NewGeography.com blogs
The Wall Street Journal reports good news for Detroit, with a somewhat rare expansion of production in Detroit (specifically in Warren, suburban Macomb County). Fiat Chrysler will be moving some of its truck production to Warren from a plant in Saltillo, Mexico, creating 2,500 new jobs. The Detroit move is to be contrasted with the near monopoly that Southern states have enjoyed in attracting vehicle manufacturing by foreign suppliers.
Just within the last few days, Toyota and Mazda have announced a major new manufacturing plant to be located in Huntsville, creating 4,000 jobs. For Toyota, this will be its second assembly plants in Alabama. Alabama has become a major auto manufacturing center, having previously attracted Mercedes, Honda and Hyundai assembly plant. The Toyota-Mazda venture involved a competition among 15 states, from Texas to North Carolina and Michigan.
• Annual new home starts were up 14% compared to 3Q16 – and this is the first time since 1Q08 that annual starts were above 6,000.
• Start activity has shifted over last year into the price ranges above $400K; during the past year, only 5% of new homes started were priced under $300k.
• The lack of affordable lot supply and rapid price increases are all factors which may cause new homebuyers to rethink their home-buying decisions during the next year.
Metrostudy’s 3Q17 survey of the Sacramento housing market shows that annual new home starts were up 14% compared to 3Q16. This is the first time since 1Q08 that annual starts were above 6,000. Annual closings were up 25%. Quarterly new home starts are up 18% compared to 3Q16, and quarterly closings were UP 17%. In fact, 3Q17 marked ten consecutive quarters with more than 1,000 starts. Annual starts have been outpacing closings since 2Q12, which is indicative of increased demand. 2017 began a little weaker due to weather, but by second quarter, new home starts rebounded impressively. Builders are effectively managing their inventory levels thus far.
“The average “offer to build” base price for new homes is up 3% regionwide over a year ago to $520K as builders grapple with increased land, construction and labor costs,” said Greg Gross, Regional Director of Metrostudy’s Northern California region. “Start activity has shifted over last year into the price ranges above $400K as builders adjust pricing to offset increased construction costs. Affordability is a concern in most markets, and Sacramento is no exception. During the past year, only 5% of new homes started were priced under $300k.”
Finished inventory has steadily decreased over the past year, but increased during 3Q. With 559 Finished Vacant homes, the market now has only 1.2 months of supply. When the number of homes under construction is factored in, the market has about 8 months of supply. Well within equilibrium. The number of homes under construction in 3Q17 is 20% higher than in 3Q16, so we expect closings to increase. Overall, inventories are manageable.
There were 3,865 new lots completed over the past year, yet more than 5,700 were absorbed. This slowdown of lot development will make finished lots difficult to obtain in high demand areas. As 2017 ends, the overall Sacramento market has grown respectably.
Metrostudy expects demand to remain steady over the next year. However, interest rate increases and daunting fee and construction cost increases will add to worsening affordability which may point to lower production and closings in the broader Sacramento market. Fortunately, the market has the unique ability to attract buyers from the Bay Area.
While general economic conditions are favorable, there is some concern regarding the slowing of job growth. As mentioned earlier, this is most likely due to lack of qualified labor. The lack of affordable lot supply and rapid price increases, are all factors, which may cause new homebuyers to rethink their home-buying decisions during the next year.
Given the above, Metrostudy does not expect the housing market fall, but another steady year as the economy continues grow modestly. We expect 2017 to end with 6,000 new home starts for the year barring any substantial global economic crisis. Sacramento and the Stockton regions continue to benefit from the expanding Bay Area economy, as some homebuyers may seek more affordable homes outside of the Bay area, but stronger local job growth and in-migration will be needed to increase housing demand substantially.
The San Francisco Bay Area (home of the San Francisco and San Jose metropolitan areas), which has often been cited as a place where natural barriers have left little land for development. This is an impression easily obtained observing the fairly narrow strips of urbanization on both sides of San Francisco Bay, hemmed in by hills.
However the Bay Area’s urbanization long ago leapt over the most important water bodies and then the Berkeley Hills to the east. Not only is the San Francisco Bay Area CSA high density, but it is also spatially small. In 2016, the San Francisco built-up urban area was only the 23rd largest in land area in the world. New York, the world's largest built-up urban area in geographical expanse is more than four times as large.
There is plenty of developable land in the San Francisco Bay Area. Data in a 1997 state analysis indicated that another 1,500 to 4,300 square miles (3,900 to 11,000 square kilometers) could be developed in the Bay Area CSA. The lower bound assumed no farmland conversion and stringent environmental regulation. The report also found that in recent years, residential development had become marginally denser, yet not incompatible with the detached housing remains the preference in California (Figure). The state has more than enough developable land for future housing needs.
Updating the data to account for the development that occurred through 2010, the developable land supply could support an urbanization of between 18 million and 37 million population, well above the 2010 urban population (Note on Method). At the most, there is capacity to accommodate the population of Tokyo – Yokohama, the world’s largest urban area. At a minimum, use of the available land would catapult the Bay Area CSA ahead of the Los Angeles-Riverside CSA, more than double its present population.
Of course, the Bay Area is simply not growing fast enough to reach even the lower population figure any time soon. Even with its slower growth, however, the competitive market for land no longer works, in large measure because of land use regulation. The San Jose metropolitan area has the fifth worst housing affordability in the Demographia International Housing Affordability Survey with a median multiple of 9.6 (median house price divided by median household income) and the San Francisco metropolitan area is 7th worst, with a median multiple of 9.2. Before the evolution toward urban containment policies began, the median multiples in these metropolitan areas (and virtually all in the United States) were around 3.0 or less.
The decades old Bay Area housing affordability crisis, and that of other urban containment metropolitan areas that are now seriously unaffordable (median multiples over 5.0) seeking to force higher densities, is more the result of policy than nature.
Note on Method: Some of the CSA urban population is not in the continuous urbanization of San Francisco-San Jose built-up urban area, such as in the Santa Rosa, Stockton and Santa Cruz urban areas. This analysis is based on data from the California Department of Housing and Community Development and the U.S. Census Bureau. It is based on an estimate of additional development occurring from 1996 to 2010 and the land remaining after deduction of recently developed land. The population capacity assumes the “marginally higher” densities used by the California Department of Housing and Community Development, which it notes would not require substantial changes in the “current form of housing development” (1997).
At ParcelHero, we’ve gotten to know cities all over the world. In order to share some of our favourites, we’ve put together a fiendish quiz called CurioCities, which features a hundred cities from around the world. You’d be forgiven for thinking that doesn’t sound all that exciting, which is why we put our own twist on it.
Each city in our quiz is shown off as a picture – but not a photo of the place. Instead you’ll have to think laterally and say what you see in order to work out what we’re getting at. How do you know which cities to guess? Well, with one exception we’ve picked from cities that have more than 100,000 occupants, so you can narrow things down for yourselves by looking for the biggest cities first.
To give you an idea of what we mean, let’s take Glasgow for example. It doesn’t feature on our quiz, but if it did, it might be represented by a glass on top of a traffic light, with a green light showing. One down, ninety-nine more to go!
If you’re one of the lucky few who can work out all 100 of our fiendish clues, you’ll earn your place on our illustrious 100 Club. With so difficult a quiz to work through, you’ll be in exclusive company. We here in the office haven’t even managed it without taking a peek at the answers.
Interested? Why not take a trip over to Curiocities.parcelhero.com and check it out. You can save your progress and ask for help from your social media pals, so your lunch breaks are sorted for the next few days at the very least.
Do you think you can make it to the 100 Club?
The suburbs of the future are almost here. Contrary to mass media's belief, many millennials are choosing to live in the suburbs, especially as they get older. Younger millennials, from 25 to 29 years old, are about a quarter more likely to move from the city to the suburbs as vice versa. Older millennials are more than twice as likely. Millennials are looking for places they can afford a home, which they are more likely to find in suburbia. However, this generation is looking for a new type of landscape, one that is smart, efficient, and sustainable.
Read about what these new suburban developments will look like in Alan Berger's New York Times piece here.
A confluence of potent forces is creating an era of localism and decentralization across the planet making local decision-making and action more important than ever before. This is particularly true in the economic realm, where cities and regions must take full advantage of their unique combination of resources, culture, infrastructure, core competencies in industry and agriculture and the skills of entrepreneurs and workers.
There is no single formula for success for any place in the 21st century. Your economic strategy may need a shot in the arm (or a kick in the butt), a total remodel or perhaps it needs to be meaningfully modernized.
The NewGeography Economic Opportunity & Growth Forum is a one-day strategy event that helps leaders, innovators and entrepreneurs develop strategies for grappling with challenges and seizing opportunities that will propel local growth.
The one-day Forum addresses the basic fundamentals to propel growth including policies that stress essential physical infrastructure, investments in basic and skill-oriented education, and a favorable business environment that facilitates free enterprise and entrepreneurship.
Joel Kotkin, an internationally recognized authority on economic and social trends and, a founder and Executive Editor of NewGeography.com, begins each forum with a high-level look at consequential trends and circumstances that affect local and regional growth. This is followed by an economic assessment of the local and regional economy and subsequent panel discussions involving key local leaders in business, government, education and the civic sectors.
Each Forum culminates in afternoon strategy sessions that lead to the identification of priorities where enhanced collaboration is needed and action steps are identified for building support and mobilizing resources and talents to put your city or region on a solid growth trajectory.
NewGeography anticipates doing only two to three Forums in the remainder of 2017 so contact us at your earliest convenience to get the ball moving. Download this pdf for more information about how to bring the forum to your community. For e-mail inquiries contact Delore Zimmerman at delore@praxissg.com.
A report by University of Washington economists has concluded that the most recent minimum wage increase in the city of Seattle is costing jobs. The Seattle Times reported:
“The team concluded that the second jump had a far greater impact, boosting pay in low-wage jobs by about 3 percent since 2014 but also resulting in a 9 percent reduction in hours worked in such jobs. That resulted in a 6 percent drop in what employers collectively pay — and what workers earn — for those low-wage jobs.”
According to the Times, this translates into a pay reduction of $125 per month for a low wage earner. This can be a lot of money, according to a study author, Mark Long, who noted that “It can be the difference between being able to pay your rent and not being able to pay your rent.”
The study also indicated that there were 5,000 fewer low-wage jobs in the city as a result of the minimum wage increase. This is more than one percent of the approximately 440,000 private sector jobs in the city of Seattle in 2015, according to the American Community Survey. It is likely that most of the job losses occurred in the private sector, as opposed to government.
The study was partially funded by the City of Seattle, which enacted the minimum wage increase.
In 2012, the state of Kansas under Gov. Sam Brownback passed a large tax cut. Despite this massive fiscal stimulus, the state’s economy actually underperformed the nation during much of the subsequent period and the cuts blew a gigantic $900 million hole in the state’s budget.
Finally the legislature cried uncle. It passed a $1.2 billion tax hike. Brownback vetoed it but the Republican dominated legislature overrode the veto.
Not only did the tax cuts fail to grow the economy, one of the state’s major metro regions, Kansas City, received a gigantic free broadband investment in the form of Google Fiber. Spanning Kansas and Missouri, this investment also failed to produce significant tech growth.
Meanwhile in Connecticut, the state twice raised taxes to address a budget deficit. Unfortunately, these tax hikes did not create long term revenue growth. What’s more, after the most recent rounds of tax hikes, the state experienced a corporate exodus highlighted by GE and Aetna. The state capital of Hartford is also flirting with bankruptcy. Gov. Dannel Malley now admits the state is tapped out on tax increases.
There are a lot of claims one can make out of these situations. I’m only going to point out that both Kansas and Connecticut are out of favor in the marketplace right now. For example, while the suburban office park may not be extinct, it’s certainly facing challenges in high tax settings like New Jersey and Connecticut. Companies like GE are in fact increasingly looking to global city centers for their highest level executives. Connecticut doesn’t have that product on offer and can’t create it. Regarding Kansas, it was likely a low tax state even before the cuts, which did not materially improve its competitive position or instrinsic attractiveness.
It’s simply very difficult to counter these macro forces. When cities were out of favor, even NYC was en route to oblivion. Trying to push on a string often only creates as many problems as solutions.
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