Population Dispersion Continues in Riverside-San Bernardino, San Diego and Sacramento

Wendell Cox — Wed, 09 Mar 2011 10:48:49 -0500

Population growth continued the strongest in the suburban areas of Riverside-San Bernardino, San Diego and Sacramento, while unusually strong growth occurred in the historical core municipalities, all of which are dominated by a suburban urban form.

Riverside-San Bernardino: Riverside-San Bernardino experienced by far the fastest growth of any metropolitan area in California, at 30 percent from 2000 to 2010. This growth rate placed the metropolitan area otherwise known locally as the "Inland Empire" fourth in growth rate among the 26 reporting major metropolitan areas, behind Raleigh, Las Vegas and Austin. The Riverside-San Bernardino metropolitan area grew from a population of 3,255,000 in 2000 to 4,225,000 in 2010. At the growth rates of the past decade, Riverside-San Bernardino would pass San Francisco, to become the state's second largest metropolitan area by 2012.

Riverside-San Bernardino is virtually an all suburban metropolitan area. The historical core municipality of San Bernardino grew 11.4 percent, from 188,000 in 2000 to 210,000 in 2010, capturing two percent of the metropolitan area growth. Suburban areas accounted for 98 percent of the growth.

San Diego: The San Diego metropolitan area grew 10 percent from 2000 to 2010, rising from 2,814,000 to 3,095,000. This growth rate was nearly double or more than that of the other major coastal metropolitan areas in California (Los Angeles, San Francisco and San Jose). Even so, the actual population count was approximately 130,000 below the California State Department of Finance estimate. We had previously questioned the aggressive population projections released by the State Department of Finance in an Orange County Register op-ed, 60 Million Californians: Don't Bet on It).

The historical core municipality grew 6.9 percent from 1,223,000 to 1,307,000 and, as in 2000 is the nation's eighth largest municipality (having been passed by San Antonio and having passed Dallas). The city of San Diego, with a largely suburban urban form, attracted 30 percent of the metropolitan area population growth. The California State Department of Finance estimate for the city was much higher, at 1,376,000, indicating an estimate of two new residents for every actual resident counted.

Sacramento: The Sacramento metropolitan area grew strongly between 2000 and 2010, at 19.6 percent. The population rose from 1,797,000 to 2,149,000, adding more new residents than the much larger combined metropolitan areas of San Francisco and San Jose.

The historical core municipality of Sacramento grew from 407,000 to 466,000 (a gain of 14.6 percent) and accounted for 17 percent of the metropolitan population growth. Suburban areas grew 21.1 percent and accounted for 83 percent of the metropolitan area growth.

Misunderstanding the Bubble and Burst in Sacramento

Wendell Cox — Fri, 13 Aug 2010 15:46:38 -0400

An opinion piece in the Sacramento Bee by Sean Wirth of the Environmental Council of Sacramento could not have been more wrong in its characterization of the causes of the housing bubble in Sacramento.

The article starts out promisingly, correctly noting that:

The housing bubble spawned the Great Recession
Demand exceeded the inventory of houses in the Sacramento area
Sacramento prices "soared sky high"

But it is all downhill from there, with the suggestion that the extraordinary price increases in Sacramento were the result of too much suburbanization (the theological term in urban planning circles is "sprawl"). In fact, all things being equal, house prices tend to escalate where the supply is more constrained, not less. Where suburbanization is allowed, the market can supply enough housing to avoid inordinate house price increases. Where suburbanization is severely constrained, a legion of evidence indicates that house prices are prone to rise. It is all a matter of basic economics. George Mason University economist Daniel Klein puts it this way:

Basic economics acknowledges that whatever redeeming features a restriction may have, it increases the cost of production and exchange, making goods and services less affordable. There may be exceptions to the general case, but they would be atypical.

Housing is not atypical and Sacramento house prices soared in response to the tough use regulations. By the peak of the bubble, the Median Multiple (median house price divided by median household income) had risen to 6.8, well above the historic norm of 3.0. Many houses were built, but not enough to satisfy the demand, as Mr. Wirth indicates. Building many houses is not enough. There need to be enough houses to supply the demand, otherwise land prices soar, driving up house prices.

Unless a sufficient supply is allowed, speculators and flippers will "smell the blood" of windfall profits, which are there for the taking in excessively regulated markets.

During the housing bubble, house prices rose well above the historic Median Multiple norm only in metropolitan areas that had severe constraints land use constraints (called "smart growth" or "growth management"). This included Sacramento, other California markets, Miami, Portland, and Seattle and other markets around the country.

At the same time, more liberal development regulations allowed a sufficient inventory of housing to meet the demand in high growth areas like Atlanta, Dallas-Fort Worth, Houston and Austin. In each of these places (and many others), the Median Multiple remained near or below the historic norm of 3.0, even with the heightened demand generated by a finance sector that had lost interest in credit-worthiness. As would be expected, speculators and flippers avoided the traditionally regulated markets, where an adequate supply of affordably priced housing continued to be produced.

Wirth expresses understandable concern about the house price losses since the bust. From the peak to the trough, the drop in Sacramento median house prices was more than 55%. However, this is to be expected once a serious economic decline is precipitated, especially in the sector that precipitated the crash (in this case housing). Economists Ed Glaeser of Harvard and Joseph Gyourko of Wharton have shown that not only (1) are house prices higher in more restricted markets but also that (2) there is greater price volatility in more highly regulated markets. Indeed, it is likely that the housing bust would have been much less severe or even avoided altogether if constraints on land had not driven the prices and subsequent mortgage losses so high in California and a few other states that they could not be absorbed by financial institutions. At the time of the Lehman Brothers collapse, 11 "ground zero" markets (including Sacramento), all highly regulated, accounted for 75% of the mortgage losses in the nation, with a per house loss rate of 15 times that of traditionally regulated markets.

Wirth's article expresses opposition to a Sacramento County decision to allow more development to occur on the urban fringe. He would prefer to force development into the existing urban footprint. The economic consequences of such folly are well known. In Australia, such policies have driven led to a doubling or tripling of house costs relative to incomes. The annual mortgage cost of the median priced house has risen to 50% of the median pre-tax household income, in a country that defines mortgage stress at the 35% level. Before the adoption of smart growth policies, Australia's housing affordability was similar to that of liberally regulated markets in the United States.

Avoiding the next housing bubble requires not repeating the mistakes that led to the last. Sacramento's young and lower income households can only hope that the additional land approved by the Board of Supervisors will be enough of a safety valve to keep housing affordable so that they can become owners rather than renters.

Photograph: Sacramento (author)