Midwest State Cities Stomping on Blue Coast Cities

Joel Kotkin, once again, documents how red state cities are out performing the blue state cities traditionally championed by academics and certain organizations. For at least a decade, and perhaps longer, I have heard about how the New Urban city was the future of the United States. That urban sprawl, with their nasty petroleum powered cars, would disappear the urban cores of cities such as New York, Los Angeles, San Francisco  so on and so forth, would become the model for the country. A 2,000 square foot house in the suburbs with a yard and fence, with a dog, was out and a small 400 square foot Japanese-style micro studio was in.  Being interested in Real Estate, and working in in the field in one shape or form for almost a decade, I have been hearing this for quiet some time. But the data belies the reality.

This was something I noticed back when I was in college, and I actually stated as much in my urban sustainability class.  Needless to say my comment,which criticized the feasibility of the New Urbanist movement, wasn't well regarded.  Now they weren't entirely wrong, we are seeing more and more Americans move away from rural centers, but it isn't to the downtown cores of the major cities, rather, it is the satellite cities of major urban centers, and the urban centers that do not abide by the New Urbanist philosophy  that are growing at the highest rates. It isn't hard to see why, the first driver, when factoring where people move is economic opportunity. Cities with plenty of jobs, Austin or Houston, are going to grow faster than cities that do not, Detroit. The second consideration is that only a small few, of Americans anyways, actually enjoy living in a city. Sure, we want to be relatively close to a major urban center, but we want space, and perhaps more importantly, we like to live in areas that are clean and free of crime.

This explains why suburbs are rapidly urbanizing, though the nature of their urbanization is very different from traditional downtown. The largest suburb of Seattle, Bellevue, has undergone rapid urbanization since I was a kid, and the downtown is now dotted with a bevy of gleaming metal skyscrapers. The one major difference between Seattle and Bellevue, other than the cascadia hipsters absolute loathing for it's 'fakeness', is that there is no graffiti, no litter and very little crime.  It's the best things about a city, the restaurants, the jobs, the ease of getting around on transit, without all the things everyone hates. Sure, hipsters pretend to love the filth, though Seattle is still better than 95% of the major cities I have visited, the crime and the degeneracy; ever see two homeless people bang on a pile of garbage? I have...  But the moment they have kids they vacate downtown for the more 'suburban parts of the city for districts like Green lake, Queen Anne, Fremont, or Madison, or they realize that it's even better out of Seattle and move to one of the 'burb cities.

Unsurprisingly individuals blinded by new Urbanist ideology will ignore this data. But the fact is that people don't want to live in cities if they can help it. I should know, most every major developer, I have ever meet lives in the 'burbs for a reason. It's just nicer.

Sky Scrapers As A Economic Bubble Measure

I read an article on Mises, as well as listened to the podcast, concerning the viability using sky scraper commercial real estate construction, specifically skyscrapers, as a measurement for the business cycle.  Since the advent of those gleaming towers of brick, glass and steel, the christening of the next 'worlds tallest' has often coincided with the peak of whatever economic bubble existed the time.

Table 1: World's Tallest Buildings

Completed	Building	Location	Height	Stories	Economic Crisis
1908	Singer	New York	612 ft.	48	Panic of 1907
1909	Metropolitan Life	New York	700 ft.	50	Panic of 1907
1912	Woolworth	New York	792 ft.	57	——
1929	40 Wall Street	New York	927 ft.	71	Great Depression
1930	Chrysler	New York	1,046 ft.	77	Great Depression
1931	Empire State	New York	1,250 ft.	102	Great Depression
1972/73	World Trade Center	New York	1,368 ft.	110	1970s stagflation
1974	Sears Tower	Chicago	1,450 ft.	110	1970s stagflation
1997	Petronas Tower	Kuala Lumpur	1,483 ft.	88	East Asian
2012	Shanghai	Shanghai	1,509 ft.	94	China?

 Above is the chart I pulled from the article, and it looks like there is something to this idea. Now the announcement of a worlds largest building didn't always mean that an economic occurred, sometimes it didn't, but that is because I don't think the announcement of a super tall necessarily indicates an economic bubble. I'm not disagree with the ultimate conclusion from Mises, in fact I agree with it, rather, given what I have seen from commercial real estate, I think I can explain it.

The reason why so many super talls coincide with economic crashes is that many of those super talls were announced during a period of very vigorous real estate development.  The author, in the podcast, likened commercial real estate development like the development of the railways in the 19th century, I couldn't agree more with this assessment.  One thing we need to understand about inflation, which is simply more money entering the money supply than can be supported by economic production, is that it doesn't happen all at once. The funds are often allocated to bubble areas first, as investments, and then gradually spill over, like water flowing from on overfull pond into another pond, into other aspects of society.

We saw this with the tech and residential bubble, which was heavily pushed by easy money policies of the Fed, as the stock markets and housing markets saw massive sustained gains well outside of their historic 100 year norms.  This is one of the reasons why inflation was so low, though the CPI understates inflation in my opinion, from the mid 1990s to now. While some of the money being inserted into the market did end up affecting consumer products, most of it had made it's way into the real estate and stock market; in the Captain has argued, rightly in my opinion, that continued gains in the stock market is nothing more than money being pumped in the system, i.e inflation.

This means that the development of real estate projects, and perhaps skyscrapers development in general, are a good indicator of an economic bubble or at least peak economic cycle. Skyscrapers are rather costly developments, with substantial risk as they are rarely constructed with a 100% pre-lease agreement, and are usually only undertaken during periods of high economic activity or irrationality.
 
In my own city, while there had been development of some downtown apartments, no commercial skyscrapers had been developed until now, there wasn't a market for there.  A few months ago there have been a few announcements for speculative office construction. Now I love skyscrapers so I think this is cool, but I cannot deny, that this might be indicative that our economic "boom" since 2009 has run it's course.