Just months ago, urban revivalists could see the rosy dawn of a new era for America's cities. With rising gas prices and soaring foreclosures hitting the long-despised hinterland, urban boosters and their media claque were proclaiming suburbia home to, as the Atlantic put it, "the next slums." Time magazine, the Financial Times, CNN and, of course, The New York Times all embraced the notion of a new urban epoch.
Yet in one of those ironies that markets play on hypesters, the mortgage crisis is now puncturing the urbanists' bubble. The mortgage meltdown that first singed the suburbs and exurbs, after all, was largely financed by Wall Street, the hedge funds, the investment banks, insurers and the rest of the highly city-centric top of the paper food chain.
So, now we can expect some of the biggest layoffs and drops in income next to be found in the once high-flying urban cores. In New York alone, Wall Street has shed over 25,000 jobs – and the region could shed a total of 165,000 over the next two years.
Not surprisingly, the property crisis once seen as the problem of the silly, aspiring working class and the McMansion nouveaus has now spread deep into the bailiwick of the urban sophisticates. For the first time in years, many Manhattan apartments are selling for well below purchase price, something unheard of during the boom. In Brooklyn, a 24% drop in sales over the last three months even has boosters talking of an imminent "Brownstone bust."
Even San Francisco – arguably the most recession-resistant big city due to its large concentration of nonprofits and "trustifarians" – is seeing prices drop for the first time in years. Far more vulnerable are fledgling neo-urban markets like Los Angeles, Atlanta, Oakland, Calif., San Diego, Memphis, Tenn., Miami and Dallas. Sales are down in most of these markets, as are prices.
Signs of the times: desperate developers offering goodies to buyers. One downtown Los Angeles property owner has even offered to buy a Mini Cooper for anyone bold enough to buy a loft. Others, in Oakland, Boston and Atlanta, are resorting to auctions to offload their product. Foreclosures have taken place in several other markets, including Charlotte, N.C., and Philadelphia.
Not surprisingly, many new projects conceived at the height of the bubble are being canceled, and some newly minted condominiums converted into rentals. The rental option makes immediate sense but does not help create the ambiance of luxury so coveted by wannabe cool cities. High-end buyers generally do not covet the idea of having a bunch of college-student renters enjoying a similarly granite-counter-topped unit next door. This is not necessarily good news for expensive restaurants or boutiques either.
In addition, just if anyone is checking, even at the peak of gas prices, there remains virtually no evidence of any massive movement of the bourgeoisie back into the burghs. One assumes that the now plunging oil prices will not hurt suburban commuters.
In reality, what we have is a market that is stuck in almost all geographies. Rather than shift people into the urban cores, or vice-versa, the mortgage crisis is simply stopping everyone in their tracks. Even if people wanted to move into the core cities, they could not sell their suburban houses to make the down payments.
Nor is there ample reason to believe the urban migration will pick up in the near future. Crime has soared in some cities such as Oakland and Chicago. ("Obamastan" has suffered more murders this year than much larger New York and Los Angeles.) Overall, urban crime remains three times that of suburbs; a suddenly rising instance of mayhem threatens many urban recoveries.
And in the end, it's really all about the economy. The looming massive layoffs in many key urban markets – notably New York, Chicago and San Francisco – cannot possibly help. Finance has remained one industry that has continued to cluster in core cities, even as most others moved to the suburbs and smaller towns.
Moreover, it is not just New York. Now, as the butcher's bill for mortgage mania comes due, Chicago, Boston and San Francisco are all facing large-scale layoffs. The office market in the Windy City, for example, is being decimated by cutbacks at JPMorgan Chase, Merrill Lynch, Lehman Brothers and Wachovia, as well as at the commodity exchanges. So far, the less finance-dependent suburban market appears less impacted.
A recent visit to Chicago confirmed these trends. The once ballyhooed Trump Tower, once seen as the nation's tallest luxury condominium, remains incomplete, with a massive crane still perched at its top and troubled by persistent rumors of failing financial support. Another hyped project, Santiago Calatrava's 2000-foot, 150-story Chicago Spire, is stuck in the ground because the developer has stopped paying his "starchitect's" bill. All this is not too surprising, given a reported 73% drop in downtown home sales for the first half of the year.
For a decade or more, city leaders have kept thinking that something from outside – demographic changes, high fuel prices or changing consumer tastes – would create a revival for them. This allowed them to avoid doing hard, nasty things like cutting often-outrageous public employee pensions, streamlining regulations, cutting taxes levied on businesses or improving often-dismal schools and basic infrastructure.
Maybe the current downturn can be a wake-up call for city boosters. Overall, since 2000, the average job growth in cities has averaged less than one-sixth that of suburbs, according to research by my colleagues at the Praxis Strategy Group. This has been particularly notable in higher-paying blue collar positions in manufacturing and warehousing, but increasingly applies also to higher-end business services.
Cities should start realizing that their biggest problem is not a shortage of cultural venues and performance artists but a chronic lack of decent, middle class jobs. And to be sure, older cities do possess critical advantages such as already existing, if often tattered, transportation systems and the best strategic locations. Their old industrial districts possess an existing infrastructure and, in some cases, a residual pool of skilled labor and some decent job-training facilities. If properly prodded, local universities could also become part of the solution by seeding new entrepreneurial ventures.
But such a return to basics may be nullified by the prospect of an urban Democrat coming into the White House and a Congress dominated by the likes of Speaker Nancy Pelosi, Charles Rangel and Barney Frank. This will revive hope that largely suburban middle-class taxpayers will now bail out bloated city budgets and often-absurd projects (convention centers, stadia and associated nonsense).
City leaders and land speculators may also play the Al Gore card of combating "global warming" to block new roads, single-family housing estates and even the transfer of jobs to the supposedly energy-inefficient suburbs. However, over time, the suburban-exurban majority is unlikely to support this approach. To experience a real renaissance, cities need to learn how to make themselves more congenial again to those – industry, entrepreneurs and the middle class – who have found themselves forced to head to the fringes for almost a half century.
This article originally appeared at Forbes.
Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.