can also be an important factor. Some parts of New York State get much more snow and have many more overcast days every year than do Vermont, New Hampshire, Pennsylvania and Ohio.

Policies for Upstate

Nonetheless, if weather is the work of Providence, government policy is very much man-made and should be designed to capitalize on the state’s assets and to mitigate its handicaps. The empirical evidence so far is that policy has not done enough to improve conditions Upstate.

To the South and West, both Pennsylvania and Ohio have enjoyed a better economy than Upstate thanks in part to the shale energy boom while New York maintains a ban on fracking. It can afford to do so thanks to its large tax revenues coming from the City. According to a 2011 Rockefeller Institute study, in 2010 New York City contributed 48.7% of the state’s tax revenues. The downstate suburbs contributed an additional 23.6%, leaving a modest 27.7% coming from the rest of Upstate.

These revenue percentages don’t deviate significantly from the weight of the population in the various regions. But the same Rockefeller Institute study showed that expenditures are more favorably weighted towards Upstate which received 42.2% of the state’s spending while the City and downstate suburbs received 40% and 17.7% respectively. In other words, Upstate has not been self-sufficient in terms of tax expenditures vs. tax receipts and has been receiving funds from the metro area.

Some will allege that this is how a state should operate. Less productive areas receive assistance from more productive ones. But New York State could do better by making itself more tax-friendly to businesses and households. Our populyst state-by-state analysis shows that a median household in New York keeps 82.5% of its income after taxes, a percentage that places the state in the lowest quintile of all states on this measure. By contrast, a median household in Florida, Tennessee, Nevada, Texas or Washington State keeps over 88% of its income. The difference in after-tax take-home incomes would be even greater for higher earning households.

The table below shows total and per capita state government tax collections for fiscal year 2013. On a per capita basis, New York State is in the first highest quintile for all state taxes, and second only to Connecticut for individual and corporate income state taxes. Among states with large populations, it is comfortably first in both categories, higher than California, Illinois, Pennsylvania and Ohio, and much higher than low-tax Texas and Florida.


None of this may be a surprise, given that New York routinely ranks among the highest-tax states in the country. But instead of cutting taxes across the board and letting the market work its magic, the state has opted to launch a number of targeted public and public/private initiatives to reenergize the economy Upstate.

Start-Up NY offers tax free zones to research-oriented businesses. In order to qualify, a business must partner with a university and must operate in one of the sectors targeted by the program.

Judging by this recent announcement, the impact so far has been helpful on a local level but negligible in improving the state’s overall condition:

Governor Andrew M. Cuomo today announced that 18 new businesses will join START-UP NY, relocating or expanding their operations across the state through innovative tax-free zones associated with public colleges and universities. These 18 businesses have committed to create at least 135 new jobs and invest nearly $10 million over the next five years in Western New York, the Southern Tier, Central New York, the Capital District, New York City and Long Island.

and further:

START-UP NY now has commitments from 172 companies to create at least 4,175 new jobs and invest more than $229.2 million over the next five years in New York State.

That comes to  an average of 24 jobs and an investment of $1.33 million per company, small figures in a state of 19 million people and a GDP of $1.4 trillion. Perhaps the choice of a few sectors and the required linkage to a college should be removed and a tax abatement should be offered to all startups.

Though its impact is small, Start-Up NY at least has the distinction of a hip dynamic name. By contrast, other initiatives that have a greater immediate dollar impact are encumbered by vaguely Soviet-sounding names such as the Regional Economic Development Council Initiative and the Upstate Revitalization Initiative.

In both of these initiatives, development funds are allocated to New York’s ten regions through a process of competitive applications. From the former’s website:

This year, the 10 Regional Councils once again competed for funding and assistance from up to $750 million in state economic development resources as part of Round V of the REDC competition. Additionally, the Governor established a new competition in 2015 – the Upstate Revitalization Initiative – to award a total of $1.5 billion to three regions, which will help to transform local economies by providing $500 million over the next five years to support projects and strategies that create jobs, strengthen and diversify economies, and generate economic opportunity within the region. Of the state’s 10 regions, seven were eligible for the URI competition: Finger Lakes, Southern Tier, Central New York, Mohawk Valley, North Country, Capital District, and Mid-Hudson.

quick scan of the dollars awarded in these initiatives shows that many, though not all, are earmarked for marginal improvements or investments and are unlikely to lead to large economic returns.

The Inevitable

If this was the only problem with dirigisme, we might simply lament it as a well-intentioned but wasteful approach to economic growth. However, it is usually accompanied by an increase in cronyism and corruption. The fact that the state has been collecting a tax surplus in the City and diverting it Upstate created an opportunity for administrators to play favorites in awarding contracts and to contravene the rules of competition that usually prevail in a free market. When this kind of opportunity emerges, it is inevitable that someone will seize on it.

And so the scandal that has just broken with the charging of nine people in Governor Cuomo’s entourage should not come as a surprise. City Journal takes a similar view:

Eager to revive the depressed counties of New York’s heartland and Southern Tier, Cuomo lacked the courage to use his considerable influence with the Albany legislature to prune taxes and pare regulation. His solution was to bury the problem in tax dollars. This approach isn’t intrinsically criminal, but it does attract people of low degree, some of whom have recently been posting bail. And it betrays poor judgment on Cuomo’s part—in the policies he pursues, in the people he trusts, and in the electorate at large.

The New York Post is equally skeptical of government-orchestrated public-private investments:

The cloud of alleged corruption now surrounding billions of dollars in state economic development investments is an outgrowth of Cuomo’s highly secretive and centralized management style.

Compared to previous Albany-directed corporate-welfare binges, Cuomo’s approach has featured a uniquely close intertwining of government and corporate interests — complete with state ownership of the means of production.

To an outside observer, it may have seemed curious that development of a solar-panel factory in Buffalo [the case being investigated] was being guided by a state college administrator in Albany.

This free market distortion is primarily systemic at its root. It grows naturally from the state’s involvement in the economy. As noted by City Journal, bad systems have a way of empowering bad actors. It is likely therefore that more revelations will surface about more malpractice elsewhere in the state’s initiatives.

Now would be a good time to re-evaluate the overriding economic strategy. So far, the state’s initiatives have weighed in favor of a top-down set of targeted solutions instead of a blanket laissez-faire approach that would foster growth from genuine grassroots entrepreneurship. But this experiment with dirigisme has led to the usual distortions of cronyism and wasted or misallocated resources. The state should consider stepping back from its deeper involvement and instead moving forward with lower tax rates for middle-income households and with lower regulation for businesses.

New York City’s high paying jobs generate the tax receipts needed to meet spending needs in the rest of the state. But the surplus from City tax revenues can also be seen as the enabler of bad policy and as the reason why the state has not implemented the fiscal policies needed Upstate. The City is a huge asset for the state but it may be holding back the measures needed to reignite a demographic and economic revival in all of New York.

This at least could be the conclusion drawn when we look back from the future at our present predicament. But so far, the Governor has shown no inclination of changing course, stating after the charges surfaced:

I am more committed to western New York’s revitalization than ever before… We are not going to miss a beat.

Note: The dependency ratio in the tables is calculated as the sum of people aged less than eighteen and more than 65, divided by the number of people aged 18-65.

This piece first appeared at Populyst.net.

Sami Karam is the founder and editor of populyst.net and the creator of the populyst index™. populyst is about innovation, demography and society. Before populyst, he was the founder and manager of the Seven Global funds and a fund manager at leading asset managers in Boston and New York. In addition to a finance MBA from the Wharton School, he holds a Master's in Civil Engineering from Cornell and a Bachelor of Architecture from UT Austin.

Urbanism, Texas-Style

Sun, 09/25/2016 - 22:38

Cities, noted René Descartes, should provide “an inventory of the possible,” a transformative experience—and a better life—for those who migrate to them. This was certainly true of seventeenth-century Amsterdam, about which the French philosopher was speaking. And it’s increasingly true of Texas’s fast-growing metropolises—Houston, Dallas–Fort Worth, Austin, and San Antonio. In the last decade, these booming cities have created jobs and attracted new residents—especially young families and immigrants—at rates unmatched by coastal metropolitan areas. Approximately 80 percent of all population growth in the Lone Star State has been in the four large metropolitan areas since 2000. Texas now boasts two of the nation’s five largest metros, the first time any state has enjoyed that distinction. At its current rate of growth, Houston could replace Chicago as the nation’s third-largest city by 2030, and the Dallas–Fort Worth region could surpass Chicagoland as the nation’s third-largest metropolitan area by the 2040s.

Historically, those who think and write about urban living have regarded Texas cities with disdain. The midcentury journalist John Gunther dismissed Houston, now the state’s largest city, as a place “where few people think about anything but money.” Gunther predicted that the area’s population would eventually grow to a measly 1 million people. He was off by a bit: close to 7 million people now call the Houston metropolitan area home. Houston and the other flourishing Texas metros are neither downtown-focused like New York nor highly regulated and densely packed like Los Angeles. They aren’t disproportionately brain-intensive or tech-oriented; and they aren’t dominated by green politics and, generally speaking, strict planning. Though booming, they have kept living costs down. In all this, they differ from San Francisco, Seattle, Portland, Los Angeles, and Boston—places that may continue to thrive in the future but that show little interest in creating the economic opportunity and affordability that attracts aspirational middle- and working-class families. In short, Texas’s cities are reshaping urbanism in America, albeit in ways few scholars or planners seem to appreciate.

Though some east/west coastal cities—notably, San Francisco—have enjoyed vigorous growth of late, none has been nearly as proficient in creating jobs in the new millennium as Texas’s four leading metros. Overall, Dallas–Fort Worth and Houston have emerged as the nation’s fastest-expanding big-city economies. Between 2000 and 2015, Dallas–Fort Worth boosted its net job numbers by 22.7 percent, and Houston expanded them by an even better 31.2 percent. Smaller Austin (38.2 percent job-base increase) and once-sleepy San Antonio (31.4 percent) have done just as well. New York, by way of comparison, increased its number of jobs in those years by just 10 percent, Los Angeles by 6.5 percent, and San Francisco by 5.2 percent, while Chicago actually lost net employment. And the Texas jobs are not just low-wage employment. Middle-class positions—those paying between 80 percent and 200 percent of the national median wage—have expanded 39 percent in Austin, 26 percent in Houston, and 21 percent in Dallas since 2001. These percentages far outpace the rate of middle-class job creation in San Francisco (6 percent), New York and Los Angeles (little progress), and Chicago (down 3 percent) over the same period.

The energy industry can take some credit for Texas’s impressive numbers, but only some. In fact, despite assertions that dense coastal cities are the natural incubators of innovative tech firms, an analysis of the last decade and a half shows that Texas’s sprawling metropoles are growing Science, Technology, Engineering, and Math (STEM) jobs more rapidly than the Bay Area—and far faster than New York, Los Angeles, and Chicago. Since 2001, STEM employment in Austin is up 35 percent, while Houston has increased these desirable positions by 22 percent and Dallas by 17 percent. STEM jobs have increased 6 percent in San Jose and 2 percent in New York over this same period. L.A. has seen no STEM growth; Chicago has lost 3 percent of such positions.

Recent Pew Research Center data give further evidence of the Texas urban boom. Among 52 American metropolitan areas with more than 1 million residents, San Antonio had the largest gain in its share of middle- and upper-income households—that is, the percentage of households in the lower-income category in the city actually dropped—from 2000 to 2014. Houston ranked sixth, Austin 13th, and Dallas–Fort Worth 25th in the Pew survey. The performance is even more impressive, given Texas’s absorption of 1.6 million foreign-born residents since 2000, a 60 percent larger intake than California’s, proportionate to the two states’ populations.

All this dynamism reflects Texas urbanism’s remarkable culture of opportunity. These are business-friendly cities. According to Site Selection magazine, executives consistently rank Texas as the best or second-best locale to do business in the United States. Taxes are among the lowest in the country. (New York has the heaviest tax burden; California isn’t far behind and seems determined to catch up.) Regulations are light. Coastal urban areas often impose draconian climate-change rules or favor high density, thus discouraging industries like manufacturing, logistics, and home construction—all thriving under Texas urbanism’s market-friendly reign.

“The consensus in San Antonio,” observes former mayor and longtime Democrat Henry Cisneros, “is all about jobs. Everything is driven by that.” One can say the same about the other big Texas metros. The jobs focus can be seen in the many corporate relocations and expansions in Texas, which are often large-scale, employing many middle managers—unlike highly publicized relocations of “executive headquarters” in cities such as Chicago, which frequently employ, at most, several hundred people. The recent movement of Occidental Petroleum from Los Angeles to Houston as well as transfers of jobs from Chevron—still headquartered in the San Francisco Bay Area, at least for now—alone represented some 2,000 jobs.

A key part of this opportunity culture rests on housing affordability. Property inflation plagues east/west coastal cities, largely because of restrictive planning policies that slow development, making the cost of living exorbitant. Texas cities are instead pro-development—“self-organizing,” in the words of Rice University’s Lars Lerup—and, as they happily expand their peripheries, they encourage a healthy supply of housing at all income levels. The inexpensive housing, a major draw for those relocating firms, has helped shift a long-standing migration pattern of jobs and people. In the last tech boom, more people moved from Texas to the Bay Area; in this one, it’s the other way around. Last year, at least three dozen companies either expanded away from or moved out of Santa Clara, San Francisco, and San Mateo Counties—ten of them to Texas, according to a recent report by Spectrum Location Solutions, an Irvine business-consulting firm that tracks corporate “divestment” from California. When Toyota recently moved its headquarters from Los Angeles County to the Dallas area, for example, executives said that the L.A. area’s rising housing prices—roughly three times what they are in Dallas–Fort Worth, adjusted for income—had much to do with it.

Dallas–Fort Worth might be the big metro that benefits most from this movement. The typical corporate expansions in the Dallas area—not just Toyota but also State Farm, Liberty Mutual, and Amazon—have included headquarters and back-office centers in the area’s northern suburbs, creating thousands of jobs. As Southern Methodist University scholars Klaus Desmet and Cullum Clark found in a soon-to-be-published study, jobs are shifting from Chicago and surrounding areas to Dallas–Fort Worth in such numbers that the Texas city is increasingly poised to replace the Windy City as the business center of the mid-U.S.

People are coming in droves. “Gone to Texas” or “GTT”: the phrase became famous during the nineteenth century as Americans fleeing debts (especially after the Panic of 1837) headed to the Lone Star State to escape impoverishment or even prison. Texas also attracted the ambitious, the desperate, and, in some cases, the downright dishonest. The phrase may become popular again. Over the last decade and a half, Texas’s four major cities ranked among the nation’s ten fastest-growing large metropolitan areas. Since 2000, Dallas–Fort Worth has boosted its population by 33.6 percent; Houston did even better, expanding 38 percent. Boston, Chicago, Los Angeles, and New York, by comparison, grew less than 10 percent over that period. Last year, Houston and Dallas–Fort Worth each gained more people than New York or L.A.

The domestic migration numbers are truly striking. Over the past 15 years, Houston and Dallas–Fort Worth have gained an estimated 1 million domestic migrants, even as New York lost more than 2.4 million net migrants, L.A. bled 1.5 million, and Chicago 800,000. As a percentage of the population, the Texas cities averaged a 1 percent net migration gain annually; Chicago, L.A., New York, and San Francisco have seen strong net losses annually. San Antonio and Austin have also been gaining migrants at a rapid rate. In fact, Austin has attracted more newcomers as a percentage of its population than any major metropolitan area in the country since 2000. Texas Monthly calls it “the city of the eternal boom.”

Many of the new Texas urbanites are arriving from places—above all, California—to which Texans had once migrated. Between 2001 and 2013, more than 145,000 people, net, have moved from the greater Los Angeles area to Texas cities, while more than 90,000 have come from New York and nearly 80,000 from Chicago. The newcomers are better educated than the average Texan, and they elevate the quality of the workforce, observes Dallas Morning News columnist Mitchell Schnurman. “If oil prices don’t go up, Texas can always count on California—and New York, Florida, Illinois, and New Jersey.”

The domestic migrants’ numbers include many blue-collar workers seeking a better future, so the migrants’ average education level falls slightly below that of people moving, say, to Boston or San Francisco. But the Texas metropoles are increasingly attractive to the young, educated workers who often flock to those coastal cities. According to a recent Cleveland Foundation study, three of the four major Texas cities ranked among the top-ten regions nationally in the growth in educated residents aged 25 to 34. The migrants’ imprint is evident in the expanding urban amenities of Texas cities, including a vibrant restaurant scene and innovation in the arts.

Affordability is a major draw for these younger newcomers. The ten regions losing the most millennials last year, according to Trulia, include Chicago, New York, Washington, and the area along California’s coast—all much pricier than the Lone Star State. More than 30 percent of millennials still live at home in Los Angeles and New York City, according to Zillow data, more than one-third higher than the rate in Dallas and Houston.

Texas is also drawing massive migration from overseas. Like the young migrants crowding the clubs and hip eateries of the Texas boomtowns, the foreign-born are, in their own ways, transforming the economy and culture of the state. Asian immigrants, barely present before 2000, have been the fastest-growing group. Over the last decade, Houston and Dallas–Fort Worth had a larger increase in their Asian populations (including Chinese, Indians, Vietnamese, and Koreans) than all but three American cities—New York, Los Angeles, and San Francisco. Houston now has the fifth-largest Asian population among the nation’s major metropolitan areas.

Much of this growth isn’t taking place in traditional “Chinatowns” or even in core cities but instead in the less expensive suburban and even exurban areas. More than 95 percent of the expansion of Dallas–Fort Worth’s Asian population and 85 percent of Houston’s, for instance, has occurred in the suburbs. A Rice University study found Fort Bend County, southwest of Houston, the most ethnically diverse county in the nation: 36 percent white, 24 percent Latino, and more than one-fifth black, Asian, or other ethnicity. The county is home to one of the largest Hindu temples in America.

In fast-growing Cinco Ranch, a suburb built on an expanse of Texas prairie 31 miles west of Houston, one in five residents is foreign-born, well above the Texas average. “We have lived in other places since we came to America ten years ago,” says Indian immigrant Pria Kothari, who moved to Cinco with her husband and two children in 2013. “We lived in apartments elsewhere in big cities, but here we found a place where we could put our roots down. It has a community feel. You walk around and see all the families. There’s room for bikes—that’s great for the kids.”

Over the last two decades, Texas’s big cities have also received a huge infusion of immigrants from Latin America. Between 2000 and 2014, the Latino population of Dallas–Fort Worth grew 39 percent, while Houston’s expanded 42 percent, Austin’s 60 percent, and San Antonio’s 39 percent. Texas’s population is already nearly 40 percent Latino, a percentage likely to increase in the years ahead.

Much of this rapid demographic shift stems from, again, Texas’s opportunity urbanism. Though many of the newcomers—along with “Tejanos,” native Texas Latinos—are poor and often not well educated, they’re much better off economically than their counterparts in New York, Los Angeles, or Miami. Texas’s vibrant industrial and construction sectors, in particular, have provided abundant jobs for Latinos. In 2015, unemployment among Texas’s Hispanic population reached just 4.9 percent, the lowest for Latinos in the country—California’s rate tops 7 percent—and below the national average of 5.3 percent.

Texas Latinos show an entrepreneurial streak. In a recent survey of the 150 best cities for Latino business owners, Texas accounted for 17 of the top 50 locations; Boston, New York, L.A., and San Francisco were all in the bottom third of the ranking. In a census measurement, San Antonio and Houston boasted far larger shares of Latino-owned firms than did heavily Hispanic L.A.

In Texas, Hispanics are becoming homeowners, a traditional means of entering the middle class. In New York, barely a quarter of Latino households own their own homes, while in Los Angeles, 38 percent do. In Houston, by contrast, 52 percent of Hispanic households own homes, and in San Antonio, it’s 57 percent—matching the Latino homeownership rate for Texas as a whole. That’s well above the 46 percent national rate for Hispanics—and above the rate for allCalifornia households. (The same encouraging pattern exists for Texas’s African-Americans.)

California and Texas, the nation’s most populous states, are often compared. Both have large Latino populations, for instance, but make no mistake: Texas’s, especially in large urban areas, is doing much better, and not just economically. Texas public schools could certainly be improved, but according to the 2015 National Assessment of Educational Progress—a high-quality assessment—Texas fourth- and eighth-graders scored equal to or better than California kids, including Hispanics, in math and reading. In Texas, the educational gap between Hispanics and white non-Hispanics was equal to or lower than it was in California in all cases.

Though California, with 12 percent of the American population, has more than 35 percent of the nation’s Temporary Assistance for Needy Families welfare caseload—with Latinos constituting nearly half the adult rolls in the state—Texas, with under 9 percent of the country’s population, has less than 1 percent of the national welfare caseload. Further, according to the 2014 American Community Survey, Texas Hispanics had a significantly lower rate of out-of-wedlock births and a higher marriage rate than California Hispanics.

In California, Latino politics increasingly revolves around ethnic identity and lobbying for government subsidies and benefits. In Texas, the goal is upward mobility through work. “There is more of an accommodationist spirit here,” says Rodrigo Saenz, an expert on Latino demographics and politics at the University of Texas at San Antonio, where the student body is 50 percent Hispanic. It’s obvious which model best encourages economic opportunity.

Texas urbanism is also producing the next generation of urbanites. Increasingly, the dense urban cores of America’s favored cities—New York, San Francisco, Seattle, Los Angeles, and so on—are becoming child-free, or child-scarce, zones. (See “The Childless City,” Summer 2013.) The trend is powerfully visible in San Francisco, a city with reportedly 80,000 more dogs than kids.

In Texas cities, the situation is strikingly different. According to American Community Survey data, the four big Texas cities all rank above the national average and in the top 15 of the 50 major American metropolitan areas in children per household. Houston ranks third, Dallas–Fort Worth fourth, San Antonio fifth, and Austin sixth. New York is 31st and San Francisco 45th. Like cities throughout history—think of the Chicago described in Saul Bellow’sAdventures of Augie March—Texas cities appeal to people at every stage of their lives, not just when they’re young and unencumbered.

By allowing the market to work, these expanding urban areas offer vibrant inner cities, where young singles and couples can congregate, as well as affordable nearby neighborhoods for families and the middle-aged and elderly. A Texas urbanite doesn’t have to contemplate the choice of staying in the city that he or she loves or having a family. How many San Franciscans or New Yorkers can say the same?

In part because of their rapid growth, Texas’s cities face numerous challenges. One is worn-out infrastructure, as seen in recent Houston flooding. Poverty levels for Hispanics and blacks are still high in the Texas boomtowns. Urban schools in Texas require major redress. Municipal debt, particularly in the core cities, is mounting.

The biggest threat, however, is that Texans will decide—particularly as more residents arrive from the liberal coastal cities—to abandon the culture of opportunity behind their cities’ remarkable success. Market-oriented zoning policies and pro-business regulatory and tax environments are part of what has made Texas’s urban areas private-sector dynamos and magnets for the aspirational. If Texas stays true to what has made it great, Lone Star cities will continue to shine as the new exemplars of American urbanism.

This piece is part of The City Journal's special Texas issue. Check it out here.

Joel Kotkin is executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The Human City: Urbanism for the rest of us, will be published in April by Agate. He is also author of The New Class ConflictThe City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Wendell Cox is principal of Demographia, an international pubilc policy and demographics firm. He is a Senior Fellow of the Center for Opportunity Urbanism (US), Senior Fellow for Housing Affordability and Municipal Policy for the Frontier Centre for Public Policy (Canada), and a member of the Board of Advisors of the Center for Demographics and Policy at Chapman University (California). He is co-author of the "Demographia International Housing Affordability Survey" and author of "Demographia World Urban Areas" and "War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life." He was appointed to three terms on the Los Angeles County Transportation Commission, where he served with the leading city and county leadership as the only non-elected member. He served as a visiting professor at the Conservatoire National des Arts et Metiers, a national university in Paris.

Dallas photo by Bigstock.

How to Reform the California Legislature and Restore Power to the People

Fri, 09/23/2016 - 22:38

The Western states, and California in particular, have had a long history of spearheading progressive reforms, especially in their electoral and governmental systems. A former Governor of California, Hiram Johnson, actually ran with Theodore Roosevelt on the Progressive Party presidential ticket of 1912. If you are looking for reform ideas, look no further than the Golden State.

California, with its immense size and natural resource wealth, has always been a corruption-promising realm for unscrupulous politicians and those who buy them. From the early land barons to the Southern Pacific Railroad to mid-century housing developers to the currently ascendant tech oligarchs of Silicon Valley, the self-made rich have always exerted undue influence over the state’s political development. This has prompted resentment and reformist sentiment among the public-spirited of California. These reforms have not always been the wisest or most sustainable. Plenty of criticism has been leveled at the initiative system in particular, but it still indicates a willingness to experiment with ways to combat oligarchic interests.

As was the case in the days of Southern Pacific’s dominance, California is once again falling prey to the over-centralization of policy-making power in Sacramento, where the wealthiest and most connected interests hold sway. This unholy alliance of big government, big business, and big labor stagnates the functionally one-party political system and precludes important reforms on major issues as diverse as budgeting, education, pensions, infrastructure, energy, and more.

As a result, the special interests with the most money - namely, the green-and-blue liberal coastal elites, especially in Hollywood and Silicon Valley - are more or less able to ram through the politically-correct climate and labor and social legislation they like, oftentimes at the expense of working-class and middle-class Californians who sometimes are forced to flee the state to escape the green aristocracy. Unlike Washington, California’s problem lies not in hyper-partisan gridlock, but one-party dominance beholden to the special interests that control the state legislature.

Localism as a Solution

The most cogent solution to this is a return to localism. In California, this means taking power away from the bureaucrats, career politicians, and their funders in Sacramento. This would return a higher measure of control to California’s diverse counties and cities over their own destinies. On issues as diverse as zoning, housing, energy, and labor, rolling back the regulatory power of the central state would be a massive break from current policy trends, reanimating the diverse lower-level political units that have always contributed to California’s --- and the country’s --- political and social dynamism.

The entrenched interests must be defeated, and the system they have constructed must be overturned. Fortunately, there is a reformist political entrepreneur in California working on a 2018 ballot initiative that could do exactly that.

The Neighborhood Legislature

John Cox’s Neighborhood Legislature initiative is a far-reaching reform that increases the number of California state legislators from 120 to 12,000 - yes, that is three zeroes. The gist of the proposal: every State Assembly and State Senate district would be subdivided into 100 “Neighborhood Legislature” districts, each roughly the size of a neighborhood. Therefore, the Assembly members and Senators would each represent 5,000-9,000 people rather than 500,000+ constituents, and as such, it would be far easier for constituents to communicate with their representatives.

But all 12,000 would not convene in Sacramento’s statehouse. Each district of 100 neighborhood legislators would appoint a single representative to go to the statehouse to hammer out legislation, so the number of hands involved in crafting legislation would remain 120. The legislation would be voted upon, though, by all 12,000 legislators.

This is not “indirect democracy,” like the pre-17th Amendment system of State Legislators electing U.S. Senators, because ultimately the directly-elected neighborhood legislators are still the ones casting votes. 120 legislators would serve as members of a “Working Committee” of lawmakers, similar to any other committee that drafts legislation in the statehouse and presents it to the rest of the chamber for approval or disapproval.

One of the perks of this plan would be reduced costs. Cox’s proposal calls for the replacement of legislator salaries with mere $1,000 yearly stipends. The citizen-legislators would work out of their homes rather than being given offices in Sacramento. The combination of decreased salaries and facilities expenses results in $100 million savings per year, as the Neighborhood Legislature website notes. This is before factoring in the near-complete erasure of campaign financing expenses.

Perhaps the strongest benefit of the Neighborhood Legislature is its undermining of the current centralized system, which is hopelessly corrupt and dominated by oligarchic and special interests. Rather than having to raise hundreds of thousands of dollars for ad buys and voter data to reach hundreds of thousands of constituents, candidates would now be able to merely tap into local community groups and knock on doors to reach the couple thousand constituents they would be representing. A citizen would not need the financial backing of special interests to win an election.

Additionally, the subdivision of each seat into 100 seats would increase the number of moving parts special interests would need to target in order to influence votes. Sure, they would probably target Working Committee members in order to influence the content of bills; but it would be much harder for businesses, unions or other lobbies to threaten 99 more voting representatives who do not need their money to get elected.

Most importantly, the Neighborhood Legislature system would foster the development of political participation at the local level and directly connect citizens to their state government. As people tend to like keeping their fates in their own hands, it can be well-assumed that the rising influence of local political communities would result in bills and new laws reversing decades of centralization of political power, and returning regulatory, zoning, pricing, and other functions back to cities, counties, and other entities. The very notion of a citizen being able to meet directly with their representative on a regular basis would fulfill the Jeffersonian dream of local democracy in a free republic.

Moving Forward

Of course, these benefits would not be immediately clear to most people, simply because the content of the proposal is so complex. In the run up to the 2018 elections, Cox will be traveling around the state explaining the initiative to community groups of all stripes and temperaments, with the intent of fostering public consciousness about the initiative. Expect him to stop by a community near you.

The State of California and the United States as a whole could use a good dose of political reformism, and this revolutionary reform is well inside the West’s tradition of political experimentation. Who knows, if by some stroke of luck the Neighborhood Legislature passes in California and proves effective at breaking the power of special interests and returning it to the localities, perhaps other states and even Congress will be persuaded. It has been said that California guides America in more ways than one, maybe this time in a good way.

Luke Phillips is a political activist and writer in California state politics. His work has been published in a variety of publications, including Fox&Hounds, NewGeography, and The American Interest. He is a Research Assistant to Joel Kotkin at the Center for Opportunity Urbanism.

Palo Alto and the Tech Shop of Horrors

Thu, 09/22/2016 - 22:38

This piece by Zelda Bronstein (original to 48hills.org) goes behind the story of the Peninsula planning commissioner who made national news by saying she had to leave town to buy a house for her family.

On August 10, Kate Vershov Downing, a 31-year-old intellectual-property lawyer, set the media aflutter when she posted on Medium a letter to the Palo Alto City Council stating that she was resigning from the city’s Planning Commission because she was moving to Santa Cruz. The reason for her move: She and her 33-year-old husband Steven, a software engineer, couldn’t find a house they could afford to buy in Palo Alto. Downing said that they currently rented a place with another couple for $6,200 a month, and that if they “wanted to buy the same house and share it with children and not roommates, it would cost $2M.”

She reasoned that “if professionals like me cannot raise a family here, then all of our teachers, first responders, and service workers are in dire straits.” The fault, Downing wrote, lies with the Palo Alto council, which “ignores the majority of residents,” who have asked that housing be the city’s “top priority.” Instead, the council approves “more offices” and “a nominal amount of housing,” while paying “lip service to preserving retail that simply has no reason to keep serving the average Joe when the city is affordable only to Joe Millionaires.”

The upshot is a place “where young families have no hope of ever putting down roots” and civic culture is on the decline, thanks to the onslaught of “middle-aged jet-setting executives and investors who are hardly the sort to be personally volunteering for neighborhood block parties, earthquake preparedness responsibilities, and neighborhood watch.”

Downing’s post went viral. Within a week, her story had been picked up by media ranging from the San Francisco Business Times, the Huffington Post, and Curbed to the Washington Post, the L.A. Times, and the Guardian (UK). Thomas Fuller, the San Francisco bureau chief of the New York Times, did an extensive video interview of the Downings in front of their about-to-be-former Palo Alto residence followed by a driving tour of the town. Last week she appeared live on Bloomberg News.

I’d hoped to talk to Kate Downing myself. We’d exchanged emails in February 2015, when I was working on a story about the inaugural forum of SFBARF (San Francisco Bay Area Renters Federation), in which she’d participated as a panelist representing Palo Alto Forward, the pro-development, smart-growth group she co-founded in August 2014.

This time Downing she failed to respond to my repeated requests for an interview. I wonder if her reticence indicated an expectation that I would ask some hard questions.

If so, she was right. Her statements to a generally credulous press and her posts on Medium contain a few good points buried in a jumble of obfuscation, neoliberal dogma, and startling ignorance.

Far more troubling is the generally credulous reception she’s gotten from the media. Only Curbed, the Stanford Political Journal, and the New York Times bothered to interview a member of the Palo Alto council, Mayor Pat Burt. With the Times’ Fuller, Burt rated only a two-sentence quote (no driving tour). Bloomberg News displayed a quotation from Burt stating that the city was “looking to increase the rate of housing growth but decrease the rate of job growth” and then asked Downing if that was “reasonable.” None of her interviewers contacted members of the community who hold opposing views, in particular representatives of the slow-growth group Palo Altans for Sensible Zoning.

Given that Downing appears to have become a prominent spokesperson for millenial market fundamentalism, her ideas and her actions deserve scrutiny. Here’s a start.

Are four bedrooms and two-plus baths necessary to raise a family?

Citing the price of housing, Downing asserted that “professionals like me cannot raise a family” in Palo Alto.

Curbed reporter Adam Brinklow asked: “Why not buy a cheaper place? There are some cheaper places.”

Downing dodged the question. “Sure,” she said, “we could move half an hour away. But if I can afford to move half an hour away to San Mateo, what happens to the people who have to move out of San Mateo?”

Brinklow tried again: “I don’t mean half an hour away, I mean right in Palo Alto. There are cheaper homes. Not very cheap, but not $2.7 million either?

Another dodge: “Well, that comment about the price of the house was really just an anchor for reference. But even if I found a cheaper home, even $2 million is more than I have to spend, and anything less is usually a project. Remember, you can’t take out a loan for construction.”

Okay, but there are non-fixer-uppers with two bedrooms in Palo Alto, presumably large enough for a budding family, that the Downings could afford—which is to say, places selling for what they paid for their new home in Santa Cruz: $1,550,000. The difference is that those places are condos and townhouses.

What Downing didn’t tell Brinklow (and he didn’t ask) is that she and her husband wanted the same kind of house that they were renting in Palo Alto: a 4-bedroom, 3-bath detached house measuring 2,338 square feet.

That’s what she got in Santa Cruz: a 2,751-square-foot, detached, single-family home with four bedrooms, two-and-a-half baths, and a two-car garage. In Palo Alto, that kind of house is indeed selling for over $2 million dollars. (Zillow suggests that it’s selling for the same price in Santa Cruz: the listing for the Downings’ new place said it was “$700-845k below active comparables.” Apparently they got a deal.)

The irony is that Downing disparages Palo Altans who, she says, want to maintain the city’s suburban character, while she’s chosen to move to a suburb and to a house whose Walkscore is a “car-dependent” 39 out of 100.

When a commenter on the Palo Alto Forward blog questioned her purchase of the Santa Cruz house, Downing dodged his question, too: “I’m making choices and trade-offs for my family, that I’m very privileged to be able to make,” she bristled. “The fact that we can afford to buy anything at all and that we have jobs that allow us flexibility is a giant privilege most working class people don’t have.”

Nobody is questioning Downing’s privilege. It’s the discrepancy between her stated and evident motives for leaving Palo Alto that rankles.

“Abusive” cities

Downing’s disconnect aside, housing prices in Palo Alto really are insane. In July theaverage rent for a two-bedroom apartment was $3,806. The median home value is $2.486 million.

Downing blames the eye-popping prices on the city’s gross jobs-housing imbalance, which she in turn attributes to the council’s having approved tons of office development but not the housing for all the people who would be working in those offices. As of 2014, Palo Alto had almost three times as many jobs (95,460) as employed residents (31,165).

The upshot, she writes, is “the bizarre reverse commute in the Bay Area where more people live in San Francisco but work in Palo Alto or Mountain View.” In her view, the fault isn’t the companies that came to Silicon Valley.

[T]hey were invited with open arms. Part of the reason it happened that way is that in the 70s [sic] San Francisco created a stringent cap on office expansion, and it’s one of the reasons why it’s the Peninsula that became Silicon Valley and not the city of San Francisco until maybe the last 7 years or so. Companies went to where they were wanted. It’s the cities which are abusive because they take all that tax revenue from those companies but then don’t shoulder any of the burden of housing the people that work there—claiming…that other cities should bear that burden instead.

A good point (local jobs-housing imbalances stink)…

Yes, Silicon Valley cities have been encouraging massive development without permitting housing commensurate with the number of new workers.

The latest poster child for this sort of reckless behavior is not Palo Alto but rather the city of Santa Clara, which on June 29 approved Related Companies’ $6.5 billion, 9.7 million square-feet CityPlace project. To be built just north of Levi’s Stadium on 240 acres of city-owned land (a former landfill), CityPlace will include up to 5.7 million square feet of offices, 1.1 million square feet of retail, 700 hotel rooms, a 35-acre park, and up to a paltry 1,360 apartment units. It will create 25,000 new jobs.

As reported in the Silicon Valley Business Journal by Nathan Donato-Weinstein:

“This project, looking at the real estate side of it, and the fact that we own it, it’s whipped cream with a cherry on top,” said Mayor Lisa Gillmor prior to the vote. “Not only will we get the development that services our community, but also we’ll reap the financial benefits of having a cash flow into our general fund for generations to come.”

On July 29 San Jose, where housing far outnumbers jobs, sued Santa Clara over the project, alleging that the huge gap between the number of new jobs City would generate and the housing it would provide contradicted Santa Clara’s General Plan and would have profound and unnecessary environmental impacts in the region. Land use anarchy, anyone?

…and bad history (letting Stanford off the hook)

San Francisco voters passed the city’s office cap in the mid-80s, not the 70s, a good two decades after the Peninsula became Silicon Valley. And the impetus for the Peninsula’s transformation did not come just from local governments but from the ambitions of a giant private landowner and developer: Stanford University.

“Palo Alto city government,” Downing avers,

openly and decisively created and embraced the Stanford Research Park which now houses many of the biggest technology companies in the world (VMware, Tesla, SAP, HP, etc.) and more than 100,000 workers. Stanford Research Park LONG predates the likes of Google and Facebook and Page and Zuckerberg — it was created in 1951.The city had to re-zone that space and specifically entice tech companies to come there.

Palo Alto did not create the Stanford Research Park; Stanford did.

University of Washington history professor Margaret O’Mara tells the story in her fascinating 2005 book Cities of Knowledge: Cold War Science and the Search for the Next Silicon Valley. Originally called Stanford Industrial Park, the project was the postwar brainchild of Stanford administrators, notably Provost Frederick Terman and President Wallace Sterling. They remade their rich but undistinguished school into a scientific research powerhouse and a vehicle of regional economic development by leveraging federal R&D monies, shrewdly exploiting Stanford’s extraordinary land holdings, and capitalizing on the area’s beauty and fine climate and California’s booming militarized economy. It was Stanford that enticed high-tech companies to come to the park, and the park’s 1960 expansion “grew out of the demands of its tenants for more space.”

Nor, as Downing indicates, did the city of Palo Alto and its residents view Stanford’s development of its land with unconditional enthusiasm. Though encouraging high-tech industrial production was the major thrust of the university’s economic agenda, its to-do list also included building a mall, the Stanford Shopping Center. Palo Alto elected officials initially opposed the mall, fearing that it would drain revenue from the city’s downtown retail, and threatened “not to provide sewer service to the site.”

They soon dropped their opposition. “Palo Alto readily agreed to incoporate the land developments into the city, thereby providing Stanford with public utilities and road upkeep (and providing the city with tax revenues.” Stanford doesn’t pay taxes, but the companies at Stanford Research Park and the Stanford Shopping Center do. The city “made no further efforts to control the path of development.”

The city’s residents were not so easily pacified. When Stanford announced in 1960 that the Industrial Park would be expanded into the foothills, “neighborhood opposition…led to a fiercely fought ballot referendum campaign that President Sterling called ‘the Battle of the Hills.’” The university won that battle and proceeded with the expansion. In a public relations gesture, it replaced “Industrial” in the park’s name with “Research.”

What Stanford did not do is change its suburban model of land use.

A 1962 survey showed that the majority of the Park’s 10,500 employees did not live in the immediate area but commuted from communities south of Palo Alto (56 percent). Seven percent lived outside the ‘regional area’ of the Peninsula altogether. Palo Alto residents made up 21 percent of the workforce. Employees overwhelmingly depended on cars to get to work.

And, O’Mara writes, Stanford came to be regarded as a “model city,” a prototype for regional economic development around the world—and on the Peninsula.

[B]ecause of developments like the Industrial Park, the Peninsula was on the leading edge of the trend toward living in one suburb and working in another. The residential and commuting patterns seen in the Park in 1962 also presaged the later housing shortages that would face the Bay Area, particularly Palo Alto, where by the end of the twentieth century few professionals could find available and affordable places to live.

In a post-resignation-announcement interview, Stanford Political Journal reporter Andrew Granato asked Downing, “What do you see as Stanford’s role in housing politics, and do you think it can or should do anything?”

Downing equivocated, praising the university for “trying to add a certain amount of housing for its employees or students or faculty,” but subtly criticizing the school for not doing more:

I think that Stanford has always tried very hard to be a good neighbor to Palo Alto. They’ve tried to be very friendly and supportive….[A]t the same time, Stanford has been relatively quiet about what’s going on in Palo Alto and the Bay Area in general with respect to housing.

Far from being a good neighbor, Stanford has long been a major source of the jobs-housing imbalance that Downing deplores. Now, in its largest-ever off-campus expansion, the university is planning to build a $568 million office park that will accommodate 2,400 university employees on a 35-acre site in Redwood City. Stanford considered putting the project in Palo Alto but couldn’t find enough space.

To be sure, as per Downing’s argument, like Palo Alto, Redwood City has given Stanford a go-ahead. The university got it in 2013, when Redwood City approved Stanford’s plan for the property in return for more than $15 million in public benefits, including bike lanes, a business boot camp for Redwood City residents, a free speakers series from the Graduate School of Business, and a free shuttle for its employees and members of the public from the Redwood City Caltrain station to the offices. In keeping with Stanford’s suburban commuter model, the complex will include a gym with a pool, cafes and a small park—but no new housing.

“After the construction is completed,” wrote Chronicle reporter Wendy Lee, “Stanford is expected to become one of Redwood City’s largest employers.” Redwood City Economic Development Manager Catherine Ralston enthused: “ ‘It’s a really great opportunity for Redwood City. It’s going to bring a lots of jobs to the area.’”

Redwood City Councilmember Jeff Gee told Chronicle reporter Wendy Lee that a Stanford survey found only 8 percent of its employees living in or near Redwood City. “The Redwood City council considered and rejected allowing housing on the site,” wrote Lee, stoking some residents’ fears that an influx of Stanford employees would further inflate already high rents.

The Prop. 13 factor

Why do cities pursue jobs and not housing? One reason is that new housing, especially housing for families with school-age children, requires many more municipal services than commercial development.

Another is that Prop. 13 severely constrains property taxes by limiting annual increases to 2%; only when a parcel is sold or new construction occurs can a property’s value be re-assessed. The law favors parties that hold on to their property for a long time, above all big corporate landholders. It disproportionately burdens most homeowners, especially new ones, and new businesses. One study found that enacting a split-roll initiative that taxed corporations on the market value of their property would generate $8.2 to $10.2 billion in annual revenues for California.

Downing’s position is confusing. She stands with the Evolve campaign to maintain current Prop. 13 protections for all residential property, provide an exemption for small businesses, and establish a regular, yearly reassessment of all non-residential property in California. “Corporations used to pay the bulk of property taxes, she writes, “but now 75% are paid by residential properties, and places like Disney literally pay as much in property taxes as a reasonably sized single-family home.”

But she also embraces the argument that eliminating Prop.13 and allowing all property to be assessed every year would discourage Nimbyism and encourage development. As one of her correspondents on Medium, Eric Kingsburgy, wrote:

NIMBYism is able to take hold in places like Palo Alto because [in a system where property taxes don’t change,] more development provides absolutely no benefit to incumbent property owners….More people only means more traffic, busier parks, and more crowded schools….

A California without Proposition 13 would still face hurdles to development, and the abuse of land use regulations—no one likes crowded parks or traffic—but to a much lesser extent….Residential that bought $100,000 homes in Palo alto in the 1980s would have seen their property taxes skyrocket along with their property values, leaving them with two options: move to a lower cost area or push for measures that would make their property less valuable.

Downing responds: “Agree with everything you’ve written!” And then she refers “folks who are interested in Prop. 13 reform” to the Evolve campaign. Go figure.

The numbers game: how much of Palo Alto is zoned for single-family homes?

By contrast, when it comes to property values, the housing crisis, and zoning, Downing is unequivocal: the way to lower housing prices is to loosen zoning laws that restrict development by imposing “an artificial constraint on supply.”

Her reiterated example is Palo Alto’s zoning. “Only something like three percent of the city,” she told Brinklow, “is zoned for any sort of multi-family use. For most places it’s illegal to build a duplex.”

Brinklow asked Mayor Burt: “Is it true that 97 percent of the city is zoned R-1?”

Burt: “That is a misrepresentation.”

Correct. According to the city’s Comprehensive Plan, 4% of Palo Alto’s 26 square miles is zoned for multiple-family dwellings, and 25% is zoned for single-family dwellings. (Forty percent of the city is zoned for parks and preserves, another fifteen percent is dedicated to agriculture and other open space.)

But zoning doesn’t tell the entire story. The Plan also says that 38% of the housing stock is multiple-family units, and 62% is single-family. So single-family predominates, but not to the extent that Downing has implied.

Downing supported Jerry Brown’s anti-democratic giveaway to the real estate industry

In an interview with Los Angeles Times reporter Michael Hiltzik, Downing praised Jerry Brown’s controversial by-right housing legislation, Trailer Bill 707, declaring that it “does everything that needs to happen.”

It’s a curious endorsement, because one thing Brown’s proposal doesn’t, or more precisely, didn’t—since it just died in the Legislature—do is the thing that, Downing thinks, needs to happen: relax residential zoning standards in Palo Alto or anywhere else in California.

Trailer Bill 707 specified that if a project conformed to local zoning and contained 5-20% affordable housing, it would be permitted by right, meaning without any environmental or other public review. A draconian giveaway to the real estate industry, the measure was defeated by a statewide coalition of affordable housing advocates, environmentalists, and labor organizations.

Given her concern about the lack of civic engagement in Palo Alto—in her words: “there’s maybe one thousand people who pay attention to city government….A minority of wealthy homeowners can create a network to get candidates elected very easily”—you might think Downing would have been put off by Trailer Bill 707’s hostility to local democracy.

Instead, Downing shares that hostility. She favors a strong, centralized state. “Countries like Germany and Japan,” she writes,

do not make planning decisions at the local level. They make them at the national level….They do what’s best for all the people, not just the people in one small city[,] and they do what’s best for the country’s economy as a whole…

In good neoliberal fashion, she thinks planning is all about economics, and that what’s best for the economy is a state that vigorously intervenes in behalf of market freedom. At her last Planning Commission meeting, on July 27, she voted against raising the affordable housing development impact fee from $20.37 per square foot to $60, stating that the “massive and aggressive” increase would discourage the construction of affordable housing.

I’m guessing, then, that Brown’s bill appealed to Downing because it drastically curtailed local say in development, to the fulsome benefit of property capital. “Capitalism and property ownership,” she writes,

are enshrined in literally hundreds of thousands of laws on [sic] this country, including our constitution. For so long as the U.S. constitution still stands, this is the only system that we have and understanding its rules remains a critical element of making policy for the future.

Perhaps Downing skipped constitutional law class; the U.S. constitution says nothing about capitalism.

Given Downing’s outrage at the “astronomical” cost of housing in Palo Alto’s and her professed solicitude for “the average Joe,” you might also think that she would have deplored a bill that greased the permit process for projects with as much as 95% market-rate housing.

Market-rate housing, however, is all that Downing wants to see built. Responding on Medium to a correspondent who doubted the superiority of “national zoning decision-making” and “centrally created affordable housing,” Downing wrote:

I’m only talking about lifting zoning restrictions so that more market-rate housing is legally allowed to be built in the city. So I’m most definitely not talking about “centrally created affordable housing.” My goal and belief is that housing growth (market-rate) must keep up with job growth.

She points to “places like Texas which have far fewer zoning restrictions (none at all in Houston).”

[E]ven though they’re experiencing an unprecedented population boom, their prices aren’t soaring like California’s. And it’s because they have something much closer to a free market where people can supply enough housing to actually meet demand.

Ahem. Prices in Texas, including Houston, have been soaring—not to the Bay Area’s catastrophic levels, but soaring (50% leap in 2010-15) nonetheless.

But let’s talk about California, and specifically our region. Here the textbook theory of supply-and-demand—prices fall as supply increases—doesn’t apply. As I wrote in 48 hills last December:

What’s making home prices soar in our region is the simultaneous incursion of hundreds of thousands of highly-paid tech workers and a flood of foreign investment. In June the Contra Costa Times reported that “[h]igh-tech employees make a yearly average of $124,000 in Santa Clara County, $107,000 in the San Francisco-San Mateo area, and $101,000 in the East Bay.” By contrast, wrote George Avalos, tech workers nationwide average about $84,000 a year. “This is a very, very hot area to live and work,” [demographer] Steve Levy told Avalos, “and the wage growth is pushing up housing prices.”

(Levy, by the way, sits on the board of Downing’s Palo Alto Forward.)

Downing presumably thinks that if enough market-rate housing were produced, housing prices would fall to affordable levels. I always like to ask someone who holds that view:  how much housing would it take? So far, the answer has been: I don’t really know. That’s what former Trulia Chief Economist Jed Kolko told me. Ditto for George Mason University Law Professor Ilya Somin, who wrote a Washington Post op-edpraising Downing’s attack on “restrictive land use regulations.” I bet Downing has no idea, either.

In her case, further questions seem to be in order: how much and what kind of new housing would it take to lower the price of four-bedroom, two-plus bath single-family homes in Palo Alto from $2.6 to $1.55 million dollars?

The Palantirization of downtown Palo Alto

In Palo Alto, the tech tsunami hasn’t just driven up housing prices; it’s also decimated the city’s retail sector, which has been colonized by tech offices. Things got so bad that in May 2015 the council passed a 45-day urgency interim ordinance that prohibited the conversion of existing ground-floor retail to offices. A month later it extended the ban to April 30, 2017.

As an employee of Peter Thiel’s Palantir Technologies who works in downtown Palo Alto, Downing’s husband Steven is implicated in the tech displacement of the city’s retail businesses.

Palantir, wrote San Jose Mercury reporter Marisa Kendall in April, is “taking over” downtown Palo Alto. The secretive company rents at least nineteen properties comprising 250,000 square feet, or about 12 percent of all downtown’s commercial space downtown. Office rents have climbed accordingly. Now tech start-ups are having a hard time finding space that they can afford.

Can a city have too many (tech) jobs?

To Downing, only a maniac would entertain this question. Responding on Medium to an unnamed correspondent who apparently asked whether Palo Alto would try to shed some tech businesses, Downing wrote:

I don’t think Palo Alto is going to choose to get rid of the companies. If they do, their tax base will shrivel and they’ll have a hard time paying city employees and paying off all the pensions they’re already obligated to fulfill…

And…what kind of insanity is it to be trying to kill high paying jobs and forcing companies out of town when the rest of America is bending over backwards trying to attract those companies?….Everyone else in the world is looking at Palo Alto and scratching their heads at the thought of a city that thinks its grand solution is to slaughter the golden goose.

Actually, the golden goose metaphor doesn’t work for the tech industry in the Bay Area today. As depicted by Aesop and other fabulists, that bird was killed by the greed of its owners, who forced it to lay more than its customary single egg a day.

A better analogy is Audrey II, the man-and-woman-eating plant in film The Little Shop of Horrors, whose exponential growth drew customers to the shop but whose insatiable appetite threatened to destroy everything around it. When its owner, the unprepossessing Seymour, realizes that it cannot be appeased or controlled—indeed, that it’s about to eat him—he kills it.

Like all metaphors, this one has its limitations. Unlike Audrey II (but like zoning), the tech industry is a human artifact and thus susceptible to human control. Accordingly, some Palo Altans are contemplating additional curbs on tech’s growth in their city—for example, Mayor Burt.

“Palo Alto’s greatest problem right now,” the mayor told Brinklow,

is the Bay Area’s massive job growth. Cities are still embracing huge commercial development with millions of square feet of office space they can’t support….[W]e have to do away with this notion that Silicon Valley must capture every job available to it….We’re looking to increase the rate of housing growth, but decrease the rate of job growth.

Brinklow was incredulous: “You want fewer jobs?” [italics in original]

Burt: “I know, it’s a strange idea to contend with. But this doesn’t mean we want no job growth….We want metered job growth and metered housing growth, in places where it will have the least impact on things like our transit infrastructure.”

For a city official to espouse less job growth in his town is beyond strange; it’s unheard-of. As a challenge to the prevailing growth ideology, it’s on par with 48 hills editor Tim Redmond’s recent piece welcoming the drop in San Francisco land values that, according to the city’s Controller, would result from requiring twenty percent of the units in new apartment buildings to be below-market-rate. But you expect such radical pronouncements from Redmond, not from a mayor, especially the mayor of a Silicon Valley city who’s a tech executive to boot.

Burt’s stated goal is to accommodate some growth and still maintain Palo Alto’s distinctive character. That means going slow, because, he contends, the rate of the region’s job growth

is just not sustainable, if we’re going to keep [Palo Alto] similar to what it’s been historically. Of course we know that the community is going to evolve. But we don’t want it to be a radical departure….[W]e balance things….[W]e’re looking at increasing our developer fees and investing more in affordable housing. We have 2,500 units of BMR [below-market-rate] housing over the last decades, and a lot of hard work went into that.

Improving transit, said Burt, is key: “The community would be more willing to embrace new development, even commercial development, if we could solve the transit problem….[J]ust in the last year, for the first time ever, I’ve become really confident that things will get better.”

Brinklow: “Why?”

Burt: “The single biggest thing is probably electrifying Caltrain.” He’s also encouraged by the extension of BART to San Jose, Palo Alto’s rideshare app, Scoop; the Palo Alto Transportation Management Association; and the advent of  “shared, autonomous vehicles powered by carbon-free electricity.”

The real culprit: baby boomers “aging in place”

To Downing, Burt epitomizes the chief culprit in the affordability crisis—not the “middle-aged, jet-setting executives and investors” named in her resignation letter but rather “older homeowners,” boomers who got into the housing market when the middle class could still buy a house in Palo Alto, and who are now, in her indelicate phrase, “aging in place.” She attributes their slow- or in her view, no-growth agenda—“they just plain don’t want to see more people in the city”—to two motives: maintaining or, better yet, increasing the values of their property; and preserving Palo Alto’s suburban character.

What’s worse, she says, they’re elitist hypocrites. When Brinklow noted that the slow-growthers argue that the city’s transit infrastructure and water use should be limiting factors in development, Downing interjected:

The exact same people who complain about infill housing will show up to complain when you want to expand transit….These people will say anything, but they don’t really care about congestion or water use. They care about keeping the town looking exactly the way it is….They think public transit is for the poor and apartments are for people on welfare.

Brinklow: “You allege that all of these policy objections are just a cover for a personal agenda?”

Downing: “Well, we know that.”

Slow growth vs. smart growth

I emailed Cheryl Lilienstein, the president of Palo Altans for Sensible Zoning, and another “older homeowner,” asking if her group opposed expanding transit in town. Lilienstein replied that it depended on the kind of transit.

“For years and years,” Lilienstein emailed, “we’ve been asking for cross-town shuttles to take us to schools, large job centers, hospitals, and community services nowhere near El Camino.”

Regarding high-density development around mass transit—for example, at the Caltrain stations, being pushed by Palo Alto Forward, the Santa Clara Valley Transportation Authority (VTA), the Silicon Valley Leadership Group, and ABAG—she wrote:

We oppose it. VERY few residents now living in high density housing near transit use it. They live there because they want to live in Palo Alto, and they still use cars to get where they need to go, so it’s unrealistic to assert new high density development will be car-free. It won’t.

By common consent, traffic congestion in Palo Alto is horrendous, due to the huge number of commuters driving into town. The question is, what to do about it? The issue is front and center in the current public process to update the Comprehensive Plan.

PASZ’s basic position, set forth in its comments on the Draft EIR for the update, is that before increasing population, the city needs to do what it can to decrease traffic and the associated air pollution in accordance with “a set goal.” Only then, should the city “proceed with a slow housing program that prioritizes housing for those whose presence would provide diversity for an economy that serves all residents”—specifically:

  • People who under present conditions will never be able to buy here, typically defined as the middle class: clerical workers, city staff, middle management, tradespeople, low income workers, service workers, small business owners
  • Seniors living here who don’t own their houses or still have mortgages and want to retire
  • The homeless

TKPASZ wants to maintain Palo Alto’s suburban character and still build housing that’s affordable to low-income people. From their Platform:

Reduce the maximum development volume in certain zoning districts so that when state-mandated density bonuses are applied, the resulting volume matches what current zoning maximums would allow. In other words, state density bonuses for low income housing should not be used to produce buildings that are massive and out of scale with the surrounding neighborhoods.

….

Development should be compatible with existing neighborhoods and take into account school impacts.

I also asked Lilienstein what she thought of the transportation innovations that give the mayor hope.

Burt,” she replied, ‘is overly confident, in my view, yet I wish his vision was possible.” Her top priority is “increas[ing] ease of movement INSIDE the city.” To that end, she wrote,

I don’t see how electrifying CalTrain and increasing the ridership (both are good things) will do anything but increase crosstown gridlock for Palo Alto, since there is no grade separation” for the train tracks. The single greatest transformative investment would be to trench the tracks so there can be an increase in cross-town flow. Without, even the future promised technology improvements will be insignificant.

If  BART is ever extended to San Jose, down the east side of the bay, how would that help us? The Transportation Management Association might put a dent in the traffic problem, but it’s basically underfunded and complicated/expensive to enforce. Scoop is a good idea, a good use of public money, but do Palo Alto worker actually use it?

Downing, by contrast, thinks that “adding housing…is going to relieve a lot of the congestion we’re seeing” by allowing people “to live in the same community where they work. If you look at the people who actually live and work in Palo Alto,” she told Brinklow, “a substantial number…are walking or biking to work, so they’re not part of the traffic.” Now most of the in-commuters live far away.

Palo Alto Forward’s website lists “five common-sense reforms that could remove barriers to housing”:

  • Encourage studio apartments and smaller units
  • Encourage residential units over ground-floor retail
  • Make it easier for homeowners to build second units
  • Allow car-light and car-free housing in walkable areas near transit
  • Facilitate new senior housing, including alternative models

The underlying assumption is that growth is essential to economic health and hence must be accommodated. From its platform:

On its current course, Palo Alto will continue to experience traffic and parking issues from denser uses of existing buildings, but it will have turned away new businesses and new workers who no longer have appropriate housing. The very economic growth that makes Silicon Valley a gem in America’s economic crown will slowly be chipped away, hurting local businesses, school funding, and employment rates alike.

Dancing around the growth issue

What the PAF platform never quite makes clear is whether the group can thinks the city should seek to accommodate as much growth as possible.

Brinklow asked Downing: “What about people who argue that a city like Palo Alto just can’t ever build enough housing to really satisfy demand?”

Downing: “I think it’s a misconception that you can never build up to demand. We have a pretty good idea what demand is: Every day, the effective population of the city [66,000] doubles from the number of people who come in just for work. That tells us something about how much housing we need. It’s not infinite.”

But elsewhere, she indicates that growth per se is advantageous.  A member of the Bloomberg News team asked her if she thought “it’s fair for a community to collectively say, we don’t want to get any bigger, we don’t want to increase our population, we don’t want to live in a more dense area.” She replied: not if it’s a job hub. “As for these companies getting big,” she wrote in one of her Medium posts,

—that’s something to celebrate and be happy about, not to lament. It means you live in a prosperous area with lots of high paying jobs and that your city is getting tons of tax revenue to support the sort of services and programs residents want to see. The response is to build out the necessary infrastructure to make sure your city can handle the growth and plan thoughtfully about how to grow in a way that will be beautiful and convenient. The response isn’t to murder the golden goose which is making your city so desirable in the first place.

One of the qualities that made Palo Alto so “desirable in the first place” to the tech industry was the very thing that Downing would readily dispose of: the town’s suburban character. Paradoxically, that character is now jeopardized by the industry’s rampant growth. For Downing, however, nurturing that growth is paramount. Constraining it, she says, will lead to the decline of Silicon Valley.

“[I]f [what Palo Alto is doing],” she tells Granato,

continues this way, eventually we really are going to drive businesses and young people away. I mean it’s driving me away, right? And at that point, the locus of organization and development is going to shift; it’s going to go somewhere else. And I think that will be an extraordinarily painful thing for Stanford. It means less opportunities for its students, it means less collaboration between businesses and professors. I don’t think Stanford wants to be in a place that used to be the innovation capital of the world, but that’s kind of where we’re headed.

Forbidden questions

I’m no fan of Kate Vershov Downing—that’s been clear since the start of this story. I confess, however, that until recently, I shared Downing’s view that cities should strive to house the people who work in the businesses within their city limits, and that those who don’t should be judged harshly. Downing calls Palo Alto and other tech towns with jumbo job-housing imbalances “abusive,” referring to their unwillingness to house their tech workers. To me, the abusiveness involved dumping their housing and traffic issues on other cities—the sight of a “Google bus” parked in a Muni bus stop makes me scowl—and clogging the roads with long-distance commuters: when I left Palo Alto at 4 p.m. one afternoon last February, it took me two and a half hours to reach my north Berkeley home in my car, lurching forward in stop-and-go traffic all the way.

Contemplating the fight over growth in Palo Alto has made me rethink my position. Pace Downing, the Bay Area’s tech sector seeks infinite expansion. A report released by the Silicon Valley Competitiveness and Innovation project last February found that for the first time since 2011, more residents—7,600—left Silicon Valley for other parts of the U.S.—Seattle, Austin, southern California—than arrived from other parts of the country. The area still had a positive net migration, but many of the new arrivals came from abroad. The American-born workers are headed to places where the cost of living is lower; the competition for jobs, space, and venture capital less intense; single-family homes more affordable; and traffic less daunting.

In the report’s introduction, the sponsors of the project, the Silicon Valley Leadership Group and the Silicon Valley Community Foundation, called these numbers “warning signs” that “skyrocketing housing costs and increasing traffic congestion are eroding our quality of life” and making it hard to draw and retain sought-after employees.

In response, the SVLG and the SVCF lay out much the same agenda as Kate Downing: sustain the local tech industry’s warp-speed job growth by building a commensurate amount of housing and expanding the region’s transit infrastructure accordingly. Just so, SVLG supported Brown’s by-right housing bill, though, in a move that I suspect Downing, with her opposition to “centrally controlled affordable housing,” would criticize, it also cheered the California Supreme Court’s decision that upheld San Jose’s inclusionary housing ordinance.

Concentrated power undermines democracy. I’m talking about the economy, of course. Right now about a fifth of total jobs in the region—746,100—are in tech. The Bay Area’s appalling income inequality and its associated housing affordability crisis exist not in spite of but largely because of the high-rolling tech cataclysm.

But democracy entails more than economic equality; it also involves political freedom. Money talks, and these days tech oligarchs are speaking much too loudly in our public life—think, for starters, Ron Conway and Airbnb.

This quest for endless growth needs to be put on hold and replaced with a debate over the region’s carrying capacity and relevant public policy. How many jobs and people can the Bay Area support without further degrading the region’s quality of life, its cities’ distinctive characters, and the stability of their neighborhoods? Is it worth sacrificing these things for the sake of competitiveness? Who really benefits from the competitiveness race? Should a city’s receipt of a company’s taxes obligate that city to approve housing for the company’s workers? Do people have a right to live wherever they want? Barring prospective residents from your town on the basis of race or ethnicity or gender is wrong—and illegal. What about setting a limit on density or the size of a city’s population? And where’s the proof that people living in dense, transit-oriented development drive significantly less?

For the region as a whole, the best thing that could come out of the Downing imbroglio is the expansion of the debate that’s roiling Palo Alto—not just to every city hall, but to every state and regional planning agency and legislative body. One point of universal agreement is that neither Palo Alto nor any other city can resolve the jobs-housing conundrum on its own. But today the growth ideology reigns supreme; no questions allowed. As long as that’s the case, the conundrum will persist and worsen.

This piece originally appeared at 48hills.org.

Zelda Bronstein, a journalist and a former chair of the Berkeley Planning Commission, writes about politics and culture in the Bay Area and beyond.

For ongoing, in-depth coverage of Palo Alto’s land-use politics, see the reporting of Gennady Sheyner in the city’s alternative newspaper, the Palo Alto Weekly.

Biggest Income Gains In U.S. Accrue To Suburban Cities

Wed, 09/21/2016 - 22:38

After a long period of  stagnation, last week’s announcement of the first substantial annual income gains since 2007 was certainly welcome. Predictably, analysts inclined toward a more favorable view of President Obama’s policies reacted favorably. Progressive icon Paul Krugman crowed that last year the “economy partied like it was 1999,” which he said validated the president’s “trickle up economics.”

Equally predictably, conservative pundit Stephen Moore wrote that the stagnant longer-term numbers were actually a ”stinging indictment” of both the Obama and Bush records.

The reality may be in between. The 5.2% increase over the past year was the largest in the nearly 50-year history of the Census Bureau’s Current Population Survey, and does represent some progress. Yet real incomes remain approximately 2.5% below the 1999 peak. This is an extraordinarily long time for incomes not to have risen, a decade longer than the previous modern record (1989 to 1995), according to the Federal Reserve Bank of St. Louis.

And there are some reasons to be skeptical about the dramatic gains, as outlined in a virtually unprecedented report by the economist Gary Burtless of the generally left-leaning Brookings Institution. He suggests that the year-to-year increase may have been much less and that the CPS had been under-reporting annual income increases since 2003. John Crudelle of the right-leaning New York Post notes that recent CPS methodology changes could also have inflated the 2015 increase.

To be sure, there are no signs of an economic boom that will sustain income gains — the 1.1% real GDP growth in the second quarter is no indication of a miraculous recovery.

Nonetheless, real income gains were made last year, but they were not distributed evenly across the nation. We sought to assess the areas that did the best – and worst.

The media has spun the story as further evidence of suburban decline and the resurgence of dense, hip cities. The Wall Street Journal went so far as to point to the migration of “highly educated millennials” to downtown areas as a factor, something that simply could not be deduced from the data that was reported.

With more than 80% of millennials residing in the suburbs, this was heroic conjecture. Within metropolitan areas, CPS reports only “inside principal cities” and “outside principal cities.” The Census Bureau abandoned “central city” and “principal city” data more than a decade ago, in recognition of the fact that many suburban communities had become major employment hubs. As a result, principal cities include such low density, sprawling suburban behemoths as Mesa, Ariz. (Phoenix), Hillsboro, Ore. (Portland), Arlington, Texas (Dallas-Fort Worth), and, Anaheim, Calif. (Los Angeles). Simply put, the data does not support the assumption that hipster urbanism played a part in the one-year upsurge.

The numbers suggest a more nuanced picture. For one thing, downtown residents represent little more than 1% of our metropolitan population, and less than 10% of the jobs. Nor did the biggest income gains occur in the metropolitan areas with the large, elite urban cores. Indeed, it is hard to imagine results more at odds with theme of dense urban core gain and suburban malaise.

By far the largest gain was in Nashville, where household income rose 10.2% to $57,985. Nashville’s downtown is doing well, as is the case with many metropolitan areas. However, Nashville is hardly a model of the urban density planners would like to force around the nation. Its urban density is one-fourth that of nation-leading Los Angeles, a third that of New York and half that of Portland. The vast majority of its growth has taken place outside the core, and largely in the suburbs.

Perhaps most surprising is second-ranked, Birmingham, Ala. It is harder to imagine a more poorly performing metropolitan area in the rapidly expanding South, but last year household income there grew 9.4% to $51,459, according to the CPS data. Just after World War II, Birmingham was a third smaller than Atlanta; now Atlanta is five times as large. Nor does Birmingham set any density records. No metropolitan area the world with a population over a million has a lower urban area density.

Atlanta ranked third, with an increase of 7.2% to $60,219. The metropolitan area has the lowest population density among world urban areas with more than 2 million residents.

Other metro areas with suburban core cities in the top 10 include No. 5 Kansas City; No.7 Memphis, which could be argued has performed as poorly as Birmingham in recent decades; and No. 8 Orlando. None of these has an urban density much higher than the national average, which includes urban areas as small as 2,500 population. In 10th-ranked San Jose, the core of Silicon Valley, household income rose 5.7% to $101,980, the highest of any metropolitan area in the nation. It is a virtually all suburban metro area, having developed almost entirely since World War II, and among the most automobile oriented, with a miniscule 4% of commuters using its bus, light rail and commuter rail services. Milwaukee, another metropolitan area that has lagged economically for years, ranked ninth.

To be sure, the urban elites were not shut out. San Francisco, buoyed by spillover growth from suburban Silicon Valley, ranked fourth with a center that is the very definition of a dense urban core. Urban planning model Portland ranked sixth, yet it has an urban density 40% below that of all-suburban San Jose.

The nation’s three largest metropolitan areas did poorly. New York, ranked 39th, with income growth of 2.5%, well below the 5.2% national gain. Los Angeles, the nation’s densest region, grew slightly better, at 3.4%, but still ranked only 32nd; Chicago, the nation’s third largest ranked just above New York at 38th.

In last place is Oklahoma City, where, amid the oil and gas bust, household income dipped 0.4% to $52,221.

Thus, the story is not about media-favorite cities or their favored urban core, as the progressive punditry may suggest. The one-year spike is perhaps the first long overdue indication that things could be getting better for the struggling working class. The biggest gains were in poorer metro areas. It could signal, to some extent, higher wages as employment tightens, particularly at the lower end of the job spectrum.

Overall, it’s clear that even modest economic growth, sustained long enough, would bring some blessings to the poor, particularly in the inner cities. The question is whether these gains can be sustained in an economy where growth seems to trending slower still.

This piece first appeared at Forbes.

Joel Kotkin is executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The Human City: Urbanism for the rest of us, will be published in April by Agate. He is also author of The New Class ConflictThe City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Wendell Cox is principal of Demographia, an international pubilc policy and demographics firm. He is a Senior Fellow of the Center for Opportunity Urbanism (US), Senior Fellow for Housing Affordability and Municipal Policy for the Frontier Centre for Public Policy (Canada), and a member of the Board of Advisors of the Center for Demographics and Policy at Chapman University (California). He is co-author of the "Demographia International Housing Affordability Survey" and author of "Demographia World Urban Areas" and "War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life." He was appointed to three terms on the Los Angeles County Transportation Commission, where he served with the leading city and county leadership as the only non-elected member. He served as a visiting professor at the Conservatoire National des Arts et Metiers, a national university in Paris.

Photograph: Downtown Nashville from BigStockPhoto.com

The Incompatibility of Forced Density and Housing Affordability

Wed, 09/21/2016 - 07:02

New research supports the conclusion that anti-sprawl policy (urban containment policy) is incompatible with housing affordability. Build-zoom.com economist Issi Romem finds that: “Cities that have curbed their expansion have – with limited exception – failed to compensate with densification. As a result they have produced far less housing than they would otherwise, with severe national implications for housing affordability, geographic mobility and access to opportunity, all of which are keenly felt today as we approach the top of housing cycle.”

Romem had previously produced stunningly innovative research, estimating the extent of urbanization in US cities every decade from 1940 to 2010. He provides maps that show the changing urban expanses in each census. Romem uses the larger metropolitan areas, the currently defined Combined Statistical Areas (CSAs). This combines metropolitan areas that are adjacent and significantly economically connected, such as San Francisco and San Jose, New York , southeastern Connecticut and Allentown, and Los Angeles and Riverside-San Bernardino.

The new research is a similarly important addition to urban policy. Like most in urban planners, Romem strongly believes that the "ills of the urban sprawl must be curbed." However, importantly, Romem's research is driven by data, rather than urban planning principles often disconnected from the aspirations of households. This article examines Romem’s most recent research in the context of middle-income housing affordability.

Middle-Income Housing Affordability

Housing affordability is much broader than “affordable housing” for lower income households. In markets regulated by urban containment, middle-income housing usually becomes too expensive for many middle-income households. In such markets, there is considerable discussion of housing affordability, but little that gets to the heart of the matter.

Housing affordability is appropriately compared both between housing markets and  within markets over time. Perhaps the most effective tools are price-to-income ratios, such as the median multiple (median house price divided by median household income) used in the Demographia International Housing Affordability Survey. Now in its 12th edition, the Survey shows virtually all major metropolitan areas with seriously unaffordable housing to have urban containment policy.

Development Limits: More Politics than Mountains or Water

In covering Romem's research, Richard Florida acknowledges describes the crucial role of role of land markets in maintaining housing affordability. Of course, housing affordability is a casualty of urban containment policy because it destroys the competitive market for land on the urban fringe. As a result house prices rise substantially relative to incomes (Figure 1).

Romem and Florida, to their credit, have proposed means they think can preserve housing affordability within a framework of urban containment, such as by land use regulation that permits higher densities, including redevelopment of lower density areas. While wishing them luck, there is little cause for optimism. Near 50 years ago, legendary urbanologist Sir Peter Hall suggested that “soaring land prices …. certainly represent the biggest single failure of the system of planning introduced with the 1947 [Town and Country Planning] Act” (see: The Costs of Smart Growth Revisited: A 40 Year Perspective). Urban containment policy, the principal strategy of forced densification, cannot repeal the law of supply and demand. Seventy years of experience prove that.

Florida and others have noted the challenges of cities running up against their development limits. However, in the United States, only the artificial political limits of regulation have been approached, rather than the natural barriers of topography or geography (see: A Question of Values: Middle-Income Housing Affordability and Urban Containment Policy). Where a binding urban growth boundary is imposed between the city and an impassible mountain range, the scarcity induced price increases result from the boundary, not the mountain.

Politics, Topography & Geography in the San Francisco Bay Area

Take, for example, the San Francisco Bay Area, which has often been cited as a place where natural barriers have left little land for development. This is an impression easily obtained observing the fairly narrow strips of urbanization on both sides of San Francisco Bay, hemmed in by hills.

However the Bay Area’s urbanization long ago leapt over the most important water bodies and then the Berkeley Hills to the east. Not only is the San Francisco Bay Area CSA high density, but it is also spatially small. In 2016, the San Francisco built-up urban area was only the 23rd largest in land area in the world. New York, the world's largest built-up urban area in geographical expanse is more than four times as large.

There is plenty of developable land in the San Francisco Bay Area. Data in a 1997 state analysis indicated that another 1,500 to 4,300 square miles (3,900 to 11,000 square kilometers) could be developed in the Bay Area CSA. The lower bound assumed no farmland conversion and stringent environmental regulation. The report also found that in recent years, residential development had become marginally denser, yet not incompatible with the detached housing remains the preference in California (Figure 2). The state has more than enough developable land for future housing needs.

Updating the data to account for the development that occurred through 2010, the developable land supply could support an urbanization of between 18 million and 37 million population, well above the 2010 urban population (Note on Method). At the most, there is capacity to accommodate the population of Tokyo – Yokohama, the world’s largest urban area. At a minimum, use of the available land would catapult the Bay Area CSA ahead of the Los Angeles-Riverside CSA, more than double its present population.

Of course, the Bay Area is simply not growing fast enough to reach even the lower population figure any time soon. Even with its slower growth, however, the competitive market for land no longer works, in large measure because of land use regulation. The San Jose metropolitan area has the fourth worst housing affordability in the Demographia International Housing Affordability Survey and the San Francisco metropolitan area is 7th worst (both metropolitan areas are in the CSA).

The decades old Bay Area housing affordability crisis, and that of other metropolitan areas seeking to force higher densities, is more the result of policy than nature.

Urban Containment: Negative Externalities

Moreover, planning authoritarianism cannot tell everyone where and how to live. For many, high density apartments (owned or rented) are not a substitute for the detached house. Indeed the substitute for the detached housing the Bay Area for many is often a detached house in Nashville or Kansas City or any of many other major metropolitan areas where housing is much less expensive. Last year’s (2014) IRS migration data shows that California is losing both younger households and middle income households.

Higher than necessary house prices are, of course, an even greater problem for low-income households, who not only are excluded from homeownership but most pay unaffordable rents. The latest data shows that California again has the worst housing cost adjusted poverty rate among the 50 states. Even Mississippi, with its reputation for poverty, cannot compete with that.

Romem expressed concern to The Wall Street Journal: “What you’ll get there is an exacerbation of the problems we already have in expensive cities. The distinction between homeowners and renters will become less and less a stage of life and more and more if your parents can help you.”

The Economist came to a similar conclusion: “Suburbs rarely cease growing of their own accord. The only reliable way to stop them, it turns out, is to stop them forcefully. But the consequences of doing that are severe" (See: Cities: Better for the Great Suburbanization).

Note on Method: Some of the CSA urban population is not in the continuous urbanization of San Francisco-San Jose built-up urban area, such as in the Santa Rosa, Stockton and Santa Cruz urban areas. This analysis is based on data from the California Department of Housing and Community Development and the U.S. Census Bureau. It is based on an estimate of additional development occurring from 1996 to 2010 and the land remaining after deduction of recently developed land. The population capacity assumes the “marginally higher” densities used by the California Department of Housing and Community Development, which it notes would not require substantial changes in the “current form of housing development” (1997).

Wendell Cox is principal of Demographia, an international public policy and demographics firm. He is a Senior Fellow of the Center for Opportunity Urbanism (US), Senior Fellow for Housing Affordability and Municipal Policy for the Frontier Centre for Public Policy (Canada), and a member of the Board of Advisors of the Center for Demographics and Policy at Chapman University (California). He is co-author of the "Demographia International Housing Affordability Survey" and author of "Demographia World Urban Areas" and "War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life." He was appointed to three terms on the Los Angeles County Transportation Commission, where he served with the leading city and county leadership as the only non-elected member. He served as a visiting professor at the Conservatoire National des Arts et Metiers, a national university in Paris.

Photo: San Mateo County on the San Francisco Peninsula (by author)

Lone Star Quartet

Mon, 09/19/2016 - 22:38

Texas’s spectacular growth is largely a story of its cities—especially of Austin, Dallas–Fort Worth, Houston, and San Antonio. These Big Four metropolitan areas, arranged in a layout known as the “Texas Triangle,” contain two-thirds of the state’s population and an even higher share of its jobs. Nationally, the four metros, which combined make up less than 6 percent of the American population, posted job growth equivalent to 30 percent of the United States’ total since the financial crash in 2007. Within Texas, they’ve accounted for almost 80 percent of the state’s population growth since 2000 and over 75 percent of its job growth. Meantime, a third of Texas counties, mostly rural, have actually been losing population.

Texas is sometimes described as the new California, an apt parallel in terms of the states’ respective urban geographies. Neither state is dominated by a single large city; each has four urban areas of more than 1 million people, with two of these among the largest regions in the United States. In both states, these major regions are demographically and economically distinct.

But unlike California, whose cities have refocused on elite priorities at the expense of middle-class occupations, Texas offers a complete spectrum of economic activities in its metros. Another key difference is that Texas cities have mostly embraced pro-development policies that have kept them affordable by allowing housing supply to expand with population, while California’s housing prices blasted into the stratosphere due to severe development restrictions. Texas cities also benefit from favorable state policies, such as the absence of a state income tax and a reasonable regulatory and litigation environment. These factors make Texas cities today what California’s used to be: places to go in search of the American dream.

In Texas, the major metros also have the advantage of being in a fairly compact region. San Antonio and Austin are separated by an 80-mile drive, almost entirely filled in with development along the I-35 corridor, with significant future opportunities in towns near enough to serve both markets, such as San Marcos. The other regions are all within a three- to three-and-a-half-hour drive of one another—not much different from the Acela train connections linking New York, Boston, and Washington.

This proximity makes the Texas Triangle one of the premier emerging American mega-regions. All four cities rank in the top ten for percentage population growth since 2000 among major metro areas (those with more than 1 million people). Three of the four rank in the top ten for percentage job growth during that time. (Dallas just misses, with a rank of 11th.) Houston, San Antonio, and Austin are in the top ten metro areas for growth in residents with college degrees and in the top five for growth in millennials (ages 25–34) with degrees since 2000. But while these successful cities have much in common, they’ve each done it their own way.

Dallas–Fort Worth doesn’t usually come to mind when one thinks about America’s largest cities. But with a population topping 7 million, Dallas is now the fourth-largest metropolitan area in the country. If current growth rates continue, Dallas would pass Chicago and move into third place in regional population before 2050.

Chicago and Dallas have much in common. Both lie within the central time zone, with large airports that serve as ideal hubs for air travel around the United States. Both cities boast large, diversified corporate centers not reliant on a single industry, with deep talent pools and thick labor markets. Both are key national logistics hubs. Both are home to diverse populations, with Dallas now exceeding Chicago in its share of foreign-born residents. Chicago retains some advantages: the Loop remains America’s second-largest business district and is currently booming. And the Windy City’s downtown beat out Dallas in a competition to lure Boeing’s headquarters back in 2001.

But while Chicago remains dominant in urbanity and global-city functions, Dallas increasingly prevails in everything else. If Chicago is downtown-dominated, Dallas is perhaps the most multipolar urban region in America, with two distinct cities in Dallas and Fort Worth, as well as premier suburban business centers in Plano and Richardson. Firms can choose from a range of environments. While America’s elite urban centers increasingly attract niche, if high-value, employers, Dallas remains a place where companies can afford to hire thousands of people—or relocate them, as Toyota decided to do in 2014, when it announced that it would move 5,000 employees and contractors from Southern California to the Dallas area, settling them into a new campus in Plano. The Japanese automaker joins other large-scale employers in the area, including American Airlines (25,000 employees), Lockheed Martin (13,700), and Texas Instruments (13,000).

Dallas strives to be not only a welcoming place for commerce but also a high-quality place to live. The city is spending big to fulfill that goal. Fort Worth’s cultural district was already home to the renowned Kimbell Art Museum and the Modern Art Museum. Dallas, which has seen a boom in its urban core, particularly its Uptown district, recently invested in a $1 billion downtown performing-arts district that includes a concert hall, opera house, and other buildings designed by prominent architects.

Generous philanthropic communities are Texas’s secret weapon. Donations—including 134 separate donations of $1 million or more—provided almost all the performing-arts center’s financing and also helped pay for the new Klyde Warren Park, built on a deck over a freeway, and a signature bridge design by Santiago Calatrava. Like northern capitalists of the great industrial age, wealthy Texans are willing to spend big to put their hometowns on the map. High-quality urban amenities cost money, and a robust Texas private sector made these kinds of investments possible. But it was the philanthropic culture of the Texas money men that led them to put their cash to work to expand the area’s cultural offerings.

Not all the money has been well spent. Dallas built the longest light-rail system in the United States, at 90 miles, but the DART rail system carries only about 100,000 passengers per day, a drop in the bucket for the region. DART cost billions to build and requires about $75 million per year in subsidies to operate, and unlike the cost of the performing-arts center, these costs are financed by tax dollars.

With a population of 6.5 million, Houston is the fifth-largest metro area in the United States, giving Texas two of the five largest regions in the country. Unlike diversified Dallas, Houston is known for being the global center of the energy industry.

Houston is such an energy magnet that even companies with headquarters elsewhere have a huge presence there. Headquartered in Dallas, ExxonMobil is building a new Houston campus that will employ 10,000. Chevron is based in the Bay Area but has more employees (8,000) in Houston and has been shifting more jobs there. International energy firms with a Houston presence include Total, BP, Shell, Repsol, and Petrobras. Houston dominates oil services, with firms like Schlumberger and Halliburton.

Powered by the energy sector, Houston has added more than 700,000 jobs since 2000, despite two recessions. Recent declines in oil prices will no doubt be a drag on Houston’s economy in the near term, just as federal retrenchment has affected Washington, D.C. But like Washington’s, Houston’s long-term fundamentals remain strong. Economically, the city is not a one-horse town. It boasts one of America’s largest ports. It has the nation’s largest petrochemical manufacturing complex (which benefits from low oil prices). Houston is home to NASA’s Johnson Space Center and the Texas Medical Center, the world’s largest, serving thousands of international patients each year. Philanthropy has played a substantial role in supporting the medical center.

Houston famously has no zoning inside city limits, though the city’s building code imposes some zoning-like restrictions, and many private developments utilize deed restrictions that mimic zoning. Houston’s physical development pattern is not unlike that of most other sprawling American cities. But the lack of use-based zoning illustrates the city’s pro-development and pro-business mind-set. For example, the city of Houston issued permits for more apartment construction in the year ending May 2015 than anywhere else except New York City.

Coastal dwellers portray Texas as culturally retrograde, but Houston, where one of America’s best opera companies performs, was the first of America’s biggest cities to elect an openly homosexual mayor, pro-market Democrat Annise Parker. The area is 23.1 percent foreign-born, ranking seventh in the country among major metros in its share of such residents; and 91 consulates, trade offices, or other foreign missions operate there. The Houston area’s Asian population, half a million strong, has more than doubled since 2000. The city also famously opened its doors to thousands of mostly black New Orleans residents displaced by Hurricane Katrina. Many chose to stay in Houston, attracted by its economic opportunities.

Like Dallas, Houston built a dubious light-rail system. More astutely, it recently reengineered its bus service to focus on high-frequency routes, without adding costs. It’s also investing substantially in parks, such as the ten-mile-long Buffalo Bayou Park. So Houston, too, is focusing on getting better, not just bigger.

The oldest major city in Texas, San Antonio was for decades its largest city. Demographically, it is a Latino stronghold. It has the highest share of its population of Hispanic origin of any region over 1 million people in the U.S.—even more than Miami—and it’s the only one where over half the population is Hispanic. San Antonio’s Hispanics have long-standing roots in the community, however: only 12 percent of the metro area is foreign-born, simultaneously the smallest foreign-born and smallest Anglo population among major Texas cities.

With its long history, San Antonio enjoys a thriving tourism industry. More than 30 million visitors each year come to see the city’s historic sites, such as old Spanish missions, including the famed Alamo. San Antonio’s Riverwalk is widely known around the country, with many cities trying to replicate it.

The real engine driving the city’s economy, though, is a strong military presence, including such installations as Fort Sam Houston and Lackland Air Force Base. Though the military has downsized, San Antonio has benefited from consolidation. Much of its military presence is high-value, such as its Medical Education and Training Campus. Home to the Air Force’s Cyber Command and a National Security Agency cryptography center, among other related operations, San Antonio has also become an unlikely center for cyber-security, with the city’s University of Texas campus offering the nation’s top-rated program in that discipline. The military presence has also spawned related private-sector businesses, such as financial-services giant USAA, which serves military members, veterans, and their families.

Military life has lured many permanent residents to the area. Every year, 4,200 people get discharged from the service in San Antonio, and many decide to stay in the city. This high-quality, reasonably priced labor force has attracted firms like Accenture, which employs 1,200 at a service center in the region.

The military has also served as a vehicle for integrating Hispanics into the city’s middle class. City leaders boast of excellent relations between ethnic groups. For example, though not known as a black population center, San Antonio has one of the nation’s largest Martin Luther King Day parades. These ethnic connections go back a long way. A stronghold of Latinos and German immigrants, San Antonio was a pro-Union city during the Civil War.

While San Antonio excels in middle- and working-class job growth—Toyota recently built a truck plant there—its educational attainment rates rank third from the bottom among major metros. Only 26.3 percent of its adults hold college degrees. Unlike elite coastal cities, San Antonio continues to attract the less educated, though the region is growing its number of people with degrees at one of the fastest rates in the country.

If one Texas city can boast “street cred” among coastal elites, it’s Austin, the state capital and home to the flagship campus of the University of Texas, giving it many attributes of a college town. This includes its live music scene, nationally known thanks to PBS’s Austin City Limits, the longest-running music program in television history, which has developed into one of the country’s largest annual music festivals and a permanent music venue in downtown Austin. The city also hosts the global SXSW festival, originally a music event and now arguably the hippest technology conference in the country, drawing talent from around the globe.

Austin is a city of distinct neighborhoods and districts. A campaign to preserve local small businesses spawned the slogan “Keep Austin Weird,” now copied by cities like Portland and Louisville. Austin ranks as the sixth-most educated region in the country, with 41.5 percent of its adults having college degrees. It’s regularly listed as among America’s most physically fit cities.

Austin’s technology industry has roots in the city going back to the 1960s, when IBM and Texas Instruments opened up shop. Motorola arrived in the 1970s, while the 1980s saw the arrival of chip-industry consortium Sematech and the founding of Dell Computer. Today, Austin has one of the country’s fastest-growing tech sectors, with a flurry of start-ups as well as offices from a who’s who of Silicon Valley firms, including Apple (approaching 7,000 local employees), Oracle, Facebook, Google (which is bringing its Google Fiber product to the city), and Intel.

With its big-government and university heritage, Austin unsurprisingly has the blue politics amenable to coastal dwellers and its many public employees—and it shows some signs of emulating the negatives of California and Silicon

Valley. Its median home-price multiple—the price of the median home divided by the regional median income—has crept up to 4.0, the highest of the Texas urban quartet. The city of Austin’s share of children is declining. Already the least diverse major Texas metro, Austin is seeing its share of blacks decrease. And the city has failed to invest in infrastructure to keep up with its rapid growth. As Ryan Streeter at the University of Texas put it: “Austin thought that if the city didn’t build it, they wouldn’t come—but they came anyway.”

While all four Texas metro areas rank among the most booming cities in America, they face threats to future prosperity. When their growth cycles inevitably come to an end, they will have to prove themselves again, as Chicago, Detroit, Los Angeles, and New York once did. Time will tell whether they can renew themselves across economic cycles, as New York has done—or fall, like Detroit. The Texas metros also must demonstrate that they can grow their per-capita incomes over time, not just add lots of jobs. Their record here is mixed, with only the Houston region significantly outperforming the national average. Austin and Dallas have lost ground versus the country as a whole since 2000. San Antonio did better but still trails the U.S. average.

The cities face short-term risks, too, especially poor municipal balance sheets. The Hoover Institution ranked Dallas and Houston among the worst cities for their unfunded pension liabilities as a percent of government revenues. Houston’s unfunded pension liability, including pension obligation bonds, stands at $5.9 billion, and the city faces a budget crunch. Dallas’s estimated pension shortfall is between $3 billion and $5 billion, depending on how one calculates it. Last fall, S&P and Moody’s downgraded the city’s credit rating. Other risks include failing to expand infrastructure in line with growth—as may have happened in Austin already—and potentially unsustainable development patterns in Dallas and Houston.

But perhaps the most serious near-term concern is that these cities might forget what made them successful. Dallas passed a plastic-bag fee (since repealed), and Austin banned plastic bags altogether. Denton, in north suburban Dallas, banned fracking within city limits, though the state overturned the ban. Texas already faces an external threat from environmental activists who would destroy its energy business and suburban-oriented development model if they could. As the fracking ban shows, a regulatory mind-set has begun to creep in, one that could eventually undermine the Texas economy.

Antidevelopment advocates have also targeted highway construction. Houston’s new mayor, Sylvester Turner, has said, “We need a paradigm shift [away from roads and single-occupancy vehicles] in order to achieve the kind of mobility outcomes we desire. . . . We need greater focus on intercity rail, regional rail, High Occupancy Vehicle facilities, Park and Rides, Transit Centers, and robust local transit.” But in regions adding more than 1 million new residents per decade, roadway expansion is critical. If Los Angeles can’t increase transit ridership with billions of dollars’ worth of new rail lines, there’s no prospect that Texas cities can do so. Investment in buses, cycling, and sidewalks is important but no substitute for core highway infrastructure. Yes, the urban cores of these cities should become more dense and walkable, but that shouldn’t mean becoming hostile to suburbs.

Texas isn’t California. Many people are willing to pay a lot to live in gorgeous, transit-friendly San Francisco or Southern California’s perfect climate. But no one will pay a premium to live in flat, sweltering Texas. To continue succeeding, Texas cities need to become the best possible version of what they already are—not a poor man’s substitute for something that they can never be.

This piece is part of The City Journal's special Texas issue. Check it out here. Top graphic courtesy of The City Journal.

Aaron M. Renn is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and an economic development columnist for Governing magazine. He focuses on ways to help America’s cities thrive in an ever more complex, competitive, globalized, and diverse twenty-first century. During Renn’s 15-year career in management and technology consulting, he was a partner at Accenture and held several technology strategy roles and directed multimillion-dollar global technology implementations. He has contributed to The Guardian, Forbes.com, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.

Local Govt. Control: The Ignored Campaign Issue

Sun, 09/18/2016 - 22:38

In an election cycle full of spittle and bile, arguably the greatest issue --- the nature of governance and the role of citizens --- has been all but ignored. Neither candidate for president has much feel for the old American notion of dispersed power. Instead each has his or her own plans for ever greater centralization: Trump by the force of his enormous narcissistic self-regard; Hillary Clintonthrough the expansion of the powers increasingly invested in the federal regulatory apparatus.

This profound disregard for the restraints of federalism comes at a time when our economy is undergoing profound centralization. Regulatory and monetary policy has benefited those with access to the most capital, making this economy more concentrated than at any time in recent history. This is particularly true in the information sector, which is now dominated by a handful of firms able to devour any competitor without  fear of anti-trust objections from Washington.

Ultimately the very things James Madison and the other Founders worried about -- the concentration of wealth in a few hands, the devolution of republican institutions and the rise of a central imperium -- are becoming increasingly evident, with precious little debate about what this means or how it could be reversed.

Is This What People Want?

This centralization is not occurring by popular demand. By a wide margin — 64 percent to 26 percent, according to a 2015 poll — Americans say they feel “more progress” comes from the local level than the federal level. Majorities of all political affiliations and all demographic groups hold this same opinion.

The preference for localism also extends to attitudes toward state governments, many of which have grown more powerful and intrusive in recent years. Seventy-two percent of Americans, according to Gallup, trust their local governments more than they do their state institutions; even in California, the mecca for ever-expanding government, large majorities favor transferring tax dollars from Sacramento to the localities.

This also applies to millennials. Though liberal on issues like immigration and gay marriage, they are not generally fans of centralization. Fewer than one-third of them favor federal solutions over locally based ones.  “Millennials are on a completely different page than most politicians in Washington, D.C.,” notes pollsterJohn Della Volpe.  

The federal government, a source of pride in the days of the New Deal, the Second World War, the Cold War and the civil rights struggle, is now regarded by  half of all Americans, according to Gallup, as “an immediate threat to the rights and freedoms of ordinary citizens.” In 2003 only 30 percent of Americans felt that way. A recent survey conducted by Chapman University  found that more Americans now have a greater fear of their own government than they do of outside threats.

Has Centralization Reached Its Peak?

Although he is hardly the originator of this trend, President Obama has become one of the most prolific authors of executive power in U.S. history. Critically, this has occurred in a time of relative peace and no compelling national emergency.

The conservative Heritage Foundation estimates that by 2015 the Obama administration had passed at least 184 “major rules” (regulations with at least a $100 million economic impact) and thousands of smaller ones. During its first six years, the administration promulgated more than twice as many major rules as during the first six years of the predecessor George W. Bush administration.

Many  directives  have been implemented as a way around legislative approval, a marked shift from earlier eras of legislative-executive cooperation during both the Reagan and Clinton  administrations. Some of this stems from the antics of an often obstructionist Congress but much of the long-term damage to federalism largely rests with the president. As Obama prepared for his last year in office, his agendawas defined primarily by new executive orders and regulatory edicts.

Once executive power has been validated, the road back to a more balanced federalism may prove difficult. The tools of dictatorship grow ever more comfortable in the hands of those of wield it, whatever their politics, something that occurred in the decades before the collapse of Roman Republic.

Not a Partisan Issue

In a new paper, “Our Town: Restoring Localism,” my colleague Wendell Cox and I argue that centralization should not be regarded as a partisan issue. Some progressives, particularly in academia, assert that support for localized decision-making rests “not in facts but rather in ideology and politics.” Some also link any devolutionary agenda to the crimes committed in the name of “states’ rights,” most notably slavery and the post-Reconstruction Jim Crow laws.

Yet, historically, many on the progressive left, including Justice Louis Brandeis, favored decentralization. As governor of Arkansas, Bill Clinton supported the view that local governments were often better suited to address civic problems. In his forward to David Osborne’s book “Laboratories of Democracy,” Clinton praised “pragmatic responses” to key social and economic issues by both liberal and conservative governors. Such state-level responses, Clinton noted, were critical in “a country as complex and diverse as ours.”  

Nor are centralized solutions as efficient as some claim. After a half-century of massive federal investment, poverty rates are now worse than before the advent of the Great Society. Similarly, educational outcomes continue to deteriorate even as federal officials seek to intrude ever more into the minutiae of public schools.

Nor have attempts to consolidate local areas enhanced efficiency or reduced spending, as is commonly suggested. Overall, large consolidations have proven inefficient, with higher costs  and levels of indebtedness than smaller ones.

More important still is the critical role of localism in maintaining the traditions of American democracy. This is understood by many self-described progressives who express support for Main Street businesses and local farms and as a reaction against globalization and domination by large corporations.  Progressive author Heather Gerken has argued that social causes such as gay marriage and marijuana legalization tend to be adopted first at a local level before spreading to other areas.

Sadly, the closer one gets to the Washington honey pot, the more that progressive passion for localism tends to fade. Some liberals embrace nothing short of an administrative dictatorship in pursuit of their policy agendas. Last year, a writer in the Atlantic actually called for the creation of a “technocracy” to determine energy, economic and land-use policies throughout the world. This regime would impose such unpopular notions as energy austerity on an already fading middle class, limiting mundane pleasures like cheap air travel, cars, freeways, suburbs and single-family housing.

Such top-down approaches may gain much favor under Hillary Clinton, a centralizer by nature. Federal regulators would almost certainly nest ever deeper into what was once the realm of local governments in matters of zoning, housing, education and control of neighborhood demographics in ways that will hamper local initiatives and sap grassroots democracy.

Over time, these efforts may elicit resistance not only among conservatives or libertarians, but also left-leaning professionals who won’t want to cede all control over their local communities to the federal super-state. The next generation of hipster merchants may share an affinity for social liberalism, but they will chafe at increasing regulatory burdens already hampering entrepreneurial growth.

Despite the powerful economic and political forces behind it, the triumph of Leviathan is not inevitable. There is no compelling reason why the emerging Information Age needs to become an electronic dictatorship controlled by a few players, concentrated overwhelmingly on the coasts. Internet technology,  a gift originally funded by taxpayers, could instead be harnessed to effectively distribute power and authority downward across this vast country to states, regions, towns, neighborhoods and families.

We need to forge a new path that empowers the grassroots economy and polity, and respects the diversity of contemporary America. We can’t expect that this movement will draw much interest from Washington institutions, which gorge on centralization, but it could be propelled by local communities and people who still believe in the decentralized democracy envisioned by the Founders.

This piece first appeared in Real Clear Politics.

Joel Kotkin is executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The Human City: Urbanism for the rest of us, will be published in April by Agate. He is also author of The New Class ConflictThe City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

City Hall photo by Flickr user OZinOH.

Are-You-Better-Off: 2016 Update

Fri, 09/16/2016 - 22:38

The 2016 US Presidential campaign has gotten so crazy that the term “silly season” just doesn’t do it justice. In a September 2012 article on ng, I asked the question “Are you better off today than you were four years ago?” Eight years ago, the answer in the swing states was clearly “no” as I described it then:

“Comparing the swing states not to their conditions four years ago, but how they might feel compared to the rest of the nation, Virginia, Colorado and New Hampshire appear to be “better off” than the average American. But in North Carolina, Florida and Pennsylvania, prices for the basic necessities are above the national average while median incomes are lagging. If consumer confidence translates into voter confidence, then the elections in some of the key swing states will belong to the Republicans in 2012.”

Indeed, in November 2012, despite winning the White House, the Democrats, lost nearly every contested race for seats in the Senate while also losing governorships and seats in the House of Representatives.

This time, the economic picture is less clear. States like Colorado are doing well: despite a higher than national average cost of living, their median income is even higher by comparison and the unemployment rate is more than 20% below the national average. Although they were enjoying the same higher incomes in 2012, their unemployment rate then was at the national average – higher by comparison than in 2016. In contrast, Nevada is clearly worse off now than they were in 2012 – unemployment remains high, above the national average. The cost of living stands 6% above the national average while the median income has fallen from slightly above the national average to a little below. With the exception of Wisconsin, every swing state is worse off going into this election than they were going into the 2012 election . In the table, we use red figures to indicate where conditions in the swing states worsened relative to the national average between 2012 and 2016, either a reduction in relative state median income or an increase in relative unemployment (expressed as a percent of the national average).

Contested State

2012 income

2016 Income

2012 unemployment

2016 Unemployment

CO

118%

110%

100%

78%

FL

85%

88%

106%

96%

IA

100%

98%

64%

84%

NC

85%

87%

116%

96%

NH

131%

128%

65%

59%

NV

105%

97%

145%

133%

OH

92%

91%

87%

98%

PA

98%

99%

95%

114%

VA

121%

125%

71%

76%

WI

101%

100%

88%

86%

Unemployment from BLS.gov, median income from Census.gov

Only 4 of the swing states have both cost of living and median income above the national average (Virginia, New Hampshire, Colorado and Iowa). In the other six, the cost of living index is above the national average while the median income is near or below the national average. A lot of Republican voters may be thinking it is time for a change. The Republican pundits will want to blame Donald Trump for “down ballot” losses. Trump seems unconcerned about working with a majority of Democrats in Washington. If the change in Congress occurs, it will more likely be the result of these poor economic conditions in the states than anything specifically that Donald wished for or caused.

Contested State

Cost of Living

Income

CO

106%

110%

FL

110%

88%

IA

92%

98%

NC

95%

87%

NH

117%

128%

NV

106%

97%

OH

101%

91%

PA

120%

99%

VA

100%

125%

WI

106%

100%

Cost of living overall from Payscale.com for major city in each state. Unemployment from BLS.gov, median income from Census.gov.


In an April 2009 NG article, I compared measures of economic well-being before and after passage of the Emergency Economic Stabilization Act of 2008, more commonly known as the Bank Bailout Bill. Then Treasury Secretary Hank Paulson assured Congress who in turn assured voters that they would improve “the economic well-being of Americans.” The numbers showed a very different story. We were, in fact, largely worse off in the first six months after the bill passed. Between October 2008 and April 2009, foreclosure rates were no lower, unemployment was higher and the stock market pretty much tanked.

Looking at the same data again, I think it is pretty clear that the US economy is in an improved condition, across the board. By every measure, we are also even a little better off than this time last year.

 

2008

2009

2015

2016

National Unemployment

7%

8%

5.5%

4.9%

    Lowest state unemployment

3.3% (WY)

3.9% (WY)

2.6% (NE)

2.8% (SD)

    Highest state unemployment

9.3% (MI)

12% (MI)

7.6% (CO)

6.7% (AK)

National Foreclosure rate (per 5,000 homes)

11

11

5

3.3

    Lowest state foreclosure rate

< 1 in 7 states

< 1 in 6 states

<1 in 4 states

<1 in 6 states

    Highest state foreclosure rate        

68 (NV)

71 (NV)

12 (FL)

9 (DE)

Dow Jones Industrial Average

10,325

7,762

18,126

18,404

2008 figures are as close as possible to passage of the Bank Bailout Bill (October 3, 2008); the date of the 2009 figures varies slightly by category from February through April 2009. 2015 data are May and 2016 are August. Unemployment and foreclosure rates by state were available at Stateline.org for 2008 and 2009; more recent national and state unemployment rates are available from BLS.gov; foreclosure rates are also available from Realtytrac.com. Dow Jones Industrial Average from Google Finance.

What this means is that the national voter (meaning that majority that usually carries the Presidential election) will be answering the lead question with “yes” – yes, I have been made better off with a Democrat in the White House than I was with the last Republican in the White House. If Democrats take the White House in November, they are likely to take the House and the Senate down ballot.

Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Dr. Trimbath’s credits include appearances on national television and radio programs and the Emmy® Award nominated Bloomberg report Phantom Shares. She appears in four documentaries on the financial crisis, including Stock Shock: the Rise of Sirius XM and Collapse of Wall Street Ethicsand the newly released Wall Street Conspiracy. Dr. Trimbath was formerly Senior Research Economist at the Milken Institute. She served as Senior Advisor on United States Agency for International Development capital markets projects in Russia, Romania and Ukraine. Dr. Trimbath teaches graduate and undergraduate finance and economics.

Top image by DonkeyHotey (Hillary Clinton vs. Donald Trump - Caricatures) [CC BY-SA 2.0], via Wikimedia Commons

California's Boom Is Poised To Go Bust -- And Liberals' Dream Of Scandinavia On The Pacific

Thu, 09/15/2016 - 22:38

As its economy started to recover in 2010, progressives began to hail California as a kind of Scandinavia on the Pacific — a place where liberal programs also produce prosperity. The state’s recovery has won plaudits from such respected figures as The American Prospect’s Harold Meyerson and the New York Times’ Paul Krugman.

Gov. Jerry Brown, in Bill Maher’s assessment, “took a broken state and fixed it.” There’s a political lesson being injected here, as well, as blue organs like The New Yorker describe California as doing far better economically than nasty red-state Texas.

But if you take a look at long-term economic trends, or drive around the state with your eyes open, the picture is far less convincing. To be sure, since 2010 California’s job growth has outperformed the national average, propelled largely by the tech-driven Bay Area; its 14% employment expansion over the past six years is just a shade below Texas’. But dial back to 2001, and California’s job growth rate is 12%, less than half that of Texas’ 27%. With roughly 10 million fewer residents, Texas has created almost 2.8 million jobs since the turn of the millennium, compared to 2.0 million in California.

Even in the Bay Area, the picture is less than ideal. Since 2001, total employment in the San Francisco area has grown barely 12% compared to 52% in Austin, 37.8% in Dallas-Ft. Worth, 36.5% in Houston and 31.1% in San Antonio. Los Angeles, by far California’s largest metro area, scratched out pedestrian job growth of 10.3%, slightly above the national increase of 9.3% over that time span.

Remarkably, despite the recent tech boom, California’s employment growth in science, technology, engineering and mathematics-related fields (aka STEM) since 2001 is just 11%, compared to 25% in Texas. Both Austin and San Antonio have increased their STEM employment faster than the Bay Area while Los Angeles, California’s dominant urban region and one-time tech powerhouse, has achieved virtually no growth. This pattern also holds for the largest high-wage sector in the U.S., business and professional services.

Geographic Disparity: Relying On Facebook

“It’s not a California miracle, but really should be called a Silicon Valley miracle,” says Chapman University forecaster Jim Doti. “The rest of the state really isn’t doing well.”

This dependence on one region has its dangers. Silicon Valley has only recently topped its pre-dot-com boom jobs total, confirming the fundamental volatility of the tech sector. And there are clear signs of slowing, with layoffs increasing earlier in the year and more companies looking for space in less expensive, highly regulated areas.

Consolidation and dominance by a few giants like Google, Facebook, Apple threaten to make Silicon Valley less competitive and innovative, as promising start-ups are swallowed at an alarming rate. Even Sergei Brin, a co-founder of Google, recently suggested that start-ups would be better off launching somewhere else.

Housing poses perhaps the most existential threat to the Bay Area, particularly among millennials entering their 30s. Only 13% of San Franciscans could purchase the county’s median home at standard rates and term. For San Mateo, the number is 16%. No surprise that as many as one in three Bay Area residents are now contemplating an exit, according to an opinion poll this past spring.

Outside the Bay Area, where tech is weaker, the situation is much grimmer. In Orange County, the strongest Southern California economy, tech and information employment is lower today than in 2000. In Los Angeles, employment has declined in higher-wage sectors like tech, durable goods manufacturing and construction, to be replaced by lower-wage jobs in hospitality, health and education. A recent analysis by the Los Angeles Economic Development Corp. predicts this trend will continue for the foreseeable future.

Expanding Inequality

Perhaps nothing undermines the narrative of the California “comeback” more than the state’s rising inequality. A recent Pew study found California’s urban areas over-represented among the metro area where the middle class is shrinking most rapidly. California now is home of over 30%  of United States’ welfare recipients, and almost 25% of Californians are in poverty when the cost of living is factored in, the highest rate in the country.

Even in Silicon Valley, the share of the population in the middle class has dropped from 56% of all households to 45.7%, according to a recent report by the California Budget Center. Both the lower and upper income portions grew significantly; today lower-income residents represent 34.8% of the population compared to 19.5% affluent.

Such disparities are, if anything, greater in Los Angeles, where high rents and home prices, coupled with meager income growth, is deepening a potentially disastrous social divide. Renters in the L.A. metro area are paying 48% of their monthly income to keep a roof above their heads, one reason why the Los Angeles area is now the poorest big metro area in the country, according to American Community Survey data. Overall California is home to a remarkable 77 of the country’s 297 most “economically challenged” cities, based on levels of poverty and employment, according to a recent study; altogether these cities have a population of more than 12 million.

One critical sign of failure: As the “boom” has matured, the number of homeless has risen to 115,000, roughly 20% of the national total. They are found not only in infamous encampments such as downtown Los Angeles “skid row” or San Jose’s “the Jungle” but also more traditionally middle class areas as Pacific Palisades and through central parts of Orange County.

The Fiscal Crisis

California’s “comeback” has been bolstered by assertions that the state has returned fiscal health. True, California’s short-term budgetary issues have been somewhat relieved, largely due to soaring capital gains from the tech and high end real estate booms; just 5,745 taxpayers earning $5 million or more generated more than $10 billion of income taxes in 2013, or about 19% of the state’s total, according to state officials.

Most likely this state deficit will balloon once asset inflation deflates. Brown is already forecasting budget deficits as high as $4 billion by the time he leaves office in 2019. The Mercatus Center ranks California 44th out of the 50 states in terms of fiscal condition, 46th in long-run solvency and 47th in terms of cash needed to cover short-run liabilities.

Despite this, the public employee-dominated state government continues to increase spending, with outlays having grown dramatically since the 2011-12 fiscal year, averaging 7.8% per year growth. No surprise that Moody’s ranked California second from the bottom among the states in its preparedness to withstand the next recession. Brown’s own Department of Finance predicts that a recession of “average magnitude” would cut revenues by $55 billion.

The Cost Of The Climate Jihad

Relieved over concerns in the short run budget, the rise in revenues has provided a pretext for Brown to push his campaign to fight climate change to extremes. New legislation backed by the governor would impose more stringent regulations on greenhouse gas emissions, mandating a 40% cut from 1990 levels by 2030.

Brown has no qualms about the economic impact of his policies since he tends to prioritize one sin — greenhouse gas emissions — even above such things as alleviating poverty. Brown’s moves will, by themselves, have no demonstrable impact on climate change given California’s size, temperate climate and loss of industry, as one recent study found. Brown knows this: he’s counting on setting an example that other states and countries will follow. Perhaps less recognized, California’s efforts to reduce emissions may account for naught, since the industry and people who have moved elsewhere have simply taken their carbon footprint elsewhere, usually to places where climate and less stringent regulation allow for greater emissions.

California’s climate policies, however, are succeeding in further damaging the middle and working class. Environmental regulations, particularly a virtual ban on suburban homes, are driving housing prices up; mandates for renewables are doing the same for energy prices. This hits hardest at traditionally higher-paying blue-collar employment in housing, manufacturing, warehousing and even agriculture.

California’s climate agenda has accelerated the state’s continued bifurcation — by region, by race and ethnicity, and even by age. Of course the green non-profit advocacy groups and the media will celebrate California’s comeback as proof that strict regulations and high taxes work. They seem not to recognize that that human societies also need to be sustainable, something that California’s trajectory certainly seems unlikely to accomplish.

This piece first appeared in Forbes.

Joel Kotkin is executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The Human City: Urbanism for the rest of us, will be published in April by Agate. He is also author of The New Class ConflictThe City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Photo: Troy Holden

Cities Need Connectivity in the Global Economy

Wed, 09/14/2016 - 22:38

My latest column is now online in the September issue of Governing magazine. It’s about the criticality of connectivity to success in the global economy.

One of the most important ways for cities to get connected is through migration. Jim Russell and his collaborator Richey Piiparinen at Cleveland State University’s Center for Population Dynamics have been documenting how Cleveland has been getting more connected to the global world through this process. This includes foreign immigration but isn’t limited to that. A key part of it is the influx into places like Cleveland of people who have lived in major global cities like New York, then cycled out.

There are many reasons for this kind of migration, but living costs are certainly one of them. America’s major global urban centers have become extraordinarily expensive to live in. Life in a “microapartment” in New York is less attractive when you are in your 30s and married with kids than it is when you are 22, single and fresh out of college.

What Rust Belt cities like Cleveland can offer is an authentic urban experience in a genuinely historic place at a price that can’t be beat. No one will mistake it for life in Brooklyn, but these cities’ price/performance ratio has a growing appeal, as their downtown population growth shows.

Click through to read the whole thing.

Aaron M. Renn is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and an economic development columnist for Governing magazine. He focuses on ways to help America’s cities thrive in an ever more complex, competitive, globalized, and diverse twenty-first century. During Renn’s 15-year career in management and technology consulting, he was a partner at Accenture and held several technology strategy roles and directed multimillion-dollar global technology implementations. He has contributed to The Guardian, Forbes.com, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.

Photo by wzefri

Our Town: Restoring Localism

Tue, 09/13/2016 - 22:38

This is an introduction to a new report from the Center for Opportunity Urbanism, "Our Town: Restoring Localism." Download the full report here.

America is facing a critical moment in its evolution, one that threatens both its future prosperity and the integrity of its institutions. Over the past several decades, government has become increasingly centralized, with power shifting from local communities to the federal level. This has been accompanied by a decline in non-governmental institutions, a matter of concern to thinkers on both the right and the left.

The issue here is not the irrelevance or intrinsic evil of government itself, nor is it a debate of liberalism vs conservatism. Rather, it is a question of how to meet society’s primary challenges. Is it most effective to try and solve our myriad problems from a central federal, state or regional authority, or from a more local one?

We believe the right answer, in many cases, is to make a shift back towards local governing agencies, to neighborhoods, and to families. This change in direction would be a return to the roots of our current federal system, which allows different levels of government to make their own decisions, providing a market- place for various ideas and approaches.

To be sure, local governments also make mistakes, and they can be authoritarian, corrupt, and short-sighted in meeting the needs of residents. But for the most part, locally generated negatives remain contained to local jurisdictions, and can be fixed through the democratic process at the more accessible local level.

Download the full report here.

The Evolving American Central Business District

Mon, 09/12/2016 - 22:38

After decades of serious economic decline, the inner cores in many of America’s largest metropolitan areas have experienced much improvement in recent years. This is indicated by the “City Sector Model,” (Image 9) which we developed to analyze the largest cities (metropolitan areas) using small functional areas, ZIP Code calculation areas (ZCTAs). The 2015 update to the City Sector Model added a fifth broad category of urbanization, when the Urban Core was divided into the Urban Core: CBD, and the Urban Core: Inner Ring (hereinafter referred to as CBD and Inner Ring).

The CBDs have far higher densities of employment and population than the surrounding Inner Rings that surround them. The largest CBDs are nearly all products of the pre-World War II period, when metropolitan employment was more concentrated. Overall both the CBD and the Inner Ring are more similar than not, with higher densities than the suburban and exurban sectors and with greater use of transit, walking and bicycles in commuting. In contrast, the suburban and exurban areas have near universal use of automobiles.

This article includes analysis of the Urban Core: CBD (CBD) using the latest data from the American Community Survey for 2010 to 2014 (Note 1), with a middle year of 2012. The defining feature of the CBD is high employment densities. The City Sector Model uses employment densities of 20,000 and greater for designation of the CBDs. There are other dense employment centers in metropolitan areas, such as the “edge cities,” but they tend to be characterized by less concentrated development with their buildings, including high-rises, separated by green spaces and parking lots (Image 1). CBDs, on the other hand, typically have their high-rise buildings adjacent to street oriented sidewalks, with less space between the buildings (Image 2).



Population Trends

Since 2000, the CBDs have added approximately nine percent to their population. The CBD population growth rate largely tracked the overall metropolitan area growth rate. Critically, these remain a very small part of the urban population. Some 1.3 percent of the metropolitan population lived in the CBD in 2000, a figure that remained virtually the same in 2012.

This growth rate, however, was not sustained throughout the Urban Core, which includes the much larger Inner Ring. The Inner Ring, which includes 91 percent of the Urban Core population, grew only 0.3 percent. The much larger Inner Ring drops the Urban Core growth rate down to only 0.9 percent, far below the 9 percent in the CBD component.  The other functional sectors grew faster, from two percent in the Earlier Suburbs to 39 percent in the Later Suburbs.

Becoming More Residential

Historically largely business districts, CBDs are becoming much more residential. Old, largely abandoned commercial buildings have been converted to new apartments and condominiums. In some places, there is new residential construction. There are new restaurants and other amenities that are associated with vibrant residential areas. There is more of a look of prosperity.

Indeed, it may be surprising, given these developments that CBDs have not grown more. The net effect is that of the nearly 20 million new major metropolitan area residents added since 2000, less than 0.1 percent have been in the CBDs. However, as some people have moved in, others have moved out (Note 2).

The growth in CBD population has been dominated by higher income ethnicities (Image 3). While the CBDs were adding 175,000 residents, the growth in Asian and White-Non-Hispanic residents was 215,000. African-American population declined more than 50,000, while Hispanic population edged up less than 10,000.

Astoundingly, the CBDs, with barely one percent of the population, have attracted 32 percent of the major metropolitan White-Non-Hispanic growth. The 135,000 growth in White-Non-Hispanics compared to their slow, overall growth of 435,000. The share of the population growth among African-Americans, Asians and Hispanics in the CBDs has been far less (Image 4).

Trends in the Inner Ring have been much different. There has been an exodus of approximately 600,000 of both white non-Hispanics and African-Americans. This has been somewhat more than offset by increases in the Asian and Hispanic population. Since 2000, Inner Ring has gained approximately 150,000 residents, somewhat less than the 175,000 gain in the CBDs (Image 5).

The CBD Employment Market

Another defining feature of CBDs is a huge imbalance between employed residents and jobs. The most recent data indicates that the CBD boasts  nearly six jobs for every employed resident. Elsewhere in the metropolitan areas there was a much closer balance between jobs and resident workers (Image 6).

This huge excess of jobs provides a rich employment market for residents. This and the growth in higher income ethnicities have combined to make the CBDs the most affluent sector in the major metropolitan areas by 2012, at nearly $77.300. This compares to the overall median household income of $64,800, the second ranking $74,900 in the Later Suburbs and the $51,600 in the Inner Ring. The median household income in the Inner Ring was by far the lowest (Image 7).

Overall, as we speak about the core, the lower incomes of the Inner Ring dwarf the higher incomes in the CBD. Overall, the Urban Core (including the CBD and Inner Ring) median household income is $54,400, approximately 30 percent below that of the CBD (Image 8), and well below incomes in the suburbs, exurbs and metropolitan area as a whole.

Assessing CBD Progress

The CBDs have made significant progress. This is an important development because they, like other sectors of the city, best play their part as vibrant and healthy areas, rather than the depressed places that they used to be. They have attracted many younger people (Millennial age).

In context, however, the progress in the CBD has been more symbolic than substantive. The CBD is not a model for what the rest of the metropolitan area. It cannot be. Metropolitan areas are labor markets. This means that they have a jobs to resident worker ratio of approximately 1.0. By definition, labor markets cannot have six times as many jobs as employees. Even with their impressive attraction of younger people, more than 97 percent of Millennial population growth since 2000 has been outside the CBDs.

CBD population growth has been impressive, but small in relation to the metropolitan area. When combined with the much larger urban core component, the Inner Ring, its income advantage and demographic dynamism fades. Reviving the CBDs is a good thing. But the much larger Inner Ring needs revival as well.

The bottom line:  the city is better off when all of its component parts are healthy, from the core to the exurbs.

Note 1: This is the latest available data for small areas and was collected from 2010 to 2014. Thus, approximately one-fifth of the data was collected in each of the five years. For convenience, this article refers to the data as being reflective of 2012 (the middle year).

Note 2: The ethnic analysis is based on one-race and Hispanic data. This represents 98 percent of the major metropolitan area population.

Wendell Cox is principal of Demographia, an international public policy and demographics firm. He is a Senior Fellow of the Center for Opportunity Urbanism (US), Senior Fellow for Housing Affordability and Municipal Policy for the Frontier Centre for Public Policy (Canada), and a member of the Board of Advisors of the Center for Demographics and Policy at Chapman University (California). He is co-author of the "Demographia International Housing Affordability Survey" and author of "Demographia World Urban Areas" and "War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life." He was appointed to three terms on the Los Angeles County Transportation Commission, where he served with the leading city and county leadership as the only non-elected member. He served as a visiting professor at the Conservatoire National des Arts et Metiers, a national university in Paris.

Photo: Kansas City CBD (by author)

What the Blues Brothers and Ferris Bueller’s Day Off Tell Us About Gentrification

Sun, 09/11/2016 - 06:49

The Blues Brothers and Ferris Bueller’s Day Off are two of the seminal films set in Chicago. Indeed, Chicago itself is a character in both films.

The films are radically different even though released only six years apart. There are many ways to slice this. Some have said that one is the South Side movie (The Blues Brothers) and the other the North Side movie (Ferris Bueller). Some see one as more urban, one more suburban.

One other way to look at it is to see how the films portray an urban transition in progress. The Blues Brothers is a look backward at a fading industrial, working class metropolis.  Ferris Bueller looks forward to an upscale, gentrified city.

I explore the parallels and contrasts in my new article in the Summer issue of City Journal, “Gentrification on the Big Screen“:

Florida might regard some of Ferris Bueller’s traditional settings for diversion—the Art Institute and Chez Quis, a fictional fancy French restaurant—as stodgy relics from the city’s older, pre–knowledge economy era. But the scene in which Ferris bluffs his way into Chez Quis for lunch, claiming to be Abe Froman, “Sausage King of Chicago,” is perhaps the most revealing one in the film—and it marks another contrast with The Blues Brothers, in which a French restaurant also figures prominently. In the earlier movie, when Jake and Elwood show up at the legendary Chez Paul, they behave boorishly on purpose, to compel a former bandmate now working a legit job as the maître d’ to quit and rejoin them. By contrast, when Ferris and friends crash Chez Quis, they foreshadow a changing of the social guard. The hip young friends are destined to become Chicago’s new proprietors. They will soon be remolding the city, and its restaurants, in their own image. Chez Paul closed in 1995. Today, the city’s highest-end restaurants—like Alinea, a sleek, uber-hip purveyor of innovative cuisine—represent the culmination of this transition. A 48-year-old Ferris might well be eating at Alinea today.

Watching these films today, viewers under the age of, say, 45 would be struck by how alien Jake and Elwood’s Chicago seems and how familiar Ferris’s Chicago has become. The vibrant working-class culture, tough old nuns, SROs, and Maxwell Street Market of The Blues Brothers have all either disappeared or survive only as shadows of what they once were. With a bit of cultural updating to cars, hairstyles, fashion, music, and phones, however,Ferris Bueller’s Day Off could be remade today, virtually shot for shot. Modern proto-hipsters might well still skip school to visit Wrigley Field, the lakefront, the Sears Tower Skydeck, or the Art Institute. Three decades after Ferris Bueller played hooky from the suburbs, the triumph of the gentrified city is complete.

Click through to read the whole thing.

Aaron M. Renn is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and an economic development columnist for Governing magazine. He focuses on ways to help America’s cities thrive in an ever more complex, competitive, globalized, and diverse twenty-first century. During Renn’s 15-year career in management and technology consulting, he was a partner at Accenture and held several technology strategy roles and directed multimillion-dollar global technology implementations. He has contributed to The Guardian, Forbes.com, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.

Photo: Aretha Franklin singing in a diner in The Blues Brothers. Image via City Journal

Is it Time for MagLev?

Fri, 09/09/2016 - 06:28

Maryland officials have announced that a proposal to build a maglev line from Washington to Baltimore has received a commitment for the feasibility study of $2 million from Japanese government. This is in addition to a much larger involvement by the Japanese government, which would include a $5 billion commitment from the government Japan Bank for International Cooperation. The private Central Japan Railway Company has also agreed to waive any licensing fees for using its maglev technology.

The loan would finance one-half of the “somewhat north of “$10 billion cost, as characterized by Northeast Maglev, the developer of the proposed system.

Surely that is a far better alternative than digging deeper into U.S. taxpayer pockets if combined with sufficient private investment. Otherwise any such system could require huge federal grants, or low interest loans through the Federal Railroad Administration Railroad Rehabilitation and Improvement (RRIF) loan guarantee program.  An RRIF loan could potentially expose taxpayers to a 100% loss, should the maglev system fail to pay for its capital and operating costs, as occurred with what the Washington Post characterized as the “Solyndra Scandal,” which cost taxpayers more than half a billion dollars due to a federal loan guarantee.

The history of private investment in high speed rail around the world is considerably less than encouraging in this regard.

What is Maglev?

Maglev is magnetic levitation, a process by which magnetic forces are used to elevate and propel trains, without friction, at very high speed. The technology has long been favored by futurists and some transport professionals, but there is only one high-speed system in operation (Shanghai). That line has only been partially completed and the rest of the line has been suspended.

“North of” Cost Estimates

The evidence seems to be that the costs of maglev are “north of” high speed rail costs. This is of particular concern for taxpayers, since only two high speed rail lines of the many built in the world have “broken even.” There are recent reports that a third, Shanghai to Beijing is now making a profit Generally large rail project costs have been notoriously underestimated, as the Oxford University work led by Professor Bent Flyvbjerg has shown.

As a result, there is always the risk that a venture proposed as commercial could run out of money during the construction phase, or generate insufficient revenues to its operating and capital costs. In either case, government subsidies would likely be sought by the operator.

 “North of” cost projections, such as suggested by Northeast Maglev, seem to be the rule in high speed rail, given that original cost projections for similar projects have been so routinely unreliable.

The current $10 billion estimate for the Washington to Baltimore line is already well north of an earlier $8 billion estimate.

The currently under construction Tokyo to Nagoya and later Osaka (Chuo Shinkansen maglev) has a construction cost in excess of ¥9 trillion (approximately $90 million). With 90 percent of the Tokyo to Nagoya section underground or in tunnels, cost escalation seems likely.

Similarly, the cost of the California high-speed rail line, in its original full he high-speed configuration from Los Angeles San Francisco tripled (inflation adjusted)  to well “north of” its 1999 cost projection made. Officials cut the system back from full high-speed rail operation in the Los Angeles and San Francisco areas to reduce costs to a more politically acceptable level.

High Speed Maglev: The One Partial Line

Currently, the only partial high-speed maglev line in the world takes passengers only two-thirds of the way from its Pudong International Airport terminus to central Shanghai.

It was planned to extend the Shanghai maglev line to the center and eventually to Hangzhou, an urban area of 7.6 million residents approximately 180 kilometers (110 miles) to the southwest. However, those extensions have been suspended and high-speed rail service is now available to Hangzhou.

The developers of the Shanghai maglev hoped that China would adopt the technology for its high-speed intercity rail system. China, however, opted for conventional high-speed rail technology and will soon be operating at speeds of up to 350 kilometers per hour (220 miles per hour), the fastest in the world. The train sets are already operating in Manchuria.

A Real Head Scratcher

Significantly, the long and disappointing startup pains of maglev may be coming to an end.

The Central Japan Railway has begun building the Tokyo to Nagoya and eventually Osaka Chuo Shinkansen maglev line. The currently planned completion date for the Nagoya section is 2027, with a package of financial incentives worth and a ¥3 trillion loan from the Japanese government intended to advance the completion date for the new going to Osaka section from 2045 to 2037. Thus, Japanese taxpayers are already potentially “on the hook” financially.

There’s an element of the bizarre here.  How much additional transport infrastructure is required in the nation that is losing population at a faster rate than anywhere else in the world? By the earliest date the Osaka extension opens (2037), Japan’s population will have fallen 14 million (more than 10 percent) from today, according to projections of the National Institute for Population and Social Security Research. A quarter of a century later (2062), the population will have dropped another 27 million, to 85 million. That is 10 million fewer people than the 95 million who lived in Japan when the first high speed rail line opened just before the 1964 Olympics. In 2089, Japan is projected to have only 58 million people, fewer than almost 170 years (Figure).

One economic development report noted that the line would “help alleviate the population overcrowding concentration in the Tokyo metropolitan area. Yet, by 2110, the entire country is projected to have not many more people than the Tokyo metropolitan region today.  

The Chuo Shinkansen maglev is a part of Prime Minister Abe’s financial stimulus program, which has both supporters and critics. The government talks of the economic development the line will induce. Others, such as Edwin Merner of Atlantis Investment Research called the maglev line a misallocation of resources and that passenger demand will be limited.

The line has also been justified as a means to promote tourism. Yet, the average tourist may find the scenery --- much of it very appealing --- from the above ground 1 hour 40 minute ride to Nagoya or the 2 hour 30 minute to Osaka on the conventional high speed rail line more satisfying  (such as Mount Fuji) than the hundreds of miles of tunnel on the faster maglev line (Photo).


By Alpsdake (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Protecting US and Northeastern Taxpayers

But, back to the Washington to Baltimore maglev line. A privately financed and commercially viable maglev line would improve transportation in both the Washington to Baltimore corridor and the extension to New York. However, taxpayers need guarantees to ensure that they are not left “holding the bag.”

For example, before any permits for proceeding are issued, the investors should be required to post a bond to ensure that the private funding will be sufficient to complete the system, thus avoiding public subsidy. Further, a performance bond should guarantee that no operating subsidies are required for at least a minimum number of years (perhaps 10 or 25).

A Chance for Success?

With sufficient taxpayer safeguards, there may be a chance for it to succeed. And surely, we wish Japan, the Japan Bank for International Development, the Central of Japan Railway and Northeast Maglev the best, hoping that they can provide a fully commercial venture. On the other hand, like Ford’s “Nucleon” nuclear powered automobile (proposed in the 1950s), the time for maglev may never come.

Wendell Cox is principal of Demographia, an international public policy and demographics firm. He is a Senior Fellow of the Center for Opportunity Urbanism (US), Senior Fellow for Housing Affordability and Municipal Policy for the Frontier Centre for Public Policy (Canada), and a member of the Board of Advisors of the Center for Demographics and Policy at Chapman University (California). He is co-author of the "Demographia International Housing Affordability Survey" and author of "Demographia World Urban Areas" and "War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life." He was appointed to three terms on the Los Angeles County Transportation Commission, where he served with the leading city and county leadership as the only non-elected member. He served as a visiting professor at the Conservatoire National des Arts et Metiers, a national university in Paris.

Lead photo: Chuo Shinkansen maglev by Saruno Hirobano - Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=30917648

The States Gaining And Losing The Most Migrants -- And Money

Wed, 09/07/2016 - 22:38

When comparing the health of state economies, we usually look at employment and incomes. Another critical indicator worth closer attention is where Americans choose to move, and the places they are leaving.

American history has been shaped by migration, from England to the Eastern seaboard, and later from the Atlantic Coast toward the Midwest, and later to the Pacific.

Our analysis of Internal Revenue Service data from 2014, the most recent available, give us an important snapshot of where Americans are moving now, and, equally important, a breakdown by income levels and age.

The Big Winners: The Sunbelt And Texas

To measure the states that are most attractive to Americans on the move, we developed an “attraction” ratio that measures the number of domestic in-migrants per 100 out-migrants. A state that has a rating of 100 would be perfectly balanced between those leaving and coming.

Overall, the biggest winner — both in absolute numbers and in our ranking —  is Texas. In 2014 the Lone Star State posted a remarkable 156 attraction ratio, gaining 229,000 more migrants than it lost, roughly twice as many as went to No. 3 Florida, which clocked an impressive 126.7 attraction ratio.

Most of the top gainers of domestic migrants are low-tax, low-regulation states, including No. 2 South Carolina, with an attraction ratio of 127.3, as well as No. 5 North Dakota, and No. 7 Nevada. These states generally have lower housing costs than the states losing the most migrants.

But it’s not simply a matter of taxes and regulations. There are three states in our top 10 with mixed reputations for red tape and taxes: Oregon (fourth), Colorado (sixth), and Washington (eighth). These are states that have thriving information  and professional business services sectors, which offer higher wages. And though these states have high housing costs, they are well below California’s. For Californians, the employment opportunities available in Seattle, Denver and Portland, combined with the prospect of huge profits from selling the house, makes moving particularly attractive.

The Biggest Losers

High costs go a long way to explain which states are losing the most migrants. At the top, or rather, the bottom of the list is New York State, which had an abysmal 65.4 attraction ratio in 2014 and lost by far the most net migrants, an astounding 126,000 people. Close behind was Illinois, a high tax, high regulation, and low growth disaster area. In 2014 the Land of Lincoln had an abysmal 67.2 attraction ratio, losing a net 82,000 domestic migrants.

Most of the other top people-exporting states are in the Northeast and Midwest. But the West, traditionally the magnet for newcomers, now also has some major losers, including Alaska (80.1), New Mexico (84.6) and Wyoming (88.6). The outflow for some of these western states may get worse, unless prices for natural resources like coal, oil, gas and minerals do not recover in the near future.

And then there is the big enchilada, California. For generations, the Golden State developed a reputation as the ultimate destination of choice for millions of Americans. No longer. Since 2000 the state has lost 1.75 million net domestic migrants, according to Census Bureau estimates. And even amid an economic recovery, the pattern of outmigration continued in 2014, with a loss of 57,900 people and an attraction ratio of 88.5, placing the Golden State 13th from the bottom, well behind longtime people exporters Ohio, Indiana, Kentucky and Louisiana. California was a net loser of domestic migrants in all age categories.

Where’s The Money Going?

Some analysts have claimed that the people leaving California are mostly poor while the more affluent are still coming. The 2014 IRS data shows something quite different. To be sure the Golden State, with its deindustrializing economy and high costs, is losing many people making under $50,000 a year, but it is also losing people earning over $75,000, with the lowest attractiveness ratios among those making between $100,000 and $200,000 annually, slightly less than those with incomes of $10,000 to $25,000.

Overall, many of the most affluent states are the ones hemorrhaging high-income earners the most rapidly. As in overall migration, New York sets the standard, with the highest outmigration of high income earners (defined as annual income over $200,000) relative to in-migrants (attraction ratio: 53). New York is followed closely by Illinois, the District of Columbia and New Jersey, which are all losing the over-$200,000-a-year crowd at a faster pace than California.

The big winners in terms of affluent migration tend to be historically poorer states, mainly in the Sun Belt and the Intermountain West. Florida has an attraction ratio for people earning over $200,000 a year of 223, the highest in the nation, followed by South Carolina, Montana, Idaho and North Carolina. Four of the states with the highest attraction rate among the highest income earners were in the top five in net in–migration of seniors, many of whom are taking nice nest eggs with them. South Carolina scored the highest, followed by Delaware, Idaho, North Carolina and Florida.

Where Young Adults And Families Are Headed

Much of the discussion about millennial migration tends to focus on high-cost, dense urban regions such as those that dominate New York, Massachusetts and, of course, California. Yet the IRS data tells us a very different story about migrants aged 26 to 34. Here it’s Texas in the lead, and by a wide margin, followed by Oregon, Colorado, Washington, Nevada, North Dakota, South Carolina, Maine, Florida and New Hampshire. Once again New York and Illinois stand out as the biggest losers in this age category.

Perhaps more important for the immediate future may be the migration of people at the peak of their careers, those aged 35 to 54. These are also the age cohorts most likely to be raising children. The top four are the same in both cohorts. Among the 35 to 44 age group, it’s Texas, followed by Florida,  South Carolina and North Dakota. Among the 45 to 54 cohort, Texas, followed by South Carolina, Florida and North Dakota.

Far more than the often anecdote-laden accounts seen in the media, the IRS data provides us with a glimpse of a demographic future dominated by those states that are either retirement havens or lower cost places that can compete with the traditional high-income economies such as Massachusetts, California, New York and New Jersey. As millennials age, along with their boomer parents, the data gives us a vision of a changing America which is likely to see a greater dispersal of population, income and demographic groups to many places that, like Texas, Florida or South Carolina, have been considered backwaters but now seem destined to emerge as shapers of our national future.

Where Americans Are Moving -- View Top 10 and Bottom 10 States

This piece first appeared at Forbes.

Joel Kotkin is executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The Human City: Urbanism for the rest of us, will be published in April by Agate. He is also author of The New Class ConflictThe City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Wendell Cox is principal of Demographia, an international pubilc policy and demographics firm. He is a Senior Fellow of the Center for Opportunity Urbanism (US), Senior Fellow for Housing Affordability and Municipal Policy for the Frontier Centre for Public Policy (Canada), and a member of the Board of Advisors of the Center for Demographics and Policy at Chapman University (California). He is co-author of the "Demographia International Housing Affordability Survey" and author of "Demographia World Urban Areas" and "War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life." He was appointed to three terms on the Los Angeles County Transportation Commission, where he served with the leading city and county leadership as the only non-elected member. He served as a visiting professor at the Conservatoire National des Arts et Metiers, a national university in Paris.

The Bridge from Laissez-Faire to Socialism

Tue, 09/06/2016 - 22:38

Cronyism remains unchecked in the world’s largest economy.

We might object to the phrase crony capitalism for two reasons:

First, because cronyism is in some ways the antithesis of capitalism. The freedom to compete and the freedom to fail that are central tenets of capitalism are severely compromised by cronyism when in the former case powerful politicians intervene to shield their friends in business and finance from competition, and in the latter intervene again to save them from bankruptcy or occasionally from criminal prosecution. Of course, these friends in turn are no disloyal slouches and they later show themselves to be supremely appreciative by underwriting, financially and otherwise, those same politicians who had all but guaranteed their continued dominance in normal times and their survival against bad odds in times of distress.

Second, because cronyism is just as prevalent, or arguably more prevalent, in a socialist system than in a capitalist one. Socialism is made popular by charismatic figures appealing to the idealism of some voters but wherever it succeeds in establishing itself, its anonymous toiling bureaucrats turn out to be expert cronies of the very first order, if we are to judge by the experience of many countries in the past century.

Laissez-faire to cronyism to socialism

This experience suggests the following chronology of events: cronyism gradually creeps into and takes over the laissez-faire economy. After some time, its extractive practices and excesses make socialism appear desirable and reasonable to an increasing number of voters. Finally if socialists manage to take control of government, they trumpet the victory of the people and the dawn of an egalitarian era but in their actions simply replace one set of cronies with another. If this is accurate, socialism then would not be the system that replaces capitalism, but rather the culmination of cronyism. Cronyism is a disease on the body of laissez-faire and socialism is an ultimate manifestation of that disease, investing all the organs of the body and bringing about its final demise.

For evidence, see Venezuela. Did the downward spiral start with the socialist Hugo Chavez? Or did it start with the cronyism that preceded Chavez and that made Chavez attractive to an increasing number of people? A case can be made for the latter, even if Chavez in the end played a key role in precipitating the downfall.

The hypothesis is that when laissez-faire is compromised by cronyism, the entire social and economic architecture becomes more vulnerable to the siren call of socialism. This may be because lower income people instinctively understand and accept that a Henry Ford or a Steve Jobs would earn a large fortune as a just reward for his innovations and business genius and large contributions to the advancement of mankind. The same people also understand and accept that lesser Fords and Jobses would earn smaller fortunes that are commensurate with their own lesser contributions, and so on. But these same people have a more difficult time accepting the vast sums extracted from the economy by people who take few risks, contribute little, and owe their advancement and wealth mainly to the lottery of birth or to the connections they have made in the higher circles of learning, politics or business. To say so is not a refutation of capitalism, but of cronyism.

It makes sense then to decouple the words crony and capitalism and to not let the spread of cronyism be used as a pretext to abandon laissez-faire. The Economist recently acknowledged this difference by identifying some industries where cronyism is rampant:

Some industries are prone to “rent seeking”. This is the term economists use when the owners of an input of production—land, labour, machines, capital—extract more profit than they would get in a competitive market. Cartels, monopolies and lobbying are common ways to extract rents. Industries that are vulnerable often involve a lot of interaction with the state, or are licensed by it: for example telecoms, natural resources, real estate, construction and defence. (For a full list of the industries we include, see article.) Rent-seeking can involve corruption, but very often it is legal.

More on this later but note in passing that the term capitalism itself has a tenuous pedigree since its use did not become widespread until the mid 19th century mainly as an antonym to socialism or communism. It has little other reason to exist and proponents of freedom in commerce may be well advised to use the term laissez-faire instead, or an English equivalent, and not let themselves be ensnared in a futile debate of one -ism against another. People who engage in a free and mutually beneficial exchange of goods and services don’t cast about looking for an -ism to describe their activity, just as breathing comes to us naturally and we are not looking to encode a complex ideology to justify its benefits. We need breathing to support life, and we need laissez-faire for the very same reason.

Cronyism around the world

Until about two decades ago, the problem of cronyism was mainly present in smaller economies in the developing world where the governing elite was small and dominated by local business interests. In each of these places, politicians and business leaders were closely related by class or clan or blood or marriage, and they successfully perpetuated a system that preserved their wealth and power.

More recently, cronyism has been on the rise in the United States. Indeed it has become one of the objects of our fascination but, as with the weather, everyone talks about it and no one does anything about it. That can be in part because cronyism is difficult to identify and to expose. Often it is not illegal, a fact that gives moral comfort to its practitioners and ensures its continued advance. Most cronies probably don’t see themselves as cronies but merely as savvy business people trying to do good by influencing policy, or as members of an intelligentsia who have a duty to get involved in government.

The zero hour of cronyism may have been in 2008 when the financial crisis was so severe that cronyism came into full public view, like a bad family feud normally played out behind closed curtains suddenly erupting in the town square. The depredations of 2008 look like a textbook script of how cronyism works. Failed capitalists did not fail but were given by their powerful friends another chance and they later employed this new chance not only to cement their own positions and to weaken their competitors, but to also cement the positions of the powerful friends who bailed them out. Everything seems to have worked out just fine so long as not too many people asked questions as to how and why it all happened in the way that it did.

But our understanding of this phenomenon has only grown since then. Some of the general workings of cronyism were described in the 2012 book Why Nations Fail: The Origins of Power, Prosperity and Poverty by Daron Acemoglu and James Robinson in which the authors differentiate between extractive and inclusive economies. Extractive economies are dominated by cronyism while inclusive economies are closer to a competitive laissez-faire model.

It was alleged and accepted that extractive economies were most often in emerging markets, and that inclusive ones were generally in developed nations. Yet shortly after the publication of Acemoglu and Robinson’s book, this separation came under increased scrutiny. For example, The Economist in 2012 took the “extractive” label and stuck it on the financial industry of the West. In an article titled The Question of Extractive Elites, it wrote:

There are two potential candidates for extractive elites in Western economies. The first is the banking sector. The wealth of the financial industry gives it enormous lobbying power, including as contributors to American presidential campaigns or to Britain’s ruling parties. By making themselves “too big to fail”, banks ensured that they had to be rescued in 2008.

If it is true that banking is “extractive”, no one should be surprised that eight years after the 2008 bailouts, the socialism of Bernie Sanders and the populism of Donald Trump have reached a very ripe and receptive audience of disgruntled voters. On our thesis, the success of these two candidates is a natural result of the decades-old drift from laissez-faire to cronyism.

The problem with cronyism is that it is a form of corruption, albeit one that is nebulous and often legal. A very large sum paid to a former or future government official for consulting or lobbying or for a speech may not technically rise to the level of a bribe but it does look like an attempt to capture that individual and to secure his loyalty before he returns to government where he would then be most appreciative towards his financial patrons. Perhaps then we may think of cronyism as a form of corruption that has thrived temporarily in the absence of the laws and regulations needed to fight it. Or perhaps no new laws are needed and instead a more vigorous judiciary is needed to implement existing laws, that is a judiciary whose independence is not already corroded by the spread of cronyism.

Corruption Perceptions Index

Among the many watchdog organizations that study corruption around the world, Berlin-based Transparency International (TI) publishes an annual ranking of countries in itsCorruption Perceptions Index. In 2015, TI ranked the United States 16th of 167 countries. Except for Canada, Singapore, Australia and New Zealand, all of the countries that ranked ahead of the US were in Western and Northern Europe, with Denmark, Finland and Sweden achieving the top scores.

Large emerging countries fared poorly in the index. Brazil now in the throes of an impeachment battle and several corruption scandals ranked 76th. India was also 76th and Mexico was 95th. China was 83rd and Russia 119th. At the bottom were socialist countries and countries beset by war and internal strife.

Overall therefore the US score was not as good as those of small relatively homogeneous European nations, but it was far above those of countries with large populations and growing economies.

Yet with the vast amounts of money sloshing around the US economy, courtesy of the Federal Reserve’s zero interest rate policy, and given the rise of cronyism for over a decade, it is fair to wonder aloud whether Transparency International is being too kind with its US ranking.

In order to answer this question, we try to estimate the size of the crony economy in the US. This is a difficult endeavor because there are few sources that can be helpful in measuring and quantifying cronyism. The Economist gave it a good try by developing acrony-capitalism index in 2014 and by updating it in 2016.

In the US, the wealth of billionaires in crony industries adds up to a relatively small percentage of GDP, 2.2% in 2014 and 1.8% in 2016. According to the Economist, this measure of cronyism is a much bigger issue in other countries such as Russia (18% in 2016), Malaysia (13%) and even Singapore (1o.7%).

On the other hand, measured in actual dollars, the wealth controlled by crony billionaires in the United States comes to $334 billion and is second only to that of their counterparts in China. This amount is about ten times the amount of crony wealth in more corrupt (per TI’s estimation) countries such as Brazil and others. So, in raw numbers, the US could be by far one of the largest theaters of cronyism in the world.

The Economist writes that, because of the crash in commodity prices, the size of the global crony economy is smaller now than it was in 2014:

Our newly updated [2016] index shows a steady shrinking of crony billionaire wealth to $1.75 trillion, a fall of 16% since 2014. In rich countries, crony wealth remains steadyish, at about 1.5% of GDP. In the emerging world it has fallen to 4% of GDP, from a peak of 7% in 2008. And the mix of wealth has been shifting away from crony industries and towards cleaner sectors, such as consumer goods

but The Economist still sees cronyism as a significant factor in the 2016 US presidential election. Regarding Donald Trump:

Despite this slowdown, it is too soon to say that the era of cronyism is over—and not just because America could elect as president a billionaire whose dealings in Atlantic City’s casinos and Manhattan’s property jungle earn him the 104th spot on our individual crony ranking.

and Hillary Clinton, via some of her donors:

The rich world has lots of billionaires but fewer cronies. Only 14% of billionaire wealth is from rent-heavy industries. Wall Street continues to be controversial in America but its tycoons feature more prominently in populist politicians’ stump speeches than in the billionaire rankings. We classify deposit-taking banking as a crony industry because of its implicit state guarantee, but if we lumped in hedge-fund billionaires and other financiers too, the share of American billionaire wealth from crony industries would rise from 14% to 28%.

This lumping together of commercial/retail banks and investment banks/hedge funds under the crony banner would have been largely unjustified before 2008, notwithstanding the controversial rescue of Long Term Capital in 1998, but it does not look as far-fetched after the 2008 bailout of banks of all stripes.

After the election, we may see a continued advance of cronyism or we may see a retreat. A trend often turns on itself after it reaches a new apex. In order to dial away from socialism and populism and move back towards laissez-faire, we could step up our efforts to limit and roll back cronyism. Otherwise we may see an even stronger drive towards populism or socialism at the next election.

See also The Economist Daily Chart: Comparing Crony Capitalism Around the World.

This piece first appeared at Populyst.net.

Sami Karam is the founder and editor of populyst.net and the creator of the populyst index™. populyst is about innovation, demography and society. Before populyst, he was the founder and manager of the Seven Global funds and a fund manager at leading asset managers in Boston and New York. In addition to a finance MBA from the Wharton School, he holds a Master's in Civil Engineering from Cornell and a Bachelor of Architecture from UT Austin.

Photo of Hugo Chavez by Victor Soares/AgenciaBrasil via Wikipedia.

Why Evangelicals Matter to the Labor Movement

Mon, 09/05/2016 - 22:38

Conventional wisdom tells us that all evangelicals must be anti-union because they are theologically and politically conservative. Therefore, you might assume, labor has nothing to gain from the sixty two million adult adherents of evangelicalism in the U.S. Yet evangelicals were at the forefront of many progressive movements in the nineteenth century, such as abolitionism. Today, evangelicals play leading roles in issues of climate change, immigration reform, torture, and human trafficking. Some are also active in the labor movement.

To understand why, we need to look beyond the Moral Majority of the 1970s to the history of evangelicalism. I bet you didn’t know that, according to evangelist Dr. J. Edwin Orr, “the first trade union was formed by evangelicals as a protest against low salaries.” Orr had in mind the six Tolpuddle martyrs, Methodist and evangelical, who attempted to form a union in Dorchester, about 130 miles southeast of London. They were arrested and transferred to an Australian penal colony in 1834, but evangelical activists successfully fought to secure their release.

In keeping with this legacy, the 2004 NAE publication “For the Health of the Nation: An Evangelical Call to Civic Responsibility” argues that a good government “preserves the God-ordained responsibilities of society’s other institutions, such as churches, other faith-centered organizations, schools, families, labor unions, and businesses.” Unions have a positive part to play in public life, even for evangelicals.

It also helps to have a clearer sense of what it means to be an evangelical, a topic adherents have debated among themselves for years. Just this past October, the NAE and LifeWay Research issued a jointly sponsored report that emphasized that evangelicals are people of faith who should be defined by their beliefs and not by their politics or race.

So what beliefs lie at the heart of evangelicalism? In short, the Bible is the highest authority for belief. There, evangelical Christians are taught to encourage non-Christians to trust Jesus Christ as savior. Christ’s death on the cross removes the penalties for sin. Trust in Jesus Christ alone as savior makes it possible to receive God’s free gift of eternal salvation. Around 30% of Americans hold these beliefs, and they come in all shapes and sizes. Contrary to media representations, evangelicals include many African-American Protestants, even though they are often “separated out of polls seeking to identify the political preferences of evangelicals.” Evangelicals also include many working-class people, members of unions, and others who are sympathetic to unions.

I found powerful evidence of this in interviews that I conducted with African-American evangelical workers, members of then Local 369 of the IAMAW, in the aftermath of their 2009 strike against Moncure Plywood in central North Carolina. Their views suggest creative avenues for future labor evangelicals, if that spark ignites. For example, evangelicals have an especially acute sense of God’s personal presence in every aspect of daily life. One member, Charles Raines, saw no distinction between being on strike and being a faithful Christian. Raines has been a member of nearby Mount Olive Missionary Baptist Church since 1981 and a skilled worker on nearly every phase of plywood production since his first day on the job in June 1968. His pride in his work at Moncure Plywood was unmistakable. His theology of work argues that one has to “earn his living by the sweat of his brow, you don’t work, you don’t eat” – a deft combination of verses from the Old and the New Testament.

Unions also “work,” in Raines’s view, by making a tough job doable at the plywood factory. When the firm was sold to new anti-union owners, the workers hit the picket line. Raines argued that the picket line can be equated with the Church itself: “We’ve already heard of the phrase where there is unity there is strength, where two or three are gathered in my name, He will be in the midst. If God is in the midst of something, you got to be strong.” Raines invoked the Bible verse that describes what’s necessary to form a church – a small collection of believers who gather in the name of Jesus to invoke his presence. God was in the midst of Local 369: “I know that he had our backs, because when people come together like at Pentecost when the Holy Spirit came in like a mighty rustling wind, everyone was of one accord, they received the Holy Spirit, tongues, so when people get together, believers, and pray about a thing, God is in it, because he can’t go back on his word.” Raines used a story from the New Testament to reinforce his point that God was in the midst of their resistance, blessing and supporting that work.

Working-class American evangelicals have much to contribute to the labor movement. Their theology of work is undergirded by the doctrine that everyone is created in the image of God. They teach that we are all co-creators with God to make the world a better place as we also look forward to its ultimate redemption on the basis of Jesus Christ’s sacrifice on the cross. Just the thought of it is dizzying, but evangelicals really believe this even as they recognize the dire effects of sin on the workplace. If anyone believes it is possible to bring to birth a new world from the ashes of the old, it is your evangelical co-worker. The wayin which that will occur may be unfamiliar and may well be uncomfortable in many ways. But it is unlikely that any revival of working-class prospects or the labor movement is possible in the United States without the involvement of its millions of evangelicals.

This piece first appeared in Working-Class Perspectives.

Ken Estey is an associate professor of Political Science at Brooklyn College and the author of A New Protestant Labor Ethic at Work. His research centers on the intersection of politics and religion with a particular focus on labor and Christianity.

Cross photo by Wowzamboangacity (Own work) [CC BY 3.0], via Wikimedia Commons

Are Baby Boomers Turning Out to be the Worst Generation?

Sun, 09/04/2016 - 22:38

I have seen the best minds of my generation, to steal a phrase from the late Allen Ginsberg, driven to heights of self-absorption, advocating policies that assure the failure of the next. Nothing so suggests the failure of my generation — the boomers — than its two representatives running for president.

What Hillary Clinton and Donald Trump reflect are two sides of the same nasty boomer coin.

On one side, there are aging boomers embracing Trump, an icon of materialistic obsession and a lack of concern for “losers.” On the other is a control-freak determination to tell everyone how to live, with instructions coming from entitled boomer politicians and bureaucrats.

Boomers benefited from the strongest economy in American history — they account for 44 percent of the population but 70 percent of the wealth, and have enjoyed far better income growth than later generations. Yet, despite their good fortune, many seem determined to pull ever more out of the economy as they age, while those stuck with the bills for their profligacy and indebtedness — the next generation — will have to do with less.

The ‘I’ve got mine’ crowd

Trumpian boomerism is easily evidenced in my own neighborhood of Villa Park in Orange County. Our lovely, well-maintained and aging little enclave is friendly, civic-minded and civil. But it also is the center of opposition to such things as school bonds that would improve local schools now in a shocking state of disrepair. Villa Park residents helped defeat the last school bond, and it’s a former (thank heaven) City Council member who seeks to lead the effort to overturn the one on the ballot this year.

Read the entire piece at The Orange County Register.

Joel Kotkin is executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The Human City: Urbanism for the rest of us, will be published in April by Agate. He is also author of The New Class ConflictThe City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

The Future of Mobility

Fri, 09/02/2016 - 22:38

I was walking home from downtown San Francisco and passed through the South of Market neighborhood. The area is full of tech company offices like Twitter, Uber, and Airbnb. I saw this minivan advertising, “Low Cost Commuting” and “Ride Share” with the Enterprise Rent-A-Car logo and thought hmmmmm.


As I got closer to home in the Mission District I saw this guy signing people up with coupons for free introductory rides. Evidently Enterprise is diversifying its business model. I asked Jim Kumon of the Incremental Development Alliance  about ride share programs and he had this to say.

“Enterprise has neighborhood locations. Because those locations are not in airports, they don’t get hit with all the extra fees that go with ports, so its dirt cheap. Since they have the room to store extra vehicles and they are geographically dispersed in the right places a shared driver carpool can work. Definitely a major tool to make good-enough-urbanism work for post 1970s neighborhoods or hyper dense places where you can functionally have a pickup game in a car every day.”

Back in June I was in Detroit at a strongtowns.org event where I was asked to debate the impact of autonomous vehicles. I predicted that rather than each driver being chauffeured around in a private computer controlled car this new technology would be pressed into service as a form of hybrid mass transit similar to UberPool. Here’s a more complete explanation from a previous blog post.

UTA

I started asking around and was informed by transportation engineer Jon Larsen in Salt Lake City that the Utah Transit Authority has been providing precisely this kind of commuter service for the past fifteen years as part of UTA’s Vanpool program. “[The vans] are owned by UTA, who pays for fuel, maintenance, repairs, etc, and the riders split a per-mile cost. The driver keeps the van at their house. I’ve got a neighbor with a long commute who’s a driver, and he loves it.” There is no central authority that determines the routes or times. The UTA simply provides the equipment and lets riders form their own agendas.
.

Salt Lake is a predominantly suburban city where traditional rail and bus transit simply doesn’t work well in many peripheral locations. Self organizing commuter vans achieve all the goals of transit (reduction of highway traffic, cost savings for passengers, minimized fuel consumption, environmental benefits, etc,) in a way that works in a suburban region. The graph above shows that Salt Lake is gradually evolving into a city of resurgent urban neighborhoods that enjoy an excellent light rail system while suburban areas are increasingly accommodated by shared commuter vans. In contrast, city buses are losing market share on both fronts.
.

Tech companies may eventually refine this kind of operation with all sorts of bells and whistles, but the folks in Utah demonstrate that nothing more complex than a fleet of existing vehicles, plain vanilla drivers, and a bit of pragmatic self selecting bottom up organization can do all the heavy lifting.

Over the last sixty years we’ve built so much dispersed horizontal development that we’re going to have to continue inhabiting it for a very long time – come what may. Expensive and unwieldy mass transit systems have never worked outside of well established urban centers and their nearby satellite towns. Decentralized, flexible, low tech, and affordable work-arounds just make more sense even if they aren’t as sexy as an Elon Musk electric autonomous vehicle or a bullet train.

One more thing… You will recall that I walked from downtown back home on my journey that uncovered the Enterprise Ride Share plan. My route was just over three miles. In a place like San Francisco it’s actually a pleasure to be on foot and get around with no more advanced technology than shoe leather. We could just build more places like this. Just sayin’.

John Sanphillippo lives in San Francisco and blogs about urbanism, adaptation, and resilience at granolashotgun.com. He's a member of the Congress for New Urbanism, films videos for faircompanies.com, and is a regular contributor to Strongtowns.org. He earns his living by buying, renovating, and renting undervalued properties in places that have good long term prospects. He is a graduate of Rutgers University.

Joel on Reason.tv

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"Greenurbia is the suburbs of the future. The suburbs of the 1950s were bedroom communities for people who commuted into the city. Today, there’s much more employment in the suburbs, and the big change is the number of people working full-time or part-time at home. Having people commute from one computer screen to another doesn’t make sense."

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Kotkin has a striking ability to envision how global forces will shape daily family life, and his conclusions can be thought-provoking as well as counterintuitive. It's amazing there isn't more public discussion about the enormous changes ahead, and reassuring to have this talented thinker on the case. — Jennifer Ludden, NPR national desk correspondent

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