Ten years After Lehman Collapsed, We’re Still Screwed

This article first appeared at The Daily Beast.

The collapse of Lehman Brothers 10 years ago today began the financial crisis that crippled and even killed for some the American dream as we had known it. Donald Trump might be starting to change that, at least for Americans who aren’t determined to remain in our bluest and priciest cities. Read more

America is Moving Toward an Oligarchical Socialism

Where do we go after Trump? This question becomes more pertinent as the soap opera administration seeks its own dramatic demise. Yet before they can seize power from the president and his now subservient party, the Democrats need to agree on what will replace Trumpism.

Conventional wisdom implies an endless battle between pragmatic, corporate Clintonites on one side, and Democratic socialists of the Bernie brand. Yet this conflict could resolve itself in a new, innovative approach that could be best described as oligarchal socialism.

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The Battle for Houston

This article first appeared at City Journal.

America’s most opportunity-rich city faces a long-term challenge from “smart-growth” advocates pushing for more regulation.

Over the last half-century, Houston has developed an alternative model of urbanism. As the New Urbanist punditry mounts an assault on both suburban growth and single-family homes, Houston has embraced a light regulatory approach that reflects market forces more than ideology. But last year’s Hurricane Harvey floods severely tested the Houston model. An unprecedented four feet of rain in four days —a year’s worth, the greatest rainfall event in recorded U.S. history—overflowed the banks of every channel in Harris County, flooded nearly 100,000 homes (7 percent of the housing stock), and created an estimated $81.5 billion in damage, the nation’s second-largest natural disaster after Hurricane Katrina. Coupled with a downturn in the energy industry, which saw the loss of some 86,000 jobs last year, Harvey’s aftermath suggested that the region’s growth period had come to an end, with stagnant job growth and domestic migration.

A year later, the city’s economy and its energy industry are rebounding, and job growth has gone positive again. Houston is once again among the nation’s leaders in population and housing growth. The recent recovery, however, is unlikely to quash the growing pressure to revise the region’s growth model. Challenges to Houston’s approach can be found everywhere from writers for the Houston Chronicle to the urbanists at Rice University—both representing an increasingly powerful clerisy capable of challenging the long-running dominance of the local commercial and real estate interests that have always promoted growth and expansion as signs of virtue. Houston’s business community tends to ignore or dismiss the critics, but experience elsewhere should encourage caution. In California, once dominated by growth-happy free marketers, business interests have been largely neutered by environmental zealots, government unions, and social-justice militants. And a shift in national priorities, with a Democratic takeover of Congress and the White House, would greatly enhance the power of the “smart-growth” lobby to impose its vision, even in Houston.

Houston is famous for its lack of zoning, which has allowed for speedy transition of the housing stock, including a surge of high-density housing close to the city’s historic core. But as a new paper from the local Center for Opportunity Urbanism suggests, most of the region’s growth occurs on the periphery. In 1960, the City of Houston dominated the region; today, Houston is home to barely one out of three of the area’s roughly 6.8 million residents, with almost all growth on the pro-development edges.

Houston has long had in place deed restrictions to maintain the integrity of residential neighborhoods as well as significant development guidelines for commercial projects. Yet the generally light regulatory hand has resulted in a remarkable level of affordability, even with strong job and population growth. Among the 15 largest metropolitan areas, Houston ranks first in housing affordability (tied with Detroit), while cities like San Francisco, Los Angeles, and New York are among the costliest, adjusted for incomes. Houston is also fifth in rental affordability (median gross rent divided by median household income) among major U.S. regions, at 19.6 percent, below the national average of 20.4 percent.

Since 2010, the Houston area has trailed only Dallas–Fort Worth among major regions in rate of net migration, while New York, Los Angeles, and Chicago have all suffered massive net out-migration. Houston has won by giving people what they want, including an affordable single-family home; low costs are critical to understanding the city’s appeal. Admittedly, people don’t move to Houston for topography, climate, or historical charm. As author Erika Grieder notes, no one moves to Houston “for fun,” but for opportunity. “Everyone who is there,” she writes, “is there for a practical reason.”

Perhaps most impressively, Houston excels at accommodating minority aspirations. The region is now widely acknowledged as the country’s most diverse. Houston offers the most affordable U.S. rents for African-Americans, with rent absorbing 25.4 percent of income, considerably less than in highly regulated markets like San Francisco (45.3 percent), Miami (37.2 percent), and Los Angeles (37 percent). Among Hispanics, Houston’s rental affordability ranks fifth among the top 15 metropolitan areas.

Like other immigrant hubs, Houston suffers from high income inequality, but Houston’s minority middle class has been expanding at a rate unmatched by blue-state metropolises. Among the largest metro regions, Houston ranks first in housing ownership—a critical signal of upward social mobility—for African-Americans, and second for Asians; it’s tied for the lead for Latinos with Atlanta and Dallas–Fort Worth. Houston’s level of overall minority homeownership is ten percent higher than in such bastions of progressivity as Los Angeles, San Francisco, New York, or Boston.

This low-cost structure—largely the result of policy—has been key to sparking job growth. Businesses generally find recruiting easier in Houston, given the range of housing options, and residents have enjoyed one of the country’s highest cost-adjusted standards of living, ranking well ahead of rivals such as San Francisco, New York, Los Angeles, Seattle, and Chicago. These gains have been bolstered by an increasingly varied economy that produces a high percentage of mid-wage jobs in fields such as energy, trade, and medical services. In the past decade, Houston has not only consolidated its domination of the energy industry but also become the nation’s leading exporter and home to the world’s largest medical center.

Houston is largely an engineered city. Its success does not owe to a perfect location, a salubrious climate, or spectacular scenery. Situated far from a natural harbor, this bayou city was forged, in large part, by the 1914 decision to build a ship channel that connects it with the Gulf of Mexico, 50 miles away. Its location makes Houston susceptible to natural disasters. Long before Harvey, Houston was devastated by hurricanes, including the one that destroyed the once-thriving port city of Galveston in 1900. A 1935 flood caused more severe damage, proportionally, than Harvey did, on a then much-smaller Houston.

Historically, Houston has met these challenges by seeking to tame nature. A relevant model can be found in the Netherlands, where, for hundreds of years, planners managed to push back against the sea, in the process creating one of the world’s great metropolises (Amsterdam). Historian Jonathan Israel traces the rise of the Netherlands, particularly following a massive flood in the sixteenth century, to its period of extensive infrastructure-building. Like Houston’s suburban expansion, infrastructure development in Holland opened new land and opportunities for residents. It also initiated liberal laws about tenancy and allowed for the expansion of ownership and enterprise, much as Houston’s expansion accomplished over the past half-century. The new lands constituted “the geographic roots of republican liberty,” notes historian Simon Schama.

Like the Netherlands, Houston built an elaborate, if now inadequate, system of flood-control channels and dams. The city’s business community still follows this infrastructure-led model, as evidenced by Harris County Judge Ed Emmett’s 15-point resiliency plan and the business-backed “Houston Stronger” plan for $58 billion in infrastructure projects for water conveyance, storage, and surge defense. To help pay for it all, Harris County will hold a $2.5 billion bond election on August 25. Though it will increase property taxes by up to 1.4 percent, the taxpayer value is substantial, since the funds can be leveraged 4-to-1 or more as the local match for federal funds.

In the past, such an investment would go unchallenged, but public skepticism about new infrastructure is growing, along with demands for stricter regulation, particularly toward development on the fringes. The Harvey disaster gave momentum to both these trends. Days after the storm hit, Ana Campoy and David Yanofsky of digital news outlet Quartz opined: “Houston’s flooding shows what happens when you ignore science and let developers run rampant.” Further afield, Guardian climate columnist George Monbiot portrayed the event as a kind of karmic comeuppance for Houston’s being the world capital of the planet-destroying energy industry. New York Times architecture critic Michael Kimmelman essentially suggested that Houston should emulate dense and transit-dominated Manhattan.

Houston’s small but influential urban intelligentsia has embraced these views. Mike Snyder of the Houston Chronicle, for example, blamed municipal-utility districts and suburban developers for the severity of the flooding. Similarly, the Rice Design Alliance called for the creation of a “thick” (meaning denser) city, with an enhanced role for traditional transit. This suggestion is at odds with recent experience, however: despite opening 22 miles of light rail since 2004, for example, Harris County transit ridership has dropped, while the county’s population has grown by nearly 1 million.

A big win for the “smart-growth” crowd has been a new regulation adopted within the City of Houston, which mandates raising houses off the ground—but these new rules, suggests economist Luis Bernardo Torres, a real estate expert from Texas A&M, will disproportionately hurt poorer, older, heavily minority areas. “I think we are passing the buck,” says Greg Travis, Houston District G City Council representative. “The city has been underfunding drainage improvements for decades, and now we want to make everyone elevate. City Hall needs to take responsibility for flooding instead of pushing it onto homeowners.” A 2018 Metrostudy report estimates that the new regulation could add an additional $65,000 to the costs of building or reconstructing a house in the city, compared with building in the surrounding or less regulated areas.

The battle within Houston boils down to emphasizing regulatory restraints, rather than infrastructure, as the best means to meet floods and hurricanes, which some expect to worsen with climate change.

The smart-growth lobby generally sees raising elevations for houses and reigning in “sprawl” as the best solution to the city’s environmental challenges. Concern over suburbanization runs high: the Houston Chronicle opined that steps such as building a proposed third reservoir might be inadvisable, since it could enable new peripheral development. These views reflect the conviction that the severity of flooding was largely due to the paving over of the Katy prairie west of the city. Yet an analysis of the run-off by Meyers Research showed that the area’s natural soils, with their poor suitability for retention, would have absorbed only 4 billion gallons out of the 1.6 trillion gallons that fell on Harris County, a savings of a mere .25 percent. “Anyone suggesting that more wetlands or more pervious surfaces would have done anything to mitigate what has just happened is lacking a proper sense of scale,” says Charles Marohn of the media organization Strong Towns.

Houston’s newer suburban areas actually withstood the flood far better than older communities inside the city. According to Harris County’s engineering staff, of the 75,000 homes built after the 2009 regulations, only 467 flooded; a remarkable 99.4 percent did not. Less than 3 percent of the houses identified as flooded after Harvey were built after 2009. These newer homes complied with the drainage and detention regulations adopted after Hurricane Allison.

Looking forward, suburbs could be important players in addressing intense storms. Alan Berger, co-director of MIT’s Norman B. Leventhal Center for Advanced Urbanism, suggests that lower-density areas, as opposed to highly built-up cities, are ideal for detaining water. Celina Balderas Guzmán, a wetlands researcher and Ph.D. student at the University of California-Berkeley, argues that suburban areas could provide “a new paradigm for managing storm water” and that the best solutions “will be those that shift away from mono-functional, centralized infrastructure.”

Some of this can already be seen in the improved performance of detention ponds in Houston’s lower-density areas during Harvey. These initiatives can be expanded into “constructed wetlands” that mimic natural wetlands, using the same physical, biological, and chemical processes to treat water. Besides treating storm water pollution and detaining floodwaters, constructed wetlands can boost biodiversity and provide urban amenities such as recreation.

Houston already has many communities, such as the Woodlands, designed to absorb storm water through natural means. These developments suffered limited damage during Harvey—only about 0.2 percent of the population in the Woodlands needed to be evacuated. Better-planned suburbs could well be the “secret sauce” for addressing Houston’s challenges without destroying its growth-and-opportunity model.

Without question, Houston will need to update some regulations and boost its infrastructure if it wants to meet the challenge of future storms. The real question is whether flood control opens the gates for a smart-growth agenda that could seriously weaken Houston’s affordability and growth trajectory. This will depend largely on political factors. Though the region overall continues to follow a free-enterprise model, with Democrats and Republicans both embracing a low-regulation agenda, the City of Houston has become more smart-growth-oriented in recent decades. Business and political leaders shouldn’t underestimate the power of academic institutions, legacy media, and allied nonprofits to advance that cause. The battle has just begun, and the future of the Houston model hangs in the balance.

Homepage photo credit: narawon

‘Chinafornia’ and Global Trade in Age of Trump

One of the last regions settled en masse by Europeans, California’s trajectory long has been linked to its partners across the Pacific. Yet these ties could be deeply impacted by President Trump’s immigration and global trade policies, as well as resulting blowback by the authoritarian regime in Beijing.

In recent decades, California has become something of a China junkie. With China on the route to what some predict will be hegemonic power, there’s a set who eagerly wish to promote the idea of “Chinafornia.” The pattern of dependency can be seen in how our industries depend on China for their production. For some companies, like Apple, China provided the capacity to produce products cheaply without suffering heavy GHG impacts in state. China’s coal-based pollution allowed these congenitally “virtue signaling” firms to retain their “green” street cred.

Yet as a trade war looms, California could find itself without key markets, investment capital and sources of supply for its increasingly de-industrialized economy. Any reduction in immigration, and related investment flows, could dent real estate values, particularly in such speculator-driven markets as Irvine, downtown Los Angeles and Koreatown. There could be political ramifications as well given the close ties between China and California officials, including an alleged spy working as a driver for Sen. Dianne Feinstein.

California’s historic trade ties

Asia has always been a kind of ace in the hole for California. The state’s economic emergence in the early 1900s was tied directly to rising trade with Japan, China and the country’s new imperial outpost, the Philippines. These connections, wrote the Los Angeles-based journalist Harry Carr, changed our region from “a hick town” and turned it “into a city.”

Of course, some of our early entanglement with the Pacific was profoundly oppositional. Deep-seated fears of Asian immigrants engendered harsh racial restrictions, including bans on property ownership. The massive buildup against Japan during the Second World War sent tens of thousands of Japanese residents, including citizens, to concentration camps, but also initiated the region’s first great wave of industrialization.

Since the war California has benefited from its Asia ties in generally more positive ways. Asian importers, such as car companies, tended to use the Port of Los Angeles and set up their local headquarters here. Investors, particularly from Japan in the 1980s, buoyed the state property market. New immigrants from China, Korea, south Asia and Vietnam brought a tremendous work and entrepreneurial ethos to the state, helping to revitalize communities from the San Fernando and San Gabriel valleys to wide swaths of Orange County.

The challenge of Trump

Over the past half century, both parties have tended to be friendly both to globalization. Yet now the state’s establishment is being rocked by Trump’s assault on both generous immigration policies and China’s unfair trading practices. China’s mercantilism alone has been linked by labor-aligned groups with the loss of millions of jobs. There’s a stark class division here; the upper classes have largely benefited while many higher-wage job opportunities for middle- and working-class Californians have disappeared.

The current Trumpian policies could change this, forcing companies to rely more on citizen workers and local capital. Silicon Valley tech firms, now dependent for 40 percent of its workforce on largely Asian imports, will have to compete for domestic labor with regions and companies that operate in more reasonably priced markets. This could benefit local workers and sub-contracting firms.

To be sure, some California exporters — notably in the Central Valley, Hollywood and Silicon Valley — could find some markets shut off to them. Yet, in the longer run, China will likely suffer more in a trade war, given its almost four times larger volume of exports than come from the U.S., weaker domestic markets and massive indebtedness. Trump’s approach could force it to compromise on key trade issues in ways that benefit our exporters.

Can we benefit from the new reality?

Given the extraordinary anti-Trump mood in the state, it may seem discordant to see any good in Washington’s trade stance. California is home to nearly 40 percent of all Chinese home purchases in the U.S. These investors are one primary cause for the insane property-price inflation that has effectively chased young American families from the state. Would it be a tragic loss to lose the capital expended by non-resident foreigners who buy property largely as a kind of safe deposit box? Some two-fifths of these investors, according to a one real estate study, do not intend to live in their homes.

Policies discouraging shifts of work to China also could help reorient our business from just originating ideas to making products. This could prove a potential boon to the state’s suffering working class and for the environment, by shifting production to relatively clean California from coal-dependent China.

We are right to be offended by the xenophobia associated with the Trump policies. But if a crisis in Chinafornia spurs the state to think about decreasing our dependence on China, perhaps we can begin to promote development that helps not just speculators, investors and oligarchs, but ordinary Californians.

This article first appeared in The Orange County Register.

Joel Kotkin is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The Human City: Urbanism for the rest of us, was published in April by Agate. He is also author of The New Class Conflict, The City: A Global History, and The Next Hundred Million: America in 2050. He is executive director of NewGeography.com and lives in Orange County, CA.

Photo: 禁书 网, via Flickr, using CC License 2.0.

Cities Are for Rich People Now and Wooing Amazon Only Makes It Worse

This article first appeared on Vice

Local officials across America are trying to attract the mega-corporation’s new headquarters. That is not going to help your rent.

If there are two facts of life in the modern American city, they are that rent will be too damn high, and that attracting investment from a mega corporation will seem to some local power players like the best way to stave off economic disaster. The rent part is an old, old story. Under-construction of affordable and publicly-funded housing units targeted at the working- and middle-classes is a trend that started around the 1970s. Combine that with spiraling income inequality, the erosion of tenants’ rights, and stagnant real wages, and it makes paying for a roof over your head almost impossible in many metropolises. At the same time, the decline of manufacturing and the federal government’s general unwillingness to invest in major job-creation programs (like infrastructure) means civic leaders have long been tripping over each other to woo companies who might act as job creators for the populace and, not incidentally, help those politicians keep their own jobs.

Enter Amazon, the corporation to rule them all.

CEO Jeff Bezos is the richest man ever, and his empire has been dangling construction of “HQ2,” its new headquarters outside the company’s original home base of Seattle, for nearly a year now. Dozens of cities have made bids, Olympics-style, to win the company’s favor, and 20 cities are still in the running as finalists. Their thirst makes some sense: After all, tens of thousands of high-paying tech jobs could be in the offing, not to mention all the money those new arrivals (or maybe even newly-employed locals) might be spending at local businesses.

The company, for it all its questionable labor practices and pernicious effects on everything from book publishing to retail clothing, does seem to be able to offer the prospect of a real economic boon. That’s what unprecedented corporate consolidation means—one company really does have the power to boss around an entire city because its sway over jobs (and its attendant political influence) are that enormous. The leaders of places as varied as Toronto to Newark (two finalists for the HQ2 bid) are not crazy to be offering massive (and possibly secret) tax breaks in hopes of winning Amazon’s favor—it really could improve their short-term finances or at least attract a lot of tourism and the wealth that comes with it.

But shipping in a bunch of tech workers and their ilk could also mean even higher rent and worse gentrification. And since cities don’t seem to have any idea how to actually drive down rent for the poor, it’s fair to wonder if they might be better off without that Amazon money entirely—even if it means losing out on jobs and development in the interim.

As the New York Times reports, Seattle Mayor Jenny Durkan took pains to issue what amounts to a warning to her colleagues nationwide in June: go ahead and chase tech money, but watch out for higher housing costs. Specifically, she noted, the city has an average home cost of over $800,000 and has seen rent explode 57 percent in the last five years. And homelessness is a huge problem in the city, not that Amazon—which recently teamed up with other big local companies like Starbucks to kill a tax that would have helped pay for more housing—seems to be sweating it.

“When you’re bringing a lot of people into any given housing market, that’s a shock to demand [and] it’s going to boost prices in the near term,” Aaron Terrazas, senior economist at Zillow, told me. He added that in theory, at least, the housing supply could catch up with demand over time—and that, depending on where a company like Amazon lands, some cities (like Indianapolis or Columbus, two other finalists) might be better prepared than others (like Los Angeles) where housing is already strained.

But even leaving aside the initial question of what you might be paying now and how a tech company’s swooping in could affect it, there’s the more nebulous boogeyman of gentrification. No, Amazon’s arrival wouldn’t instantly remake, say, New York (another finalist) in San Francisco or Seattle’s image—for one thing, NYC would have at least a bit of time to plan for the influx of new tech workers. But it would likely having lasting effects on the character of the city.

“You’re talking about one-bedroom [and] studio apartments as opposed to single-family apartments or three-bedroom apartments, so you change the nature of the kind of housing,” Joel Kotkin, an expert on cities who worked on Kansas City’s (failed) bid for Amazon, said of the impact tech companies like it have on housing. “It also changes the nature of the area. In other words, a lot of the rootedness of a particular region is sort of undermined.

Meanwhile, as the Washington Post reports, rent is still rising for many people in major American cities—efforts to rein in increases have, in some cases, actually just gone to benefit the wealthy. “For-profit developers have predominantly built for the luxury and higher end of the market, leaving a glut of overpriced apartments in some cities,” Diane Yentel, president and chief executive of the National Low Income Housing Coalition, an advocacy group, told the paper. “Some decision-makers believed this would ‘filter down’ to the lowest income people, but it clearly will not meet their needs.”

Some middle-class people have seen their rent go down, but the broader superstructure of housing in this country is overwhelmingly tilted towards the needs of the mega-rich. Even when local officials want to help people of modest income find something they can afford, the limits of municipal budgets and the broader trends in the housing market can make actually increasing the supply of affordable housing a titanic feat.

So most city officials across America, if asked to choose, would take a splurge of Amazon money over some kind of principled stand against big tech or gentrification. As much as anti-monopoly and anti-Silicon Valley sentiment are in the air, local chambers of commerce and other “pro-business” institutions are still immensely powerful. It may look more and more like the safest way to keep housing in the vicinity of affordable for non-rich people is to tax the hell out of them, locally. But the fact that Seattle—a progressive lodestar where actual Socialists can win elected office—failed catastrophically suggests things are going to get a lot worse before they get any better.

So is Amazon really worth it for your city?

“It’s worth it for tech workers, it’s worth it for property owners, [but] it’s not worth it for most other folks—especially with the caveat that this is going to come out at a significant direct public expense, through tax breaks and other kinds of incentives,” said Daniel William Immergluck, a professor in the Urban Studies Institute at Georgia State University who’s written about how Amazon might affect the city’s housing market.

He went on to bemoan how cities increasingly seem to be convinced—by hype, if nothing else—that they need a massive influx of tech investment, even if their population and housing markets are just fine.

“Whether it’s Amazon or Google or these other huge trophies, that’s going to continue to cause huge problems,” he told me.

This article first appeared on Vice

Homepage photo credit: Simone via Flickr under CC 2.0 License

Blue-collar Blues in the Southern California Job Market

This piece first appeared in The Orange County Register.

Every year over the past decade, in the Forbes’ annual “Best Places for Jobs” survey, we have been fortunate to assess Southern California’s job market and compare it to other large metropolitan areas. The results point to some strong points but also many long-term problems that regional leaders need to address.

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The Middle East Could Use Less Warfare and More Capitalism

This article first appeared at The Orange County Register.

Jet fighters, smart bombs, terrorism and ethnic cleansing have not exactly improved the Middle East. Yet the perennial world trouble spot is not without resources — an increasingly educated population, massive energy resources and ample capital — but still suffers economically, with the world’s worst unemployment rates. Read more

Trump’s Opposition to Unrestricted Globalism Might Prove a Historical Necessity

This article first appeared at The Orange County Register.

Let’s stipulate that Donald Trump is a vulgar, ignorant and often reckless narcissist. Yet he also may well prove a historical necessity, someone who, intentionally or not, has rendered apart a bi-partisan consensus well past its usefulness.

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The Cities Creating The Most White-Collar Jobs, 2018

by Joel Kotkin and Dr. Michael Shires

Professional and business services have long been identified with the downtowns of cities like New York, Chicago and San Francisco, where lawyers, accountants and architects are thick on the ground. However, in recent years there’s been a clear shift in the geography of this vital sector, with some of the strongest job generation emerging far from the high-rise canyons. Read more

Where U.S. Manufacturing is Thriving, 2018

by Joel Kotkin and Dr. Michael Shires

The ‘80s futurist John Naisbitt once called manufacturing a “a declining sport,” and to be sure the share of Americans working in factories has fallen far from the 1950 peak of 30% to roughly 8.5% last year.

Yet, manufacturing’s contributions to the economy are far out of proportion to its shrinking share of employment. Read more