Posts Tagged ‘housing bubble’

Richard Florida
by Richard Florida
Sun Jul 5th 2009 at 10:45am UTC

You Get What You Pay For

Sunday, July 5th, 2009

Even with the bursting of the housing bubble, it still costs a whole lot more to live in some places than others. New York City, Washington, D.C., L.A., and San Francisco, for example, remain much more expensive than most other U.S. cities and regions. But why?

There’s the old real estate adage: location, location, location – people pay more to be in more central and better places. But that still begs the question of what makes certain places better?

The clustering of people and firms in cities, as Jane Jacobs and Robert Lucas famously have written, surely plays a role. And successful cities seem to speed up productivity and innovation benefiting from faster rates of urban metabolism: New Yorkers, it’s often said, talk faster and walk faster than others. Some cities also benefit from higher quality of life – warm, sunny climates, great coastlines, greater scenery – and amenities like great cultural institutions and restaurants – which enable them to attract affluent, ambitious, and talented people. How to parse the relative effects of productivity and quality of life?

Fascinating new research by David Albouy of the University of Michigan does just that, creating new measures of quality of life and looking closely at the relationship between productivity and amenities. He finds that amenities really matter to the location decisions of people, and that there is a relationship between productivity and quality of life. San Francisco, L.A., New York, and Boston are some of the cities that sit atop his list of high quality of life, high productivity places.

US News and World Report has a nice summary of his research. A paper on measuring quality of life is here; another examining the relationship between quality of life and productivity, here.

Richard Florida
by Richard Florida
Mon May 25th 2009 at 1:00pm UTC

Bubble Cities

Monday, May 25th, 2009

Map by Scott Pennington, Martin Prosperity Institute

This map charts the housing-to-wage ratios for U.S. metropolitan areas in 2006, the height of the bubble. It differs from the more commonly used housing price-to-income ratio. Historically, housing prices have been about three times income, but by 2006 housing prices had soared to a high more than five times incomes. In Irvine, California, the housing price-to-income ratio soared to 8.6 by 2006.

The housing price-to-wage ratio may provide a better gauge of housing bubbles. Income is a broad measure that includes wealth from stocks and bonds, interests, rents, and government transfers and other sources. Wages constitute a more appropriate gauge of a region’s underlying productivity, accounting for remuneration for work actually performed.

Forget ratios like four or even eight. Six regions – all in California – posted ratios of 15 of greater: Salinas, Santa Cruz, Santa Barbara, Oxnard-Thousand Oaks, Napa, and San Luis Obispo. Another 12 metros had ratios above 10 – L.A., San Francisco, San Jose, San Diego, and Riverside, California, as well as Honolulu, Hawaii, and Naples, Florida.

The housing-to-wage ratio also generates a number of surprises. Greater New York’s ratio (9.4) was slightly higher than Las Vegas (9), and Greater DC..’s (8.7) slightly bested Miami (8.4). Boston (8.1) and Seattle (7.6) topped Phoenix (7.2). Chicago’s (5.9) was higher than Tampa (5.6) or Myrtle Beach (5.5).

What regions seem to have avoided the bubble? The cream of the crop on the housing-to-wage ratio are Dallas (3.5), Houston (3.2), Pittsburgh (3), and Buffalo (2.8).

Richard Florida
by Richard Florida
Wed May 20th 2009 at 6:14pm UTC

Bottom Bounce

Wednesday, May 20th, 2009

Is the Phoenix housing market starting to turn the corner? The LA Times thinks so (pointer via Planetizen):

Phoenix’s housing bust has turned into a quasi-boom, a sign that its market may have hit bottom and a sneak preview of what a national housing recovery could look like.

More homes are selling than at any time since 2006. Prices are slowly stabilizing. Buyers are once again finding themselves in frantic bidding wars – only this time over foreclosed houses selling at deep discounts rather than ranch homes listing for vast sums.

Not so fast. Phoenix, as the same LA Times story notes, had perhaps the biggest housing bubble of all. Prices have plunged from $268,000 in June 2006 to $120,000 – the sharpest decline of any metro tracked by the Case-Shiller home price index.

Looks more like bottom-feeding to me. Long-run recovery will turn on the region developing new industries and work that can replace the tens of thousands of jobs wiped out in real estate and construction.

Richard Florida
by Richard Florida
Wed May 20th 2009 at 1:30pm UTC

Bubble Trouble

Wednesday, May 20th, 2009

Rebecca Wilder calculates housing bubbles – measured in terms of the price-to-rent ratio – for the UK, Ireland, Spain, and Germany as well as the U.S. (pointer via MarkThoma). America’s bubble looks downright mild compared to Ireland, the UK, and Spain.

Michael Wells
by Michael Wells
Mon Feb 23rd 2009 at 1:48pm UTC

California Dreamin’?

Monday, February 23rd, 2009

A story in Sunday’s New York Times about a drought in Central California made me think again about Modesto, the Central Valley town where I grew up. While we focus on the problems of large cities like Detroit, agricultural and exurban areas like the Valley are crumbling. The implications for our food supply, for millions of people and for our nation, are dire.

Here’s an excerpt from the Times piece:

The country’s biggest agricultural engine, California’s sprawling Central Valley, is being battered by the recession like farmland most everywhere. But in an unlucky strike of nature, the downturn is being deepened by a severe drought that threatens to drive up joblessness, increase and cripple farms and towns.

Across the valley, towns are already seeing some of the worst unemployment in the country, with rates three and four times the national average, as well as reported increases in all manner of social ills: drug use, excessive drinking and rises in hunger and domestic violence.

Ironically, many of our neighbors and friends my parents’ age when I was growing up were Okies and Dust Bowl refugees. This drought may now impact their grandchildren the same way but it’s not clear where they can go.

Modesto sometimes seems to be suffering the plagues of Egypt. However, the region’s problems precede the downturn by a couple of decades and, in fact, Modesto suffered from the dot-com boom as well. The downtown is pretty dead, but the malls that replaced it are also suffering.

My mother lived in the house I grew up in until a couple of years ago, so I visited frequently. Our working class neighborhood has turned into a virtual slum (yes, they don’t only exist in big cities). Several of the neighbors live in the cash economy, the guy across the street ran a small junk yard in his backyard. When we were cleaning out her house, the neighbors were digging through the dumpbox in broad daylight.

I started to notice Modesto’s statistics when I read Rise, then in postings on this blog. In Rise, Modesto ranked 208 of 265 in the creativity index. This isn’t the deep South or rural Midwest, but a medium-sized city some 90 miles from San Francisco.

During the housing bubble, Modesto ranked high on the unaffordability list, as prices were driven up by Bay Area commuters earning much more than the locals. Then when the bubble burst, it was in the top ranks of foreclosures. Median house price went from $110,000 in 2000 to $350,000 in early 2006 to $175,000 today (Zillow numbers).

As I’ve watched lists on this blog, Modesto commonly is at the bottom, most recently in best places for small business (#98 of 100). It was virtually dead last in Bert Sperling’s last Best Places list. Other lists as diverse as worst air pollution and numbers of college-educated women have Modesto scraping bottom. Decades of industrial fertilizer and pesticides have sunk into the ground and poisoned the aquifer, so that the Valley is a place where drinking bottled water is an actual health measure.

The Valley is different from the farming parts of the Midwest, it’s not losing population, and grows pretty high value orchard and truck farm crops. Nevertheless, it’s collapsing and the repercussions will likely affect the nearby San Francisco-Silicon Valley region and California’s creative class economy.

Richard Florida
by Richard Florida
Mon Feb 9th 2009 at 5:38pm UTC

The City is Spiky

Monday, February 9th, 2009

Lots of commenting and discussing around the internet on the new report (h/t: Mark Samber) from the Center for an Urban Future (of whose work I am a big fan) on the middle class exodus from New York City.

More residents left the five boroughs for other locales in each of the years between 2002 and 2006 than in 1993, when the city was in far worse shape. In 2006, the city had a net loss of 151,441 residents through domestic out-migration, compared to a decline of 141,047 in 1993. Overall, in 2006 the city had a higher net domestic out-migration rate per 1,000 residents (-18.7) than struggling upstate communities such as Ithaca (-8.0), Buffalo/Niagara Falls (-7.6), Rochester (-5.8) and Syracuse (-5.1).

One commenter points out that looking just at domestic out-migration is a mistake, but leave that aside for now. Felix Salmon writes:

A huge part of this is the sheer expense of living in New York — not just housing costs, although that’s a lot of it, but everything else, too, from car insurance to the price of milk. But it’s also that there simply aren’t middle-class job opportunities in New York any more.

Back to the report:

Of the 10 occupations that are expected to have the largest number of annual job openings in the city through 2014, only two offer median wages greater than $28,000 a year. Taking a wider view, 16 of the 40 occupations projected to have the largest number of annual job openings over the same period pay median wages below $30,000 a year, while another six pay between $30,000 and $40,000.

And Salmon again:

This is a big problem, because a “luxury city”, filled essentially with the rich and those who service them, with very little in the middle, can never be a vibrant and exciting place. College graduates like myself should want to come to New York, not because they think they can make millions here, but just because it’s a great place to live. And that seems to be happening less and less, as New York becomes increasingly unaffordable.

Or as a top executive at Hank Paulson’s old place of business once told me: “We’re the cause, not the effect, of the housing bubble.” He was talking not about financial innovation, but the spiraling prices brought on by then skyrocketing financial pay. The report, once more:

No city has had a greater history as a middle class incubator than New York. As the legendary urbanist and long time New York resident Jane Jacobs once noted: “A metropolitan economy, if working well, is constantly transforming many poor people into middle class people, many illiterates into skilled people, many greenhorns into competent citizens… Cities don’t lure the middle class. They create it.”

Where cities once turned lower class people into the middle class, world cities like NY now turn (a very small number) of hyper-ambitious middle class strivers into the upper class. It’s something I’ve been writing about for years. The Inequality Index developed by my MPI colleague, Kevin Stolarick, shows how the greatest levels of inequality are in our most creative cities. New York came in third, Silicon Valley came in first.

Surprising? Hardly. It’s the spiky workd in microcosm: Bill Bishop’s big sort on steroids. New York City attracts lots of talented people, especially young people, who can get by for a while sharing “cheap” space. Then as time passes they get married, have kids, and so on. And, in harsh Darwinian fashion, only the successful get to stay. The rest move on and out. This is all compounded by the fact that NYC is a global center for talent – the competition is much tougher.

The consequences of this go beyond a missing middle class. If left unchecked they’re likely to erode the very innovative spark which made NYC great in the first place, creating an over-arching dulling down of its creative edge. Or as Jane Jacobs once told me: “When a place gets boring, the rich people leave.”

But then again the research tracks the bubble period 2002-2006. Could it be that its bursting might help this around? NYU’s Thomas Phillipon says financial salaries are likely to decline by say 50 percent. Might NYC again become affordable and creative? More to come on just that soon, in my forthcoming piece in the March issue of the Atlantic Monthly.

Richard Florida
by Richard Florida
Fri Feb 6th 2009 at 4:37pm UTC

A Tale of Two Economies

Friday, February 6th, 2009

The new unemployment numbers in both the U.S. and Canada are legitimate cause for concern. But as BusinessWeek’s Michael Mandel notes, those job losses are concentrated in the routine-oriented, tangible economy. The intangible or creative economy continues to fare much better:

This morning’s employment report was absolutely horrible, with the unemployment rate rising to 7.6% and almost six hundred thousand jobs lost, in just one month.

But in the midst of the gloom, it’s essential to point out that the damage is still concentrated in the ‘tangible sector’—that is, those industries which either produce,move, or distribute physical goods. In January the percentage of job losses coming from the tangible sector fall somewhere in the range of 75%-85%. (The exact number depends on how many of the temporary help layoffs are in manufacturing, construction, and retail—there’s no way to tell).

Meanwhile, the jobs losses in the intangible sector are much more moderate. Education and healthcare are still growing, and other intangible-producing industries have relatively small losses.

The housing bubble essentially propped up the tangible sector, badly distorting the “real economy” and biasing investment toward it and away from the more rapidly growing and more stable intangible sector. We’ll only begin to get toward recovery when we stop unnecessarily propping up the tangible sector and allow housing prices to fall to more realistic levels, essentially freeing up demand for the goods and services of the still growing intangible sector.