How Opportunity Urbanism can save the global economy (Part 1 of 2)
For many years now, economists have lamented the global "new normal" of sluggish growth in the developed economies of the world, including here in America. I recently outlined a "big picture" view of Opportunity Urbanism and how it applies to this problem, and I'd like to share it with you here in the hopes of getting some good feedback in the comments. Today is part one where I clarify the problem and frame the situation, and next week in part 2 I'll get to the solutions.
: income stagnation, declining middle class, lack of broad prosperity
Clarifying and redefining the problem
- What people really want is a feeling of prosperity (i.e. a high standard of living), the measure of which is really cost-of-living adjusted incomes (COLA incomes), not just nominal incomes (see graph below).
The situation today
- By redefining prosperity this way, policy levers expand from just trying to increase incomes to also trying to reduce costs, especially housing costs (the largest driver).
- Another way of thinking about COLA incomes is discretionary incomes – income left over after the basic costs of living, including housing. Increasing discretionary incomes not only directly stimulates the economy with increased consumption, but also makes it easier to pursue additional education/skills, start a business, support charities, or save up the down payment for house. Discretionary income is the fuel of economic growth and opportunity.
- The global marketplace and technology dictate incomes for a given education/skill level, which make it a very difficult lever to increase. But costs-of-living are strongly driven by local factors that can be controlled.
- As the basis of the economy shifts from industry to services, proximity to others matters more than ever before. A factory can be anywhere and ship its products anywhere, but, generally speaking, most services need to be in-person. This is pushing more and more of the population to agglomerate around major metros, and limited housing supply has driven up home prices and rents in those metros.
- Economic and technological factors have directed ever more wealth to a relatively small population of elites, creating another driver of proximity as the services spending of those elites is a major part of the economy. Economic opportunity is driven not just by proximity to others in general, but by proximity to these elites specifically. This is yet another driver of major metro agglomeration and higher housing prices.
- This lack of affordable residential space is shrinking family sizes and leading to destabilizing demographic implosions in Europe, Japan, and now the U.S. and China.
To sum up, the core challenge today is enabling affordable proximity
. Because we have mostly failed at that challenge, COLA/discretionary incomes are stagnant or down, reducing peoples’ ability to upgrade education/skills, start a business, or own a home – and resulting in a general malaise and lack of prosperity.
On a related note, The Economist recently published an article about studies regarding one aspect of this phenomenon: The geography of joblessness: The difficulty people have in getting to jobs makes unemployment unnecessarily high
Next week: the drivers of affordable proximity and strategies for increasing it.
Labels: affordability, economic strategy, economy, home affordability, opportunity urbanism
Forget the Ike Dike - love will save us from a hurricane
Over the years, I've noticed a phenomena that maybe you've noticed too: some issue becomes the "hot" issue of the moment (terrorism, Ebola, etc.) and then people jump on the bandwagon for that issue by trying to link it to whatever their pet issue is, no matter how tenuous the connection may be. "If you support my pet issue X, it will reduce the problem of hot issue Y." If they can successfully link the issues, maybe public support (or, better yet, taxpayer dollars) will swing behind their pet issue. Sometimes the connection gets stretched so far as to become utterly absurd. And that brings me to Exhibit A: this op-ed in the Chronicle
("How to protect our city against storms? First, make it lovable. Dikes and levees are secondary. What they protect matters more."
) saying the key to our hurricane resilience is not
something so pragmatic as a dike, but really about making our city more walkable and lovable. Wait... what? Really? Evidently, New Orleans' big failure with Katrina had nothing to do with being a city below sea level with substandard levees, but it wasn't walkable and lovable enough. Uh-huh...
Let me address some of the specific arguments in the piece:
- Levees can fail: Sure, anything can fail, but how many times have levees and dikes successfully protected New Orleans or the Netherlands vs. the number of times they failed? Does one failure mean dozens of other successful protective events don't have value? And the nice thing about Houston over New Orleans is that we are *above* sea level, so if there is a failure, it will just drain right out as the tide recedes, as opposed to stagnating in the big bowl of below-sea-level New Orleans.
- Levees cause stuff to be built where it shouldn't: Sorry Netherlands/New Orleans/Houston, you built stuff where you shouldn't have because once a decade mother nature is going to come at you with wallop. Rather than protecting yourself, you really need to just shut it all down and move somewhere else - nevermind the trillions of invested infrastructure. Wait, you say, it's kinda hard to operate a port without being connected to the ocean. Well, I'm sure you'll figure it out.
- The key is lovability/walkability: I'm pretty sure New Orleans had that in spades, and it doesn't seem to have saved them from Katrina. Nor did it help the quaint walkable sections of Galveston during Ike. And I'm sure the Dutch will be disappointed to learn they could have saved billions on dikes over the years if they had just loved their country more, maybe with just a good handholding and kumbaya singing session every time the North Sea threatened?
- His calling out of my op-ed with Joel Kotkin: "Walkability is not some concept being forced down our throats by elitist planners from the East Coast, as some suggest. (See, for instance, "Economic diversity helps Houstonians live well" by Joel Kotkin and Tory Gattis.)" Actually, if you look at the stated goals of those smart growth planners, they *are* trying to force dense urbanism down our throats, and they specifically call for restricting or eliminating suburban development. We are not opposed to walkability and walkable development like town centers, but we are opposed to forcing it on people by restricting other forms of development which leads to unaffordable housing, widening inequality, reduced opportunity, and a weakened middle class. I totally agree that some people love walkability (including myself), and we need to loosen any regulations that make it hard to develop (agreement with him on this point), but let the market decide how much demand there is and how much and where to build - not central planners.
- "People in Houston currently spend as much on transportation as they do on housing. " Lies, damn lies, and statistics. As I've pointed out here before, when you have affordable housing like we do in Houston (albeit rapidly getting less so), people tend to splurge on very luxurious cars, trucks, and SUVs - but that does not mean that's the cost of transportation here. Everybody can get around Houston quite affordably in a Honda Civic, Toyota Prius, or plenty of other cars - they just choose not to. The 2013 C2ER ACCRA Cost of Living index takes this into account, and rated Houston 95.6 for transportation costs where 100 = the national average, so we're 4.4% below the national average. New York is at 110, Chicago at 124, DC at 106 - so much for dense transit cities reducing transportation costs.
- "Spending less on transportation would mean you could afford more durable construction." While I agree we should have strong construction standards for wind, how does one build more durable construction for a tidal wave surge of water? Should we build everything on stilts? How incredibly expensive and inconvenient would that be, not to mention not very walkable? Maybe we should, um, build a dike so we don't have to worry about the surge in the first place and can build simply at ground level?
- "Walkability means you might see your neighbors more often. Knowing who your neighbors are is a key element of resilience. Social capital is the glue that holds communities together, and places that have it back from catastrophe much faster." Does anybody else remember all the stories in Houston after Ike of people helping each other out and throwing block parties to grill meat before it spoiled in unpowered fridges and freezers? Does anybody remember our amazing response to the Katrina refugees? I think we're doing pretty well on the social capital front. And I'd like to point out that the most dense and walkable city in America, New York, is not exactly known for its friendly "social capital".
- "Many people in New Orleans died because there was nowhere to run in a vast unbroken sea of single-family homes" Actually, the people that were stuck in New Orleans for Katrina where the ones without cars who relied on transit and walking. Just about everyone with a car got out successfully.
To sum up, walkable development is great, and we should certainly enable and encourage more of it, but it is absolutely no substitute for protecting our region from a direct hurricane hit with a strong physical barrier. Let's not mix up our priorities here. We know what we need to do
- we just need the political and financial will to do it (and here's how to pay for it
Labels: density, emergency response, hurricanes, land-use regulation, planning, smart growth, walkability
Opportunity Urbanism op-ed in the Chronicle
It came out today as the lead op-ed in the Sunday edition
, paired nicely with David Brooks' column on Houston vs. San Francisco
. Unfortunately the online edition does not include the COLA incomes graph that's in the print version, so I will include it below along with the full text for posterity (Chronicle links are not known for longevity). I'm not thrilled with the headline they chose - since our topic is Opportunity Urbanism, not economic diversity - but the subhead is good. You can also check out Nancy Sarnoff's column about Joel's luncheon speech here
and the full report here
. Enjoy - looking forward to your thoughts in the comments.
Kotkin, Gattis: Economic diversity helps Houstonians live well
Lower costs help middle- and working-class residents enjoy higher standards of living
By Joel Kotkin and Tory Gattis
October 18, 2014
Over the past decade, we have witnessed the emergence of a new urban paradigm that both maximizes growth and provides greater upward mobility. We call this opportunity urbanism, an approach that focuses largely on providing the best policy environment for both businesses and individuals to pursue their aspirations.
Although contrary to much of the conventional wisdom about cities and regions, this is not a break with traditional urbanism, but instead a reinforcement of old traditions. Long ago, Aristotle reminded us that the city was a place where people came to live, and they remained there in order to live better. "A city comes into being for the sake of life, but exists for the sake of living well." In the end, opportunity urbanism rests on the notion that cities serve, first and foremost, as engines to create better lives for the vast majority of its residents.
The Houston and luxury models
The Houston metropolitan area reflects the idea of opportunity urbanism more closely than any major metropolitan area. Across a broad spectrum - income growth, new jobs, housing starts, population growth and migration - no other major metropolitan region in the country has performed as well over the past decade. This was among the first major metropolitan regions to replace the jobs lost in the recession and has experienced by far the largest percentage job growth since, with Dallas-Fort Worth second.
In many ways, opportunity urbanism contrasts with the prevailing urban planning paradigm - variously called new urbanism or smart growth - which seeks to replicate the dense, highly concentrated monocentric city of the past. This approach posits the notion that policies of forced density, through regulatory mandates and often subsidies, are critical to attracting both young, educated people and the global business elite. This approach describes the successful city, in the words of former New York Mayor Michael Bloomberg, as "a luxury product."
This notion of the "luxury city" worked, at least for some, in well-appointed older cities such as New York, San Francisco and Boston. Unlike most American cities, these boast long-established dense cores and transit-oriented areas where residents are employed. They possess great amenities tied to their pasts, from world-class art museums and universities, to charming historic districts, parks and public structures.
But this model of urbanism does not fit the profile of most American metropolitan regions, which tend to be far more recent in their development, more dispersed and overwhelmingly dependent on cars in terms of commuting. Indeed, most of the fastest-growing regions in this country - Houston, Dallas-Fort Worth, Oklahoma City, Raleigh and Nashville - function in a highly multipolar model that contrasts sharply with that of cities like New York, Boston or Chicago.
Prospects for upward mobility
The luxury paradigm has worked for some in some cities, but has failed, critically, in providing ample opportunities for the middle and working classes, much less the poor. Indeed, many of the cities most closely identified with luxury urbanism tend to suffer the most extreme disparities of both class and race. If Manhattan were a country, it would rank sixth-highest in income inequality in the world out of more than 130 countries for which the World Bank reports data. New York's wealthiest 1 percent earn one-third of the entire municipality's personal income - almost twice the proportion for the rest of the country.
Indeed, increasingly, New York, as well as San Francisco, London, Paris and other cities where the cost of living has skyrocketed, are no longer places of opportunity for those who lack financial resources or the most elite educations. Instead, they thrive largely by attracting people who are already successful or are living on inherited largesse.
They are becoming, as journalist Simon Kuper puts it, "the vast gated communities where the 1 percent reproduces itself."
Not surprisingly, the middle class is shrinking rapidly in most luxury cities. A recent analysis of 2010 Census data by the Brookings Institution found that the percentage of middle incomes in metro regions such as New York, Los Angeles and Chicago has been in a precipitous decline for the last 30 years, due in part to high housing and business costs.
A more recent 2014 Brookings study found that these generally high-cost luxury cities - with the exception of Atlanta-tend to suffer the most pronounced inequality: San Francisco, Miami, Boston, Washington DC, New York, Chicago and Los Angeles. In recent years, income inequality has risen most rapidly in the very mecca of luxury progressivism, San Francisco, where the wages of the poorest 20 percent of all households have actually declined amid the dot com billions.
Like other large cities, Houston also suffers a high level of inequality, but its lower costs have helped its middle and working class populations to enjoy a higher standard of living than their luxury city counterparts. The promise of the opportunity urbanism model also can be demonstrated by smaller income disparities between racial groups, higher GDP growth, less expansion of poverty and the greater production of high-paying mid-skilled jobs. In these aspects, opportunity cities like Houston greatly out-performed their often more celebrated rivals.
But for this model to continue to succeed, Houston must confront many challenges, some of which are a direct product of its successful growth. Opportunity urbanism is not a libertarian fantasy; government must and should play an important, even expanding role. There remains, as we spell out in our report, enormous need to expand the region's infrastructure, and, most important, to improve the educational institutions of the region, from the troubled grade schools to expanding vocational programs and building up the area's still inadequate higher education.
How to measure 'living well'
The one statistic that best encompasses the success of the Houston opportunity model and exposes the weakness of smart growth is the cost-of-living adjusted average paycheck (see chart).
Despite the assertions of New York Times columnist Paul Krugman, among others, that the Texas urban economy is based on low wages, Harris County's average household income is above the national average; close to that of Boston. But once the cost of living is factored in, Houston does far better for its citizens compared to any of the legacy cities.
Houston, with Dallas-Fort Worth a strong second, is able to provide its citizens the highest standard of living, as measured by average annual adjusted wages, of any major metro area in America. This is different from subjective "quality of life," but includes such basics as jobs, housing and overall cost of living.
In the end, the key advantage and promise of opportunity urbanism lies in finding ways to help residents fulfill the basic aspirations of citizens. Far more than glittery events or celebrity culture, what really matters is whether a city helps improve the often mundane conditions of life. "Everyday life," observed the great French historian Fernand Braudel, "consists of the little things one hardly notices in time and space."
This approach follows Aristotle's notion of the ultimate purpose of cities - about serving as an engine for improving lives.
It is a great thing that America continues to boast some of the most luxurious, edgy and attractive urban districts in the world. But we also need cities that can nurture new and innovative businesses, while accommodating families, middle- and working-class people with a high standard of living. Opportunity urbanism, and cities like Houston, provides that option.
Kotkin is an author, executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University. Gattis writes the Houston Strategies blog
Labels: opportunity urbanism
Joel Kotkin Opportunity Urbanism event this week and Houston vs. San Francisco
For most of this year, Joel Kotkin, myself, and others - with the generous sponsorship of GHP
- have been working on updating the Opportunity Urbanism work we did in 2007 (here
), and the big unveiling will be held at a GHP luncheon event this Thursday
"Over the past decade, a new paradigm of determining "what makes a great city" has emerged. This new way of thinking, known as "Opportunity Urbanism," is best exemplified in the greater Houston region. By embracing Opportunity Urbanism, both the city and the suburbs are flourishing. Across a broad spectrum – income growth, new jobs, housing, population growth and migration – no other major metropolitan region in the nation has performed as well as Houston over the past decade.
Join us on Oct. 9 as Joel Kotkin, one of America's foremost urban theorists, share his latest research findings which suggests that opportunity cities like Houston offer far better prospects for the vast majority of their citizens."
If you'd like to attend - and we'd love to have you - registration details are here.
The full report will be released then, and I should have more on it in a post next week. In the meantime here's a couple of teasers...
First, Joel Kotkin on our local NPR "Houston Matters" show "What Makes Houston the Most Ideal “Opportunity City?
” He very generously gives me a shout out right at the beginning near the 0:50 sec mark (it's only 7 minutes).
Second, Joel also just published a great new article in the Daily Beast
(alternate link at New Geography
Battle of the Upstarts: Houston vs. San Francisco Bay
The energy and tech capitals of the U.S., Houston and San Francisco have little in common, but in the coming decades they are likely to become America’s dominant cities.
It's hard to excerpt because so much of it so insightful (definitely read the whole thing
), but I will share a few, including the concluding paragraph:
"Today we are seeing yet another shuffling of the deck among American regions. New York remains the country’s preeminent city, but its most powerful rivals are likely to be neither Chicago nor Los Angeles, but rather two regions rarely listed in the hierarchy of influential regions: the San Francisco Bay Area and Houston.
Far less appreciated, Houston, rather than being a southern city of duller wits, actually ranks second in engineers per capita. If the Bay Area is master of the digital economy, Houston ranks as the technological leader of the material one; it is the capital for the energy-driven revival of U.S. industry, not only in Texas but throughout the old industrial heartland. Revealingly, Houston actually has seen far more rapid growth in both college educated and millennial population since 2000 than the Bay Area, as well as New York, Chicago, and Los Angeles.
Ironically, Houston’s growth has been more egalitarian than that of the notionally super-progressive San Francisco region. A recent Brookings report found that income inequality has increased most rapidly in what is probably the most left-leaning big city in America, where the wages of the poorest 20 percent of all households have actually declined amid the dot com billions.
Perhaps the biggest differences can be seen in families. Of the nation’s 52 largest metropolitan areas, the Bay Area has the lowest percentage, 11.5 percent, of people ages 5 to 14. In Houston, 23 percent of the population fits this age category. In particular San Francisco is notoriously inhospitable to families, with the lowest percentage of kids of any major city.
The two regions also reflect very different urban forms. The Bay Area’s leadership has opted to favor dense “in fill” growth and sought to restrict suburban development. Houston has taken a different tack. As its population has expanded, so too has the metropolitan area. This includes the development of many planned communities that appeal to middle class families and many immigrants. In 2013, Houston alone had more housing starts than the entire state of California.
But it would be wrong to dismiss Houston’s model as merely “sprawl.” Instead it is better seen as simply expansive. In fact, arguably no inner ring in the country has seen more rapid growth, with high-rise, mid-rise and townhouse development in many long neglected districts. The increase in high-density housing tracts (more than 5,000 per square mile) since 2000 has been almost ten times higher than the Bay Area.
The Valley’s hostility to fossil fuel energy, and its jihad to destroy an entire industry, is only barely recognized in Houston. I also have never heard anyone there suggest that Silicon Valley should be closed down as a danger to the planet (or at least a threat to the attention span of younger Americans). Houstonians, particularly in the energy industry, generally lack media savvy, which is one reason why energy is widely rated as the country’s least popular industry. Also missing, thankfully, is the sense of entitlement and self-congratulation one finds in the Bay Area. But once the intention to devastate the oil and gas industry is better understood, expect the energy capital to square off against the tech center, generating what may be the regional battle royal of our era."
There's a great discussion of the article going on over at HAIF
, and of course I'd love to hear your thoughts in the comments here.
Labels: opportunity urbanism, perspectives