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Our 8th Annual Demographia International Housing Affordability Survey included the Saginaw, Michigan metropolitan area, which we noted had the lowest Median Multiple (median house price divided by median household income) among the included 325 metropolitan areas. This made Saginaw the most affordable metropolitan market, principally due to depressed economic conditions. Saginaw has been ravaged by the loss of manufacturing jobs and a generally declining economy because of its strong industrial ties to the Detroit metropolitan area.

D. Robertson of Freeman's Bay (Auckland, New Zealand) must think that things are much worse, as indicated by a letter to the editor in the New Zealand Herald on January 24 (The Herald does not post letters to the editor on its internet site). Robertson says that including and prominently reporting the result of Saginaw Michigan (population 297 in 120-odd dwellings) was inappropriate. Robertson makes a 99.9% error, having apparently confused Saginaw, Missouri (population 297) with Saginaw, Michigan. According to the 2010 US Census, the Saginaw metropolitan area has a population of 200,169. That would be substantial enough to qualify Saginaw as one of New Zealand's largest metropolitan areas if it were there.

Kevin Drum of Mother Jones reports on the highly questionable "cost of alternatives" that has been routinely repeated by proponents of the California high speed rail project, in an article entitled "California High Speed Rail Even More Ridiculous than Before."

The mantra goes something like, "yes high speed rail is expensive, but it would cost even more to not build it." Yes, indeed, it is expensive, starting at the low estimate of $98.5 billion the press and proponents usually cite to the nearly $118 billion that the California High Speed Rail Authority itself indicates. Advocates then cite a $171 billion figure as what Californian's would have to pay if they didn't build the line.

Joseph Vranich and I detailed the flaws in this "alternatives estimate" in a Wall Street Journal commentary on January 10 ("California's High Speed Rail Fibs"). We noted that the claim "sets a new low for planning projections in a field that has been rife with abuse." This was a reference to "strategic misrepresentation” ("lying") that has characterized rail project forecasts, according to top European academics.

Drum goes further, calling the claim "jaw-droppingly shameless," an appropriate characterization based upon the method and documentation. He goes on to suggest that "A high school sophomore who turned in work like this would get an F."

Regardless of the views that officials or the public may have on high speed rail, they are entitled to a standard of professional (and taxpayer financed) analysis above "jaw-droppingly shameless."

In a previous post we looked at which states have been most competitive in terms of job creation since the recession.

In this post we teamed up with our friends at Tableau Software to produce the following interactive graphic, which details individual industries that are driving states to be more (or less) competitive. The graphic breaks down the performance of the 20 major sectors in every state in the contiguous US (plus Hawaii and Alaska) in terms of expected and actual job change from 2007-2011. Further explanation of the analysis is below.

Rundown on the data

We used shift share, a standard economic analysis method that reveals if overall job growth is explained primarily by national economic trends and industry growth or unique regional factors. Shift share analysis, which can also be referred to as “regional competitiveness analysis,” helps us distinguish between growth that is primarily based on big national forces (the proverbial “rising tide lifts all boats” analogy) vs. local competitive advantages.

To generate our ranking, we summed the overall competitive effect for each broad 2-digit industry sector by state (e.g., agriculture, manufacturing, health care, construction, etc.) and added them together to yield a single statewide number that indicates the overall competitiveness of the economy as compared to total economy. We calculate the competitive effect by subtracting the expected jobs (the number of jobs expected for each state based on national economic trends) from the total jobs. The difference between the total and expected is the competitive effect. If the competitive effect is positive, then the industries within the state have exceeded expectations and created more jobs than national trends would have suggested. Those industries are therefore gaining a greater share of the total jobs being created. If the competitive effect is negative, then the industries are not gaining jobs as fast as what we would expect given national trends. In this case the state is losing a greater share of the total jobs being created.

Observations On Most Competitive

The big thing that stands out is that most of the competitive states tend to be in the middle of the country. This is tied to the growth in the oil and gas sector, yes, but in most cases better-than-expected performance in construction, government, and other miscellany sectors. In Alaska, North Dakota, and Nebraska, smaller states in terms of population and jobs, manufacturing, transportation, and construction are some of the most competitive industries. Louisiana also fares quite well in healthcare and accommodation & food services.

Observations On Least Competitive

For states that rank toward the bottom, the housing bust and subsequent construction downturn is the biggest culprit. For instance, in Nevada, which is last on the list, construction is nearly 50,000 jobs below what would be expected given national and industry trends. Florida, a much more populous state, is more than 130,000 jobs below what would be expected. For states like Michigan, Ohio, and Indiana, the poor performance in manufacturing and government weighed heavily in our ranking.

Here is the original graphic that show the comparison between states.

Please check out the graphic and let us know if you have any questions. Email Rob Sentz (rob@economicmodeling.com) or hit us via Twitter @DesktopEcon. Data and analysis comes from Analyst, EMSI’s web-based labor market analysis tool.

Anyone familiar with housing affordability in the Washington (DC-VA-MD-WV) metropolitan area is aware that prices have risen strongly relative to incomes in the last decade.

However, a recent Washington Post commentary by Roger K. Lewis both exaggerates the contribution of higher construction costs and misses the principal factor that has driven up the price of housing: more restrictive land-use regulations.

Lewis compares construction costs in the early 1970s to current costs and finds that they are approximately 6 times as high. However, when the R. S. Means construction cost index for locations in the metropolitan area are adjusted for inflation, the increase is more like 15% (1970 to 2007).

Lewis also indicates that construction costs have risen faster than the "relatively flat income curve." In contrast, Census Bureau data indicate that median household incomes in the Washington metropolitan area have increased more than 30% since the early 1970s, after adjustment for inflation. House construction costs are the flatter of the two, not incomes.

While Lewis' focus is affordable housing, costs in this low income sector are impacted by many of the same factors that drive overall housing affordability (overall house prices relative to incomes).

Lewis does not consider the huge cost increase in the non-construction costs of housing. In the Washington metropolitan area, we have estimated that the land and the regulatory costs for a new house have been driven to more than 5.5 times the level that would be expected in a normal regulatory environment (see the Demographia Residential Land & Regulation Cost Index). The problem is that the restrictive land-use policies, such as the Montgomery County agricultural reserve, similar regulations in other metropolitan area counties and the large lot building restrictions in Loudoun County have driven the price of land up substantially, and with it, the price of housing. We estimate that more restrictive land use regulations have driven the price of a new house up approximately $75,000.

Not surprisingly, Washington's Median Multiple (median house price divided by median household income) remains more than a third above the 3.0 historic norm, at 4.0, even after the burst of the housing bubble. So long as governments in the Washington, DC area continue to strictly ration land for development, higher than necessary costs will continue to plague both housing affordability and affordable housing.

America has two basic economies, and the division increasingly defines its politics. One, concentrated on the coasts and in college towns, focuses on the business of images, digits and transactions. The other, located largely in the southeast, Texas and the Heartland, makes its living in more traditional industries, from agriculture and manufacturing to fossil fuel development.

Traditionally these two economies coexisted without interfering with the progress of the other. Wealthier gentry-dominated regions generally eschewed getting their hands dirty so that they could maintain the amenities that draw the so-called creative class and affluent trustifarians. The more traditionally based regions focused, largely uninhibited, on their core businesses, and often used the income to diversify their economies into higher-value added fields.

The Obama administration has altered this tolerant regime, generating intensifying conflict between the NIMBY America and its more blue-collar counterpart. The administration’s move to block the Keystone XL oil pipeline from Canada to the Gulf of Mexico represents a classic expression of this conflict. To appease largely urban environmentalists, the Obama team has squandered the potential for thousands of blue-collar jobs in the Heartland and the Gulf of Mexico.

In this way, Obama differs from Bill Clinton, who after all recognized the need for basic industries as governor of poor and rural Arkansas. But the academic and urbanista-dominated Obama administration has little appreciation for those who do the nation’s economic dirty work.

NIMBY America’s quasi-religious devotion to the cause of global warming is the current main reason for their hostility to the basic economy. But it is all a part of a concerted, decades-long jihad to limit the dreaded “human footprint,” particularly of those living outside the carefully protected littoral urban areas.

Oddly, in their self-righteous narcissism, the urbanistas seem to forget that driving production from more regulated areas like California or New York to far less controlled areas like Texas or China, may in the end actually increase net greenhouse gas emissions. The hip, cool urbanistas won’t stop consuming iPads, but simply prefer that the pollution making them is generated far from home, and preferably outside the country.

The perspective in the Heartland areas and Texas, of course, is quite different. They regard basic industries as central to their current prosperity. Oil and gas, along with agriculture and manufacturing, have made these areas the fastest growing in terms of jobs and income over the past decade.

Of course, the apologists for the NIMBY regions can claim that they, too, create economic value. And to be sure, Silicon Valley — now in a midst of one of its periodic boom periods — Wall Street and Hollywood constitute some of the country’s prime economic assets. Similarly, highly regulated cities such as New York, San Francisco, Seattle, Boston and Chicago offer a quality of life, at least for the well-heeled, that draws talent and capital from the rest of the world.

But the NIMBY model suffers severe limitations. For one thing, these high cost areas generally lag in creating middle-skilled jobs; New York and San Francisco, for example, have suffered the largest percentage declines in manufacturing employment of the nation’s 51 largest metropolitan areas. Indeed with the exception of Seattle, the NIMBY regions have all underperformed the national average in job creation for well over a decade.

These areas are becoming increasingly toxic to the middle class, especially families who are now fleeing to places like Texas, Tennessee, North Carolina and even Oklahoma. NIMBY land use regulations — designed to limit single-family houses — usually end up creating housing costs that range up to six times annual income; in more basic regions, the ratio is around three or lower.

Ironically, America’s most ardently “progressive” areas turn out to be the most socially regressive, with the largest gaps between rich and poor. Even the current tech bubble has not been of much help to heavily Latino working-class areas like San Jose, where unemployment ranges around 10%, nor across the Bay in devastated Oakland, where the jobless rate surpasses 15%.

To succeed, America needs both of its economies to accommodate the aspirations not only of its current population but the roughly 100 million more Americans who will be here by 2050. If the regions that want to maintain NIMBY values want to do so, that should be their prerogative. But stomping on the potential of other, less fashionable areas seems neither morally nor socially justifiable.