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