Sunday, September 24, 2017

More on Mergers as Solution for Declining Suburbs

In my latest podcast I talk a bit about my new merger study, what is happening with inner ring suburbs, what the options are, and why merger is something that needs to be on the table in these cases even though I’m a merger skeptic generally. If the podcast doesn’t display for you, click over to listen on Soundcloud.

Subscribe to podcast via iTunes | Soundcloud.



from Aaron M. Renn

Friday, September 22, 2017

Too Many Rust Belt Leaders Have Stockholm Syndrome

One of the criticisms leveled at Richard Florida is that many of the Rust Belt cities that tried to cater to the creative class ended up wasting their money on worthless programs.

What this illustrates instead is that leaders in the Rust Belt have taken the contours of the current economy as a given, and attempted to find a way to adapt their community to that.

This is actually a smart way to approach it. The fact is, local leaders are market takers not market makers in most places. They don’t have much leverage. With a global economy and dominance by knowledge industries, trying to create a more favorable environment to tap into those is a rational decision. If that hasn’t turned around those places yet, then nothing else has either.

However, what I’ve noticed is that civic leaders in these places have gone beyond trying to adapt to the global economy, and have become cheerleaders for the status quo – the same status quo that has wrecked in their community.

To be sure, much of deindustrialization resulted from simple productivity and technology improvements. But globalization played a role, both in tearing these cities down and in building up the coastal capitals.

In the second edition of her book The Global City, Saskia Sassen wrote:

What comes out of this book is that the globalization of manufacturing activity and of key service industries has been a crucial factor in the growth of the new industrial complex dominated by finance and producer services. Yes, manufacturing matters, but from the perspective of finance and producer services, it does not have to be national. This is precisely, as this book sought to show, one of the discontinuities (between major cities and nations) in the operation of the economy today compared with two decades ago, the period when mass production of consumer goods was the leading growth engine. One of the key points in this book is that much of the new growth rests on the decline of what were once significant sectors of the national economy, notably key branches of manufacturing, that were the leading force in the national economy and promoted the formation and expansion of strong middle class [emphasis added]

In other words, deindustrialization and the rebirth of cities like New York are linked via globalization.

Given this, you might think urban leaders in post-industrial cities would be advocates for some type of macroeconomic policy changes. That doesn’t really seem to be the case though. Certainly they do not want to see any form of rollback or material alteration in the current globalization schema, apart from perhaps arguing for more of the same.

I noticed this after the election last year when I observed leaders from some of America’s most economically bleak locales bemoaning Trump’s win. That in and of itself wouldn’t be a problem. But it was also clear that they loved the status quo and wanted to preserve and extend it. It is there any reason whatsoever to think that Hillary Clinton would have done anything for Youngstown? I don’t think so. Yet they were enthusiastic about her entire agenda, a more or less stay the course approach that would continue to pile more and more success into existing superstar cities.

I wouldn’t expect them to embrace Trumpism. But one would think that flyover America’s leadership class would be promoting a reform agenda of its own, one which would benefit their cities and regions. But they don’t seem to have one. All of their ideas are more or less adaptions of things people in coastal cities came up with. And they don’t have a national policy change agenda to speak of other than “give cities more money.”

For the younger, educated Millennial types, this is somewhat understandable. Many of them hope aspire to actually be in a coastal city. But much of the leadership class of these places is older and deeply rooted in their community.

As along as these folks remain enthusiasts and staunchly committed to the global status quo that helped ruinate their city, economic policy will continue to be made in ways that disproportionately benefits the coastal, global city elite at their expense.

from Aaron M. Renn

Wednesday, September 20, 2017

They Know the Words but Not the Music

Photo Credit: Bernard Gagnon, CC BY-SA 3.0

Someone I know on Facebook posted the following about his Midwest hometown:

Everyone* in [Midwest city] talking about Trump.

Everyone* in SF talking about AI, Blockchain and Burning Man (and how expensive rent is).

Just an observation!

This illustrates that people in communities that want to be taken seriously as creative and innovation capitals sometimes miss the boat on what really goes on in those capitals.

Yes, people in the Bay Area don’t like Trump very much. You’ll read about their politicians pontificating the media. But at ground level, most of what is going on in creative is focused on the business at hand.

At times there can even be a vaguely cargo cult aspect to this. What do creative capitals have? Let’s go get or be that. But the real secret sauce to creative cities is somewhere else, hidden.

from Aaron M. Renn

Foreign Buyers and Home-Price Growth

Major cities have been the entry gateway for immigrants to both the U.S. and Canada.  About 14 percent of the U.S. population and 21 percent of the Canadian population is foreign born.[1]  In Miami, San Jose, New York, Los Angeles, and San Francisco, more than one-third of the population is foreign born. Immigrants to Canada have concentrated in the Toronto and Vancouver metro areas, where at least 40 percent of the population is foreign born. (Exhibit 1) In fact, these two metro areas account for one-half of all immigrants residing in Canada.

While immigrants add to economic growth and housing demand, there has been growing concern over the role played by nonresident foreign buyers.  These buyers often have substantial financial resources, enabling them to buy above-average homes without mortgage financing, potentially adding to speculative pressures especially for expensive homes.[2]  Further, these buyers may effectively restrict supply if they leave their homes vacant.  These effects will be greater in areas where nonresident buyers account for a larger portion of sales.  While the share of home sales to foreign buyers will vary by locale, the National Association of Realtors reported that the overall share of existing homes sold to nonresident foreign buyers in the U.S. has remained relatively small since 2010, averaging about 2.2 percent of sales.[3]

Two Canadian metros have sought to minimize the effect that nonresident foreign buyers have by implementing a 15 percent tax on sales to these buyers.  This was enacted after steep price increases in the Toronto and Vancouver markets.  The new tax on sales was effective April 21 in Toronto and has been in place in Vancouver since August 2016.[4]

After imposing the nonresident foreign buyer tax in Vancouver, home-price growth slowed from a torrid 26 percent annual rise in August 2016 to 8 percent in June 2017.  As a benchmark, two neighboring cities that do not have a foreign buyer tax, Victoria and Seattle, have seen home-price growth remain robust since August 2016, suggesting the tax may have had its intended effect.[5] (Exhibit 2) In comparison, two months after enacting the tax in the Toronto area, home sales have fallen but price growth has yet to slow, perhaps because of the far larger size of the Toronto market.

In summary, nonresident foreign buyers appear to have a larger effect on prices for expensive homes and a bigger effect in smaller markets than in larger markets.  Affordability is affected further if homes are kept vacant.

[1] U.S. Census Bureau, 2016 American Community Survey 1-Year Estimates, and Statistics Canada, 2011 National Household Survey.

[2] National Association of REALTORS, 2017 Profile of International Activity in U.S. Residential Real Estate, July 2017, reported on homes bought April 2016 to March 2017 in the U.S.  The study found that 72 percent of nonresident foreign buyers paid all cash to purchase their home.  The average price paid by nonresident foreign buyers was $626,814, well above the average sales price of $277,733 for all existing homes sold during the same period.

[3] National Association of REALTORS, REALTORS© Confidence Index.

[4] Ontario enacted the “Non-Resident Speculation Tax” effective April 21, 2017, and British Columbia enacted the “Additional Property Transfer Tax” effective August 2, 2016:

[5] The S&P CoreLogic Case-Shiller Index for Seattle and the Teranet-National Bank of Canada House Price Index for Vancouver and Victoria were used to measure price change.

from S&P Dow Jones Indices – HousingViews

Tuesday, September 19, 2017

Merger May Rescue Declining Suburbs

One of the emerging issues in urban policy is how to assist aging inner-ring suburbs that have fallen on hard times.

The scope of these challenges, the weaknesses of potential solutions, and the possible role for merging with an adjacent stronger central city as a tool are explored in my new Manhattan Institute report “Mergers May Rescue Declining Suburbs.”

I provide an overview of report in a column over at City Lab.  An excerpt:

In some ways, struggling inner-ring suburbs are harder to revive than central cities. For one thing, they are often “out of sight, out of mind.” Downtowns have the spotlight of the local media on them, and they attract attention from business and community leaders and local and national lawmakers. Inner-ring suburbs rarely get much attention until some serious problem emerges, as in the police shooting in Ferguson, Missouri, or the pay scandal in Bell, California.

These communities are also seeing increases in concentrated poverty and isolated minority groups. Black residents leaving central cities in the Midwest and Northeast often end up in these suburbs. As with previous moves into urban areas that were once off-limits, what originally seemed like the American Dream becomes a mirage or a nightmare as opportunities recede.

But unlike inner-city neighborhoods, inner-ring suburbs often have additional serious structural challenges. They often lack of good transit access, for example. They also sometimes are dominated by older, smaller Cape Cod or ranch-style housing that in need of repairs and out of favor in the market. And they don’t have the distinctive assets of central city downtowns to draw on. Central cities are frequently the regional seat of government, either a county seat or state capital. They have major institutions like universities and hospitals; they contain regional attractions such as zoos, museums, and sports teams; and many still boast legacy corporate headquarters, among other assets. This is true even in struggling places like Detroit and Cleveland.

But inner-ring suburbs usually don’t have these. As former East Cleveland Mayor Gary Norton put it, “A smaller place can do very, very well if the right elements are within its borders, or it can do very, very poorly if the right elements leave. The right elements left our borders, and without all the assets that a big city has, without the diversification, that’s a bad situation.”

Click over to read the whole thing. And be sure to check out the report, which includes data on all the suburbs contiguous to the central cities in various Midwest and Northeastern post-industrial cities.

Note that this is not a call for a one size fits all solution of merger. Nor is it an endorsement of large scale city-county mergers or “big box” regional governments.

from Aaron M. Renn

Monday, September 18, 2017

New York, San Francisco, or Get Out

Photo by Dmitry Avdeev, CC BY-SA 3.0

Someone once told me than when it came to tech and other high end talent industries, it was “New York, San Francisco, or get out.” This was before Peter Thiel made his famous statement, “If you are a very talented person, you have a choice: You either go to New York or you go to Silicon Valley.”

Another person I know once made a different argument. the case for his mid-sized city was that it was the perfect blend of “opportunity” and “access.” His argument was that in very small places you can get access, but there’s no opportunity. In the global cities you have opportunity, but it’s hard to get access. Somewhere down the hierarchy was the perfect blend of both.

I don’t doubt that’s true for some people. But in my experience the higher you go in the urban hierarchy, the better you have it for both opportunity and access.

There’s no doubt that smaller cities have great access in some respects. I’ve met mayors from any number of major US cities. But although I lived in both New York and Chicago, I’ve never met the mayor of either, and getting access would probably be very difficult.

However, what is the value of “access” in terms of the ability to personally talk with high level politicians or business leaders in a community? I would argue that the real question is what that access gets you, and from what I’ve seen it isn’t much.

Consider that Silicon Valley is a youth obsessed culture. You can come there even without a degree, and if you have the talent, have a chance to get in with a great firm or get funding for your own. There’s still an element of chance to it of course. But you aren’t going to be held back by lack of credentials or age.

New York is a different matter. It’s probably harder to come in as a penniless youth and make it big than it was back in the 70s. (That’s the topic of a future article). But I managed to find opportunities here that simply weren’t available in other cities, even ones in which I had better “access.” I see that similar things have happened to others, as they got sucked into New York, not just for the lifestyle, but for the superior professional opportunities.

I’d argue that from a practical perspective, the best opportunity-access combos for high talent people are in coastal cities like NYC and SF.

One thing I’ve noticed about smaller cities is that while some markers of social status are easier to achieve there – say getting onto the board of some non-profit – they are often seniority driven communities where older people still dominate all the real positions of power and there’s an incredible play it safe mentality when it comes to taking a chance on someone young and new who hasn’t been an overtly political pole climber.  Maybe it has something to do with the manufacturing background of many of the places I engage with.

The one thing I always tell smaller places about talent attraction is that they need to leverage their smallness to really provide genuine, rapid opportunity to people who can prove themselves. Actual professional or other tangible opportunities are a powerful motivator for people, even in an age in which people supposedly pick a place to live, then look for a job there.

Smaller and mid-sized cities should be the places where young talent can get recognized, get real step-up opportunities, and make it to the top faster (if they deliver the goods) than larger cities. Unfortunately, this doesn’t seem to be the case.

I always find it puzzling when I see people struggle to get traction in some smaller place, then knock it out of the park in a larger arena. Some of it is the cultural mismatch I talked about in a recent Governing column. But that cultural gap can be a real problem for smaller places that can’t seem to attract superstar or A-caliber talent.

Finding a way to provide genuine opportunities to top caliber people who are still in the pre-reputation phase may be one of the most important things communities need to do to keep those folks from ending up on the coasts.


from Aaron M. Renn

Sunday, September 17, 2017

Against Talent

My colleague Steve Eide joins me to talk about his contention that attracting high wattage talent into politics in small and medium sized cities isn’t necessary, and may even be counter-productive. Listen to find out why that is. If the audio doesn’t play for you, click over to listen on Soundcloud.

Subscribe to podcast via  iTunes | Soundcloud.

from Aaron M. Renn