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Title: Looking Ahead: Demographics, Economics and the Future of U.S. Real Estate


1
Looking Ahead Demographics, Economics and the
Future of U.S. Real Estate
  • Presentation by Joel Kotkin
  • Irvine Senior Fellow, New America Foundation
  • BOMA Conference, Las Vegas, NV
  • January 27, 2007

2
Long Term Fundamentals
  • U.S. has healthier long-term demographics than
    most competitors
  • U.S. only advanced country with large, growing
    population
  • North America second largest energy resource base
    in world
  • Economic system most resilient among advanced
    countries

3
Healthier Long Term Demographics a Younger
Future
Population Growth Rates, 2004

4
Getting Older Slower
Population Over 65
Source CIA
5
Room to Grow Total Arable Land
6
Arable Land Per Capita
Hectares
7
Economic Dynamism Countries of Opportunity
Inflation-adjusted GDP growth 2002- 2005
  • Source CIA

8
More Crowding to Come US Population Growth
1960-2050
Source Bureau of the Census, CensusScope
9
In 2030, about half of the buildings in which
Americans live, work, and shop will have been
built after 2000.
58.9
25.7
6.4
Northeast
West
Total
Midwest
South
Source Toward a New Metropolis The Opportunity
to Rebuild America, p.v
10
Inside America Where is Growth Headed?
  • Suburban dominance growing
  • Continued shift of people to regions of
    opportunity
  • Educated migration and immigration following this
    pattern, not primarily seeking hip and cool
  • Affordability is becoming key factor
  • Jobs follow same pattern

11
In Most of Urban California the Single Family
Home Predominated as The Universal Aspiration
  • The suburban house is the idealization of
    every immigrants dream--- the vassals dream of
    his own castle. Europeans who come here are
    delighted by our suburbs. Not to live in an
    apartment! It is a universal aspiration to own
    your own home.

Los Angeles urbanist Edgardo Contini
12
U.S. Population in Urban, Suburban, Rural
Areas
Millions
1950-1999
People (millions)
13
Paradigm Shift Median Population Growth By Decade
Source US Census - Rappaport
14
Growth City vs Suburb
US Metropolitan Central City Population
2000-2005
  • This should be a chart showing how little of
    2000-5 growth was in cores

Demographia
15
Declustering US Job Growth Remains Centered in
Low- and Moderate-density Areas
Average Employment Growth ()1990-1998
County Population Density
Low
High
Source Joint Center Tabulations of the Regional
Economic Information System (REIS) database
16
Central City Suburban Office Space Development,
1986-99
Millions of Square Feet
100
Downtown
Suburban
80
60
40
20
0
99
98
97
96
95
94
93
92
91
90
89
88
87
86
Source Milken Institute
17
National Office Construction
Sq. Ft. x Millions
Source cbre
18
Jobs Head out
Percentage of Metropolitan area employment
Source Edward Glaeser, Matthew Kahn and
Chenghuan Chu, Job Sprawl Employment in US
Metropolitan Areas, Brookings Center on Urban
and Metropolitan Policy, May 2001
19
Despite Some Back-to-the-City Movement, More
People Are Still Leaving for the Suburbs
Source Center for Housing Studies at Harvard
University.
20
Minorities to Suburbs
Percentage of Population Residing In Suburbs by
Race/Ethnicity 1990-2000
21
Another Kind of Diversity Suburb and Central
City Household Change by Household Type,
1990-2000
Metro Areas with Population Over 500,000
22
Downtown Population Growth 1998-2010 vs. San
Bernardino Riverside California 2003-2004
Selected Cities Houston Cleveland Denver Seattle
Dallas New York Portland Milwaukee Chicago St.
Louis Philadelphia San Antonio Baltimore Detroit L
os Angeles Atlanta
23
Declustering A Global Perspective
Percentage Change in Population 1965 - 2000
Source Demographia
24
Focus on What People Want There are small
specialized niches and larger ones
  • 83 percent want this kind of dwelling (National
    Association of Home Builders)
  • 86 percent in California (PPIC)
  • 70 or more of downshifting boomers retiring in
    place or staying suburban study
  • Latest study -7.9 net movement out of city by
    empty nesters
  • About as many empty nesters heading to
    countryside as headed to city
  • 40 expect kids to move back at some point
  • Latinos highest percentage ethnicity to prefer
    single family home
  • Focus suburbs,exurbs, safe neighborhoods in
    closer, attractive areas

25
Where Americans Would Like To Live
Fannie Mae, 1998
26
What People Want
Public Policy Institute of California, 20002
27
Roots of Current Urban Problems
  • Difficult city administration forces businesses
    to periphery
  • Inattention to basic urban infrastructure
  • Overemphasis of public spending on ephemeral
    projects
  • Lack of focus on middle class
  • Factors accelerate suburban growth

28
The Ephemeral City The Future of the Core?
a bazaar, a great gallery of shops and places of
concourse and rendezvous.
H.G. Wells description of urban centers in the
future
29
Thoughts on Ephemeral Cities A Model for
American cities?
Poor but sexy."
  • Mayor Klaus Wowereit on Berlin

A cross between Carmel and Calcutta
Kevin Starr on San Francisco
30
Cities without Children
Percent Less than 18 Years, Select Major U.S.
Cities
31
Arts and Culture Cause or Result?
  • Great Cultural Centers generally rest upon
    commercial success
  • Venice, Florence, Amsterdam, London, New York,
    Los Angeles all became cultural centers after
    developing an expanding economy and strong middle
    class
  • Patrons of arts, not the public, key to
    development of cultural institutions from Macenas
    to the Medici, Carnegie and the Rockefellers of
    the 20th Century to todays multi-billionaires

32
A Useful Insight
  • If you need a campaign to prove youre hip
    and cool, youre not.

Michigan talk radio host on Governor Jennifer
Granholms Cool Cities initiative
33
Rethinking the Urban Future Back to Basics
  • Inner city economies need to produce real wealth
    or become irrelevant
  • The key remains creating jobs and strong middle
    class neighborhoods with high degree of
    livability
  • Culture comes after commerce not the other way
    around

34
Identifying Next Growth Regions
  • No simple formula and there are almost always
    exceptions to every rule
  • Affordability seems to be the big driver as a
    result of massive shift in property prices
  • Movement of educated and immigrants may prove
    canaries in the coal mine for the next
    generation
  • Shift from superstar to opportunity regions

35
Competition Between Cities and Regions is a Fact
of Life and has been for over two millennia
  • Every city is in a natural state of war with
    every other, not indeed proclaimed by heralds,
    but everlasting.

Plato, 4th Century BC
36
Beyond elitism Jane Jacobs on the proper role of
an urban economy
A metropolitan economy, if it is working well,
is constantly transforming many poor people into
middle class people ...greenhorns into competent
citizens... Cities dont lure the middle class,
they create it
37
Housing Price Rises a New Driver
  • Housing costs and quality by far the largest
    reason why people move
  • Particularly important for people 30 to 44
  • High rents, housing prices are likely to continue

38
Affordability Index Between Leading Dynamic
Regions
(median price for median family)
Source National Association of Homebuilders
39
Perceptions of Affordable Housing as a Major
Problem
40
1960 Fortune 500 Headquarters
41
2006 Fortune 500 Headquarters
42
Job Growth Over Past 15 Years Helps to Identify
Opportunity Areas
Non-farm Job Growth, Selected MSAs, 1990 - 2006
Las Vegas
Boise
Phoenix
Riverside-San Bernardino
Charlotte
Atlanta
Dallas-Fort Worth
San Diego
Houston
Cincinnati
Pittsburgh
Chicago
San Francisco Bay Area
Boston
Los Angeles - Orange
New York City
Detroit
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Source BLS Data, Smoothed 3rd quarter average
data, various years.
43
Recent Job Growth Shows the Momentum and
Direction of These Areas
Non-farm Job Growth, Selected MSAs, 2000 - 2006
San Francisco Bay Area
Detroit
Boston
New York City
Chicago
Dallas-Fort Worth
Pittsburgh
Atlanta
Los Angeles - Orange
Cincinnati
Houston
Charlotte
San Diego
Boise
Phoenix
Riverside-San Bern
Las Vegas
-15
-10
-5
0
5
10
15
20
25
30
Source BLS Data, Smoothed 3rd quarter average
data, various years.
44
Opportunity Areas Often Have Lower Taxes Than
Other Jurisdictions
Taxes Paid by Family of Four, 2003
0
2,000
4,000
6,000
8,000
10,000
12,000
New York City NY
Philadelphia PA
Portland OR
Milwaukee WI
Atlanta GA
Detroit MI
Boston MA
Chicago IL
Washington DC
Income
Los Angeles CA
Property
Boise ID
Sales
MEDIAN
Auto
Phoenix AZ
Houston TX
Las Vegas NV
Source Big City Taxes, CNNMoney.com, 2003,
compiled by District of Columbia.
45
Growth in Professional Business Services
46
Adjusted Median Earnings of Selected Occupations,
2005
47
Growth by both Domestic and International
Migration
Circle size Growth rate ()
48
Migration of Educated Workers 1995-2005
49
Looking Ahead
  • Digital Revolution will change nature of place
  • Growth of Population/smaller households put more
    pressure on demand
  • Price Pressure will resume after end of current
    bubble
  • The Key Challenge Reconciling desire for
    low/moderate density with affordability and
    environment

50
Town and city will be in truth, terms as
obsolete as mail coach.
-H.G. Wells, Anticipations of the Mechanical
Scientific Progress Upon Human Life and Thought
(1902)
51
Virtuality is Coming
I leave my house in the country and drive 17
miles through the blue grass. But when I open my
computer I am at my center, it feels like I am
back in San Jose. It's a kind of virtual Silicon
Valley. Alan Hawse Director of CAD
Development, Cypress Semiconductor
52
Examples of This New Reality
  • Jefferies Securities Only one-third of New York
    area employees in Manhattan. Key operations
    people in Stamford, Los Angeles, San Francisco,
    Boston and Chicago.
  • Cypress Semiconductor Majority of researchers in
    India, UK or small town US locations (Lexington,
    KY Starkeville, Ms Nashua, New Hampshire.)
  • TMNG Only 35 out of 450 employees at HQ in
    Overland Park, KS.
  • Killdeer Mountain Manufacturing Employees in
    towns of 800 and smaller in rural North Dakota

53
The Future Beckons Towards an Archipelago of
Villages
  • The dispersed, multi-polar city is here to stay
  • The biggest opportunity for community building
    and economic growth will lie in suburban in-fill
    and the periphery
  • Time to stop complaining about historical trends,
    and learn to adapt to them
  • Digital technology offers huge, long-term
    opportunities for dispersed, livable cities

54
The Great Insight The Garden City
  • Town and country must be married and out of this
    joyous union will spring a new hope, a new life,
    a new civilization.

Ebenezer Howard
55
Visions of Suburbia
  • The brain dead land of Desperate Housewives
  • A new kind of sprawling dystopia
  • What people want, a place that can adapt to
    change

56
Plenty of dreary lives are lived in the suburbs.
But most of them might be worse in other
surroundings
A More Balanced View of Suburban Life

Hugh Stretton Ideas for Australian Cities, 1970
57
Traffic Will Drive Demand for Change
Average Hours Per Year Stuck in Traffic
Source California Dept. of Education, Healthy
California Progress Initiative, California
Highway Patrol, Surface Transportation Policy
Project
58
Transit is nice but no real solution
Los Angeles Red Line Subway Current Ridership
Projection, Actual and Corrections
59
The Big Trend Digital Impact
Percent change by mode, journey to work 1980-2000
Source US Decennial Census
60
The Valencia, California, Survey 2001
Would you take a pay cut to work in the
immediate area where you live? 50 of workers
said they would take a 20 pay cut to a take a
job in their local area.
Source The Newhall Land Company
61
What We Lost the Pre-industrial City
  • The biggest jolt the Industrial Revolution
    administered to the Western family was the
    progressive removal of work from the home.

Dr. Peter N. Stearns, historian
62
Back to the Future The Post-Industrial City
  • If the electronic cottage was to spread, a
    chain of consequences of great importance would
    flow through society. Many of these consequences
    would please the most ardent environmentalist or
    techno-rebel, while at the same time opening up
    new options for business entrepreneurship

Alvin Toffler,The Third Wave
63
Building the Post-Industrial Community
  • Housing by itself does not accomplish very
    much, its not a panacea.

Robert Simon, 1966, Founder of Reston, Virginia
64
Examples of New Suburbanism
  • Naperville, Illinois
  • Downtown Fullerton
  • The Woodlands, TX
  • Valencia, CA

65
New Poles for Economic Activity
  • Office, Commercial alongside or near houses
  • Placing Work near concentrations of skilled
    workers
  • Selling Convenience --- a return to the vision of
    the Garden City

66
A Key Component Bringing Culture to the Burbs
67
The Sacred Space
68
Ultimately solving our problems depends on
developing a sense of community.
  • People do not live together merely to be
    together. They live together to do something
    together.
  • -Ortega y Gasset.

69
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