California

Housing Market Fringe Movement

Joel Kotkin — Mon, 13 May 2013 01:38:53 -0400

A year or two ago, pundits and planners, in California and elsewhere, proclaimed – and largely celebrated – the demise of suburbia. They were particularly heartened by a report, financed by portions of the real estate industry, that predicted the market for single-family homes in the state was hopelessly flooded, with a supply overhang of up to 25 years. The "new California dream" would supplant the ranch house with a high-density apartment, built along a transit or bus line.

So much for the grand theory. As the economy has begun to recover from its nadir, single-family home sales have taken off, both in California and across the country. In 2012, prices rose by 6 percent nationwide, and pent-up demand has spurred interest among investors and buyers.

In California, the new dream imagined by planners, pundits and their real estate backers is being supplanted by, well, a more traditional aspiration. In our state, hard hit by the most-recent housing bubble, single-family home prices surged 24 percent over the past year as inventories dropped precipitously. In some particularly desirable areas, such as Irvine, the supply constraints are at levels lower than experienced even in boom times.

We are beginning to see a resurgence – which we were told never to expect – in new projects. The government reported recently that housing permits, still well below their peak, surged in February to their highest level since June 2008, an increase of nearly 34 percent from a year earlier.

In Southern California, prospects for new single-family home construction are beginning to gear up. Toll Brothers, for example, recently bought into a new 2,000-home development in Lake Forest. Developers are turning over land across a vast portion of the state, particularly in places like Riverside-San Bernardino, which were at the epicenter of the housing bust but are now showing signs of recovery.

The media's surprise at these developments reflects the disconnect between the perceptions of planners, academics and some developers and reality on the ground. In the past decade or two, a huge industry has arisen, proclaiming the end of the single-family home and heralding the rise of densely populated urban cores. Yet, an analysis of the 2010 Census shows that growth in the suburbs, as opposed to core cities, actually rose from 85 percent to 91 percent from the previous decade.

So, too, did the proportion of detached single-family homes, which grabbed 80 percent of the market during 2000-10, leaving 20 percent for multifamily buildings and townhouses. And now, with the market recovering, single-family homes in 2012 accounted for nearly two of three homes sold. Overall, sales of single-family homes in the past year were roughly seven times those for co-ops and condos nationwide.

What's behind this? It may have something to do with a little thing called consumer preference. Overall surveys tend to show that roughly 80 percent of adults prefer single-family houses, usually in either suburbs or exurbs.

Of course, many insist that, in the aftermath of the 2007 housing bust, Americans now are finally unlearning their bad habits. In 2010, U.S. Housing and Urban Development Secretary Shaun Donovan, pointing to the flood of foreclosures in suburban reaches of Phoenix, claimed that the die, indeed, was already cast. "We've reached the limits of suburban development," Donovan claimed. "People are beginning to vote with their feet and come back to the central cities."

Yet, although the Great Recession certainly slowed overall migration to suburbs, numbers for 2011, the most recent available, showed domestic migrants continued to head away from core counties and toward those in the suburbs and exurbs. Now that the economy is improving, this trend seems likely to continue, or even accelerate.

Core cities may be reviving, but this is still a suburban nation; conservative estimates indicate than more than 70 percent of residents in major metropolitan areas live in suburbs. To be sure, areas within three miles of an urban core grew 4.7 percent in the past decade, or 206,000, a nice reversal from previous declines. Yet this represented less than one-half the metropolitan growth rate of 10.6 percent. Further, this growth was more than negated by a 272,000 loss of people living from two miles to five miles from the urban core.

Contrast this with fringe growth. Over the past decade, for example, areas five to 10 miles further from the core expanded their populations by 1.1 million. Areas further out, 10 to 20 miles, added 6.5 million residents. Areas beyond 20 miles from the urban core saw the largest growth, 8.6 million – 40 times the growth in the urban core and nearly four times the percentage growth (18.0 percent).

It does not appear that the Great Recession reversed these trends. An analysis of population growth in 2011-2012 by Jed Kolko, chief economist for the real estate website Trulia, found that the old patterns reinforced themselves, with strong, but numerically small, growth in the core, but the most robust expansion at the fringes. "The suburbanization of America," Kolko suggests, "marches on."

In Southern California, this also is the pattern. From 2000-10, the Riverside-San Bernardino metropolitan area added twice as many people as did Los Angeles and three times that of San Diego. Overall growth in Los Angeles has been strongest toward its urban fringe. Although media coverage has focused on the growing residential population of Los Angeles' downtown, which expanded from 35,884 to 51,329 over the decade, this population is actually smaller than that of the San Fernando Valley neighborhood of Sherman Oaks. It is also more than 5,000 fewer people that in the Riverside County community of Eastvale, once primarily an area of dairy farms that incorporated only in 2010 and whose population has increased eight-fold since 2000.

The geography of the post-crash economy, despite the strong losses in suburban industries like manufacturing and construction, also has remained much as it was before the recession, and may begin to assert itself more in the future. A new report from the urban-core-oriented Brookings Institution found that the percentage of jobs within three miles of the urban core dropped in all but nine of the nation's 100-largest metropolitan areas; only Washington, D.C., saw strong relative growth in its core.

Overall, the periphery is now the dominant job center in metropolitan America, with more than 65 percent of all jobs in the largest metropolitan areas and with twice as many jobs 10 miles from the urban core as in the core itself. This undercuts the assertions by planners and retro-urbanists that we can cut commutes by coercing people to live closer to the core. The real trend is that many historically bedroom communities are nearing parity between jobs and resident employees. The jobs/housing balance, which measures the number of jobs per resident employee in a geographical area, has reached 0.89 (jobs per resident workers) in the suburbs of the country's 51 major metropolitan areas, according to American Community Survey 2011 data.

This proportion is greater in Southern California, where numerous job centers compete with downtown Los Angeles, which holds barely 3 percent of the region's employment. Instead, many of the region's strongest job centers – Ontario, Burbank, West Los Angeles, Valencia – are themselves suburban in nature. Overall, the strongest office markets remain in places like around John Wayne Airport and West Los Angeles, which have recovered much more than downtown Los Angeles, despite that area's much ballyhooed "vibrancy."

If the goal is to reduce both commute times and energy use, perhaps these dispersed centers may offer the best hope. In Irvine, for example, by 2000 there were three jobs for every resident; roughly two in five residents worked in the city. Commutes for Irvine residents are among the shortest in the Los Angeles basin, notes Ali Modarres, chairman of the Geography Department at Cal State Los Angeles.

There's also a danger that policies seeking to restrict construction of single-family homes could further inflate housing prices and thus also create a potential oversupply of the multifamily product that the planners and many developers want to push. This is particularly true here in sunny Southern California, where the single-family house represents, in historian Sam Bass Warner's phrase, "the glory of Los Angeles and an expression of its design for living."

Given these deep-seated preferences, perhaps it would make more sense if our planners, and some developers, would awake from their dogmatic slumbers. Their job should be to facilitate the quality of life that people seek, not to tell them how to live. That means admitting that the future of both America and, particularly, Southern California, is likely to remain largely suburban for years to come.

Joel Kotkin is executive editor of NewGeography.com and a distinguished presidential fellow in urban futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

This piece originally appeared in the Orange County Register.

Suburbs photo courtesy of BigStockPhoto.com.

The 2013 Best Cities For Job Growth

Joel Kotkin and Michael Shires — Mon, 06 May 2013 15:48:27 -0400

The 2013 edition of our list shows many things, but perhaps the most important is which cities have momentum in the job creation sweepstakes. Right now the biggest winners are the metro areas that are adding higher-wage jobs thanks to America’s two big boom sectors: technology and energy.

Our rankings are based on short, medium and long-term employment performance, and take into account both growth and momentum — whether growth is slowing or accelerating. (For a detailed description of our methodology, click here.) Consequently, areas that have made the strongest recoveries from deep setbacks often do well. Nowhere is this clearer than in the case of the San Francisco-San Mateo-Redwood City metropolitan division, our top-ranked large metro area (urban regions with more than 450,000 jobs). Over the last year, employment in the San Francisco area expanded a remarkable 4.1%, and is up 3.3% since 2008.

A decade ago, the San Francisco area was reeling from the collapse of the last dot-com bubble; the damage was so deep that today it has only 0.6% more jobs than in 2001. Its sharp recent growth is primarily in the information sector, which has expanded a torrid 21.3% since 2009.

Much the same can be said about San Jose-Sunnyvale-Santa Clara, better known as Silicon Valley, which is No. 7 on our large metro area list due to 3.4% job growth last year, and 2.3% growth since 2008; it is also propelled by 25% growth in information jobs since 2007. Yet looking at the longer term, the Valley, like San Francisco, is still rebounding from a deep downturn connected to the dot-com disaster of a decade ago. In fact, the Valley is still down almost 40,000 jobs from 2001.

Is California Pulling Ahead Of Texas?

Some East Coast boosters of the Golden State are making this claim, but we don’t see it in this year’s numbers. Besides the tech-rich Bay Area, home to two of our top 10 large metro areas, there are no other major California cities near the top. Most of the state’s big metros are in the poor to middling range over the long term; only Riverside-San Bernardino (45th place on our big cities list) has 10% more jobs than a decade ago. Los Angeles, the state’s dominant urban region, has lost some 120,000 jobs since 2001.

In contrast, the Texas juggernaut rolls on. Growth there has not only been steady, it’s been widely spread across the state. Texas boasts a remarkable four major metros in our top 10, led by Ft. Worth-Arlington (No. 4), Houston-Sugarland-Baytown (No. 5), Dallas-Plano-Irving (No. 6 ) and Austin-Round Rock, which slips from first place last year to 10th. The state’s other big city, San Antonio, comes in at a very healthy No. 12.

All these metro areas have more jobs than they did a decade ago — often a lot more. Since 2001, employment in Houston has expanded 20%; in Ft. Worth, it’s up roughly 16%; Dallas; 11%; Austin, a remarkable 26.5%; and San Antonio, 18.4%.

The Energy Boomtowns

The unconventional oil and gas boom has helped turn Texas into an economic juggernaut, particularly world energy capital Houston, but growth has also been strong in tech, manufacturing and business services. You see this same kind of blending of energy and other sectors in other strong growth economies elsewhere in the U.S., such as No. 3 Salt Lake City, No. 9 Denver and No. 15 Oklahoma City.

But the real evidence of energy’s power can be seen in smaller metro areas. Oil-rich Midland, Texas, places first on our list of smaller metro areas (those with less than 150,000 jobs) and also first overall among the country’s 398 metropolitan areas. Nipping at its heels in second place in both categories is Odessa, Texas. On our medium-size cities list, energy towns with strong growth include No. 4 Corpus Christi, Texas; No. 5 Bakersfield, Calif.; and No. 6 Lafayette, La.

Affordability + Quality of Life = Success

But you don’t have to be a huge tech hub or energy capital to generate new jobs. The No. 2-ranked place in our big metro ranking, Nashville-Davidson-Murfreesboro-Franklin, Tenn., reflects the power of economic diversity coupled with ample cultural amenities, pro-business policies and a mild climate. Nashville’s 3.8% expansion in employment last year, and 7% growth since 2008, has been propelled by business services, education and health. There’s also been a recent recovery in manufacturing, up over 9% last year, as well as retail and wholesale trade. Like the Texas cities, Nashville has registered long-term growth as well, with 112,000 jobs added since 2001, a nice 16.6% increase.

Much the same can be said about Charlotte-Gastonia-Rock Hill, N.C., No. 8 on our big city list, whose job base grew 3.3% last year. Virtually every business sector has been on the rebound since 2009, including financial services, despite Bank of America’s continuing troubles. Overall the local economy has added 100,000 jobs since 2001, up almost 13%.

Steady, diverse growth can be seen in other low-cost and business-friendly towns such as our No. 11 big metro area, Raleigh Cary, N.C.; No. 13 Columbus, Ohio; and No. 15 Indianapolis. The shift towards stronger growth in areas away from the coasts has continued, at least in the more attractive metro areas.

Who Doesn’t Have It?

Of course, any list has its share of losers as well as winners. Sadly this includes long-suffering old industrial cities such as our last-placed big metro area, Newark-Union, N.J., which is followed, in order, by Saint Louis, MO-IL; Cleveland-Elyria- Mentor, Ohio; and Providence-Fall River-Warwick RI-MA. All but Providence, which stayed about even, slipped from last year’s rankings.

But not all factory towns are headed in the wrong direction. No. 51 Detroit-Livonia-Dearborn advanced an impressive 11 places from last year’s list. The key here has not been the much talked about attempt to turn downtown Detroit into a cool place, but the resurgence of the auto industry. Manufacturing employment, concentrated in the region’s suburbs, is up over 18% since 2009 after decades of tumultuous losses.

Also flailing a bit have been many of our largest, and most often celebrated, metros. Believe it or not, Detroit comes in one place ahead of Chicago-Joliet-Naperville ,Ill., which continues to promote itself as one of the nation’s great comeback stories, but in reality has continued to lose ground. You can tell the same tale about No. 46 Philadelphia, Pa., No. 41 Portland-Hillsboro-Vancouver OR-WA, and No. 37 Miami, which dropped a staggering 16 places despite the much celebrated recovery of its condo market. Selling to South America flight capital (legal or otherwise) and sun-deprived Europeans does not seem to be doing enough to revive the region’s overall economic vigor.

There are also some signs that the big beneficiaries of the Bernanke-Obama-Bush economic policy may be losing some momentum. New York City, the major winner from the “too big to fail” banking bailout, fell seven places from last year to No. 18. Even Washington-Arlington-Alexandria, D.C., the nation’s prime beneficiary of crony capitalism and fiscal bloat, has lost steam, falling 10 places to No. 26 — a big decline from its No. 6 rankings in 2010 and 2011. We are usually loath to celebrate declines, but Washington’s loss, reflecting a slowdown in government growth, may be evidence that some equilibrium between the public and private sectors is slowly being restored.

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

This piece originally appeared at Forbes.com.

Fracking Offers Jerry Brown a Watershed Moment

Joel Kotkin — Mon, 22 Apr 2013 01:38:25 -0400

The recent announcement that Jerry Brown is studying "fracking" in California, suggests that our governor may be waking up to the long-term reality facing our state. It demonstrates that, despite the almost embarrassing praise from East Coast media about his energy and green policies, Brown likely knows full well that the state's current course, to use the most overused term, is simply not politically and economically sustainable.

Although largely a prisoner of basic green dogma, Brown also is a former Jesuit, with that order's sense of rationality, order and, well, philosophical flexibility. Unlike many of his progressive idolaters and legislative allies, Brown may well be intelligent enough to look past the rhetoric of the environmental movement and consider its often unexpected ill-effects.

Brown needs to balance "California comeback" stories – including one that gushingly describes "California beaming" – with the actual realities. Good times, and the current technology bubble, may be blessing Silicon Valley, but as Walter Russell Mead points out, this comeback is being pushed "over the heads of the poor and the jobless." This, he adds, "is not how progressives used to think."

The chasm between the effects of "noble" green politics and the interests of most Californians is becoming evident, if not widely recognized in the mainstream media. Editorial writers at the New York Times may believe we are losing our need for oil and gas, but this transition should be more difficult than they suggest and, if achieved through often-thoughtless Draconian measures, could have profound impacts on the overall economy.

Let's start with the supposed "up" side of the purist renewable policies hitherto embraced by Brown. The governor's 2010 election promise about creating 500,000 "green jobs" – his economic rationale for his energy and other environmental policies – increasingly looks far-fetched. With electric car maker Fisker, backed by well-connected Democratic venture capitalists and Al Gore, now perhaps ready to follow solar-panel maker Solyndra into bankruptcy, the pitch about a green economy seems unlikely, even bizarre.

The state-driven "green" policies have also created huge losses for the giant state-employee retirement fund CalPERS, one of whose managers at a recent conference confided that renewable–energy investments have negative returns approaching 10 percent.

Certainly, neither green energy nor even the current Silicon Valley bubble are creating enough jobs to make up for the enormous shortfall in employment since the recession. This is particularly evident in urban areas like Los Angeles and Oakland – where Brown was mayor from 1999-2006 – as well as most of the state's interior. Overall, the state vies for last-place honors with the likes of Rhode Island, Nevada and Mississippi for the nation's highest unemployment rate. The damage is greatest in the state's more blue-collar interior. Working-class Stockton just was allowed to enter bankruptcy and other municipalities seem likely to join the queue.

Progressive journalists, eager to pronounce the state's comeback to justify their ideology, seem utterly unaware of the seriousness of the overall situation in the state. One wonders what they would say if Pete Wilson or Meg Whitman were governor. Compare Texas, which is 550,000 jobs ahead of its 2007 number, to California, which, despite recent gains, remains down 560,000 jobs from its peak. Perhaps unemployment is not a big issue in the progressive reserve of Palo Alto, where the jobless rate is about the same as in North Dakota, but it is a constant in much of Los Angeles, San Jose and Santa Ana, as well as the Central Valley. If this suggests a "comeback" to New York Times columnist Paul Krugman, perhaps we need a new definition for that word.

These comparisons seem particularly relevant to the discussion of fracking – oil and gas extraction using a technique called hydraulic fracturing. In the environmental scheme of things, oil and even natural gas, once widely favored by progressives, now constitute an utter evil. This is true even though gas has been the primary reason for the country's reduced carbon emissions by replacing coal as a source for generating electricity. Some of the state's well-heeled greens would like to ban the process entirely.

Brown must be aware he is not just governor of the public sector or of his admirers among the coastal rich. He has to consider the unimaginable: removing mandates that force the state to rely on expensive, often-unreliable renewables, notably, solar. These have helped push California electricity prices well above the national average, and much higher than in prime economic competitors such as Washington state, Utah, Texas, Arizona and Nevada. Economist John Husing suggests this is one reason why California not only completely missed the recent national revival in manufacturing jobs – 500,000 the past two years – but actually lost 10,000 more such jobs.

We are clearly missing the party here. California's energy policies reflect what is already happening in Europe, where anti-fracking ideology, sometimes supported by the no-doubt-disinterested Russians, have largely won the day. But the costs of green policies have already convinced hard-pressed Spain to abandon its widely praised renewable program.

Far more economically healthy Germany also is rethinking its renewables mandates. One reason: German companies like Bayer and BASF consider moving to cheaper locales, such as along the U.S. Gulf Coast, where electricity is one-third the price. Texas, Utah and Arizona are to California's hard-pressed manufacturers what the Gulf Coast is to Germany's.

And, then, there are the effects of the budget. Unlike his East Coast admirers, Brown must know that the budget situation is hardly rosy over the longer term. The state auditor recently released a report showing the state's net worth to be negative by some $127 billion, in large part due to often out-of-control pension costs. There are already indications that the return from last year's hike in income taxes may not be as large as expected and that what was, during the election, promised to schools will likely end up, as widely predicted, covering rising pension obligations.

Companies and individuals may not leave California in droves, as some have suggested, but investors certainly can put their money someplace more fiscally responsible. A longer-term problem may be that the higher-income earners, who generate the vast majority of income-tax revenue, are also those most likely to change behavior or find effective income-hiding strategies; remember, Facebook paid no income taxes last year.

Given these prospects, reviving California's fossil-fuel industry could prove a critical boost to the budget. A deal to raise some energy taxes while allowing more exploration and development would go a long way to filling the state's coffers.

Energy taxes play a big role in financing higher education in many states, including North Dakota, Louisiana and Texas. Oil money, ironically, has allowed Texas to fund universities, particularly the main University of Texas campus in Austin, as a competitor to the perennially hard-pressed University of California system. An energy boom in California, whose energy resources may exceed those of all these states, might offend most academics, but, my hunch is, they might take the money.

Perhaps more important, a pragmatic shift on energy would also help, as columnist Tim Rutten puts it, "jump start" the state's economy, particularly in central California. In the past decade, Texas has created almost 200,000 energy-related jobs, while California has generated barely 20,000. These jobs provide good wages to many blue-collar workers, the very people losing out the most in our progressive-minded state.

There are other signs of pragmatism from the governor. Brown has announced support for a peripheral canal that would provide more-reliable water supplies to the state's huge agribusiness industry. Although some state regulators threaten farmers with ever-tougher regulations, some observers, such as three-term Salinas Mayor Dennis Donahue, now a full-time farmer, say the governor is trying to "walk the line between labor, greens and agriculture."

Many Republicans and conservatives find the notion of Brown getting on the road to reality itself fundamentally unrealistic. But the past could be prologue. Brown also started off his first term, in 1975, as something of a dreamer, proclaiming a "small is beautiful" agenda. This was, in many ways, ahead of its time, and skeptical of government spending, but Brown's environmental views, particularly, also offended some business interests. Far worse, he signed off on legislation freeing up public-sector unions, which has turned into something of a disaster.

But by the time he started running for a second term, Brown readjusted to a new reality. He could claim that, as someone opposed to the growth of institutionalized government, he could live with Proposition 13. Brown had opposed the measure, but, once it passed, in 1978, he chose, unlike many progressives, to embrace it.

Brown then ran as a centrist, pro-growth governor. He particularly embraced the then-ascendant technology industry, gaining new donors and allies, although the shift toward realpolitick horrified some of his green backers. But the politics worked brilliantly.

Today's circumstances, of course, are different. For one thing, Brown faces little pressure from the right, as the Republican Party, at least for now, has deteriorated into near irrelevancy. The once-potent California business community also has lost much influence, with every lobby, basically, trying to make its own deal with the overweening state apparat.

So, if Brown is to move to the center, he will have to do it largely on his own, and put up with the incessant hectoring of his allies. Yet, Brown's occasional genius has demonstrated a Machiavellian quality, knowing when to embrace opponents in order to divide or weaken them, or to allow allies to stew. He also, at this stage of life – today, April 7, is his 75th birthday – must wonder if he wants to leave a legacy of fiscal weakness, a fading competitive edge and an ever-expanding class chasm. In the long run, whether on fracking or a host of other issues, Brown's success will not derive from pleasing progressive writers, but by promoting a better future for the vast majority who live in, and love, this state.

This piece originally appeared in the Orange County Register.

Photo: Troy Holden

California is in for a World of Hurt

Bill Watkins — Sat, 23 Mar 2013 01:38:00 -0400

California’s political class, led by Governor Brown, has been patting itself on the back for solving California’s problems. This celebration is ludicrous. What they’ve done amounts to a mere slowing down in a long-term political, fiscal, and demographic decline.

Demographic trends themselves are creating a crisis brought about by a population that is simultaneously losing its children and getting older, and to a frightening extent poorer. From 2000 to 2010, the percentage of Los Angeles' population under 15 years old fell by 15.6 percent. This was the greatest decline of any U.S. major metropolitan area, and about double the U.S. average of 7.4 percent.

California's poverty statistics are just as depressing. The state now is home to one-third of all US welfare recipients. According to a Census Bureau report, The Research SUPPLEMENTAL POVERTY REPORT: 2011 California has the nation's highest poverty rate of any state. By its Supplemental Poverty Measure, 23.5 percent of California's population is poor, while only 15.8 percent of the nation's population is poor. No other state is above 20 percent.

Because of its aging and increasingly poor population, its dearth of young people and migratory trends, demand for government services in California will be increasing as the number of people available to pay for those services will be decreasing. Financing concurrent expenses will be hard enough. Paying for today’s excesses may prove impossible.

Let’s go through the evidence:

Figure 1 shows California’s Department of Finance’s (DOF) estimate of domestic migration, migration between California and other states. According to the DOF, California’s domestic migration has been negative in 18 of the past 20 years. This is less dismal than the U.S. Census’ estimate that California’s domestic migration has been negative for 20 consecutive years. This is the longest sustained period of negative domestic migration in California’s history. We've seen this before, in the rust belt. It leads to decay, poverty, increased crime, and unlivable cities.

Domestic migration is important because it should be seen as an early warning signal of eventual decline. Migrants are the proverbial “canaries in the coal mine”. When domestic migration is negative, people are voting with their feet. They are saying that California doesn’t provide enough opportunity to stay, particularly given its high cost of living. Given how comfortable it is to live in California, I think they make that decision reluctantly.

Over most of California’s recent history, international migration has been strong enough that total migration remained positive. That’s no longer true.

Figure 2 shows California’s total net migration for the past 107 years. Prior to 1993, California had never seen a year where total migration was negative. Now, we’ve have negative migration for eight consecutive years.

More critically, the rate of foreign migration in the state’s cities is falling behind many competitor cities. For example, over the last decade, New York had almost six times the increase in foreign born than Los Angeles. Houston, which has barely one third the population of LA-Orange County, increased its foreign born nearly four times as fast. Overall, LA-Orange had the lowest percentage increase of any major US metro. Given that the Southland has been the state’s immigration magnet for a generation, this is not good news.

Weak, negative migration is likely to continue. We used to characterize domestic migration as pull migration; rapidly growing economies attract migrants looking for opportunity. International migration, especially from other countries in this hemisphere, was thought to be push migration; conditions were so bad in the country of origin that migrants would come to California even in a recession.

Apparently, that’s no longer true. Mexico, for example, has an unemployment rate of about half of California’s today. When you add the increased cost imposed by coyotes on illegal immigrants (a price increase from about $3,000 a few years ago to about $6,000 today plus the requirement to carry drugs), it’s no mystery why California’s growers are having a hard time finding an adequate workforce.

Negative migration is important because migrants have been a critical part of California’s growth and creativity. Not only is California losing the services of the migrants who choose, say, Texas instead of California, California is suffering a drain of some of its talent pool, particularly among those about to have children.

For a long time, many people thought that California’s Hispanic population would cause its population growth rate to increase. That turns out to not be true.

Figure 3 shows California’s birthrate. Our births per thousand population is the lowest it’s been since the worst part of the depression. What’s scary though, is the rate of decline. Births have fallen below 15 per thousand and seem destined to hit 10 per thousand. This is a national trend and a key reason to create national policies that encourage increased international immigration.

If a population is growing, it’s possible to have increasing births (new people) even when the birth rate is declining. Unfortunately, California isn’t there.

Figure 4 shows the total number of births in California. It’s fallen to 500,000 per year from 600,000 per year about 20 years ago. If California’s birth rate falls to 10 percent, we can expect the number of births to decline to about 350,000. At that point, the math starts to get to be a problem. Is a decline to 10 per thousand possible? You bet.

According to the CIA, as of 2012, 29 out of 221 countries (13 percent) had birth rates below 10 per thousand. Those 29 countries included Japan, Germany, Switzerland, South Korea, and Singapore.

Unfortunately, California --- as opposed to states such as Texas --- could reach a 10 per thousand birth rate within 10 years if existing birth rate trends continue. Even more disturbing, there is no reason to believe that 10 per thousand is a lower bound. Germany, for example, has a birth rate of 8.33, while Hong Kong and Singapore have rates of only 7.54 and 7.72 respectively.

For California’s population to continue to grow, births have to outnumber the losses to migration and deaths. We’ve already discussed migration. What about deaths?

Figure 5 shows annual California deaths from 1971 through 2012. While recently flat, the trend is up, and an aging population implies more increases. For our calculations, we’ll assume California deaths at 250,000 per year. This is a conservative assumption. As the Baby Boomers age, California deaths will increase.

When California’s birth rate falls to 10 per thousand, we can expect 350,000 births. Deaths will be about 250,000. Apparently, as long as outmigration doesn’t exceed 100,000 California’s population won’t decline overall.

The good news is that outmigration in excess of 100,000 has only happened once. California's net outmigration exceeded 100,000 for two consecutive years in the 1990s, when California was undergoing a dramatic economic realignment brought about by the end of the Cold War.

The bad news is that we’ve come very close to losing 100,000 twice in the past eight years, particularly during the housing boom. Many people believe that low home prices are restraining domestic outmigration, because people are waiting for equity to return before making the move. Higher home prices and increased tax rates could drive big increases in the numbers of people leaving California.

Unless there is some dramatic change, it is almost inevitable that California will suffer a declining population within a generation. The way to avoid this calamity is create an economic environment that encourages job growth and economic activity.

At the same time, it appears prudent to begin planning now for an aging and possibly smaller population. Increased government revenues through more robust and varied economic activity would help here, but more probably needs to be done. California needs to reform its business climate, reduce its debt and unfunded liabilities, and do so quickly.

Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org.

California Needs More Immigrants

Joel Kotkin — Mon, 18 Mar 2013 01:38:34 -0400

Southern California, just a few decades ago the fastest-growing region in the high-income world, is hitting a demographic tipping point. With a decade or more of domestic out-migration and a sharp fall in immigration, the region is morphing from a destination that attracts dreamers and builders into a place increasingly dominated by those born or bred here.

To some demographers, this transition from a magnet for migrants to a more native-born population represents something of a boon. As for migrants, one USC demographer wrote that California acts like "a gold pan that sifts through aspiring talent and keeps the best." Our new steady state is a good thing, the argument goes, since it offers a respite from the travails of rapid growth. All we need to focus on is spending more money on schools, and, not surprisingly, universities, and everything will turn out alright.

There may be some truth to all these points, but, historically, a decline in new migration also suggests something else: a picture oddly reminiscent of the kind of demographic stagnation long associated with places like Cleveland, Buffalo, N.Y., Pittsburgh and Detroit. A more native-dominated region may be both more socially stable but increasingly hidebound and lacking innovation.

For cities, demographic stagnation is not a recipe for success. Over the past decade, notes demographer Wendell Cox, the Los Angeles-Orange County area has seen the fifth-highest growth in the percentage of locally born people in its population, among nation's 51 largest metropolitan areas. The concern is not so much that people are leaving these places in droves; the real issue is that not enough new people, with new ideas and great ambition, are coming in.

Already, notes economist Bill Watkins, large parts of the state, particularly along the coast, are evolving into "geriatric ghettos" populated by aging, often-affluent baby boomers. And, as for keeping the "best," the steady decline in California's relative educational ranking, particularly in the younger cohorts, should convince us that we cannot reasonably rely on native-born residents to meet the challenges of the future.

Domestic Outmigration

Watkins also points out that California has been losing domestic migrants for 10 of the past 15 years. It's been worse in this region; over the past decade the Los Angeles-Orange County area suffered the third-highest rate in the country of net outmigration, slightly above New York's. Amazingly, on a per capita basis, people are leaving our sun-drenched metropolis more rapidly than from Rust Belt disaster areas such as Cleveland and Detroit.

In recent decades, this shortfall has been more than made up by foreign immigration. But in a stunning reversal of the trends in past decades, the number of foreign-born in our region has started to stagnate. Indeed, over the most-recent decade, the Southland has experienced the slowest rate of growth in its foreign-born population of any major region in the country. Los Angeles-Orange County gained 110,000 immigrants over the decade, one-sixth as many as New York City and only a quarter as many as Houston. Our immigrant population has grown less than that of much smaller regions such as Minneapolis-St. Paul, Austin, Texas, Atlanta and Dallas-Fort Worth.

These patterns suggest a dangerous shift in our demographic DNA and a decline in our historic archetype as one of the world's most culturally and economically innovative regions. Throughout history, the movement of newcomers has accented the rise of great cities at their peak, from ancient Athens, Rome and Baghdad to early 20th century London, Berlin, New York and Chicago. Similarly, the ascendency of the great cities of modern Asia – from Tokyo to Shanghai to Hong Kong and Singapore – resulted from mass migration, usually from the countryside to the urban centers.

Pioneering Migrants

Southern California's evolution into one of the world's premier urban regions has been, for the most part, propelled by outsiders, people who came to this place in search of a better life. Starting in the 1880s, these tended to be other Americans, including Los Angeles Times publisher Harrison Gray Otis (Marietta, Ohio), and railway magnate Henry Huntington (Oneonta, N.Y.), and, later, Walt Disney (Kansas City, Mo.), Howard Ahmanson Sr. (Omaha, Neb.) and Dr. Jerry Buss (Kemmerer, Wyo.).

For such newcomers – including James Irvine, a native of Ireland – Southern California provided an opportunity to create new things of every type. Everything distinctive developed in Southern California was created largely by outsiders. The creators of the movie business were mostly Jews from Eastern Europe, while the aerospace industry was largely populated by Midwestern emigres. Even the people who built our cities came from elsewhere. Consider Ahmanson, who funded much of it. Developers like Eli Broad, a native of Detroit, or Nathan Shapell, a holocaust survivor from Poland, built many of the region's suburban communities.

In recent decades, L.A.'s outsiders have come increasingly from abroad. Most have come from Mexico and Asia, but also from the Middle East, the former Soviet Union and, increasingly, Africa. Their influence is everywhere, from the food trucks to the ethnic malls, at the universities and in the music scene. A large number of the smaller banks in the region are tied to immigrant communities.

Nowhere is the influence greater than in the entrepreneurial arena. In the 1980s and 1990s, when Los Angeles-Long Beach frequently led in new immigration, newcomers from abroad fueled the rise of industries from garments to international trade and food processing. They are the primary creators of our food truck culture and often the chefs and owners of our finest restaurants.

Business Starters

Simply put, immigrants provided the critical oxygen for our economy, which, as a group, they are still doing. Even in the midst of the recession, newcomers continued to form businesses at a record rate, while the start-up rate for native-born entrepreneurs declined. The immigrant share of new businesses, notes a Kauffman Foundation survey, more than doubled, from 13.4 percent in 1996 to 29.5 percent, in 2010.

Nationally, immigrants are responsible for roughly a quarter of all high-tech start-ups. Asians, who constitute more than 40 percent of newcomers, now account for roughly 20 percent of tech workers, four times their percentage of the population.

How much is this dynamism, which once blessed the Southland, is now heading to Houston, Dallas-Fort Worth or even Charlotte, N.C.? It seems likely that, without the economic push from the immigrants and their countries, the reinvention of our economy will be far slower. Southern California natives seem far less likely to take the risks, and create the new industries, the region desperately needs.

Regaining our allure to newcomers is now arguably our biggest challenge. We have some fine assets, such as great weather, universities and a strong entrepreneurial legacy. Critically, despite the stagnant past decade, the Los Angeles-Orange County region still remains the second-largest repository of immigrants, at 4.4 million, behind only the greater New York area's 5.5 million. Virtually any ethnic group can find schools, shops and banks tied to their home countries; for some, like Chinese, Vietnamese, Mexicans and Iranians, Southern California remains a critical ethnic bastion and beacon.

Shift Focus

In this process, immigration reform could prove helpful, although most attention has been paid to legalizing undocumented immigrants already in the country. This may well be justified on moral ground but, in some ways, that debate is fighting the last war, as the flow of illegal immigration from Mexico has slowed, and may even be reversing. Legal immigration from Mexico also has declined markedly in recent years.

A far more strategic concern would be easing the flow of Asian immigrants, who, according to a recent Pew study, are generally better educated and affluent than other newcomers. Asian immigrants are also more likely to start business; a 2012 Kauffman study notes that close to 40 percent of immigrant entrepreneurs come from India or China. We should be looking to capture all such skilled and entrepreneurial newcomers, from any country and, hopefully, also from within this country.

To accomplish this we need to convince prospective migrants that this region, for all its faults, deserves to become, once again, a preferred destination for ambitious outsiders. It's a task that our local leaders, both in the business world and government, need to take seriously, rather than take comfort in the prospect of a more stable, and fundamentally stagnant, demographic future.

This piece originally appeared in the Orange County Register.

Photo by telwink

Should California Governor Jerry Brown Take a Victory Lap?

Joel Kotkin — Mon, 11 Mar 2013 01:38:51 -0400

"Memento Mori" – "Remember your mortality" – was whispered into the ears of Roman generals as they celebrated their great military triumphs. Someone should be whispering something similar in the ear of Gov. Jerry Brown, who has been quick to celebrate his tax and budget "triumph" and to denounce as "declinists" those who threaten to rain on the gubernatorial parade.

Brown speaks about California's "rendezvous with destiny" and the state's "special destiny... more vibrant and more stunning in its boldness." His pitch certainly has persuaded much of the mainstream media to add their horns to the triumph.

Yet right now, despite its many blessings, our state remains more on a collision course with mediocrity – at best– than with any such manifest destiny. California may not be a "death-spiral state" as some conservatives suggest, but Brown's triumphs – the Proposition 30 tax increases, the marginalization of the GOP as well as his Democratic rivals – have been more political than substantial and have done little to address the state's major long-term challenges.

Let's check this out. Unemployment remains the third-highest among the states; we still have one-third of the nation's welfare recipients; the highest poverty rate in the country, with one in five of California's diminishing ranks of children living in poverty, including more than a third of children in Fresno. Our education system, with new dollars or not, continues to fail young people and our economy.

Critically, the three key elements typically invoked to promote the comeback meme – budget relief, the genius of Silicon Valley alchemists and "green" jobs – are themselves suspect. Even Brown, who suggested that we could create 500,000 jobs from his climate change agenda, isn't speaking much about it. In California, and across the nation, "green jobs" have failed to materialize enough to offset the higher costs imposed on the rest of the economy, the high public subsidies and parade of failed ventures associated with these policies.

Yet, Brown is so dogmatically loyal to this agenda that he remains committed to massive regulation of the economy, which is slowing growth. And he shows – despite his occasional bouts of fiscal sanity – no signs of backing away from his financially troubled bullet-train fantasy.

If green economics are failing, can Silicon Valley bail out the state? Reporters anxious to celebrate our deep-blue state's comeback almost always genuflect to the tech industry. They rarely bother to look at the fact that, even with considerable growth in the tech sector over the past two years, the valley has not even recovered the job levels of a decade ago.

More troubling still, Silicon Valley is becoming less an exemplar of capitalism than the beneficiary of an insider game that relies on access to capital and contacts more than on innovation. It is also becoming increasingly dependent on government largesse: No one bet more on subsidized "green" companies than the venture-capital elite. Prospects are also dimming for social media, the valley's latest signature industry. User interest in Facebook is slipping, notes Pew, and the industry now sees its next great opportunity, of all socially worthless things, in online gambling.

Even under the best of circumstances, Silicon Valley is neither robust enough nor predisposed to help solve the state's long-term fiscal challenges. In fact, the high-tech darlings of the progressives, such as Google and Apple, are turning out to be as adept in not paying taxes as are Mitt Romney or General Electric. For its part, Facebook now appears to have paid no income taxes at all last year.

In fact, the only thing bailing out California is not growing tech firms, but the enormous legacy of wealth, including inherited wealth, that has built up in our state over the past 30 years. California is still rich in rich people, whose stock and real estate holdings are gaining value. As long as Uncle Ben's printing press hands out free money, California could collect enough in state income taxes to perhaps balance its annual budget for a spell.

None of this places, to say the least, California on a firm footing. So at the risk of engendering some gubernatorial ire, here's my memento mori suggestions for restoring California's promise. This starts with the assumption that the elements of a true revival exist and that, if Brown would shed some of his dogma, he may end up deserving his current plaudits.

• Get real on the budget.Asset bubbles may rescue the state from annual budget woes, but the state's long-term prospects remain cloudy, due largely to mounting government employee pension costs. Attempts to revise the game for new employees are not sufficient to scale the state's mounting "wall of debt"; Californians per capita now owe almost five times as much to Wall Street as residents of our chief rival, Texas. Analyst Joe Matthews suggests we need more drastic fixes, such as cutting off retirees' health benefits after they reach Medicare age.

• Redirect the climate-change jihad. California can keep leading in conservation but needs to adopt a more pragmatic people-friendly approach, such as by encouraging telecommuting and energy-saving technologies. In contrast, the current high-density housing diktats and ultra-expensive "green" energy will force up prices for housing and electricity rates way out of proportion to national norms. This damages the middle and working class even if it won't impinge on the lifestyles of Brown's rich and famous friends.

• Focus on basic industry. Tech and entertainment can never drive enough jobs or wealth to support this huge state. But California is blessed with the country's richest soil and huge fossil-fuel reserves. These could bring in new revenue to the state and create new jobs for a broad number of Californians, particularly in the hard-pressed interior. Particularly critical is the state of the water system, which once again faces large cutbacks because of pressure from environmentalists. Brown has spoken in favor of a peripheral canal; solving the water problem may leave him with a greater legacy than the dodgy bullet train.

• Reform the education system. More money alone won't save the schools, but may be used only to prop up the pensions of teachers and administrators. Some kind of radical reform – perhaps school choice, vouchers, mass use of charters – must be the price of any increase in money to education. Brown has made some reformist noises with the University of California, but he remains tethered to the teachers unions on K-12 schools.

• Invest in economically needed infrastructure. Besides the peripheral canal, Brown should look at expanding the state's energy supply by permitting the construction of low-polluting, economically efficient gas-fired power plants. Rather than waste money on a "train to nowhere," he should be looking at fixing roads, bridges, ports – the sinews of a modern economy – and improving existing inter-city trains (and buses), particularly in high-volume corridors in the Bay Area/Sacramento and across Southern California.

• Prioritize blue-collar opportunities. California's greatest challenges lie with a widening class divide. Bolstering manufacturing, which is in a secular decline here, and restarting construction could create new opportunities for blue-collar workers. Port expansion would create lots of jobs in everything from warehousing to assembly and business services. This can be meshed with revitalized training programs for the skilled trades. In simple terms: California needs more skilled machinists, electricians and irrigation technicians and likely fewer marginally employable ethnic-studies or humanities grads from second- and third-tier schools.

One can understand why our governor, at age 74, wants to enjoy his triumph. But to deserve the laurel wreath, he first needs to make the major changes that can bring this greatest of states back to its historic potential.

This piece originally appeared in the Orange County Register.

Jerry Brown photo by Bigstock.

Disney Stops Thinking About Tomorrow

Zohar Liebermensch — Sun, 03 Mar 2013 02:21:16 -0500

Walt Disney's first version of Tomorrowland came to life in 1955. The attractions were geared towards the space age, and towards the future of transportation that Disney believed scientists of his time were about to create. The imaginary world was intended to “give you an opportunity to participate in adventures that are a living blueprint of our future.” When Tomorrowland opened, its showpiece was the TWA Moonliner exhibit, which contained the Rocket to The Moon; later, its Flight to the Moon gave another perspective. Once Neil Armstrong walked on the moon, these Disney attractions were no longer science fiction.

Accommodating the reality of moon flights, the Flight to the Moon was updated to Mission to Mars. Only 14 years after the park opened, the space age that Walt Disney had imagined was becoming a reality. Before President Eisenhower had signed the Interstate Highway legislation, Autopia allowed riders to experience Disney’s interpretation of what the system would one day be like. Autopia accurately envisioned the future of America's soon to be multilane limited-access highways.

Another addition to Tomorrowland was the Monsanto House of the Future, added in 1957. Items such as picture phones, television remote controls and a microwave oven familiarized many visitors with these ideas for the first time. Tomorrowland continued to prove itself as an innovative predictor of the near future.

Downfall of the Futuristic Tomorrowland - Unlike its predecessor, Mission to Mars wasn't replaced after becoming a reality. Instead, Red Rockett’s Pizza Port, a space themed pizza parlor, took its spot in the 1998 refurbishment. Disney didn’t have enough confidence in a real mission to Mars to update or revamp the ride. Instead of updating it, Disney was essentially saying that a successful human mission to mars was not a fathomable idea.

At the same time, Disneyland was cutting back on refurbishment in the Carousel of Progress. This attraction took viewers on a journey through the eyes of a “typical” American family exploring life through the dawn of electricity and other technological advancements. Periodic updates were necessary to keep up with the times of its audience. The first version lasted three years, the second six years, and then two years, ten years, and nine years respectively. The attraction has been periodically closed, but hasn’t been significantly modified in 18 years. This increased changeless period waves another flag of concern, as it demonstrates Disney's view that there has been no noteworthy progress in almost two decades.

Rather than foreshadowing, like the early Tomorrowland did, current Tomorrowland is opening attractions like Buzz Lightyear Astro Blasters, where passengers shoot targets modeled from Toy Story or a submarine voyage where passengers go “under the sea” to spend time with characters from Finding Nemo. Concentrating on movies expresses that Disneyland has no expectations to focus on the future. The most recent display of this is the sequel of the Star Wars themed motion simulator, Star Tours: The Adventures Continue. Instead of replacing the out of date ride with a new, innovative idea, the same idea from 1987 with newer graphics sufficed. While in the past a bright vision of the future both inspired and guided Disney’s early Tomorrowland, today’s innovative standstill forces the Disney company to draw the focus off the future’s possibilities and gear the theme park towards animations.

Disney Movies - Select movies demonstrate Disney’s continual hope in the space era. The first Zenon movie was set in the year 2049 and took place in the orbiting space station where Zenon’s family resided. Even though this movie was released in 1999, much after Walt Disney’s death, his visions of a space era are directly displayed. Since Zenon, Disney has released another movie with humans residing in an orbiting space station. In 2008’s Wall-E, the humans were forced to evacuate to space in 2105 when the earth became unsafe for human life.

While Disney is keeping their space era predictions, they are continuously projecting them further into the future. Originally, 1955’s Tomorrowland envisioned space development for 30 years in the future. 1999’s Zenon gave the orbiting space home 50 years to become reality, and 2008’s Wall-E gave nearly 100 years until humans began to live in space. This growing gap shows that although the idea of space development stays near to Disney’s heart, the company's pessimism about the technological advancements of society certainly exists.

Justified Pessimism? - Disney’s pessimistic attitude towards the rate of current advancement comes from a place of truth. New, revolutionary ideas were coming out on a consistent basis in the mid 1900s during Walt Disney’s generation, but near the late 1900s progress as a whole slowed down. Rather than innovating new and fresh ideas, the current generation fine-tunes the revolutionary ideas of their predecessors.

A kitchen today won’t differ too grandly from one in 1980. Although most appliances may be higher quality, they were still there in both eras. Comparing kitchens from 1980 and 1940 shows vast differences. Not only did appliances get sleeker, but you will also not find a microwave, a food processor nor Tupperware anywhere. These are only a few of the many kitchen changes that came to life in that time period. The kitchen only represents a small sector of technology and advancement, but the trend it represents stands.

The oldest members of today’s world lived through the invention or development of the airplane, skyscraper, suspension bridge, radio, television, antibiotics, atomic bombs, and interstate highways. The mid-life individuals went through the first moon landing, the popularization of personal computers and invention of search engines, biotechnology, and cellphones. Participants of the younger generation have seen much up- tuning of these devices, but are greatly lacking in brand new revolutionary inventions.

Facebook and the iPhone may be classified as the monumental inventions of the past decade. While they improved the social networking and convenience of society, can they really be compared the monumentality of the first airplane or personal computer? Previous milestones are being expanded and fine-tuned. Rather than thinking of new revolutionary discoveries, the current generation attempts to fix the old ones. Technology seems to be hitting a very worrisome plateau.

Walt Disney was justified in the optimism he displayed with 1955’s version of Tomorrowland. He belonged to the generation of innovation, and naturally expected society to continue flourishing. He didn’t foresee the technological plateau blocking Tomorrowland from becoming reality. Currently, Disneyland is trying to divert notice from the lack of change by adding more animated features to Tomorrowland. The new rides help visitors feel as if Tomorrowland is still continually changing, and that progression hasn’t slowed down.

However, it’s only a matter of time until the whole sector becomes a Disney themed montage. If technological development continues at this rate, Tomorrowland may as well combine with Fantasyland as a childish delusion from the past. As displayed by the modern developments of both Disney movies and Disneyland, the once flourishing future that Disney envisioned for the world is coming to a rapid halt.

Flickr photo by jnocca93:
Entrance to Tomorrowland at Disneyland, California.

Zohar Liebermensch is a sophomore studying business administration emphasizing in economics with minors in computational sciences and the university honors program at Chapman University. Born in Israel, she moved to northern California when she was a toddler and has been enjoying Orange county for the past two years. She is vice president of the Chapman chapter of the National Society of Leadership and Success as well as a member of the university's soccer team.

In California, Don't Bash the 'Burbs

Joel Kotkin — Mon, 25 Feb 2013 00:38:26 -0500

For the past century, California, particularly Southern California, nurtured and invented the suburban dream. The sun-drenched single-family house, often with a pool, on a tree-lined street was an image lovingly projected by television and the movies. Places like the San Fernando Valley – actual home to the "Brady Bunch" and scores of other TV family sitcoms – became, in author Kevin Roderick's phrase, "America's suburb."

This dream, even a modernized, multicultural version of it, now is passé to California's governing class. Even in his first administration, 1975-83, Gov. Jerry Brown disdained suburbs, promoting a city-first, pro-density policy. His feelings hardened during eight years (1999-2007) as mayor of Oakland, a city that, since he left, has fallen on hard times, although it has been treated with some love recently in the blue media.

As state attorney general (2007-11) Brown took advantage of the state's 2006 climate change legislation to move against suburban growth everywhere from Pleasanton to San Bernardino. Now back as governor, he can give full rein to his determination to limit access to the old California dream, curbing suburbia and forcing more of us and, even more so our successors, into small apartments nearby bus and rail stops. His successor as attorney general, former San Francisco D.A. Kamala Harris, is, if anything, more theologically committed to curbing suburban growth.

Sadly, much of the state's development "community" has enlisted itself into the densification jihad. An influential recent report from the Urban Land Institute, for example, sees a "new California dream," which predicts huge growth in high-density development based on underlying demographic trends – like shifts in housing tastes among millennials or empty-nesters rushing to downtown condos.

Yet it's not enough for the planners, and their developer allies, to watch the market shift and take advantage of it. That would be both logical and justified. But the planning clerisy are not content to leave suburbia die; it must, instead, be cauterized and prevented, like some plague, from spreading.

Ironically, it turns out that the "new California dream" is more widely shared by planners and rent-seeking developers than by the consuming public. During the past decade, when pro-density sentiment has supposedly building, some 80 percent of the new construction in the state was single-family, a rate slightly above the national average. Over time, Californians continue to buy single-family houses, mostly in the suburban and exurban periphery. They do it because they are like most Americans, roughly four of five of whom prefer single-family houses, preferably closer to work but, if that proves unaffordable, further out.

This includes both working-class and upper middle-class markets. The more-affluent, including many largely Asian immigrants, have been willing to buy high-priced homes closer to employment centers in places like Irvine or Cupertino, near San Jose. Meanwhile, the less-affluent of all ethnicities continue to move further out, to places like the Inland Empire or the further reaches of the Bay Area. These peripheral areas have continued to represent the vast majority of growth in both greater Los Angeles and around the Bay Area.

Meanwhile, some of the urban-centric residential construction now being put up will, as occurred in the housing bust, may be fashionable but, in some cases, not so profitable over time. Construction is being driven mostly by tax breaks, Uncle Ben's essentially ultralow-interest money for wealthy investors and, in some cases, subsidies. Overall, the Wall Street Journal notes, the rental market is beginning to "lose steam," as people again start looking into buying homes. This may suggest that new speculative building in places like downtown Los Angeles – where there's good evidence that rents and occupancy levels are, if anything, getting weaker – may end up in tears.

To date, the anti-suburb jihad has been somewhat constrained by the recession and the collapse of the housing bubble about five years ago. But now that there's an incipient housing recovery in parts of the state, including Orange County, the constraints could be problematical, particularly for younger buyers about to start a family or for people migrating into the state.

The impact may be felt first in Silicon Valley and its environs. The planners now dominating the Bay Area want only highly dense bus-stop- or train-oriented development in the valley. Yet, notes real estate consultant John Burns, this does not reflect market realities marked by what they describe "as a resilient and ongoing preference for single-family homes."

Even more fanciful, they are promoting high density in areas, far distant from current employment centers, in dreary locales like Newark, south of Oakland, claiming workers there will take public transit to jobs in the Valley. The belief among planners and some gullible developers that aging millennials will choose to live in high density, far from costly San Francisco or Palo Alto, and commute to work by transit is somewhat north of absurd; today, a bare 3 percent of workers in Silicon Valley get to work by transit, and downtown San Jose, the logical terminus of any transit strategy, is home to barely 26,000 of the region's 860,000 workers.

Some tech workers may put up with a few years of high rents and shared apartments in San Francisco or Palo Alto, but not many will want to live in expensive towers far from both Silicon Valley's primary employers and the amenities of the big city. Apple's plans for a new headquarters in Cupertino has drawn criticism from green-minded urbanists precisely because they rest on the sensible presumption that Apple's workforce will remain largely suburban and car-oriented. One can also wonder the effect on the start-up culture when workers have been forced to live in places lacking the proverbial garage or extra bedroom that historically have nurtured new firms.

More important still, forced densification, by denying single-family alternatives, is likely, and in some places, already is, spiking prices, which are up $85,000 in Silicon Valley in a year. This, over time, will force millennials, as they age, to look for other locales to meet their longtime aspirations. Generational chroniclers Morley Winograd and Mike Hais, in their surveys, have found more than twice as many millennials prefer suburbs over dense cities as their "ideal place to live." The vast majority of 18-to-34-year-olds do not want to spend their lives as apartment renters; a study by TD Bank found that 84 percent of them hope to own a home.

Much the same can be said of Asian immigrants, who are now driving much of the new-home sales, particularly in desirable places like Orange County or Silicon Valley. Nationwide, over the past decade, the Asian population in suburbs grew by almost 2.8 million, or 53 percent, while the Asian population of core cities grew 770,000, 28 percent. In greater Los Angeles, there are now three times as many Asian suburbanites as their inner-city counterparts.

If California is not willing to meet the needs of its own emerging middle class, there's no doubt that other states, from Arizona and Texas to Tennessee – although not as fundamentally alluring – will be, and are already, more than happy to oblige.

Rather than seeking to destroy our suburbs, California leaders should expend their energy figuring out how to make them better. Rather than some retro-1900s urbanist vision, they need to embrace the multipolarity of our urban agglomerations. They could look to preserve open space nearby, when possible, or cultivate natural areas, parks, walking and biking trails that would appeal to families as well as to singles.

Instead of attempting to force employment into the center city, it would make more sense to expand home-based and dispersed work in order to cut down or eliminate commuting times. These moves would create both healthier suburbs and reduce carbon emissions without devastating the natural aspirations of most California families.

This piece originally appeared in the Orange County Register.

Suburb photo by BigStockPhoto.com.

California Becoming Less Family-Friendly

Joel Kotkin — Mon, 11 Feb 2013 00:38:10 -0500

For all of human history, family has underpinned the rise, and decline, of nations. This may also prove true for the United States, as demographics, economics and policies divide the nation into what may be seen as child-friendly and increasingly child-free zones.

Where California falls in this division also may tell us much about our state's future. Indeed, in his semi-triumphalist budget statement, our 74-year-old governor acknowledged California's rapid aging as one of the more looming threats for our still fiscally challenged state.

Gov. Jerry Brown, unsurprisingly, did not acknowledge or address the many factors driving the aging trend that include his own favored policy prescriptions. Whatever their intent, the usual "progressive" basket of policies have had regressive results: a tougher time for both the poor and middle class, and a set of density-oriented policies that are likely to drive up housing prices, particularly for the single-family houses largely preferred by people with children.

These policies have helped turn California into a state that looks less Sunbelt and more like the long-aging centers of the Northeast and the Midwest. It also mirrors declines in fertility and marriage rates in the most-rapidly aging parts of Europe and east Asia. These regions are shifting toward what Chapman University's recent report, in cooperation with the Civil Service College of Singapore, characterized as post-familialism. Released this past fall in Singapore, the report will be presented in Orange County this week.

We believe that the rapid decline of marriage and fertility rates in many advanced countries inevitably leads to economic decline, reduced workforces and, likely, an inevitable fiscal disaster. This may be becoming now more true in the United States, a country which once boasted the most vibrant demographics in the high-income world but since the 2007-09 recession has seen a rapid drop in both its marriage rate and fertility rates to well below 2.1 children per female, what is generally referred to as "the replacement rate."

Just as it differs by country, the degree of post-familialism varies among countries, but it also does among states and regions. Some states, notes a recent Packard Foundation study, such as Texas, Utah and North Carolina, have seen double-digit gains in their child populations over the past decade while California's has dropped by over 3 percent. Some urban regions like Raleigh, Austin, Houston, Charlotte, Dallas-Fort Worth and Atlanta have also seen rises in their number of children, with population between ages 5 and 17 growing by 20 percent or more over the past decade.

Historically, California and its regions stood among these family magnets, but no more. Like the states of the Northeast and upper Midwest, the Golden State is becoming rapidly geriatric, as families opt out, and immigration, the primary source of our growth in younger people, declines in an economy ill-suited to migrants with aspirations for a better life.

Southern California, where immigration has dropped by roughly a third over the past decade, has shared in this decline.

All three major regions of greater Los Angeles – the San Bernardino-Riverside area, Orange and Los Angeles counties – have seen a sharp drop in their percentages of children. Only the Inland Empire remains still relatively youthful overall, with some 26 percent of its population under 15, well above the national average. In contrast, Los Angeles and Orange counties experienced a 15.6 decline in under-15 population, highest among the nation's metropolitan areas. Meanwhile, the over 60 population grew by 21 percent.

One clear indicator can be seen in our declining school populations. Despite massive expenditures for new construction, over the past decade the Los Angeles Unified School District has seen enrollment drop by 7.5 percent. In that period, the student count fell by over 50,000, the largest numerical drop in the nation.

What is leading to this exodus of families? Sacramento politicians and their media enablers blame insufficient investment in education or simply national aging trends as the root causes. But then, why are other states, including our key competitors, gaining families and children?

Sacramento lawmakers of both parties share some responsibility. The dominant progressives' regulatory and tax agenda continues to reduce economic prospects for younger Californians, leading many young families to exit the state. In contrast, older Anglos, the bulwark of the now largely irrelevant GOP, are committed to massive property tax breaks because of Proposition 13. Add good weather and the general inertia of age, and it's not surprising that families might flee as seniors stay.

Other factors work against parents, prospective or otherwise. The knee-jerk progressive response to our demographic problems usually entails more money be sent to the schools.

But they rarely include the student-oriented reform measures such as those enacted in New Orleans (where I am working as a consultant). The poor performance of public education, clear from miserable test results and dropout rates, makes raising children in California either highly problematic or, factoring the cost of private education, extremely expensive.

If you think Proposition 30's higher sales and income taxes will change anything, think again.

Much of that money will end up, almost inevitably, going toward pensions of teachers and other state workers. The hegemonic teacher unions have as their primary goal protecting the system at all costs and resisting change.

Equally critical, the state's "enlightened" planning policies also work to discourage families. California's new climate-change-mandated housing regime – preferring apartments over houses – does not specifically target families, but the case for greater density is often predicated on an ever-declining number of families and an undemonstrated growing preference for density. "Singles and childless couples are the emerging household type of the future," suggests developer and smart growth guru Chris Leinberger.

These post-familial trends have been incorporated into the influential report, "The New California Dream," widely accepted as gospel by many in our state's development community.

The author, the University of Utah's Chris Nelson, interpreted early 2000s public opinion surveys to suggest a growing preference for smaller lot sizes and apartments, though the data indicate no change over the past 10 years. Developers assume that as singles, empty-nesters and childless couples become as the state's primary market, this likely misperceived preference will gain even greater strength

So what would a post-familial future mean for California? You don't need a crystal ball to figure this one out. Just look at what is happening in other rapidly aging economies, especially Japan, but also much of Europe.

Dense housing, high taxes and lack of space (such as back yards) tend to discourage family formation. Slower population and labor-force growth then slows the economic engine, which, in turn, creates a greater imbalance between workers and pensioners. The result, ultimately, could be a kind of fiscal Armageddon.

Fortunately, none of this is inevitable. States such as Utah, Texas and North Carolina continue to attract families, bringing with them new workers, companies and customers. As their economies grow, they can generate broadly based revenue, unlike California, which is increasingly reliant on housing or stock-price bubbles that benefit the already affluent and older populations.

It is not our karma, Gov. Brown, to submit to a Japanese-like demographic demise. But revitalizing California will require a radical reevaluation of priorities and reconsideration of policy impacts on families.

This piece originally appeared in the Orange County Register.

Childhood kids photo by BigStockPhoto.com.

More Bubble Trouble in California?

Joel Kotkin — Mon, 04 Feb 2013 00:38:03 -0500

Just six years since the last housing bubble, California is blowing up another. This may seem like good news to homeowners and speculators alike but it could further accelerate the demise of the state's middle class and push more businesses out of the state.

On its face, a real estate turnaround should be a strong sign of an economic recovery. In Southern California, home sales have jumped 14 percent over last year and the median price is up 16 percent, some 25 percent in Orange County. We may not quite be at 2007 super-bubble levels but we're getting there, particularly in the more desirable areas.

Yet, before opening the champagne, we need to look at some of the downsides of this asset recovery. We are not seeing much new construction, particularly of single-family homes, so the supply is not being replenished as inventory sinks. Meanwhile, many of the homebuyers are not families seeking residences, but flippers, Wall Street types and foreign investors. A remarkable one-in-three Southern California home purchasers paid with cash, up from 27 percent from last year.

It's clear that this increase is not being fueled primarily by income growth among middle-class Californians; these "prices are rising disconnected from household incomes," notes one analyst. Indeed, California incomes have been dropping somewhat more rapidly, down $2,600 per household from 2007-11, according to the American Community Survey, compared with a $200 drop nationwide. California incomes are still 13 percent higher than the national average, but a lot less so than in the past, particularly given the much higher costs and taxation.

This leads to what is becoming the biggest problem facing the state – a decline in the rates of affordability. The previous bubble left us a legacy of more-affordable housing, an advantage we may now be losing. Historically, and in much of the country, the median multiple, which compares the median-price home to median household income, was in the three range. At the height of the previous bubble, the median multiple for the Los Angeles-Orange County metropolitan area, reached 11.5 in 2007, then fell to a still-elevated 5.7 in 2009, notes demographer Wendell Cox. It remained steady in 2011, but in just the past year the measurement has shot up to 6.2. A few more years at this rate, and housing affordability could worsen materially.

The new bubble can be seen elsewhere in the state. The most prominent inflation in housing values can be seen in the San Francisco Bay Area, which has enjoyed the most buoyant recovery from the recession. Never a cheap area, in 2006, San Francisco reached a median multiple of10.8 and Silicon Valley (San Jose) rose to 9.3. When the bubble imploded, the median multiple fell to 6.7 in both metropolitan areas, still well above any level recorded before the housing bubble. But now, amidst a concentrated boom in the western side of the Bay, the median multiple rose the equivalent of 1.1 years of income in San Francisco (to 7.8) and 1.0 years of income in San Jose (7.9) in a single year.

Of course, you can argue that the higher prices in the Bay Area are explainable at least in part by a growth in employment and wealth generated by tech start-ups. But what about soaring prices in places like the Inland Empire (Riverside-San Bernardino), Sacramento or Fresno, where economic growth has been torpid, and unemployment remains well north of 10 percent? Over the past year, Sacramento's median multiple has risen from an affordable 2.9 to 3.2, the Inland Empire from 3.2 to 3.7 while Fresno's has gone from 3.1 to 3.5.

As these prices rises, the California dream, already increasingly off-limits in the coastal areas, begins to become less achievable even in the inland areas. Already, barely 55 percent of Californians own their own home, down from the bubble-period high of 60 percent in 2005 and compared with upward of 65 percent nationally.

Traditionally, the pent-up demand for houses would be met in the marketplace, but California's Draconian planning laws make this very difficult. In the first 11 months of 2012, the Census Bureau reports that the Los Angeles-Orange County metropolitan area had half as many construction permits than much smaller Dallas-Fort Worth, 60 percent of Houston's permits and fewer even than the relatively tiny Austin, Texas, metropolitan area. More to the point, more than 70 percent of L.A.'s construction was in multifamily units while the majority in most areas, (except for such areas as New York, San Francisco, San Jose and San Diego) was in single-family homes.

Given the state's planning preference for high-density housing, even in suburban and exurban areas, there's little hope that California single-family home buyers can expect much relief. As millennials age, and seek out this form of housing as they start families, they will likely look increasingly elsewhere, for example, in Dallas-Fort Worth, Houston, Phoenix or Atlanta. The great California exodus, which slowed during the housing bust, will likely pick up, joining up with the continued movement of employers to more business-friendly states.

In the short run, of course, not everyone loses from a new bubble. Owners of homes, particularly along the coast, will see a big increase in their net worth. There could be good times ahead again for what author Bob Bruegmann calls "the incumbent's club." With projected new units running at one-half their 2007 level until 2015, scarcity will help the state's graying gentry. These same citizens also enjoy a double bonus, since most are protected by Proposition 13 from paying higher property taxes on their rising property values.

The bubble may also have short-term positive impact on local governments, which may benefit from high property taxes if more homes change hands at higher prices. The "wealth effect" could also bring new capital-gains income to a state government whose revenue stream increasingly depends on the upper-class taxpayer, particularly after the passage of Proposition 30, which increased the state's reliance on high-income earners. In this sense, the asset inflation could help Gov. Jerry Brown enjoy his much-trumpeted surplus, and he may even avoid the deficit projected next year by the Legislative Analyst.

These positive effects may be outweighed by bigger concerns. The pushback against single-family homes will restrain the growth of the construction industry, still down 400,000 jobs from its 2006 peak. This is particularly critical for working-class Californians, many of whom previous made decent livings in this industry.

But workers and homebuilders won't be the only ones affected; so, too, will consumers. Without a loosening of regulatory constraints, pent-up demand for housing, particularly the single-family variety, will remain largely unaddressed. This will further inflate the bubble even in unfashionable areas. We may soon see a surplus of rental apartments, but not enough single-family homes; the ownership market, as evidenced by the rising median multiples, will continue to tighten, and prices could rise even more, even in a mediocre economy.

The groups hit hardest by this scenario will be middle- and working-class Californians, particularly above the age of 30-35, most of whom desire to own their own home. Unable to qualify, or unwilling to overleverage, many will be forced either to give up their dreams or look elsewhere, taking their talents and, eventually, their offspring, with them.

This piece originally appeared in the Orange County Register.

Photo by Sean Dreilinger: One of two adjacent bank owned homes.