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

Can Lebron James Make Los Angeles Great Again?

Excerpted from an article that first appeared at The Orange County Register.

With his decision to move to Los Angeles, LeBron James has given our metropolis another reason to feel good about itself. When it comes to sports, and celebrity, Los Angeles’ lead is only growing, as evidenced by the recent movement of two football teams to the area, the proposed construction of a new basketball facility for the Clippers and the winning of the 2028 Olympics games.

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Europe Has Lost Its Way in Culture and Economics

This article first appeared at The Orange County Register

In recent years, many of America’s leading lights have embraced Europe as the model for America. Books like “The European Dream” and “The United States of Europe: The New Super-power and the End of American Supremacy”, both published in 2005, as well the 2010 “The European Promise: Why the European Way is the Best Hope in an Insecure Age” reflected a broadly progressive view that Europe represented the essence of an enlightened future. Many Western journalists, horrified by Donald Trump, have designed Germany’s Chancellor Merkel or France Emmanuel Macron as “new leaders of the Western world.” Read more

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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Finance Flies West, and South

This article first appeared at City Journal.

The recently announced departure of New York City-based Alliance Bernstein for Nashville, taking more than 1,000 jobs with it, suggests a potential loosening of New York’s iron grip on the financial-services industry. Yet the move reflects a longer evolution that has seen financial firms leave not only New York but also other traditional centers—what one historian calls the “Yankee Empire”—that for two centuries dominated banking, insurance, and investment capital.

This process is driven, in large part, by cost considerations. The cost of living in Nashville is just 58 percent that of New York, an important differential for younger workers looking to buy houses and start families, and one likely to widen with the new federal limits on state and local tax deductions. In addition, pension-driven fiscal realities may force states like New York, Illinois, and California to keep raising revenues.

Other forces are at work, too, notably demographic shifts to Sunbelt states and the growing influence of technology companies on finance. Jobs in industries like information technology and business and professional services are fleeing the old centers outside of New York, which is holding its own better than the rest. But the stagnation, and even decline, of financial-services jobs, at a time of high profits, represents a serious threat to regions losing out on job creation in these other sectors as well.

Alliance-Bernstein notwithstanding, New York is not close to losing its hegemony over finance. With 472,000 employees in that industry, the city dwarfs all its competitors, including runner-up Chicago, where finance employs 264,000. Finance jobs in New York, according to Pepperdine University’s Michael Shires, have grown at a respectable 11 percent since 2009, though the pace has slowed more recently, last year increasing by only 1.6 percent. New York might be losing ground and market share, but the industry as a whole is not shrinking, at least for now. And New York’s traditional rivals in this sector—Chicago, Boston, and Los Angeles—have been struggling. Since 2009, Chicago’s financial job growth has been barely 5 percent, less than half of New York’s. Los Angeles, home to the fourth-largest agglomeration of finance workers, also did poorly, while Boston did even worse, actually losing finance jobs last year.

The big winners—as Alliance-Bernstein’s move demonstrated—have been overwhelmingly in the low-cost, low-density Sunbelt. With reasonable taxes, more affordable home prices, and expanding residential populations, these areas are becoming financial-industry giants, even if they lack large, locally based companies. Among the global financial firms relocating operations to these less costly locales are UBS, Deutsche Bank, Morgan Stanley, and Goldman Sachs.

The next potential financial superstar is the Dallas area, now boasting the country’s third-largest concentration of financial workers and likely to supplant Chicago from second place in the near future. Last year, the Dallas Morning News suggested that “Y’all Street” may soon replace Wall Street as the U.S. financial capital. That’s a bit of a stretch, but between 2009 and 2017, Dallas did expand financial employment by 30 percent—three times New York’s rate and more than six times that of Chicago or Los Angeles. With rapid population growth, low taxes, moderate housing prices, and a premier strategic location between the coasts, Dallas has much going for it. Last year, Texas overtook New York for the most banking and insurance jobs among the states; in 2005, New York had led by almost 100,000 jobs.

Dallas is not alone. Since 2009, Nashville, San Antonio, and Phoenix—winner of new jobs from employers like USAA, State Farm, and Charles Schwab—have experienced financial-services growth rates greater than 30 percent. Charleston, Charlotte, Durham-Chapel Hill, Raleigh, and Greenville have all seen their financial workforces expand by more than 20 percent. Florida, which shares a time zone and many cultural ties with New York, is a financial-services hotbed, with Jacksonville, Miami, Tampa, and Orlando all experiencing growth rates two times that of Gotham.

The other region clearly capitalizing on the outbound trend is the Intermountain West. The epicenter here is Utah, notably St. George, Provo, and especially Salt Lake City. All enjoyed 25 percent growth since 2009, with Salt Lake City emerging as a growing center for international banking, in large part due to the area’s language capabilities, an outgrowth of Mormon missionary activity. Salt Lake City has become Goldman Sachs’s fourth-largest global hub; the firm now employs more people there than in any U.S. location outside New York. All indications are that the financial-services presence in Utah will continue growing.

With the Internet reducing the need for close communication for many transactions, and powerful migration trends among millennials to Sunbelt and Intermountain West locales, the expensive, heavily regulated, high-tax financial bastions in New York and elsewhere can expect mounting competititon. Nor is this just a matter of low-paying back-office jobs; investment banks like Alliance-Bernstein, Morgan Stanley, and Goldman Sachs are moving well-paid professional personnel into their new outposts. In places like Charlotte, veterans of large concerns like Bank of America are setting up boutique investment banks of their own. We can expect more of this kind of activity in places like Dallas, Nashville, and Salt Lake City as well.

Another challenge for the old-line financial centers, and just as daunting, emanates from Silicon Valley. Finance appears to be yet another industry ready for “disruption”—and the primary beneficiary will not be New York but San Francisco, another financial heavy-hitter. Long a major banking hub, the city, increasingly an annex of Silicon Valley, enjoyed the fastest growth, almost 19 percent since 2009, of any of the traditional financial centers. San Jose followed closely behind, with a 16.8 percent increase.

Increasingly a business service and media hub, Silicon Valley/San Francisco is no longer just geek central. As long ago as 2015, JP Morgan Chase CEO Jamie Dimon warned that “Silicon Valley is coming” after New York’s core business. Home to many rising “fintech” companies, the Bay Area already counts established firms like Apple, Square, and Paypal that are ideally suited to the new phone-based payment system. Talent that might have headed to Wall Street or LaSalle or State Streets is instead going to San Francisco’s Montgomery Street or the dominant venture-capital region around Palo Alto and Menlo Park. Financial employment is rising in other tech centers, too, notably in Austin, where financial-sector growth topped 39 percent. California-based PIMCO, the nation’s largest bond fund, recently announced plans to site its expanding data and analytics operation in the Texas capital—not in Orange County, long a center for tech and data analysis.

The changing nature of the financial and tech industries, along with the appeal of lower-cost regions for these industries, poses a threat to long-established finance centers like Boston, Chicago, and New York. In these traditional hubs, banking and finance have long been producers of both high-paying jobs and generous revenues for overspending urban regimes. Legislators in old-guard cities should take a long look at the policies that are driving these jobs away presently—and perhaps permanently.

Joel Kotkin is the presidential fellow in urban futures at Chapman University and executive director of the Center for Opportunity Urbanism. His latest book is The Human City: Urbanism for the Rest of Us.

Homepage photo credit: Nashville Skyline by Peter Miller

The Best Cities For Jobs 2018: Dallas And Austin Lead The Surging South

This article first appeared on Forbes.

Among America’s largest metropolitan areas, the economic leaders come in two flavors: Southern-fried and West Coast organic. The first group flourishes across a broad range of industries, fed by strong domestic in-migration and a friendly business climate. The other is driven largely by technology and high-end business services clustered around expensive but highly desirable urban areas.

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Excerpted from an article that first appeared at Chief Executive.

With unemployment down and wages rising, there’s growing concern that a lengthy and potentially crippling talent shortage will sweep the U.S. Addressing this could become a critical issue for businesses competing with Asian and European firms facing similar and, in many ways, more severe shortages.

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Giving Common Sense a Chance in California

Excerpted from an article that first appeared on City Journal.

In California, where Governor Jerry Brown celebrates “the coercive power of the state” and advocates “brainwashing” for the un-anointed, victories against Leviathan are rare. Yet last week brought just such a triumph, as a legislative committee rejected an attempt by San Francisco state senator Scott Wiener to take zoning power away from localities Read more

Suburbs Could End Up On The Cutting Edge of Urban Change

This article first appeared at The Orange County Register.

Over the past decade, the old urban model, long favored by most media and academia, became the harbinger of the new city. We were going back to the 19th century, with rising dense urban cores, greater densities and thriving transit systems.

That paradigm now lives on in myth and media, but not so much in reality. As the census data this year, and indeed since at least 2012, suggests, Americans continue to do what they have done for at least a half century – spread out, innovate and, in the process, re-create the urban form.

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Landless Americans Are the New Serf Class

While home ownership remains the dream of most Americans, fewer and fewer people here can afford to own one.

For the better part of the past century, the American dream was defined, in large part, by that “universal aspiration” to own a home. As housing prices continue to outstrip household income, that’s changing as more and more younger Americans are ending up landless, and not by choice.

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