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Phoenix’s Future:After the Bubble and BeyondPhoenix’s Future:After the Bubble and Beyond
Presentation by Joel Kotkin12th Annual Fall Real Estate Seminar Irvine Senior Fellow New America FoundationPhoenix, AZ September 14, 2006
Presentation by Joel Kotkin12th Annual Fall Real Estate Seminar Irvine Senior Fellow New America FoundationPhoenix, AZ September 14, 2006
The Bubble: The ProblemsThe Bubble: The Problems
• Phoenix is somewhat vulnerable• Condos and speculators will have a tough time• Real Estate downturn will cause problems through the economy• Biggest issue: Loss of employment, particularly for immigrant
laborers
• Phoenix is somewhat vulnerable• Condos and speculators will have a tough time• Real Estate downturn will cause problems through the economy• Biggest issue: Loss of employment, particularly for immigrant
laborers
0% 5% 10% 15% 20% 25%
Construction
Education and Health
Retail
Professional andBusiness Services
Financial Services
Tourism
Government
Research by Dr.Mike Shires, Pepperdine University for Inc. Magazine
Phoenix Job creation by sector 2002-2005
Construction has been the star player in the current boom (2002-2005)
Construction has been the star player in the current boom (2002-2005)
Who’s most vulnerableWho’s most vulnerable• Condos expected to drop
by as much as 9% over the next year. Single family homes by about 1% (Goldman Sachs)
• Condos being turned into rentals or being cancelled particularly in downtown markets, such as Minneapolis, Philadelphia and Los Angeles
• New York apartments for sale at highest inventory in a decade
• Speculative investments, second homes, people with interest only loans
Phoenix’s Hope: Attend to BasicsPhoenix’s Hope: Attend to Basics
• Lower prices are necessary corrective
• The key issues are “back to basics”• Job Creation key, particularly for
displaced white and blue collar construction workers
• Stay affordable, competitive, focus on infrastructure and Phoenix will do fine
Conventional Wisdom AmongArizona’s Policy Elites
Conventional Wisdom AmongArizona’s Policy Elites
[Arizona] is “just like hell, all it lacks is water and good society.”
US Senator Benjamin Wade (1851–69)
Phoenix and Arizona Natural AdvantagesPhoenix and Arizona Natural Advantages
• Still affordable, particularly compared to California and the Northeast
• Good Business Climate• Entrepreneurial Culture• Flexible Geography• Room to Grow
Competition Between Cities and Regions is a Fact of Life — and has been for over two millennia
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
Rise and Fall of CitiesRise and Fall of Cities“Human prosperity does not abide long in one place”
Herodotus Greek Historian 5th Century BC
Key Factors for DeclineKey Factors for Decline
• Inability to absorb newcomers• Lack of upward mobility• Inattention to basic infrastructure• Lack of security• Loss of Moral Compass
• Inability to absorb newcomers• Lack of upward mobility• Inattention to basic infrastructure• Lack of security• Loss of Moral Compass
“Attacks on people’s property remove the incentive to
acquire and gain property”
Ibn Khaldun14th Century Arab historian
The miracle of toleration was to be found, “wherever the community of trade convened.”
The Cosmopolitan CityThe Cosmopolitan City
French historian Fernand Braudel on Venice, Antwerp, Amsterdam and
London in the early Modern Period
Beyond elitism:Jane Jacobs on the
proper role of an urban economy
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 don’t lure the
middle class, they create it”
The Evolution of Global CitiesThe Evolution of Global Cities
• London and Paris --- 1750• New York and Chicago --- 1900• Tokyo, Los Angeles, Hong Kong --- 1970s• Sydney, Singapore, Seoul, Sao Paolo --- 1980s• Shanghai, Beijing, Mumbai, Toronto --- 1990s• The 2000s: Prospects for new players from
Bangalore, Perth, Calgary, Houston, Phoenix
• London and Paris --- 1750• New York and Chicago --- 1900• Tokyo, Los Angeles, Hong Kong --- 1970s• Sydney, Singapore, Seoul, Sao Paolo --- 1980s• Shanghai, Beijing, Mumbai, Toronto --- 1990s• The 2000s: Prospects for new players from
Bangalore, Perth, Calgary, Houston, Phoenix
The Global City in Modern TimesThe Global City in Modern Times
• Spread of Urbanism• Technology and
de-clustering in western metropolitan areas
• Rise of smaller hubs• The Ephemeral City • New Prospects for
Phoenix and other cities of Aspiration
In America, Australia, and Canada the single family house remained
the dream…
In America, Australia, and Canada the single family house remained
the dream…
The suburban house is the idealization of every
immigrant’s dream---the vassal’s 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
Western Cities Become a Global ModelWestern Cities Become a Global Model
• Los Angeles “the original in the Xerox machine”
• Cities old and new around the world evolve towards multipolar model
• The de-clustering of business and people away from traditional concentrations
• The challenge ahead: Creating a more humane and functional urban model
U.S. Population in Urban, Suburban, & Rural Areas U.S. Population in Urban, Suburban, & Rural Areas
Peo
ple
(mill
ions
)
0
20
40
60
80
100
120
140
160
1950 1960 1970 1980 1990 1999
Suburban Urban Rural
1950-1999Millions
Growth: city vs suburbGrowth: city vs suburb
• This should be a chart showing how little of 2000-5 growth was in cores
10,405,253821,077
020,000,00040,000,00060,000,00080,000,000
100,000,000120,000,000140,000,000160,000,000180,000,000200,000,000
2000 2005 change 2000 2005 change
Metropolitan Population Central City Population
US Metropolitan & Central City Population: 2000-2005
Demographia
-6%
-4%
-2%
0%
2%
4%
6%
8%
Phoenix
San FranciscoLos Angeles
Houston
Boston
Minneapolis
Sprawl Cities Grow Faster than“Hot” Boutiques 2000-2004
Sprawl Cities Grow Faster than“Hot” Boutiques 2000-2004
Source: US Census
-12.9% 7.8%14.8%
-1.1% 9.0%18.1%
-19.0%17.2%
54.0%
-7.8% 30.8%
66.4%
-24.1% 39.7%74.0%
-8.6% 59.0%
108.5%
-40% -20% 0% 20% 40% 60% 80% 100% 120%
Tokyo
Paris
Frankfurt
Chicago
New York
London
Core City Metropolitan Area Suburbs
Declustering: A Global Perspective
Declustering: A Global Perspective
Percentage Change in Population 1965 - 2000
Source: Demographia
0%
5%
10%
15%
20%
25%
30%
35%
Rural Suburb closeto a city
City Suburbfarther out
Suburbia PreferenceSuburbia Preference
Source: 2004 American Community Survey: National Survey on Communities, Belden. Russonello & Stewart
Focus on What People Want: Mostly Single Family Homes, Safe Areas
Focus on What People Want: Mostly Single Family Homes, Safe Areas
• 83 percent want this kind of dwelling (National Association of Home Builders)
• 86 percent in California (PPIC)
• 70% of downshifting boomers “retiring in place”
• More empty nesters heading out than in
• 40% expect kids to move back at some point
• Focus: suburbs,exurbs, safe “neighborhoods” in closer, attractive areas
0
1000
2000
3000
4000
5000
6000
1940 1950 1960 1970 1980 1990 2000
Phoenix Maricopa County Arizona
Phoenix, Maricopa County and Arizona Population Growth (1940-2000)
Phoenix, Maricopa County and Arizona Population Growth (1940-2000)
0
500
1000
1500
2000
2500
3000
3500
1975 1986 1991 2000
Popu
latio
n an
d U
rban
Are
a Ac
res
(in th
ousa
nds)
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Peop
le p
er A
cre
Population Urban Area Acres People Per Acre
Metro Phoenix Density (1975-2000)Metro Phoenix Density (1975-2000)
Future Shape of Phoenix RegionFuture Shape of Phoenix Region• Downtown will remain a relatively minor player• Economic growth the driver• Development of multipolar centers most rational form for the future• Goal: Towards an Archipelago of Villages
• Downtown will remain a relatively minor player• Economic growth the driver• Development of multipolar centers most rational form for the future• Goal: Towards an Archipelago of Villages
-10
0
10
20
30
40
50
Dow ntow n Phoenix Phoenix Mesa Phoenix-Mesa MSA
Area
1990-2000 2000-2003
Population GrowthPopulation GrowthPercentage Change
8%
95%
0%10%20%30%40%50%60%70%80%90%
100%
Downtown Suburbs
Housing Growth IncreaseIn 45 Downtowns vs. Suburbs, 1970-2000
Housing Growth IncreaseIn 45 Downtowns vs. Suburbs, 1970-2000
35,000 units
13,000,000 units
Phoenix “ won’t be a place of renown till it has a big It.”
one local writer in the Arizona Republic
Downtown DelusionsDowntown Delusions
Central City & Suburban Office SpaceDevelopment, 1986-99
Central City & Suburban Office SpaceDevelopment, 1986-99
9998979695949392919089888786
100
80
60
40
20
0
Millions of Square Feet
DowntownSuburban
Source: Milken Institute
0
1
2
3
4
5
6
7
8
9
10
02Q3 02Q4 03Q1 03Q2 03Q3 03Q4 04Q1 04Q2 04Q3 04Q4 05Q1 05Q2 05Q3
Downtown Suburbs
National Office ConstructionNational Office ConstructionSq. Ft. x Millions
Source: cbre
0%
10%
20%
30%
40%
50%
60%
70%
Northeast Midwest West South
Mean three -mile share Mean 10-mile share
Jobs Head outJobs Head out
Source: Edward Glaeser, Matthew Kahn and Chenghuan Chu, “Job Sprawl: Employment in US Metropolitan Areas”, Brookings Center on Urban and Metropolitan Policy, May 2001
Percentage of Metropolitan area employment
The Ephemeral City: The Future of the Core
in the West?
The Ephemeral City: The Future of the Core
in the West?
“a bazaar, a great gallery of shops and places of
concourse and rendezvous.”
H.G. Wells ---description of urban centers in the future,
The Ephemeral City: A Model for Phoenix?The Ephemeral City: A Model for Phoenix?• Cities with low percentages of Children• Lifestyle Orientation• Declining Economic Role
Examples:San FranciscoBerlinViennaPortlandAmsterdam
Thoughts on Ephemeral Cities: A Model for Phoenix?
Thoughts on Ephemeral Cities: A Model for Phoenix?
Mayor Klaus Wowereit on Berlin
Kevin Starr on San Francisco
“Poor but sexy."
“A cross between Carmel and Calcutta”
Brain Power Seeks Affordable, Not Just “Hip and Cool,” but Economic
Opportunity and Affordable Quality of Life
Brain Power Seeks Affordable, Not Just “Hip and Cool,” but Economic
Opportunity and Affordable Quality of Life
206.8
123.4 122.5 118.090.7
0.0
50.0
100.0
150.0
200.0
250.0
Las Vegas Charlotte Phoenix West PalmBeach
Atlanta
Source: Bill Frey, Brookings Institution based on census data
Fastest in-migration of college grads per 1000 (1990-1999)
0
5
10
15
20
25
30
35
Phoen
ix
U.S.
San D
iego
Austin
New York
Portlan
dMinn
eapo
lis
Boston
Seattle
Under 18 Over 65
Population Share By Age Group (2003)Population Share By Age Group (2003)
One Key InsightOne Key Insight“While I am no great fan of the 21st Century city, it strikes me as hubris of the highest order to keep trying to turn our new cities into jerry-built versions of the old ones ― the need to create a downtown where none has emerged naturally is a nostalgia reminiscent of Las Vegas”
“While I am no great fan of the 21st Century city, it strikes me as hubris of the highest order to keep trying to turn our new cities into jerry-built versions of the old ones ― the need to create a downtown where none has emerged naturally is a nostalgia reminiscent of Las Vegas”
ASU Professor of Social ScienceAndrew Kirby
ASU Professor of Social ScienceAndrew Kirby
A Useful InsightA Useful Insight
“If you need a campaign to prove you’re hip and cool, you’re not”
“If you need a campaign to prove you’re hip and cool, you’re not”
Michigan talk radio host on Governor Jennifer Granholm’s “Cool Cities” initiative
Phoenix and Cities of Aspiration:Natural Advantages
Phoenix and Cities of Aspiration:Natural Advantages
• Still affordable housing• Good Business Climate• Entrepreneurial Culture• Flexible Geography• Room to Grow• Youthful demographics
-6%
-4%
-2%
0%
2%
4%
6%
8%
Phoenix
San FranciscoLos Angeles
Houston
Boston
Minneapolis
Sprawl Cities Grow Faster than“Hot” Boutiques 2000-2004
Sprawl Cities Grow Faster than“Hot” Boutiques 2000-2004
Source: US Census
-15% -10% -5% 0% 5% 10% 15%
San Francisco
New York
Orlando
Boise
Reno
Provo
Logan
Phoenix
Chicago
Riverside-SB
Los Angeles
Boston
San Jose/Silicon Valley
Austin
Changing Economic Order Job Growth by Metro Area 2001-2005
Changing Economic Order Job Growth by Metro Area 2001-2005
Source: Michael Shires for Inc. Magazine
-10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%
San Francisco
New York
San Jose
Orlando
Reno
Boise
Phoenix
Chicago
Boston
Riverside-SB
Los Angeles
Declustering: Business Service Growth by Metro Region 2002-2005
Declustering: Business Service Growth by Metro Region 2002-2005
0% 5% 10% 15% 20% 25%
U.S. Average
New York-N. New Jersey-Long Island, NY-NJ-PA
Los Angeles-Long Beach-Santa Ana, CA
Boston-Cambridge-Quincy, MA
Houston-Baytown-Sugar Land, TX
Atlanta-Sandy Springs-Marietta, GA
San Francisco-Oakland-Fremont, CA
Phoenix-Mesa-Scottsdale, AZ
Seattle-Tacoma-Bellevue, WA
St. Louis, MO-IL
Denver-Aurora, CO
Portland-Vancouver-Beaverton, OR
San Jose-Sunnyvale-Santa Clara, CA
Austin-Round Rock, TX
Change in Education and Health Services Employment
Change in Education and Health Services Employment
“We have a lot of locations around the USA and Phoenix is one of the easiest places to recruit. Phoenix is a draw. There are a lot of places to go here, the climate is a plus and housing is affordable.”
“We have a lot of locations around the USA and Phoenix is one of the easiest places to recruit. Phoenix is a draw. There are a lot of places to go here, the climate is a plus and housing is affordable.”
Mark James, V.P. Human Resources
for Honeywell Aerospace
Mark James, V.P. Human Resources
for Honeywell Aerospace
The Big Challenges AheadThe Big Challenges Ahead
• Dealing with density in an intelligent way
• Infrastructure, roads, water systems should be prioritized
• The human challenge ---integrating new immigrants into economy and culture
• Let the hip factor find itself…no subsidies for boutique hotels, bars, galleries and tattoo parlors
The New Suburbanism: Learning to Live with SprawlThe New Suburbanism: Learning to Live with Sprawl
• Housing near jobs• Emphasis on families • Strong role for village shopping streets and markets• Provision of open space around the village core and
housing estates-• Solving the problem of “sprawl” within the Sprawl
• Housing near jobs• Emphasis on families • Strong role for village shopping streets and markets• Provision of open space around the village core and
housing estates-• Solving the problem of “sprawl” within the Sprawl
Visions of SuburbiaVisions 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
New Urbanist View of Phoenix
“It is precisely places like Phoenix --- and its cohort of sunbelt cities --- where civic life has almost ceased to exist, and where residents complain about their quality of life”
Architect and plannerAndres Duany
“Plenty of dreary lives are lived in the suburbs. But most of
them might be worse in other surroundings”
Hugh Stretton Ideas for Australian Cities, 1970
A More Balanced View of Suburban LifeA More Balanced View of Suburban Life
58
3135
60
10
20
30
40
50
60
70
1982 1999
Los Angeles Riverside- San Bernardino
Traffic Will “Drive” Demand for ChangeTraffic Will “Drive” Demand for Change
Source: California Dept. of Education, Healthy California Progress Initiative, California Highway Patrol, Surface Transportation Policy Project
Average Hours Per Year Stuck in Traffic
Transit is nice but no real solutionTransit is nice but no real solution
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
Projected Claimed Revised
Los Angeles Red Line Subway
Current Ridership: Projection, Actual; and Corrections
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Work at Home SOV HOV Transit Walk
The Big Trend: Digital ImpactThe Big Trend: Digital Impact
Source: US Decennial Census
Percent change by mode, journey to work 1980-2000
Would you take a pay cut to work in the immediate area where you live?
50% of workers said they would take a20% pay cut to a take a job in their local area.
Source: The Newhall Land Company
The Valencia, California, Survey 2001The Valencia, California, Survey 2001
Examples of NewSuburbanismExamples of NewSuburbanism• Naperville, Illinois • Downtown Fullerton• The Woodlands, TX
The Biggest Challenge: The Issue of Class and Immigration
The Biggest Challenge: The Issue of Class and Immigration
• Growth of poorly educated newcomers poses a unique problem, particularly with the end of the property boom
• High drop-out rates in high school guarantee the rise of an underclass
• Economic development needs to focus on upward mobility — not “luring” the middle class, but creating one”
0
5
10
15
20
25
30
White Asian/Pacif icIslander
Tw o or MoreRaces
Black/AfricanAmerican
Other Race Hispanic orLatino
Phoenix U.S.
Poverty Rate By Race/Ethnicity (2000)Poverty Rate By Race/Ethnicity (2000)
A Look Into the FutureA Look Into the Future
• Whatever the future of immigration policy, the die is cast in terms of Phoenix’s demographic structure
• Multipolarity, suburban villages, expanded parks system best policy option• Region needs to focus on economic expansion, creating housing options
and employment options for future population• Phoenix is a young, dynamic global city of the future --- it needs a policy
that promotes growth and accommodates it
• Whatever the future of immigration policy, the die is cast in terms of Phoenix’s demographic structure
• Multipolarity, suburban villages, expanded parks system best policy option• Region needs to focus on economic expansion, creating housing options
and employment options for future population• Phoenix is a young, dynamic global city of the future --- it needs a policy
that promotes growth and accommodates it