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Trump's Industrial Belt Appeal

Wed, 06/01/2016 - 22:38

In his still improbable path to the White House, Donald Trump has an opening, right through the middle of the country. From the Appalachians to the Rockies, much of the American heartland is experiencing a steady decline in its fortunes, with growing fears about its prospects in a Democratic-dominated future. This could prove the road to victory for Trump.

The media  like to explain Trump’s appeal by focusing on the racial and nationalistic sentiments of his primarily white supporters in places like the Midwest and in small towns. Perhaps more determinative are the mounting economic challenges facing voters in that part of the country. Much of this has to do with an industrial structure facing growing challenges from a high dollar, decreasing commodity prices and a pending tsunami of environmental regulation.

Unlike the Democrats’ coastal strongholds, which depend increasingly on such professions as media, software, finance, and high-end business services, the middle swath of the country depends far more on manufacturing, resource extraction, and agriculture. All these so-called “tangible” industries are facing serious declines, which in a close election could swing some critical states such as Ohio, Colorado, Wisconsin, Indiana, Michigan, and Iowa into the Republican column. Seven of the 10 most manufacturing-dependent metro areas in America are in the Midwest battleground states. Another lies in yet another purple state, North Carolina. 

Economic Slowdown in Mid-America

When President Obama ran for re-election in 2012, the tangible economy was on a roll. Super-charged by the federal bailout, the car industry was roaring back, restoring jobs and confidence in the country’s midsection. The president was even described by The Washington Post as a “man on a mission” to save American manufacturing. And the two states then with the fastest declines in unemployment since the onset of the Great Recession—Ohio and Michigan—are in the Midwest.

At the same time, Obama benefited from the resurgence of domestic oil and gas production that   stimulated growth in steel, heavy equipment, and industrial sector employment. This fortunate confluence was fortuitous for the Democrats, who carried most of the states outside the South buoyed by this nascent industrial rebirth. Good times in coal country helped the president in parts of Virginia; the energy boom helped lock up Colorado for him.

Hillary Clinton likely will not enjoy a similar tailwind this year. Manufacturing indexes have tended downward over the past year, and the energy sector has been in full-scale retreat. This not only impacts oil patch bastions Texas, Louisiana, and Oklahoma, which are unlikely to vote Democratic anyway, but also the battlegrounds states Pennsylvania and Ohio. Agricultural economies in the midsection are also reeling.

Clinton will argue that job growth is on the rise nearly everywhere, but more than half of the increase has come in low-wage sectors such as retail and food service, which is one key reason  for persistently weak income growth.

The damage is not yet universal, but can be seen clearly in many areas. Many Rust Belt and Appalachian regions are once again hemorrhaging residents. In a recent survey of metropolitan economies for Forbes, economist Michael Shires and I traced the job growth in communities across the country. The bottom 10 among the 70 largest metropolitan areas reads like a stroll down Rust Belt Lane: Hartford, Conn., Milwaukee, Detroit, Albany, N.Y., Newport News, Va., Birmingham, Ala., Cleveland, Newark, N.J., Pittsburgh, Buffalo and -- in last place -- Rochester, once one of the beacons of industrial innovation in the country and now part of New York’s upstate disaster area.

Last year, amid some decent employment growth nationally, almost all these areas suffered sub-1 percent job declines after enjoying growth rates well above that in previous years. More grievously affected are a host of smaller communities, many of them in the Midwest and industrial Northeast, several already seeing negative job growth. At the bottom of the list are places like Johnstown, Pa., and Elmira, N.Y., where the Democrats’ “hope and change” promise has failed to reverse dismal local economies.

Enter Trump 

Throughout his divisive campaign, Donald Trump has fattened up on these voters, winning by landslides in places like upstate New Yorkcentral and western Pennsylvania, the industrial suburbs of Detroit, northern Indiana and the resource-dependent parts of Colorado. In hard-hit Erie County, N.Y., home to Buffalo, Trump won two-thirds of the primary vote.

Also appealing to similar populist sentiment, Bernie Sanders has won some of the same areas, often decisively. For his part, Trump’s only serious Rust Belt setbacks occurred in Ohio (where John Kasich ran as a virtual favorite son candidate), Iowa (where evangelicals still wield outsized influence) and Minnesota, which is arguably the most post-industrial of the central states. Recent announcements by such large companies as Ford and United Technologies  to move jobs to Mexico have reinforced Trump's appeal.

Trump’s support, as Nate Silver has shown, is not comprised only of knuckle-dragging Neanderthals. On average, they earn above-average incomes and boast education levels that also exceed the national average. Some are professionals and merchants on Main Street, who acutely ride the ups and downs of the tangible economy. These voters may also be susceptible to rants about Mexican “rapists” and certainly would not favor a massive incursion of Muslim refugees. But their primary concerns are economic, not social. If they really favored regressive social policies, Ted Cruz was their man.

The trajectory of the Democratic race—as well as that of the economy—could help Trump expand his appeal to such voters. Hillary Clinton once tended to be supportive of industrial and energy development; her State Department gave tacit approval to the Keystone XL Pipeline. Now, under pressure from Bernie Sanders’ left-wing legions, she has backed away from support for this organized-labor-backed project. The divisions between the public sector unions and those in the industrial sector could boost Trump’s turnout in states where manufacturing and energy still matter.

To make matters more difficult, Clinton may be saddled at the convention with a ban on fracking. This stance warms the hearts of bicoastal enviros, but is unpopular in large parts of the nation’s heartland. Likewise, the Obama administration’s all-out assault on fossil fuels has already cost Clinton any shot at formerly Democratic-leaning West Virginia, and is likely to hurt her across  theAppalachian belt, which includes portions of Pennsylvania, North Carolina, Virginia and Ohio. Even if oil and gas prices rise, the Obama proposals for higher taxes and regulation of energy seem destined to slow any recovery in this high-paying, largely blue-collar industry.

In addition, Trump is showing unanticipated strength in several key states dependent on coal-fired electricity. He’s currently running even with Clinton in Ohio and Pennsylvania, both of which twice went for Obama. This should be enough to keep Clinton’s advisers, who are planning to deploy massive resources to these states, awake at night.      

In this respect, Clinton faces a difficult situation. Ever more dependent on her party’s post-industrial urban core, she will be hard-pressed to moderate her stance on environmental issues.  Her predecessor and her husband were able to finesse this ground by feinting toward the moderate middle in campaign years, but such ideological contortionism is getting harder to pull off.

Megabuck donors like San Francisco’s Tom Steyer are committed to forcing Clinton to embrace   progressive green orthodoxy. This will leave many mid-America workers and businesspeople feeling abandoned and, thus, potentially more receptive to Trump’s pitch. Ultimately, suggests historian Michael Lind, Trump could presage the transformation of the GOP into a middle-class populist party, with a strong Midwestern as well as Southern base, while the Democrats rest their hopes on an unlikely coalition of the coastal gentry, the hyper-educated, minorities, and the poor.

So far, the crass New York billionaire has played brilliantly on middle-American resentments, many of them well-founded. He promises repeatedly to cut a “better deal” for them. If he can convincingly make his case, Donald Trump also might yet close the most successful real estate deal of his lifetime: occupancy of the White House.

This piece originally appeared at Real Clear Politics.

Joel Kotkin is executive editor of 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.

Extending the Reach of Smart Cities

Tue, 05/31/2016 - 22:38

What distinguishes a ‘smart city’ from one that merely possesses smart technology? At the basic level, ‘smart’ implies a threshold level of technology uptake. Cities with fast internet, straddling buses, and driverless police cars could be considered smart. However, if technology is the only prerequisite, smart is neither revolutionary nor interesting. It is time to move towards a more enlightened understanding of what makes a city smart.

Most smart city definitions fail to articulate how disparate technologies mutually support goals beyond efficiency. If policies are holistic and integrated, technologies should be as well. Integration is not the final objective, though: it represents only the starting point for developing broader strategies to equitably distribute technology benefits and raise living standards. As such, the fundamental question for planners and policymakers is not how to optimize components of the system, but how to ensure that the overall system delivers on the promise of its potential.

In 2014, I introduced what I called a constraint theory of governance. Based on the concept of throughput optimization in the field of operations management, constraint theory posits that efforts to maximize the speed or capacity of individual production stages do little to improve the speed of systemic throughput. This is more colloquially known as the weak-link phenomenon. The concept describes a common management folly that prioritizes efficiency at one stage of production while inventories accumulate at other stages and overall progress stagnates.

So it is with governance. The improvement of a single policy stage (e.g. consultation, design, or implementation) is fully realized only when other stages are proportionately reformed. In an interlinked policy system, achieving complementarity among stages is crucial for improving throughput – as measured by the delivery speed and durability of policy initiatives. More broadly, according to the constraint theory of governance, reforms applied across rather than within functional areas are the only means to generate transformative progress in outcomes.

The constraint theory of governance applies also to smart city systems, in which output is neither a product, as in business, nor a policy, as in governance. Rather, outputs can be seen more broadly as outcomes defined by political, social, and economic progress. Technology is only one component of this complex system; it is the butter, not the bread. Operating within the broader context of a dynamic society and body politic, the power of smart city technology is dependent on strategic and functional integration of urban systems. In other words, technology is only as effective as the governance priorities and capabilities underlying it.

Seemingly disparate technological capabilities can become increasingly interdependent over time. According to the late scientist John Henry Holland, complex adaptive systems are characterized by the presence of components that learn through interaction. This is a useful metaphor for the potential of smart city systems. While much focus has been given to individual components, technological convergence requires a systems perspective. Benefitting from both network growth and scientific progress, smart city systems can shape the collective capabilities of once silo-bound technologies into a continuously evolving whole. This self-correcting mechanism is valuable in environments where policy and planning systems are encumbered by persistent bugbears like political patronage and ideological territoriality.

In smart cities, order is needed for planners to channel technological capabilities productively, while chaos provides a dynamic and flexible space for business and social innovation to 'breathe.' The sterile and the organic exist in paradoxical equilibrium. However, even politically progressive cities are sometimes unable to hold this balance, as in the recent controversy about rideshare services Uber and Lyft in Austin, Texas. Such cases are evidence that deeper thinking is needed about how to anticipate and manage the disruptive effects of smart city systems.

Appreciating the complex and paradoxical dimensions of smart cities can help improve human welfare, particularly when leaders and citizens look beyond efficiency. Rather than optimizing discrete goals, the new architecture of smart cities should be oriented towards broader social and political outcomes. Planner and academic Murtaza H. Baxamusa recently stated, “To be effective, urban planning needs to dig deeper than obscure code, pretty pictures and jumbling data. It needs to make a difference in the lives of all people.”

Smart cities have focused long enough on finding cool ways to do the same old things. Lest they be relegated to the garbage heap of worthless miracles, new generations of urban technologies can earn their keep with lower costs, faster delivery, and improved services, all indicators of efficiency. However, as I recently wrote, “All that computes is not progress.” While technology improves certain aspects of business and governance, its broader potential should not be undersold. The new 'smart' implies extension of opportunities to the disadvantaged, broadening of political participation, and enabling of social forces to shape urban space for the greater good.

Kris Hartley ( is a Visiting Research Fellow at the University of the Philippines Diliman, and a PhD candidate at the National University of Singapore, Lee Kuan Yew School of Public Policy.

Flickr photo by Nicolas Nova: Smart City Infrastructure

A 'Diet' to Give California Drivers Indigestion

Mon, 05/30/2016 - 22:38

In the past, it was other people’s governments that would seek to make your life more difficult. But increasingly in California, the most effective war being waged is one the state has aimed at ourselves.

The Jerry Brown administration’s obsession with becoming a global model for reducing greenhouse gases is leading to an unprecedented drive to completely reshape how Californians live. Rather than focus on more pragmatic, affordable steps to reduce greenhouse gases – more efficient cars, rooftop solar systems and promoting home-based work – the goal increasingly seems like social engineering designed to force Californians to adopt the high-density, transit-oriented future preferred by Brown’s green priesthood.

The newest outrage comes from the Governor’s Office of Planning and Research in the form of a proposed “road diet.” This would essentially halt attempts to expand or improve our roads, even when improvements have been approved by voters. This strategy can only make life worse for most Californians, since nearly 85 percent of us use a car to get to work. This in a state that already has among the worst-maintained roads in the country, with two-thirds of them in poor or mediocre condition.

The OPR move reflects the increasingly self-righteous extremism animating the former Jesuit’s underlings. Ironically, the governor’s proposals to impose this road diet rest partly on expanding the California Environmental Quality Act, which Brown, in a more insightful moment, described as a “vampire” that needs a “stake through the heart.” Now, instead, the inquisitors seize on vague legislative language and push it to what the Southern California Leadership Council has dubbed “an undesirable and unmanageable extreme.”

In essence, the notion animating the “road diet” is to make congestion so terrible that people will be forced out of their cars and onto transit. It’s not planning for how to make the ways people live today more sustainable. It has, in fact, more in common with Soviet-style social engineering, which was based similarly on a particular notion of “science” and progressive values.

Read the entire piece at The Orange County Register.

Joel Kotkin is executive editor of 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.

Chicago Is the Duck-Billed Platypus of American Cities

Sun, 05/29/2016 - 22:38

Census results last week show Chicago as the only one of the twenty largest cities in America to lose population. The freaking out over a tiny loss isn’t really warranted. The comparison to Houston is bogus. Etc, etc. Yet Chicago’s leaders have refused to grapple with the real and severe structural and cultural challenges that face the city. That’s something they need to do if they want it to succeed over the longer term.

I wrote about this in my latest City Journal web piece, “The Duck-Billed Platypus of Cities“:

When it comes to population estimates, municipal-level data is largely irrelevant, especially when comparing cities with one another. That Houston may soon outpace Chicago in municipal population doesn’t mean that much—the city of Houston includes vast tracts of suburbia, making for an apples-to-oranges comparison. Chicago’s metro area is much larger than Houston’s and will remain the third-largest in the country for years to come. Similarly, while Chicago has the most murders in America, its murder rate is lower than other major cities like St. Louis, Baltimore, and Detroit. Comparisons with Detroit, with its hollowed-out economy, particularly infuriate Chicagoans, who reside in what remains a major economic center. And Detroit’s population loss far exceeds Chicago’s.

But just because Chicago shouldn’t be compared to Detroit doesn’t mean that it should be compared with San Francisco.

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,, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.

Chicago photo by Bigstock.

SF Vs LA: Different Strokes In Urban Development

Fri, 05/27/2016 - 22:38

Book Review: "The Rise and Fall of Urban Economies: Lessons from San Francisco and Los Angeles." Michael Storper, Thomas Kemeny, Naji P. Makarem and Taner Osman; Stanford University Press, 2015.

How and why do places differ in their pace of economic development? Why do some flourish while others lag? These are among the most profound questions in economics and related fields. Are explanations found in geography, culture, institutions, or fortune?

In "The Rise and Fall of Urban Economies: Lessons from San Francisco and Los Angeles," Michael Storper, Thomas Kemeny, Naji P. Makarem and Taner Osman consider these questions for two great cities. Storper, Kemeny, Makarem and Osman (hereafter SKMO) direct their attention to the Los Angeles and San Francisco “extended metropolitan regions” — the Census Bureau’s Consolidated Statistical Areas (CSAs) — in the post-1970 years. SKMO claim to have a plausible story about LA/SF divergence, which they do a fine job of presenting in this clearly written and well documented volume.

Both areas were established centers in high-amenity coastal California settings with similar levels of economic success in base-year 1970. But their fortunes have diverged ever since, with San Francisco taking a significant lead.

What happened?

Much of SKMO’s story springs from employment trends summarized in their table, below, which shows jobs data by major sector for their beginning and ending years for each region. Looking at employment shares, both areas had a similarly sized IT sector in 1970, but the Bay Area’s grew spectacularly while LA’s stayed about where it was. LA was specialized in aerospace and defense but, as is well known, that sector declined as the Cold War ended. Both geographic areas started almost equally in share of logistics jobs, but SF’s specialization in that sector subsided, while LA’s grew. LA’s lead in entertainment grew. Both areas lost jobs in apparel, but this hit LA harder, as the region had been more specialized in that sector.

The LA area was long recognized for its leadership in the entertainment industry, just as the San Francisco area was for its leadership in tech. Yet “Hollywood” has been emulated in many places, including India, South Korea, China, and several European countries, while Silicon Valley’s would-be emulators, though numerous, have been far less auspicious.

The post-1970s success of the SF region owes much to Silicon Valley, and SKMO note that, on average, SF’s tech sector salaries were higher than those in LA’s entertainment sector. Lots has been written about the unique culture of innovation and entrepreneurialism found in The Valley. There are real and aspiring ‘techno-hubs” practically all over the world. But the Holy Grail — to identify and bottle some kind of formula to spawn another Silicon culture — has not been discovered.

SKMO note various Silicon Valley pre-1970s events: how the electronics industry had its roots in radio hobbyists, and the 1960s convergence of hippies and techies. The authors identify eleven historical “critical turning points.” Some are private business choices (“Hollywood’s creation of a new project-based organizational structure in the 1950s and 1960s”); some are more in the realm of public policy (“Los Angeles’ Alameda Corridor Project in the 1980s and 1990s”). Others (Steve Jobs liked The Whole Earth Catalog) also make the list, but without any clear direction for today's planners.

The authors devote a chapter to what local governments in each of the two regions spent and prioritized. Bay Area government spending was greater in the 1990s, as well as in the first decade of the 2000s. While Bay Area public transit spending was much greater, SKMO admit that both areas suffer bad traffic congestion, and back away from concluding the extra Bay Area public spending had payoffs. They end up concluding that we simply do not know enough about the programs that were funded to make strong statements about how spending might have (or should have) been re-allocated among programs.

The key chapter of the book addresses what the authors call 'Beliefs and Worldviews in Economic Development': “We will see … how the Los Angeles Economic Roundtable and Chamber of Commerce generated very different narratives from those of the Bay Area Council and Joint Venture Silicon Valley... Bay Area leadership has had a more focused and time-consistent perception of its regional economy as a new knowledge economy. Greater Los Angeles leadership beliefs and worldviews have been inconsistent over time, with fleeting conceptions of the New Economy subsequently crowded out by the perception of Greater Los Angeles mainly as a gateway to international trade and logistics and specialized manufacturing.”

We have to be careful here. The sequence of events is significant: Did important policy choices pre-date the good (SF) or the bad (LA) events the authors document? The unique entrepreneurial and innovative culture bred in Silicon Valley has no discernible starting date. Did the view of Bay Area elites of a new knowledge economy lead the way, or simply acknowledge facts on the ground?

In their study of LA and SF, SKMO say little about how both areas have failed to reign in housing costs. By failing to contain the rising costs of most households’ single largest expenditure, both regions have failed. Labor markets cannot do their job when many people’s location choices are restricted. In all of their talk of the best regional development strategy, this essential one is not touched on in the study.

But, caveats aside, "The Rise and Fall of Urban Economies" is data-rich, wide-ranging and provocative. Anyone interested in the American West’s two premier cities should read this important book.

Peter Gordon is an Emeritus Professor, Price School of Public Policy at the University of Southern California. He now teaches each summer at Zhejian University in Hangzhou, China, and is currently at work on a book that explores how modern cities contribute to economic growth. He blogs at

Can Southland be a 'New York by the Pacific'?

Thu, 05/26/2016 - 22:38

Throughout the recession and the decidedly uneven recovery, Southern California has tended to lag behind, particularly in comparison to the Bay Area and other booming regions outside the state. Once the creator of a dispersed, multipolar urban model – “the original in the Xerox machine” as one observer suggested – this region seems to have lost confidence in itself, and its sense of direction.

In response, some people, notably Los Angeles Mayor Eric Garcetti, favor creating a future in historical reverse, marching back toward becoming a more conventional, central core and transit-dominated region – a kind of New York by the Pacific. Eastern media breathlessly envision our region transforming itself from “car-addicted, polluted and lacking in public transit” into a model of new-urbanist excellence.

Here’s a basic problem. Their L.A. of the future – the one that wins plaudits from places like GQ magazine – essentially negates the region’s traditional appeal, offering the middle and even working classes, a suburban-like lifestyle in one of the world’s great global cities.

Vive la difference

UCLA’s Michael Storper correctly notes how far the Southland has fallen behind its traditional in-state rival, the San Francisco Bay Area. Storper correctly traces much of this gap to the domination of the Los Angeles tech sector by aerospace firms and the fact that this area also had a broad base of nontech-oriented manufacturing.

Can we become a second San Francisco? Regions, like people, do not easily transform themselves into something else. For one thing, the Los Angeles area’s diverse industrial legacy tended to attract a larger share of historically poorer blacks and Hispanics than the Bay Area, whose population is 33 percent black and Hispanic. In contrast, 55 percent of the five-county Southland area’s population has either Hispanic or African American backgrounds, according to data from the 2014 American Community Survey.

Read the entire piece at The Orange County Register.

Joel Kotkin is executive editor of 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 Cost of NOT Housing: A New Report

Wed, 05/25/2016 - 22:38

This is the introduction to an new report "The Cost of NOT Housing" authored by Joel Kotkin for the National CORE Symposium on Affordability of Housing. Download the entire report (pdf) here.

It is a commonplace view that housing does not contribute to the overall fiscal and economic condition of cities. Recent trends—both nationally and here in California—suggest that this is not the case. New housing, including affordable units, provide some direct stimulation through construction jobs, but also allow people, particularly young families, to stay, work and shop locally. Lack of affordable housing ultimately drives people, particularly the entry level and young educated, out of regions where their labor would be coveted by local companies.

Some in the real estate industry, seeing ever higher prices, do not see a crisis here. Yet the current real estate “bubble” is not a durable replacement for a strong, sustainable economy. Older owners, and land speculators with a hold on scarce developable parcel, may do well under such conditions, but draining household finances for rents depresses retail sales, and makes saving for a home purchase ever more difficult.

The problems are particularly relevant to areas like the Inland Empire and the Central Valley, whose economies depend on the migration of middle and working class families seeking more affordable housing. Yet developing such houses—critical to future economic growth—has been greatly constrained by a regulatory regime that works to reduce housing growth, particularly for single family houses, in the periphery. The result has been steadily escalating rents and house prices across the state.

To meet the needs of its increasingly diverse population, and particularly the next generation, California needs to reform its regulations to more fully reflect the needs and preferences of its citizens. Once the home of the peculiarly optimistic “California Dream”, our state is in danger of becoming a place good for the wealthy and well-established but offering little to the vast majority of its citizens who wish to live affordably and comfortably in this most blessed of states.

Download the entire report (pdf) here.

Joel Kotkin is executive editor of 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.

Suburbs (Continue to) Dominate Jobs and Job Growth

Tue, 05/24/2016 - 22:38

Data released by the federal government last week provided additional evidence that the suburbs continue to dominate metropolitan area population growth and that the biggest cities are capturing less of the growth than they did at the beginning of the decade. The new 2015 municipality population estimates from the Census Bureau indicated that virtually all of the 15 fastest growing municipalities with more than 50,000 residents were suburbs, and five were in Texas (See Census Bureau poster, Figure 1). Further, in the major metropolitan areas (more than 1,000,000 population), nearly 75 percent of the population growth was in outside the historical core municipalities (the suburbs as defined by municipal jurisdiction).

But that’s only half of the story. The suburbs and exurbs also continue to dominate employment and employment growth, according to the annual County Business Patterns data. County Business Patterns is a particularly effective measure of genuine job location preferences (both employers and employees), since it largely provides data for private employment.

Analysis of the data using the City Sector Model indicates that both over the longer and shorter term, the outer reaches of US metropolitan have been more than holding their own in employment growth.

The City Sector Model

The City Sector Model classifies small areas (zip codes) of major metropolitan areas by their urban function (lifestyle). The City Sector Model includes five sectors (Figure 2). The first two are labelled as “urban core,” replicating the urban densities and travel patterns of pre-World War II US cities, although these likely fall short of densities and travel behavior changes sought by contemporary urban planning (such as Plan Bay Area). There are two suburban sectors, earlier and later. The fifth sector is the exurbs, outside the built-up urban area. The principle purpose of the City Sector Model is to categorize metropolitan neighborhoods based on their intensity of urbanization, regardless of whether they are located within or outside the boundaries of the historical core municipality (Note).

Most Jobs are Outside the Urban Core

The 2014 data indicates that more than 80 percent of employment in the nation’s major metropolitan areas is in functionally suburban or exurban areas (Figure 3). The earlier suburbs have the largest share of employment, at 44 percent. The later suburbs and exurbs combined have 37.0 percent, while the urban cores have 18.9 percent, including the 9.1 percent in the downtown areas (central business districts, or CBDs).

These numbers reveal dispersion since 2000. Then, the earlier suburbs had even more of the jobs, at 49.4 percent, 5.3 percentage points higher than in 2014. Virtually all of the lost share of jobs in the earlier suburbs was transferred to the later suburbs and exurbs, which combined grew from 31.4 percent in 2000 to 37.0 percent in 2014. The urban cores had 19.4 percent of the jobs (8.8 percent in the CBDs), slightly more than the 18.9 percent in 2014 (Figure 4).

Things have been much more stable since 2010, with a small loss in the earlier suburbs (-1.1 percentage points), a small gain in the urban core (plus 0.1 percentage points), which includes a 0.3 percentage point gain in the CBDs. The later suburbs gained 1.0 percentage points, while the exurbs held the same share as in 2010 (Figure 5).

Most Jobs Growth Since 2010 has been Outside the Urban Core

Between 2010 and 2014, more than 80 percent of the employment growth was in the suburbs and exurbs (Figure 6), approximately the same figure as their overall combined share of employment. The later suburbs have added more than their employment share since 2010 (39.7 percent compare to 24.8 percent), while the earlier suburbs and the exurbs have added a smaller percentage compared to their 2010 share of jobs (30.8 percent versus 45.2 percent and 10.6 percent versus 11.2 percent, respectively).

In the last year (2013 to 2014), the data has remained similar, with smaller changes in the same direction as before (Figure 7). The earlier suburbs experienced a small loss (0.3 percentage points), while the later suburbs gained 0.2 percentage points, the exurbs gained 0.1 percentage points and the urban cores remained constant (including no change in the CBDs).

Where the Jobs are By Urban Sector

There is substantial variation in the distribution of jobs within metropolitan areas.

Not surprisingly, the largest urban core job concentrations are in the metropolitan areas with older and larger core municipalities. Nearly 52 percent of the employment in the New York metropolitan area is in the urban core, which includes the nation’s largest central business district. Chicago, Washington, Boston and San Francisco, with the next four largest CBDs (though all small compared to New York) also rank among the 10 metropolitan areas with the greatest employment share in their urban cores (Figure 8). Only 16 of the 52 major metropolitan areas had more than 20 percent of their employment in urban cores (36 had 80 percent or more of their employment in the suburbs or exurbs).

The metropolitan areas with greater job concentration in the earlier suburbs typically experienced more of their growth in the decades immediately following World War II. Hartford has the largest share of employment in the earlier suburbs, at 81.7 percent (Figure 9). Los Angeles, perhaps the original polycentric city, ranks second, at 72.3 percent. This list also includes Rust Belt metropolitan areas that have either grown little or lost population (Detroit, Cleveland, Pittsburgh and Buffalo).

The metropolitan areas that have had the greatest recent population growth dominate in later suburban and exurban employment (Figure 10). More than 82 percent of Raleigh’s employment is in the later suburbs and exurbs. All but one of the 10 metropolitan areas with the largest job share in the later suburbs and exurbs were among the 15 fastest growing in terms of overall population between 1980 and 2010. The one exception is Grand Rapids, which ranked 27th in growth from 1980 to 2010.

Balanced Metropolitan Areas

The meme that people were moving back to the city (urban core) has been with us for decades. For just as long, there have been virtually no reality to the narrative. . The overwhelming share of the population lives and works the suburbs and exurbs. This is where both population growth continues and job growth is concentrated. One fortunate result is metropolitan areas with remarkable balances between home and employment locations, and among the shortest work trip travel times in the world.


Note: In some cases the functional urban core extends beyond the boundaries of the historical core municipality (such as in New York and Boston). In other cases, there is virtually no functional urban core (such as in San Jose or Phoenix). Functional urban cores accounted for 14.7 percent of the major metropolitan area population in 2012. By comparison, the jurisdictional urban cores (historical core municipalities) had 26.6 percent of the major metropolitan population, many consisting of large tracts of functional suburban development.

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: Suburban fringe, St. Louis (by author)

So Much for Peak Driving (VMT)

Mon, 05/23/2016 - 22:38

So much for peak VMT. The planners and analysts who watched vehicle miles traveled (VMT) trends seemingly peak are no doubt anxious as the preliminary 2015 VMT numbers produced by the U.S. Department of Transportation showed new record total VMT well ahead of the 2007 number that many had hoped signaled peak U.S. VMT. Perhaps even more disconcerting was the sharp increase in per capita VMT, up approximately 2.6 percent for 2015. While not surpassing the prior peak per capita travel levels of the past decade of over 10,000 miles per year per person, per capita VMT nonetheless showed substantial growth during a time when the economy was far from robust. Figure 1 shows the upward sloping total and per capita VMT trends.

While individuals, perhaps someone who bought one of those 17.34 million autos sold in the U.S. 2015 (also a new record) and had a reliable vehicle to travel cross country to visit grandma, celebrate the sub $2.00 gas and the chance to travel more, others, anxious about the congestion, energy use, or emissions of more travel, may be rethinking premature obituaries for auto travel.

Source: Federal Reserve Bank of St. Louis

After exhaustive speculation, one can compile a list of causal factors for the upward spike:

  • The millennial who bought many of those new cars and the used ones they replaced must be accumulating mileage as they hunt for affordable homes in the suburbs.
  • That army of Uber drivers must be racking up the miles as their predatory rates attract bike, walk, transit, and taxi travelers to the car—say nothing of the deadhead miles between rides.
  • Amazon Prime shoppers with their quick delivery preferences are filling the roads with delivery vehicles.
  • The flood of illegal immigrants undocumented aliens, many of whom get driver licenses, must be the cause.
  • Google and the myriad of driverless vehicle developers must be tripping traffic counters as they test driverless vehicles.

Or maybe not. While current data on individual travel behavior changes is not available, even the aggregate data can shed some light on the trends. The change in VMT in rural areas increased 3.86 percent versus 3.37 percent for urban roads suggesting long distance and freight travel growth. Urban travel constitutes 69 percent of total VMT. Truck VMT data will be available later and data on VMT for commercial vehicles, public vehicles, and utility vehicles can only be guesstimated. Freight and these uses of non-household vehicles collectively constitute 24 percent of all roadway travel, hence deserve attention when interpreting trends.

The reduction in fuel price is reasonably hypothesized as a contributor to VMT growth. Historically travel elasticity to fuel cost has been estimated to be around -0.02 to -0.04 in the short term and considerably larger in the long term. The pronounced decline in fuel prices, with average 2015 prices 30 percent below the 2013 average and with current prices 47 percent below the 2013 average price, could explain part of the VMT increase. 

Another way to think about the impact of lower fuel prices is to consider that the average household has an estimated $1000-$1500 more in discretionary income annually as a result of the lower gas prices relative to 2013. Data from the National Household Travel Survey show travel goes up approximately 100 miles per capita annually per $1000 in household income for low and moderate income households (see Figure 2). Coupled with 2.5 million additional persons in the workforce and some wage growth, the VMT growth is understandable. 

Perhaps most important will be understanding how VMT will trend going forward. Many of the considerations that contributed to the slowdown in VMT growth in the early part of this century are still relevant as argued in The Case for Moderate Growth in Vehicle Miles of Travel: A Critical Juncture in U.S. Travel Behavior Trends, Center for Urban Transportation Research, University of South Florida, April 2006). The role of technology in moderating travel demand is still at work with e-commerce, distance learning, telecommuting, and improved travel logistics dampening demand. And those urban millennials may be contributing to moderated demand even if not to the extent hyped by advocates of declining VMT. But the desire to travel to pursue personal opportunity and pleasure remains potent. For a large share of the population, total travel demand is governed by resource constraints, both time and money, not a diminished desire to participate in activities – many that require travel. While few desire to commute farther and may not relish accumulating VMT for routine errands, the always present and growing interest in accumulating life experiences rather than possessions may create more VMT for personal experiences and longer distance social and recreational travel counteracting the savings from greater urbanization, communications substitution for travel, or taking advantage of alternatives to personal vehicles for daily household serving travel. 

In any case the verdict is still out. It will be interesting to watch as trends in the economy, demographics, technology, culture, values, and maybe even urban and transportation planning and investments influence future vehicle travel demand.

The opinions are those of the author—or maybe not—but are intended to provoke reflection and do not reflect the policy positions of any associated entities or clients.

This piece first appeared at Planetizen.

Dr. Polzin is the director of mobility policy research at the Center for Urban Transportation Research at the University of South Florida and is responsible for coordinating the Center's involvement in the University's educational program. Dr. Polzin carries out research in mobility analysis, public transportation, travel behavior, planning process development, and transportation decision-making. Dr. Polzin is on the editorial board of the Journal of Public Transportation and serves on several Transportation Research Board and APTA Committees. The opinions are those of the author—or maybe not—but are intended to provoke reflection and do not reflect the policy positions of any associated entities or clients.

Are Compact Cities More Affordable?

Sun, 05/22/2016 - 22:38

Housing affordability has been a tenacious and intractable urban problem for as long as stats have been kept. Several cities recently declared it a crisis. But what kind of problem is it? Opinions vary widely. An economic problem, or a social one? A land resource issue? Or, as traded wisdom would have it, the result of reliance on the wrong urban form? Proposed solutions vary accordingly. Now, new evidence rules out one potential source of unaffordable housing: clearly, it is not an urban form problem. The widely-believed theory that a city's lack of affordable housing can be fixed with increased compactness — when combined with public transit — is apparently wrong.

In a recent article we questioned a publicized correlation between a compactness index level (i.e., urban form) and housing affordability. The argument supporting compactness is that it enables the use of public transit and active mobility modes, which reduce transport expenses sufficiently to eclipse the higher cost of housing prevalent in compact districts. We challenged that assumption, and found that data from eighteen US regional metro regions showed no such effect. Even if it were at all present, it would not be sufficiently pronounced to be an effective solution. Those conclusions were based on a regional look at the problem.

While the aggregate regional data undermined the urban form theory of affordability, what do sub-regional level data show? At this finer level, could the housing-plus-transportation burden work to the advantage of households? To answer this question, we used data from 18 districts of the Metro Vancouver (BC) region. In this case, the official data exclude certain types of households — a critical limitation. But, given that such disaggregated data are rare, an effort at deciphering their meaning is warranted.

The two subject groups were Working Homeowners and Working Renters. First, we looked at whether or not the working homeowners could find accommodation that suited their income without stretching themselves thin.

Chart #1 shows the progression of housing costs in each sub-regional district, and the corresponding household median income. The in-step slopes of the two data sets suggest that working home-owning households have housing costs in tune with their earnings. This implication is further confirmed by the strong correlation (R2= 0.8598) between their income and their housing expenses.

Housing costs that are proportional with income are a positive sign, but can these homeowners actually make their mortgage payments without financial stress? The data says yes, they can. This group's average ratio of housing payments to income is 26%. It never exceeds 30%, the accepted threshold of financial strain.

Instructively, from an urban form perspective, the highest ratios occur in the central, compact district; a confirmatory finding. Equally expected are that the lowest cost-to-income ratios occur in districts furthest from the center; these districts are either suburban or exurban.

But are any of these home-owning households disadvantaged by excessive transportation costs due to their location? The data show a normal, average transportation expense of 14% of income and a range from about 8% to 20%. The ratios do increase with distance, but bear no significant correlation with income (R2= 0.0178).

When choosing the place of residence, do homeowners consider housing costs, but disregard transportation costs? If so, could this lead to an affordability problem as measured by the combined costs? Apparently not. Chart #3 graphs (blue line) this group’s cost burden for combined housing and transportation (H+T) expenses, which never exceed the recognized affordability threshold: 45% of income.

Conclusion? Metro Vancouver's 305,000 households of working homeowners with mortgages aren't experiencing financial strain due to their housing costs, no matter what their preferred housing form, location or transportation arrangements. The urban and suburban locations of the city structure fully satisfy their housing and transport needs. Neither compactness nor its absence has a negative impact on their finances.

The data paints an entirely different picture for the 224,000 working households that rent their accommodations. Their average H+T burden (Chart #3; orange line) is 51% of their median income, and it ranges from the 45% threshold of affordability to an extreme of 65%.

This picture, however, is not the result of high housing costs; rents register in the affordable range in all locations but two. The average working renter's housing cost is 26%, which mimics that of a homeowner, and the range is below the stress level of 30%, with only two outliers (out of 18 districts) at 35% and 45% of income. For renters, as is the case for homeowners, the highest housing costs occur in the more compact districts. The outliers are found in elite social cluster districts — highly desirable neighborhoods — entirely unrelated to urban form.

Given that rent costs are within the affordable range in all but two locations, we may infer that the Metro Region provides a sufficient range of housing costs for this group in its current urban/suburban structure.

These findings are reinforced by the proportionality of incomes and housing expenses for both homeowners and renters. The incomes of renter households range from 45% to 63% of homeowners by location, and their rent costs are from 45% to 65%, an almost identical range.

It would seem, then, that the excessive H+T burden renters face can be attributed partially to the transportation costs of this group. However, contrary to expectations, of the six districts that have rapid rail service (sky-train; black markers on Chart #3), not one manages to have a total burden below the affordability threshold. That even goes for the two suburban districts that offer the lowest rents.

Chart #4 clearly shows the division between the earnings of owners and renters, and the affordability threshold that separates them. The belief that a compact urban form provides a path to solving housing affordability problems appears untenable.

Overall, the data shows that for working homeowners there are no locations in the Metro Vancouver Region, whether urban, suburban or exurban, that push housing costs or the combined costs of housing and transportation above the affordability threshold. Urban form is not affecting budgets in these households.

For working renters, rents are affordable in 16 of the 18 districts, whether urban, suburban or exurban. However, when transportation costs are added to their housing costs, the new sum puts them in financial stress, even in districts served by rapid rail transit.

This sub-regional, limited analysis confirms the findings of our earlier regional look: compactness and access to transit do not produce the affordability benefits that have been claimed. The compact urban form does not equal more affordable living, particularly for the less affluent.

Fanis Grammenos heads Urban Pattern Associates (UPA), a planning consultancy. UPA researches and promotes sustainable planning practices including the implementation of the Fused Grid, a new urban network model. He is a regular columnist for the Canadian Home Builder magazine, and author of Remaking the City Street Grid: A model for urban and suburban development. Reach him at fanis.grammenos at

Flickr photo by Nick Kenrick: The Neighbourhood of East Van

Murbanism (Mormon Urbanism)

Fri, 05/20/2016 - 22:38

I coined the portmanteau murbanism some years ago on a trip to Salt Lake. Mormon urbanism is shorthand for a theory I have about adaptation and resilience. The term connotes a place that has all the qualities that should result in long term failure, but will probably thrive because of the local culture. Murbanism doesn’t necessarily have to involve a single Mormon. Let me explain…

Let’s say you have two nearly identical towns. Picture typical late twentieth century auto oriented strip mall and tract home blah, blah, blah nowhere near anything. They could be physically beautiful places. They could be comfortable and affordable. They could even be prestigious and exclusive. But they’re entirely dependent on daily deliveries of refrigerated food and a steady trickle of fuel and water from some remote supply chain involving elaborate pumps and pipelines. The primary sources of revenue for these towns come in the form of pension checks, work that requires a forty five minute commute, and massive but hidden subsidies from the state and federal government.

One town is populated by a motley assortment of unaffiliated residents who drifted in a few years ago from New Jersey, Iowa, California, and Illinois. They were  looking for relatively affordable houses, low taxes, and sun in winter. They’re not “joiners.” They like their privacy. The gated community and homeowners association do most of the heavy lifting in terms of public engagement. If anyone wants to be around other people they can drive to the mall.

The other town is predominantly Mormon and organized in a single stake. Which town is likely to hold up better over time? Which is probably better able to respond in a rational and organized fashion in a crisis? Which town can we expect to reexamine its fundamentals and thoughtfully redirect its collective energy if circumstances were to compel serious change?
Here’s another example. Which place has better keeping qualities? Israel or Dubai? Spot the difference?
Murbanism isn’t about the physical form of the town, or any of the buildings, or the town’s location. It’s about how the people who live there relate to each other and how well they can function together in good times and bad.
I’m not a Mormon. In fact I’m the opposite of a Mormon if such a thing exists. But I recognize a resilient and durable culture when I see it. I think we can all learn a great deal from the Mormon experience and adapt those lessons to our own particular circumstances.

John Sanphillippo lives in San Francisco and blogs about urbanism, adaptation, and resilience at He's a member of the Congress for New Urbanism, films videos for, and is a regular contributor to 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.

The Best Small And Medium-Size Cities For Jobs 2016

Thu, 05/19/2016 - 22:38

When we look at how the U.S. economy is performing, we usually focus on the largest metropolitan areas. But some 29% of non-farm jobs in the U.S. are in small and midsize metro areas. And since they tend to be less economically diverse and more volatile, these metro areas often are where we can more clearly see the fissures in the economy — the sectors that are growing, and which are shrinking.

In this year’s edition of our Best Cities For Jobs survey, 13 of the 20 metro areas with the fastest job growth are small (under 150,000 total nonfarm jobs) and medium-sized (between 150,000 and 450,000 total nonfarm jobs).

Many of the smaller places creating jobs at the fastest pace are located in booming regions like the Intermountain West, near college towns and in regions with attractive natural amenities. Meanwhile, times are turning tougher in West Texas and other energy-dependent areas.

The winners and losers also reflect demographic trends, notably the tsunami of downshifting boomers, that will shape our society and economy for years to come.

The Utah Superstars

As is the case with larger areas, it usually helps if a smaller region has more than one economic pillar. This is certainly true for our No. 1 city overall, St. George, Utah. The job count in this metro area has grown a remarkable 32 percent since 2010. Last year St. George’s job growth rate was 7 percent, roughly 3.5 times faster than the national rate, and one reason the area leaped 30 places in our overall rankings from last year.

Located in the scenic southwestern part of the state near the Arizona border, and a magnet for retirees and tourists, St. George has had a remarkable population boom, growing from fewer than 100,000 residents in 2000 to 155,600 people as of 2015.

This demographic surge can be seen where you would expect it, with rapid growth in construction sector jobs – up over 50 percent since 2010 — as well as leisure and hospitality, where employment expanded 37.8 percent over the same span.

Yet this is not just a sleepy retirement and tourist town. The metro area has a median age of 32, three years older than the Utah average, but well below the national average of 37.2. Despite this younger demographic, job growth has occurred in sectors that tend to employ older workers, such as manufacturing, up 40.9 percent since 2010, and professional business services, up 34.6 percent.

Not surprisingly if you want to find other local economies that reflect this kind of dynamic, the best place to look is elsewhere in the Beehive State. Our second-ranked area nationally, Provo-Orem has also achieved rapid job growth, with employment expanding 27.4 percent since 2010. Like St. George, this metro area has enjoyed strong growth in construction and hospitality, but also in higher-wage fields, including information, which has expanded employment 43.9 percent since 2010, and professional business services, up 34.3 percent.

Home to Brigham Young University, the Harvard of Mormondom, the metro area is among the youngest in the nation, largely due to large Mormon families. It’s also, according to Gallup, the most religious as well as one of the best educated: almost 40 percent of its population over 25 holds bachelor’s degrees and almost 5 percent have advanced degrees, just ahead of San Jose, Calif., and Nashville, Tenn.

Also placing highly from Utah is No. 15 Ogden-Clearfield, which rose 25 notches over last year. Employment has expanded 16.2 percent since 2010. Like St. George and Provo-Orem, this region has experienced strong expansion in its construction and hospitality sectors, but also boasts great economic diversity. Since 2010, manufacturing employment has grown 10.4 percent while professional business service jobs have expanded a healthy 31.3 percent.

The Amenity Regions

Of course, you don’t have to be a Latter Day Saint to have a successful small city. But it helps a great deal if you happen to be in a place that has standout natural and cultural amenities. This trend may be greatly enhanced by the movement of seniors, particularly affluent ones, to what may be called “amenity regions” throughout the country. Contrary to the urban mythology pressed by the mainstream media, Census data shows that seniors are not moving “back to the city” in great numbers but generally to smaller, less dense regions, if they move at all.

Being in a nice place, of course, is an asset for any city; after all, entrepreneurs and young families also like to live somewhere good times beckon. At the same time, some of these areas also benefit from a strong hospitality and second home market. Another critical advantage belongs to college towns which, by their very nature, usually offer more by way of arts, restaurants and entertainment than other places.

The highest ranked of these metro areas this year is Fayetteville-Springdale-Rogers, AR-MO, which comes in sixth on our overall list. It enjoys the benefits of being home to the University of Arkansas as well as close to the Ozark Mountains, one of the premier recreation areas in middle America. Since 2010, employment in the metro area has jumped 19.6 percent, or 40,000 jobs, with a 4.7 percent expansion last year. Like other top small cities, the areas has enjoyed strong growth in construction and hospitality jobs, up 37.2 percent since 2010, but also professional and business services, which expanded 38.2 percent over the same time period.

Some other of the fastest-growing areas metro are tourism and retirement destinations on the tech-rich West Coast. Five years ago, Napa, Calif., and Bend-Redmond, Wash., were mired toward the bottom of our ranking in 344th and 36rd place, respectively. But as the coastal tech economies have surged, so have they, rising to 13th and 14th place this year. Hospitality and construction have been the big job gainers for both, with some jobs added in professional services as well.

Losing Ground In The Oil Patch

As tech-linked areas ascend, many energy-producing towns are slipping, with oil and gas prices in the dumps and the coal industry racked by the government-guided transition to cleaner forms of power production.

West Virginia’s metropolitan areas have all suffered major declines on our list, with Wheeling dropping 54 places from last year’s survey to 396th on a 0.7 percent contraction in employment on the year. In Charleston, W.V., which has fallen to five spots from the bottom of our list, mining and natural resources employment declined 9.8 percent last year and is off 31.5 percent since 2010. Big job losses have occurred also in Wyoming, a major coal producing area, where Cheyenne dropped 82 places to 206th as mining and natural resources employment contracted 6.2 percent last year.

Many once red-hot areas in the oil patch have taken devastating hits. Former high-flyer Victoria, Texas, dropped from 24th place last year to 115th. But no place reflects the flagging fortunes of the West Texas energy economy more than Midland, which, just last year ranked first on our list; this year it’s at 139th after losing 14.7 percent of its natural resources jobs and 6.9 percent of its jobs overall. Odessa fell from third last year to 173rd this year on the back of an 8.8 percent contraction in employment, and 20.4 percent in the natural resources sector.

Several Louisiana metro areas have suffered steep job losses, including Houma-Thibodaux, down 183 places on our list to 325th after an 8 percent contraction in employment. Several smaller Oklahoma communities have taken serious hits, including Tulsa, which dropped to 222nd. Bismarck, N.D., a prime beneficiary of the Bakken oil boom, dropped 67 places from last year to 102nd as 6.8 percent of its natural resources jobs evaporated, while Bakersfield, Calif., one of the country’s largest oil producing areas dropped 70 places to 109th as natural resources employment contracted 11.5 percent.

The Rust Belt: Is The Bounce Back Over?

The picture is less uniform in the industrial sector than in energy. Some manufacturing-oriented areas are booming, such as No. 4 Gainesville, Ga., and No. 10 Columbus, Ind., home to Cummins. Nationwide manufacturing employment grew a paltry 0.3 percent last year, with some local declines that devastated the affected economies.

In the Midwest, the big losers include Midland, Mich., which dropped 75 places to 245th, Green Bay, Wisc., which fell 83 places to 286th, and Fond du Lac, Wisc., which lost 173 places to 293rd. In Pennsylvania, Scranton-Wilkes Barre-Hazelton fell 97 places to 373rd and Williamsport dropped an astounding 212 places since last year to 383rd, with manufacturing employment off 13.2 percent since 2010 and overall employment down 3.5% last year. And then there’s Johnson, Pa., in last place at 421st.

Like the energy economies, the industrially oriented metro areas are likely to stagnate for the time being as declines in global markets, the high dollar as well as lower demand from the energy sector take their toll. The International Monetary Fund predicts a modest 3.2 percent global growth rate for 2016, held down in significant part by a faltering Chinese economy. At the same time, OPEC overproduction and the addition of Iranian oil to global markets will likely keep the price below the $70-$80 per barrel range that energy producers need to start expanding energy investments again.

This means, for the time being at least, the strongest smaller cities will be those which attract people and companies from bigger places by offering better amenities, cheaper housing, better schools, growing populations and, in many cases, college campuses—all offering a better quality of life but in a smaller, usually more affordable place.

This piece first appeared at Forbes.

Joel Kotkin is executive editor of 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.

Michael Shires, Ph.D. is a professor at Pepperdine University School of Public Policy.

By UtahStizzle (Own work) [Public domain], via Wikimedia Commons

New York's Incredible Subway

Thu, 05/19/2016 - 08:13

The New York subway is unlike any other transit system in the United States. This system extends for 230 miles (375 kilometers) with approximately 420 stations. It serves the four highly  dense boroughs of the city (Manhattan, Brooklyn, Queens and the Bronx), each of which is 20 percent or more denser than any municipality large municipality in the United States or Canada. Much of the fifth borough, Staten Island, looks very much like suburban New Jersey and has no subway service, though has a more modest system, the Staten Island Railway.

Overall, the older Metros (Note 1), New York's subway, along with London's Underground and the Paris Metro dominated the world's urban rail systems for decades. Until the recent emergence of Chinese urban areas (Beijing and Shanghai), London had the longest extent of track in the world, followed by New York.

As one of the original Metros in the world, it might be thought that the New York City Subway's best days are over. That would be a mistake. It is true that ridership reached a peak in the late 1940s and dropped by more than half between the late 1970s and the early 1990s. However, since that time ridership has more than doubled, according to American Public Transportation Association data. And it is not inconceivable that new records may be set in the years to come.

Perhaps the most incredible thing about the New York City Subway has been its utter dominance of the well-publicized national transit ridership increases of the last decade. According to annual data published by the American Public Transportation Association (APTA), ridership on the New York City Subway accounts for all of the transit increase since 2005. Between 2005 and 2015, ridership on the New York City Subway increased nearly 1 billion trips. By contrast, all of the transit services in the United States, including the New York City Subway, increased only 800 million over the same period. On services outside the New York City subway, three was a loss of nearly 200 million riders between 2005 and 2015 (Figure 1).

The New York City subway accounts carries nearly 2.5 times the annual ridership of the other nine largest metro systems in the nation combined (Figure 2). This is 10 times that of Washington’s Metro, which is losing ridership despite strong population growth , probably partly due to safety concerns (see America’s Subway: America’s Embarrassment?). Things have gotten so bad in Washington that the federal government has threatened to close the system (See: Feds Forced to Set Priorities for Washington Subway).

The New York City subway carries more than 11 times the ridership of the Chicago “L”, though like in New York, the ridership trend on the “L” has increased impressively in recent years. The New York City subway carries and more than 50 times the Los Angeles subway ridership, where MTA (and SCRTD) bus and rail ridership has declined over the past 30 years despite an aggressive rail program (See: Just How Much has Los Angeles Transit Ridership Fallen?).

With these gains, the New York City Subway's share of national transit ridership has risen from less than one of each five riders (18 percent) in 2005 to more than one in four (26 percent) in 2015. This drove the New York City metropolitan areas share of all national transit ridership from 30 percent in 2005 to over 37 percent in 2015.

Subway ridership dominates transit in the New York City metropolitan area as well, at 67 percent. Other New York City oriented transit services, including services that operate within the city exclusively and those that principally carry commuters in and out of the city account for 28 percent of the ridership. This includes the commuter rail systems (Long Island Railroad, Metro-North Railroad and New Jersey Transit) and the Metro from New Jersey (PATH) have experienced ridership increases of approximately 15 percent over last decade (Note 2).

Other transit services, those not oriented to New York City, account for five percent of the metropolitan area's transit ridership (Figure 3). By comparison, approximately 58 percent of the population lives outside the city of New York. The small transit ridership share not oriented to New York City illustrates a very strong automobile component in suburban mobility even in the most well-served transit market in the country.

Last year (2014), APTA announced that the nation's transit ridership had reached the highest in modern history, having not been higher since 1957. In fact, the ridership boom that produced the record can be attributed wholly to the New York City Subway. If New York City Subway ridership had remained at its 2005 level, overall transit ridership would have decreased from 9.8 billion in 2005 to 9.6 billion in 2015. The modern record of 10.7 billion rides would never have been approached.

Thus, transit in the United States is not only a "New York Story," but it has also been strongly dependent on the New York Subway in recent years. After decades of decline, the revival of the New York subway is a welcome development.

Note 1: “Metro” is the international generic term for grade separated rapid transit systems. In the United States, the Federal Transit Administration refers to this transit mode as "heavy rail."

Note 2: Separate data is not available in the APTA reports on the for-profit commuter bus operators serving the city of New York from New Jersey.

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.

Photo: New York City Subway diagram by CountZ at English Wikipedia, CC BY-SA 3.0

De-Industrialization and the Displaced Worker

Tue, 05/17/2016 - 22:38

Much has been made of working class pain in this election, but the problems go well beyond that.  I don’t like the 1% vs. 99% frame, but it captures something important about our society, namely a sort of bifurcation that has occurred between top and bottom. Roughly the top 20% are doing quite well, and increasingly live in communities surrounded by others like themselves. The bottom 80% does not seem to be faring so well on a variety of social and economic statistics.

The policies offered by the mainstream of both parties has more or less boiled down to “more of the same stuff we’ve always pitched.” Clearly, the public is looking for something different.

That’s the subject of my column now out in the May issue of Governing magazine called “De-Industrialization and the Displaced Worker.”  Here’s an excerpt:

In George O. Smith’s science fiction short story “Pandora’s Millions,” society collapses when the invention of a “matter replicator,” like the ones from Star Trek, instantly renders most of the economy, and money itself, obsolete. Being a short story, this is resolved quickly with the invention of a substance that can’t be duplicated, followed by rebuilding the economy and society around services. Real life doesn’t always recover so quickly from disruptions, as we are finding out.

Unsurprisingly, this has generated discontent. Back through to the 1980s and ’90s, this was mostly limited to displaced industrial workers. Today that has grown to a much broader spectrum, from young master’s degree holders with piles of student loan debt who are stuck working at Starbucks to corporate middle managers losing their jobs to outsourcing or foreigners working here under H1-B visas.

This has percolated through to the political system, with the rise of Donald Trump and Bernie Sanders, both questioning many of the premises of the current economic system. America is more receptive to these arguments than many ever would have believed possible. That’s because the current system has lost legitimacy in the minds of many. Not only did it fail to deliver the promised benefits to them, but then government turned around and bailed out the big banks in the financial crash.

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,, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.

Image by Flickr/Mirko Tobias Schäfer – CC BY 2.0

Scandinavian Women Do Well, Except at the Top

Mon, 05/16/2016 - 22:38

In which part of the world should we expect most women to reach the top? The answer has to be the Nordic countries. According to The Global Gender Gap report, for example, Iceland is the most gender equal country in the world followed by Norway, Finland and Sweden. Yet as I will discuss below, this has not translated in women making it to “the top”, as one might expect. This a paradox that I will seek to address.

Around the world, the Nordic countries are often idealized as the most gender equal places in the world. To a large degree, this admiration is warranted. But it is time to realize that the very same system is holding back women’s ability to reach the top.

To begin with, the Nordics have a unusual gender equal history. The tradition of gender equality has roots in Viking culture. For example, Scandinavian folklore is primarily focused on men who ventured on longboats to trade, explore and pillage. Yet the folklore also includes shiledmaidens, women chosen to fight as warriors. Byzantine historian John Skylitzes records that women were indeed participating in Nordic armies during the 10th century. The fact that women were allowed to bear arms, and train as warriors, suggests that gender segmentation in early Norse societies was considerably more lax – or at least more flexible – than other parts of contemporary Europe. Evidence also suggests that women in early Nordic societies could inherit land and property, that they kept control over their dowry and controlled a third of the property they shared with their spouses. In addition, they could, under some circumstances at least, participate in the public sphere on the same level as men.

Medieval law, which likely reflects earlier traditions, supports this notion. Medieval inheritance laws in Norway for example followed family relations through both male and female lines. Additionally, women could opt for a divorce. These rights might not seem impressive today, but they were rather unusual in a historical context. In many contemporary European and Asian societies, the view was that women simply belonged to their fathers or husbands, having little right to property, divorce or inclusion in the public sphere.

Nordic gender egalitarianism continued after the Viking age, particularly in Sweden. In much of the world, women were excluded from participating, at least fully, in the rise of early capitalism during the 18th and 19th centuries. In essence, free markets and property rights were institutions that initially excluded women. Although Sweden and the other Nordic countries were far from completely egalitarian, they challenged contemporary gender norms by opening up early capitalism for women’s participation.

As shown below, the World Value Survey has asked respondents around the world whether they believe that men should be prioritized over women if jobs are scares. In modern market economies, fewer agree with this notion. In Switzerland for example, 22 per cent believe that men should have more right to a job than women, compared to 16 per cent in the United Kingdom and 14 per cent in Canada and Australia. Sweden has the lowest share agreeing with this view, merely 2 per cent. Norway (6 per cent) and Finland (10 per cent) are also amongst the countries with egalitarian views.

In addition, the Nordic welfare states have encouraged women to enter the labor market early on. Still today Nordic countries are ahead of most of Europe in this regard. Child care cost and paid maternity, services provided largely by the public sector in the Nordic welfare states, can in part explain the high labor participation amongst both parents. Such systems are much more extensively funded by the public sector in the Nordics compared to other modern economies, and particularly so compared to the Anglo-Saxon nations. Although even here, the United States, still not a full welfare state, does surprisingly well.

A long history of gender equality, gender equal norms, many women actively participating in the labor market and family friendly welfare policies – surely this should be seen as the recipe for many women reaching the top of the business world? In the new book The Nordic Gender Equality Paradox I show that this is not the case. In Nordic countries surprisingly few women have made to the top echelons.   

The OECD gathers information about the proportion of employed persons which have managerial responsibilities in different developed economies. In the table below the share of women managers in different countries is shown as a percentage of the share of male managers. This calculation yields a measure of the likelihood of the average employed women to reach a managerial position compared to the average employed man. The likelihood of a women reaching a managerial position as compared to the same likelihood for a man in the United States is found to be 85 per cent. This is far higher than any other country in the study. As a comparison, the same share is 60 per cent in the United Kingdom and 52 in Sweden. Norway (48 per cent), Finland (44 per cent) and Denmark (37 per cent) score even lower.

It should be emphasized that this measure includes public sector managers, which inflates the figures for Nordic countries compared to if private sector managers had been studied. The data paints a clear picture: The United States, where welfare state programs do not subsidize women’s parental leave has more women reaching managerial positions than any of the Nordic welfare states.

Why is it that Nordic countries fail to reach their gender equal potential? Shouldn’t these countries be heads and shoulders above the US when it comes to the share of women climbing to the top? Progressive theorists would naturally assume this. But in reality there is a paradox here; the egalitarianism of the Nordics has clear limits.   At the end of 2014 for example, The Economist ran a story entitled A Nordic mystery

“Visit a typical Nordic company headquarters and you will notice something striking among the standing desks and modernist furniture: the senior managers are still mostly men, and most of the women are [program administrators]. The egalitarian flame that burns so brightly at the bottom of society splutters at the top of business.”

As I explain in The Nordic Gender Equality Paradox there is a logical answer to the apparent paradox: policy matters. Numerous studies support the conclusion that the large welfare states in the Nordics, although designed to aid in women’s progress, in fact are hindering the very same progress. Social democratic systems do provide a range of benefits for women, such as generous parental leave systems and publicly financed day care for children. The models however also have features that are detrimental to woman’s careers.

To give an illustrative example, public sector monopolies in women-dominated areas such as health and education seem to substantially reduce the opportunities for business ownership and career success amongst women. Welfare state safety nets in particular discourage women from self-employment. Overly generous parental leave systems encourage women to stay home rather than work. Substantial tax wedges make it difficult to purchase services that substitute for household work, which reduces the ability of two parents to engage fully in the labor market.

The Nordic welfare model has, perhaps unintentionally, created a model where many women work but seldom in the private sector and seldom enough hours to be able to reach the top. For example, it might seem as a puzzle why the Baltic countries – which have much more conservative and family oriented cultures – have a higher share of women amongst managers, top executives and business owners than their Nordic neighbors. As shown below, a key factor is difference in working time. In the Nordic societies the average employed man works fully 22 per cent more hours than the average working women. In the Baltic model, where families have greater choice in organizing their lives compared to the Nordic welfare states, the gap is only 9 per cent. On top of this comparison, which looks at working individuals, many Nordic women also take long parental leaves, paid to do so by the welfare state, and thus fall behind in their careers. Of course Baltic mothers are also much concerned for the upbringing of their children. However, many of them solve the equation by getting help from family, perhaps grandmother, to watch the children or buy services to alleviate household work – something easier to do in low-tax countries.

Thus, for all their gender equal progress, the Nordic countries in fact have relatively few women entrepreneurs, managers and executives. And there is really not a paradox why this situation has developed. It’s all about the policy choices made in the Nordics.

As is clear, an expansive welfare state may be good for some things, but expanding the ranks of managers for women is not one of them. The feminist heritage that dates back to the age of the Vikings needs to be combined with a more free-market and small government approach if Nordic societies are to fulfill their gender equal potential. Perhaps this is also a lesson to the rest of the world, where progressive policies are often seen as the recipe for promoting women’s careers.

Nima Sanandaji is the president of the European Centre for Policy Reform and Entrepreneurship ( and a research fellow at the Centre for Policy Studies and at the Centre for Market Reform of Education. His latest book, The Nordic Gender Equality Paradox, can be ordered here.

Battle of the Imperial Pretenders

Sun, 05/15/2016 - 22:38

It took the Roman Republic five centuries to devolve into a centralized despotism. It may take ours roughly 240 years to get to the same place, but with decidedly less upside.

Concern over a crossing of a constitutional Rubicon – the northern Italian river whose passage by Julius Caesar and his legion in 49 B.C. occasioned the death of the Republic – has centered on Donald Trump. The Donald might not have conquered Gaul, or written a brilliant account of his exploits, but his Caesarist attributes – overweening self-regard, contempt for existing institutions and a touch of glamour – are all too obvious.

No surprise, then, that some on the left, perhaps rehearsing their roles as cheerleaders for Hillary Clinton, see Trump as a “tyrant” – a Caesar in training. Others see a reincarnation of Italy’s fascist dictator Benito Mussolini and link Trump’s success to that of the rising European populist parties, which progressives often label, sometimes accurately, as protofascist.

Many on the intellectual right also see in The Donald an imperial pretender. New York Times Republican stalwart Ross Douthat has called the likely GOP presidential standard bearer “a protofascist grotesque with zero political experience and poor impulse control.”

Read the entire piece at The Orange County Register.

Joel Kotkin is executive editor of 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.

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

Developing Economies Dominate Per Capita GDP-PPP Growth

Fri, 05/13/2016 - 14:07

The world’s developing economies have dominated purchasing power economic growth over the last 35 years, according to the most recent gross domestic product (GDP-PPP) per capita data from the International Monetary Fund (IMF). This article summarizes economic growth for three periods, including from the earliest IMF data (1980 to 2015), the intermediate 2000 to 2015 period and the more recent 2010 to 2015 timeframe. The full data is available on the Demographia website, at

GDP per capita provides a measure of comparative income for individuals in an economy, as opposed to overall GDP data, which is a measure of an economy’s total production. This is an important distinction, because an economy may have a very high overall GDP, while its residents have relatively low income. For example, India has the world’s fourth largest GDP, yet with its population approaching 1.3 billion, ranks 126th in GDP per capita (out of the 190 countries and sub-national geographies included in the database). On the other hand, China’s Macao Special Administrative Region has the third highest GDP per capita in the world, but barely manages to be within the 100 largest economies, due to its much smaller population (approximately less than 600,000).

Fastest Growing Economies

2010-2015: The most recent period exhibited remarkable geographic diversity among the fastest growing economies. Asia contributed 13 entries out of the top 20, with Africa adding three (Ethiopia, Ghana and the Democratic Republic of the Congo), Europe two (Latvia and Lithuania), Oceana one (Papua New Guinea) and North America one (Panama). The fastest growing economy was Turkmenistan, at 67 percent, closely followed by Mongolia at 63 percent and Ethiopia at 61 percent. China, which has sustained strong growth throughout all of the periods examined, ranked fourth at 54 percent. Myanmar, now emerging from decades of dictatorship,  was the fifth fastest growing economy, at 49 percent (Figure 1).

The top 20 included two of the world’s poorest economies, third ranked Ethiopia, with a GDP per capita of $1,800 and the Democratic Republic of the Congo (DRC), which ranked 19th, with a GDP per capita of $800 (both figures are after the 2010-2015 increase). The improvement in the DRC is thus very encouraging, but it is  from a severely impoverished base.

2000-2015: Perhaps surprisingly, nine of the 20 fastest growing economies over the interim period (2010-2015) are former Soviet republics. Turkmenistan was, as between 2010 and 2015, the fastest growing, at 540 percent. Turkmenistan was joined by fellow former Soviet Azerbaijan , which grew 393 percent. Other former Soviet republics in the top 20 included Georgia, Armenia, Kazakhstan, Uzbekistan, Belarus, Lithuania and Tajikistan.  However, the largest former Soviet republic of all, the Russian Federation, was not among the fastest growing but placed a respectable 45th .

China ranked third in economic growth, only slightly below 388 percent. Timor-Leste, recovering from its intense ethnic conflict, ranked fourth. Myanmar ranked fifth.

1980-2015: Over the longer period (1980-2015), Equatorial Guinea grew the fastest, at more than 8,000 percent, driven by its rich oil resources. China ranked second, at 4,500 percent. This huge increase was from a second worst in the world GDP per capita, which was a mere  $300 in 1980. Small Bhutan ranked third, at 1,627 percent, followed by the Republic of Korea (South Korea), which grew 1,572 percent, to become one of the world’s strongest economies. Vietnam ranked fifth, growing 1,283 percent (Figure 3).

Three of the world’s richest economies, with GDP’s per capita above $50,000, were also among its fastest growing between 1980 and 2015. These included Singapore (14th), Hong Kong (17th) and Ireland (20th).

Slowest Growing Economies

2010-2015: The slowest growing economies in the last five years have suffered serious civil disorder.  Troubled Libya experienced a more than halving of its GDP per capita between 2010 and 2015. In 2010, Libya had a GDP per capita of $29,600, more than long-time European Union (EU-15) members Greece ($29,000) and Portugal ($26,500). By 2015, Libya had dropped to $14,600, less than Brazil ($15,600) and the Dominican Republic ($15,000).

Similarly unstable Yemen experienced a loss of 37 percent, from $4,200 to $2,700.

The Civil war ravaged Central African Republic lost 29 percent in GDP per capita. This is made worse by the fact that the Central African Republic ranked 185th in GDP per capita in 2010 out of the 189 geographies for which there is data. The 2015 data shows the Central African Republic to rank dead last in GDP per capita, 190th out of 190.

Oil producing Equatorial Guinea experienced a loss of 17 percent in its GDP per capita, which is particularly significant, since Equatorial Guinea had the largest gain of any economy between 1980 and 2015.

Three current European Union members were among the slowest growing economies. Greece had the 7th largest loss (-8.8 percent), while Cypress had the 8th largest loss (2.9 percent). Italy was the 16th slowest growing economy, gaining 1.8 percent (Figure 4).

2000-2015: The largest loss in GDP per capita between 2000 and 2015 was experienced by the oil producing United Arab Emirates. The next three greatest losses were in Libya, the Central African Republic and Yemen, which also sustained the largest losses between 2010 and 2015. The same three European Union members as in 2010-2015 made the 2000-2015 slowest growth list, Italy, Greece and Cypress (Figure 5).

1980-2015: Libya and the United Arab Emirates were the only geographies to post GDP per capita losses over the past 35 years. Miniscule growth was experienced in the third slowest growing Democratic Republic of the Congo, though as indicated above, the DRC managed to make the top 20 in growth between 2010 and 2015.

The Future

While there is much to celebrate about economic growth over the last 35 years and even in the more recent periods, far too much of the world lives in poverty and middle-income standards of living are declining, especially in the high-income world. These factors were the subject of discussions at the 2014 Brisbane G20 conference, when world leaders adopted a communique stressing a commitment to improving standards of living and eradicating poverty.

Yet, a year and half later, International Monetary Fund Managing Director Christine Lagarde expressed a cautionary note in introducing the organization’s latest World Economic Outlook. The IMF indicated that Director Legarde warned that the recovery remains too slow, too fragile, with the risk that persistent low growth can have damaging effects on the social and political fabric of many countries. It is to be hoped that future reports will show large numbers of people exiting poverty, and a resumption in the rise of middle-income living standards. If these run in tandem, the world economy will be in the best shape in history.

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: Addis Abeba, capital of Ethiopia (3rd fastest growing economy 2010-2015)

California’s High-Speed Rail Authority Wins Dishonor of the California Golden Fleece Award

Wed, 05/11/2016 - 22:38

The California High-Speed Rail Authority (CHSRA) has won the Independent Institute’s first California Golden Fleece Award for its lack of transparency and history of misleading the public about key details of the state’s “bullet-train” project, which no longer reflect what voters approved in 2008.

The agency’s “bait-and-switch” strategy justifies a statewide vote on whether or not to proceed with the train system. Californians should reject this unnecessary and expensive boondoggle.


In November 2008, California voters approvedProposition 1A, a $9.95 billion bond measure authorizing construction of a high-speed “bullet train” between downtown San Francisco and the greater Los Angeles area. The vote was 53 percent in favor and 47 percent opposed. The ballot measure contained key details regarding the project’s cost, dedicated tracks, trip time, and financing plan. Many of these details have been changed repeatedly since 2008.

The Cost: A Moving Target

Before the 2008 vote on the bond measure, the California High-Speed Rail Authority said: “The total cost to develop and construct the entire high-speed train system would be about $45 billion.” Proposition 1A also promised voters that the train system would operate without taxpayer subsidies: “The planned passenger service by the authority in the corridor or usable segment thereof will not require a local, state, or federal operating subsidy.” Soon after voters approved the project, however, cost projections escalated.

In its original 2012 Business Plan, the CHSRA set the price tag at a staggering $98 billion. Public and political outcry caused rail officials to quickly backtrack. Just five months later, the revised 2012 Business Planlowered the cost by $30 billion by moving to a “blended” route: one that would share existing rail tracks in urban areas with other train systems, rather than building new dedicated tracks.

Based on this radical redesign, CHSRA said the entire 520-mile system would be completed in 2029 at a cost of $68 billion, but only by eliminating high-speed service between Los Angeles and Anaheim and between San Jose and San Francisco.

Then in 2016, the CHSRA Business Plan lowered the cost by roughly $4 billion net, to $64 billion, through a combination of vaguely specified “design refinements,” “system optimization,” “value engineering,” and “lessons learned from bids.”

At this point, the ever-changing cost estimates defy belief. As noted by Dan Walters, Sacramento Beecolumnist and longtime observer of state government: “Those charged with building California’s north-south bullet train system have been more or less making it up as they go along.” But regardless of whether the final cost is $64 billion, $68 billion, $98 billion, or even higher, the reality should be clear: The cost far exceeds the $45 billion approved by voters in 2008, and now with substantial track redesigns.

Tracks and Trip Time: From Bullet Train to Choo Choo Train

Public outrage over the $98 billion price tag prompted train officials to abandon the original plan of building dedicated tracks in urban areas. Instead, officials shifted to blended tracks in urban areas: the bullet train would share tracks with the existing Metrolink commuter network in Southern California and the Caltrain system in Northern California. But the blended approach increases trip time considerably from what was promised to voters.

Voters in 2008 were told the high-speed train would whisk travelers from San Francisco to Los Angeles in a “maximum nonstop service travel time” that “shall not exceed” 2 hours and 40 minutes. This specific trip time was often mentioned by supporters to sell the bond measure to voters. (See for example, here andhere.) But with the blended approach, the fastest time between these cities is now estimated by the CHSRA to be 3 hours and 8 minutes, with zero nonstop trips planned—another violation of Proposition 1A. But more realistic trip times are expected to be 3 hours and 50 minutes, or more, under real-world travel conditions.

The original 2:40 trip time assumed that trains would operate at peak speeds of 220 mph, and “sustained revenue operating speeds of at least 200 miles per hour.” But under the blended approach, high-speed trains must share tracks with commuter trains and freight trains, forcing them to slow down at the urban “bookends.” And today’s older urban tracks can typically handle maximum speeds of only 125 mph.

In February 2016, officials announced that the first operating leg of the high-speed train system would be built for $21 billion from downtown San Jose to an agricultural field in Shafter, north of Bakersfield, which would begin operating by 2025. The previous plan called for trains to operate first from Merced to Burbank by 2022, three years earlier. This change in the initial route might appear innocent, but by moving the first leg of construction further north, officials can delay construction on a tunnel through the Tehachapi and San Gabriel Mountains, which is likely to bust the current $64 billion budget.

According to a Los Angeles Times special report:

The monumental task of building California’s bullet train will require punching 36 miles of tunnels through the geologically complex mountains north of Los Angeles.

Crews will have to cross the tectonic boundary that separates the North American and Pacific plates, boring through a jumble of fractured rock formations and a maze of earthquake faults, some of which are not mapped.

It will be the most ambitious tunneling project in the nation’s history. . . .

However, a Times analysis of project documents, as well as interviews with scientists, engineers, and construction experts, indicates that the deadline and budget targets will almost certainly be missed—and that the state has underestimated the challenges ahead, particularly completing the tunneling on time.

“It doesn’t strike me as realistic,” said James Monsees, one of the world’s top tunneling experts and an author of the federal manual on highway tunneling. “Faults are notorious for causing trouble.”

Serious questions remain about whether sufficient funding will ever materialize to complete the newly proposed first leg from San Jose to Shafter, and then to eventually extend the line north to San Francisco and south through the mountains to Los Angeles as originally promised.

The Financing Plan: Smoke and Mirrors

Supporters of the high-speed rail project envisioned financing coming from multiple partners. Under Proposition 1A, California voters approved a $9.95 billion bond in 2008 to help finance construction of the rail network (interest costs will be an additional $9.5 billion). Voters were told that if they approved the bond, the federal government and the private sector would pay for the rest.

Supporters were counting on private investors kicking in as much as $36 billion. The federal government was also expected to contribute up to $18 billion. Another source of funding that arose in 2014 consisted of earmarking 25 percent of the proceeds from auctioning credits to emit greenhouse gases under California’s “cap-and-trade” program, which is estimated to yield the rail project about $500 million a year. (Under the plan, the rail authority would use the annual “cap-and-trade” revenues through 2024, and then seek to borrow $5.2 billion against future carbon fees from 2025 to 2050.) To date, much of the promised financing has never materialized and largely amounts to wishful thinking.

Congress has pledged an initial grant of $3.3 billion, mostly through President Obama’s economic stimulus package. But the state has received only $503 million of that money as of 2015. And Congress has balked at additional funding. “Congress is never going to allocate more money to a project that lacks the ridership numbers, speeds, private funding, and voter support once promised,” said Rep. Jeff Denham (R-Turlock), chairman of the House rail subcommittee.

The legal authorization to impose the state “cap-and-trade” fees expires in 2020, making the future availability of this money questionable. And a lawsuit seeks to block use of the cap-and-trade fees for the high-speed rail project. According to Jessica Peters, principal fiscal and policy analyst with California’s nonpartisan Legislative Analyst’s Office (LAO): “About half of the [San Jose to Shafter] funds would come from cap-and-trade beyond 2020,” when the fees are set to expire. A LAO review of the CHSRA’s 2016 Business Plan also questioned the logic of choosing a field in Shafter as the initial southern terminus:

Even with a temporary station or platform, ending the IOS [initial operating segment] in an unpopulated agricultural area does not appear to be an effective approach. This is because this location would not have the types of facilities and nearby businesses, such as transit connections, rental car facilities, and shops necessary to meet the needs of train passengers.

Finally, the private sector has not invested in the project, which is unlikely to ever be profitable. Summarizing, the LAO said that the CHSRA’s current funding plan is “significantly short of the level needed to complete [the entire San Francisco to Los Angeles system] and does not identify how this shortfall [of $43 billion] would be met.”

Moreover, the pledge to voters in 2008 that the high-speed train would operate without taxpayer subsidies was based on ridership estimates that are quickly evaporating. In 2008, the CHSRA forecasted a base annual ridership of 65.5 million intercity riders and a high projection of 96.5 million intercity riders by 2030.

But independent analysis concluded:

The CHSRA ridership projections are considerably higher than independent figures developed for comparable California systems in Federal Railroad Administration and University of California Transportation Center at Berkeley studies. Using generous assumptions, this Due Diligence Report projects a 2030 base of 23.4 million intercity riders, 64 percent below the CHSRA’s base of 65.5 million intercity riders, and a 2030 high of 31.1 million intercity riders, nearly 60 percent below the CHSRA’s high of 96.5 million. It is likely that the HSR will fall far short of its revenue projections, leading to a need for substantial additional infusions of taxpayer subsidies.

The blended 2012 redesign will increase trip times substantially, making air travel, driving, Skype, or phone calls more attractive relative to a slower train ride:

[A]ssuming the optimistic travel time projection of 3:50, the 2035 interregional ridership would be approximately two-thirds (67 percent) below CHSRA projected levels [of 21 million] at 6.9 million annually. Assuming realistic automobile costs and more-plausible outside-the-corridor ridership, the 2035 interregional ridership would be 77 percent below the CHRSA forecast, at 4.8 million annually. Even if the number of automobile drivers switching to rail equals the European experience, ridership would still fall nearly 65 percent short of the CHSRA projection.

Thus, the CHSRA’s downgraded ridership estimate of 21 million people is still likely to be wildly exaggerated. The promise to operate the high-speed trains without subsidies, therefore, is fantasy using realistic ridership numbers: calculations by Joseph Vranich and Wendell Cox concluded that day-to-day operating losses will generate annual deficits totaling between $124 million and $373 million at the operating-cost midpoint projected by CHSRA for 2035. Subsidies would be needed to backfill these deep deficits.

The money secured to date is far less than needed to complete the project. With no clear path to obtaining the funds needed for completion, many Californians now decry “the train to nowhere.” And realistic ridership projections show that annual subsidies will likely be needed to keep the trains rolling, if the project is built at all.

The Pathologies of Government: A Lesson in Perverse Political Incentives

California’s high-speed rail project highlights that governments do a poor job of assessing the costs and benefits of capital-investment projects since politicians do not personally bear the costs and benefits of the projects or of their calculation errors. In fact, politicians have an incentive to exaggerate the benefits and hide true costs, as was done with the bullet train, to build support for these projects. In contrast, private investors and private operators generally have an incentive to develop accurate projections of capital projects because, if they are wrong, they will typically bear the costs, and, if they are right, they can reap any profits from the wise stewardship of resources.

Train officials and supporters have repeatedly told the public that the train will cover operating costs, will not require any operating subsidies, and “generate sufficient cash flow to attract private capital” for future construction—even the first leg from San Jose to Shafter will feature “non-subsidized operations,” according to CHSRA officials. If the project is as good of an investment as supporters claim, then taxpayer/government involvement to bankroll the construction and operation is unnecessary. Private investors and private operators can, and should, provide this transportation service.

But the evidence indicates that the high-speed rail project will not be self-sustaining. As it will waste scare resources, the bullet train qualifies as a boondoggle and should not be undertaken.

The Recommendation

The serious discrepancies between the original plan for the high-speed rail project and current promises warrant a statewide ballot referendum on whether to proceed with the project and, if so, how. There is growing opposition to the project now that more information is known about the true cost, slower routes, and financing uncertainties.

In February 2015, Gavin Newsom (D), California Lieutenant Governor and former mayor of San Francisco,said:

We’re not even close to the timeline (for the project), we’re not close to the total cost estimates, and the private-sector money and the federal dollars are questionable. . . . I am not the only Democrat that feels this way. I am one of the few that just said it publicly. Most are now saying it privately.

Following Newsom’s candid remarks, Assemblywoman Patty Lopez (D-San Fernando) said that she now opposes the project, and that five other legislative Democrats are also considering a switch to opposing it. Lopez supports a re-vote on the issue.

A January 2016 poll found that 53 percent of Californians support killing the high-speed rail project and using the unspent money on water projects; only 31 percent do not. Dan Walters of the Sacramento Beeechoes this sentiment: “We should put at least as much effort into protecting our vital water supply as we are wasting on a bullet train that we neither want nor need.”

A March 2016 survey found that only 26 percent of likely voters in California consider the high-speed train as “very important” for the future of California. More Californians, 27 percent, view it as “not at all important.” A majority of likely voters, 54 percent, now oppose building the high-speed rail system.

Californians deserve a re-vote on the high-speed rail project. Voters should use the opportunity to kill this unnecessary and expensive boondoggle sold to the public using tricks and deceit.


This piece was originally published by the Independent Institute.

Written by Lawrence J. McQuillan, PhD, and Hayeon Carol Park, MA.

The Best Cities For Jobs 2016

Tue, 05/10/2016 - 22:38

While speculation is mounting that they’re overheating, the tech boom is still creating jobs at a rapid pace in the Bay Area and Silicon Valley, placing them atop our annual assessment of The Best Cities For Jobs for the third year in a row. A number of secondary tech centers are posting strong growth as well on the back of the boom, as well as spillover from Northern California as high prices push expanding companies and startups to locate elsewhere.

Tech job growth has been strong, but it’s not been equally distributed across the country. For example, U.S. employment in software publishing is up 5.5% from last year to a weighted total of 343,000 jobs, 26% above the sector’s prior peak amid the dot-com bubble in 2001. The twin capitals of the U.S. tech industry have accounted for much of the growth. Employment in the information sector in the San Francisco-Redwood City-South San Francisco metropolitan statistical area expanded 6.8% last year, capping a torrid growth rate of 62% since 2010. At the same time the metro area’s professional business service sector — which employs almost four times as many as information (270,000) at such firms as, Uber and Oracle — has grown an impressive 45% since 2010. Overall, the San Francisco metro area clocked 4.6% employment growth last year, and an impressive 23.8% since 2010, placing it first on our list of The Best Cities For Jobs for the second year in a row.

In the neighboring San Jose-Sunnyvale-Santa Ana MSA, information sector employment has expanded 57% since 2010; its business services sector, smaller than that of San Francisco’s, has posted 36.4% job growth over the same span. Taken together, these two metro areas have been best positioned to take advantage of the growth of social networking and the smartphone economy, which have soared even as many of the older Valley firms — Intel, Hewlett Packard, Yahoo — have faced tough times. Job growth in the San Jose metro area was 4.1% last year,  and 20.8% since 2010, placing it second on our list.

Yet the success of the Bay Area, particularly its western strip along the San Francisco Peninsula, also has had a spillover impact on other tech hubs. High housing prices, intensified by the force of California’s regulatory regime, has driven many employers to seek other, more affordable locations. A recent study by California’s Legislative Analyst’s Office found that the area’s top tech executives see high housing prices as the biggest barrier to future growth.

If this is a headache for these tech moguls, it’s manna from heaven for upstart metro areas like Austin-Round, Texas (sixth place on our list of Best Cities For Jobs); Raleigh, N.C. (ninth); Denver-Aurora-Lakewood (seventh) and Portland, Ore. (10th). Although not inexpensive by national standards, these areas are natural catch-basins for tech workers and companies. Employment in Austin’s information sector, for example, has expanded an impressive 34% since 2010, while professional business services jobs have grown 42%. In Raleigh, the tech region with some of the lowest housing costs, information sector employment has increased 18.5% since 2010 and professional business services almost 28%.


Our rankings are based on short-, medium- and long-term job creation, going back to 2004, and factor in momentum — whether growth is slowing or accelerating. We have compiled separate rankings for America’s 70 largest metropolitan statistical areas (those with nonfarm employment over 450,000), which are our focus this week, as well as medium-size metro areas (between 150,000 and 450,000 nonfarm jobs) and small ones (less than 150,000 nonfarm jobs) in order to make the comparisons more relevant to each category. (For a detailed description of our methodology, click here.)

The Return Of The Sun Belt

In the wake of the housing bust, many Sun Belt economies suffered, particularly in the Southeast and Intermountain West. Some believed that the half-century-long era of Sun Belt growth was nearing its end. Yet as the latest Census trends reveal, it is precisely to the Sun Belt where Americans once again are moving, taking their talents, ambitions and hopes with them.

This resurgence is epitomized by Orlando, which jumped 14 places this year to third, capping a comeback from its dismal 2010 ranking of 36th among the largest MSAs. Job growth last year was 4.6%, equaling that of the San Francisco-Silicon Valley region.

Orlando’s resurgence has been driven by growth in professional business service jobs (up 26.8% since 2010) , construction-related employment (up 11.5%) and by its largest sector, hospitality, up 22%. The metro area’s population has exploded from 1.2 million in 1990 to 2.3 million today. Much of this recent growth has come from domestic migration, which has accelerated two and half fold since the end of the recession. This has fueled a modest resurgence in construction employment, which expanded 4.6% in the last year in the Florida city.

The growth of domestic migration has sparked job gains in fields such as construction, retail, education and health, as well as steady growth in business services.  This back to the Sun Belt pattern can be seen in the strong performance of No. 4 Nashville-Davidson-Murfreesboro-Franklin, Tenn., and No. 8 Charlotte-Concord-Gastonia, which are also seeing a payoff from the corporate headquarters and manufacturing jobs they have lured from higher-cost metro areas like Los Angeles. Even cities devastated by the housing bubble like Phoenix, which gained 10 places this year to 17th, and Las Vegas, which gained nine places to 22nd, are clearly on the comeback trail. The death of the Sun Belt has turned out to be more the stuff of coastal dreams than reality.

Full List: The Best Big Cities For Jobs 2016

As has been the case for more than a decade, Texas boasts by far the most high-growth hubs of any state. The fifth-ranked Dallas metro area remains a steady fountain of new jobs, attracting many new companies in recent years, most notably Toyota. Besides No. 6 Austin, 12th-ranked San Antonio has also been on a roll, enjoying both strong growth in population (up 11.2% over the past five years and more than 39% since 2000) as well as in jobs.

Decline In The Tangible Economy

But not all the news in Texas is good, with the sputtering of years-long growth in hard industries such as energy and manufacturing, which tend to provide high-paying blue collar work. The recent weakness in energy prices has been felt heavily in Houston, a star performer for much of this decade. The energy capital has descended to 24th on this year’s list from sixth last year, the largest drop of any metro area in the country. Economist Bill Gilmer, head of the Institute of Regional Forecasting at the University of Houston, expects somewhere close to 50,000 local energy jobs will disappear before things get better.

Fortunately, unlike during the early ’80s oil bust, Houston’s economy appears to be diverse enough to weather the storm. Rapid growth in health services (the area is home to the world’s largest medical center), as well as education has kept employment expanding slightly, with 0.7% job growth over the past year, but well off the pace from its five-year increase of 16.4%. Until energy prices rise again, it’s unlikely this dynamic city will get its mojo back entirely.

With an estimated 250,000 energy jobs gone, other energy centers have also been hard-hit. Ft. Worth-Arlington, home to energy giant Halliburton, dropped 15 places to 28th while Oklahoma City slipped four positions to 37th and New Orleans fell five to 48th. Although not as energy-dominated as Houston, oil and gas has been an important producer of high-wage jobs in these metro areas.

Perhaps equally worrisome, there are signs that manufacturing-oriented economies are also losing momentum. Unlike Houston, these metro areas rarely have placed among the top 10 Best Large Cities For Jobs, but many had been moving up our rankings in recent years. Not anymore.

Much of the worst damage has taken place in the Midwest. For example, Grand Rapids dropped three places to 37th, Cincinnati fell nine to 50th, Milwaukee slipped seven to 61st, and Detroit dipped two to 62nd. But the damage also extends to some of the non-Midwestern industrial centers; for example 65th-ranked Birmingham-Hoover, Ala., dropped 10 places, as did Pittsburgh, which had a strong energy sector as well. Our two bottom feeders, 69th-place Buffalo-Cheektowaga–Niagara Falls and last-place Rochester, N.Y., each dropped seven rungs.

The Big Three

America’s three largest metropolitan areas — New York, Los Angeles and Chicago– also rarely crack the top 10, but this year clear differences have emerged among them. By far the healthiest economy is New York City, which moved up one place to 16th. Since 2010 the Big Apple has added an impressive 530,000 jobs, paced by a 29.7% expansion in hospitality sector employment and 22% growth in professional business services jobs.

The story is not so pleasant in Los Angeles-Long Beach-Glendale. As its longtime Bay Area rival has boomed, Los Angeles employment growth has been mediocre, ranking it 42nd this year. Although leisure and hospitality employment has boomed, up 28.1% since 2010, and business and professional services has grown a decent, if unspectacular, 13.8% in the last five years, growth has been slow in information, barely 3.5% over the same period; employment in L.A.’s manufacturing sector declined 3.4% to 356,100 – still a substantial number but a shadow of its former might.

Full List: The Best Big Cities For Jobs 2016

Doing even worse is Chicago, which dropped three slots to 47th. The Windy City economy has posted modest growth in professional and business services, and its hospitality industry, while on the upswing, has added jobs at a considerably slower pace than either New York or Los Angeles. And like Los Angeles, its industrial sector continues to shrink, down 1.7% since 2010 to 281,000 jobs. In the most recent Census, the Chicago area led the nation in population decline.

If you’ve made it this far, there’s one clear takeaway: the health of the American economy looks very different depending on where you live. Right now, growth momentum belongs to the tech centers and the Sun Belt. Don’t expect a major shift in the pecking order until the tech boom or the housing market weaken, or until manufacturing and energy pull themselves out of the current morass.

This piece first appeared at Forbes.

Joel Kotkin is executive editor of 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.

Michael Shires, Ph.D. is a professor at Pepperdine University School of Public Policy.

Manhattan Ultra-Luxury ‘Battling the Serpent of Chaos’

Mon, 05/09/2016 - 22:38

The deceleration of China and resulting commodities crash have created a problem for developers of ultra luxury condominiums.

The ancient Egyptians believed that the sky was a solid dome, the belly of the goddess Nut who arched her body from one side of the horizon to the other. Every day, the sun god Ra emerged in the east and sailed in his boat across the sky until dusk when he disappeared in the west by dipping below the surface of Nun, the ocean upon which the whole flat earth floated.

This story would have been useful two years ago when Manhattan real estate was soaring and many participants were proclaiming that the sky was the limit. It turns out that that particular sky, the ‘real estate sky’, is not as infinite and rich in wonders as the real sky. It is instead very finite like the sky of ancient Egyptian cosmology, its hard boundary formed not by Nut’s belly but by the marginal buyer’s stomach for paying ever rising prices.

Until recently, the strong Chinese economy and resulting surge in commodity prices had fueled an economic boom in many developing countries. With this boom came rapid wealth to a segment of the population sometimes referred to as the oligarchy, or the world elite, or the global UHNW (ultra high net worth) class. And with that wealth, largely earned within the borders of countries with an unpredictable polity, came the logical and prudent decision to place some of it abroad where the likelihood of seizure or expropriation by unfriendly authorities was deemed to be low or nonexistent.

There seemed to be a large conduit, a money superhighway, running beneath the world’s oceans through which trillions of dollars flowed smoothly for thousands of miles from that Chinese demand to that commodities boom to that sudden wealth and finally to this prudent decision. A great many of this conduit’s outlets were invisible and hidden in the hushed basements of Swiss or other offshore private banks. Yet others were semi-visible in the proliferation of hedge funds, private equity funds and other ventures solely dedicated to the management of paper assets.

And finally some outlets were very visible in the real estate markets of London, New York, Miami and other cities. The trillions of dollars on the money superhighway traveling inbound from Russia, China, Brazil, Qatar and other places have seeded and fertilized Manhattan’s Billionaire’s Row on 57th street and other parts of Midtown, resulting in the sudden emergence, like weeds out of the ground, of tall and super-tall condominium towers.

If they were trees instead of buildings, they would follow the normal cycle of nature rationing their reserves in winter and flourishing in the summer. But human constructs are less well calibrated and real estate cycles can be difficult to navigate. It takes a long time to carry a new building from conception to delivery. Few developers have the wherewithal or the resources to make big plans in the trough of a bust. But many embark on long cycle projects during boom times, accepting the risk that completion may not come before the next downturn.

15 Central Park West.

Until now, the way to market these new condominiums was to sell as many units as possible pre-construction or during construction, thereby transferring the time-related risk to the buyer. This approach worked beautifully in recent years as evidenced by the huge success of the Time Warner Center, 15 Central Park West and of a good part ofOne57, the first in this cycle among several tall ultra-luxury towers.

How did we get here in the first place? And why was Manhattan a choice destination for this foreign wealth? The answer is that, in addition to offering the promise of secrecy and safety, new condominiums benefited from lax regulation and zoning and preferential tax treatments.

When secrecy was no longer as readily on offer at Swiss private banks, foreigners shifted their sights to other havens and found US real estate to be a uniquely welcoming alternative. Here, it was still possible for agents to transact via shell companies that were organized onshore or offshore, ostensibly to conceal the identity of foreign parties who preferred to remain anonymous.

A recent Washington Post article explains:

What many Americans might not realize is that foreign-owned shell companies play a big role in the U.S. economy through the real estate market. When purchased through a shell company, an offshore company or a trust, U.S. real estate offers wealthy foreigners a stable and secretive investment.

In the last quarter of 2015, 58 percent of all property purchases of more than $3 million in the United States were made by limited liability corporations, rather than named people. Altogether, those transactions totaled $61.2 billion, according to data from real estate database company Zillow.

And further:

The U.S. government doesn’t ask real estate brokers to monitor their clients for money laundering risks, the way that banks and other financial institutions – and real estate brokers in some other countries — are required to do. The 2001 Patriot Act gave the Treasury Department the ability to do this, but lobbying from the real estate industry has helped secure an exemption for the last 15 years.

One57 dominates today but taller condominiums are now under construction.

Last year, an extensive report by the New York Times titled Towers of Secrecy investigated shell companies that invest in Manhattan real estate. The report estimated that in six of Manhattan’s most expensive buildings including 15 Central Park West, One57, The Plaza and the Time Warner Center, shell companies owned between 57% and 77% of the condominiums.

Across the United States in recent years, nearly half the residential purchases of over $5 million were made by shell companies rather than named people, according to data from First American Data Tree analyzed by The Times.

In addition to favorable regulation welcoming this wave of cash, New York’s tax policy also made it easier for developers to meet the surging demand. Some ultra-luxury buildings received tax abatements initially intended to encourage the construction of affordable housing.

Today however, the money flow, safety, secrecy, regulation and tax policy that enabled the boom are all threatening to reverse course at the same time, creating a new reality that may be problematic for investors and developers.

It is a new reality that could also be problematic for the city. Money in Swiss private banking accounts can be easily withdrawn but money withdrawn from luxury condos with limited local appeal leaves a large footprint behind. Foreign money can be quickly gone but the buildings will be here quasi-forever.

China’s economy has softened, commodities have crashed and the money flow from emerging markets to midtown Manhattan has slowed from a gusher to a stream, or perhaps a trickle. As a result, the profitability of many condominiums that are now under construction looks less assured than it was eighteen or twenty-four months ago.

In addition, there are new calls for better monitoring of shell companies and for disallowing tax abatements in the case of super luxury apartments.

This seems to all be coming at a bad time with several of the newest towers now rising above street level and boosting the pre-construction inventory. The surge in supply is taking place just as demand is slackening.

A top Manhattan broker told populyst that the high luxury segment (apartments priced over $10 million) had buckled under a worsening macro environment, with signed contracts running at 38% below last year. Meanwhile, new supply is up 5.4% from last year and expected to continue growing.

Sales at some of the new condominiums are likely to do well while others suffer. Because of its location and the success of 15 Central Park West designed by the same architect Robert A. M. Stern, it is fair to expect that 220 Central Park South will do fine by attracting demand from New Yorkers and wealthy Americans. Other buildings with less enviable locations will probably do well in their upper reaches but may have trouble selling mid-height units where views do not clear surrounding buildings.

220 Central Park South.

Asking prices are already being adjusted downward. Extell Development lowered its total sellout price by more than $200 million to $1.87 billion for its One Manhattan Squareproject. Toll Brothers has had price reductions at 1110 Park Avenue and 400 Park Avenue South. World Wide Group and Rose Associates have followed suit at 252 East 57th Street. And at 111 East 57th, JDS Development Group and Property Markets Group will wait about a year before launching sales at their ‘Billionaires’ Row’ tower.

The broader market seems to also be coming under pressure. A recent study by research firm Miller Samuel for the Real Deal estimated that “by the end of 2017, Manhattan will have five years of excess inventory”.

Roughly 14,500 units are expected to hit the market between 2015 and 2017But by the end of 2017, just over 5,000 of those units are expected to have sold, and going by the current rate of sales, it would take more than five years to sell all that excess inventory.

The analysis looks at all new units that have launched or are set to launch in Manhattan over a three-year period, across all price points. It assumes the same rate of sales the new development market saw during the second half of 2015, which equates to just under 1,850 closed sales per year.

Based on that absorption rate, more than 9,400 new units would be unsold by the end of 2017.

What may retrenchment look like for Manhattan now? According to a recent New York Post article,

In the past five years, about $8 billion worth of apartments worth $5 million or more have been bought, or three times higher than years previous. Most troubling is that 50 percent of these have been bought for cash, forked out by shell companies controlled by persons unknown.

And further:

An end to secrecy is supported by the G7, United Nations and the Organization for Economic Cooperation and Development. The concern is that countries with hot money outflows are being destabilized, while countries inundated with illicit cash are developing real estate bubbles and high housing costs for ordinary residents.

The biggest losers are China, where $1.39 trillion left between 2004 and 2013; Russia, with $1 trillion hidden, and Mexico, with an outflow of $528 billion.

In some African nations, the outflow of funds is so sizable that it is shrinking the size of their economies and sabotaging their societies.

Meanwhile, in New York, the flood of buying by persons unknown is damaging the housing market. Between 2010 and 2015, the average square-foot price of a residence in New York City jumped from $1,000 to $1,450, an increase of 45 percent.

The bottom line is that there are now many factors conspiring to slow down the tens of billions of dollars moving from emerging markets into US and European property markets. Profitability models for individual projects drawn during the boom are now incorporating less ambitious assumptions. Can the global economy reaccelerate in the next two years to vindicate the initial return projections? Anything is possible but this would require a stabilization of the Chinese economy and some recovery in commodity prices.

Instead of the soaring rocket of boom years, the real estate cycle is more akin to the journey of the sun god Ra, who at night “visited the underworld, a watery realm of the demons of the dead, where he battled with the serpent of chaos, and victoriously returned to the day each morning”.

Sami Karam is the founder and editor of 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.

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