Not yet "Sex In The City"

Will most of us agglomerate in and around just a few "superstar cities"? Joe Gyourko and his colleagues suggest that this may be our future. They like New York, Boston, San Francisco and points nearby. Joel Kotkin disagrees (in this morning's WSJ, partially reproduced below).

But it is not about cities. Rather, it is about cities and their suburbs and exurbs, e.g., the "urbanized areas" that make up the whole. The cities and their hinterlands are mutually dependent and it makes little sense to talk about the one and not the other. Consider the Miami, Los Angeles, Dallas, Phoenix, Houston and Atlanta urbanized areas. Not quite (as Pierre Desrochers might say) Sex-In-The-City chic, but these six were all in the top 13 in 2000 population and in the top 12 in terms of 50-year growth and in the top eight in terms of 50-year absolute population growth. So it is not simply the case of small-fry playing catch-up.

Vitality is a many-splendored thing and can be found in quite a few places.

The Myth of 'Superstar Cities'
by Joel Kotkin

These seem the best of times for America's elite cities. Wall Street's 2006 megabonuses created thousands of instant millionaires, and, with their venture-fund soulmates in places like San Francisco, Boston and Greenwich, the best people are prowling for Ferraris, planes, multimillion-dollar condos, the newest $200 lunch place and the latest in high fashion. In some markets, office prices and rents are breaking all-time records.

The bluest of the blue cities can also celebrate their rise to the top of the congressional pole. Speaker Nancy Pelosi of San Francisco, Finance Chairman Barney Frank of suburban Boston and Ways and Means Chairman Charles Rangel of Manhattan all represent something of an economic coup for the "good rich" such as dot-com billionaires, subsidized downtown real-estate developers and "enlightened" investment bankers. The new notables most likely won't find fault with their constituents' windfalls as they have with those of the oil companies, the pharmaceutical firms or Wal-Mart.

Yet these triumphs obscure the longer-term developments that continue to reshape metropolitan America. Economic and demographic trends suggest that the future of American urbanism lies not in the elite cities but in younger, more affordable and less self-regarding places.

Over the past 15 years, it has been opportunistic newcomers -- Houston, Charlotte, Las Vegas, Phoenix, Dallas, Riverside -- that have created the most new jobs and gained the most net domestic migration. In contrast there has been virtually negligible long-term net growth in jobs or positive domestic migration to places like New York, Los Angeles, Boston or the San Francisco Bay Area.

What as much as anything distinguishes elite places -- what Wharton real-estate professor Joe Gyourko calls "the superstar cities" -- are their absurdly high real-estate prices. New York, Boston, San Francisco and Los Angeles have long been more expensive than, say, Dallas, Houston or Phoenix -- but in recent years the difference in price, he calculates, has increased beyond all reason. San Francisco prices since 1950, for example, have grown at twice the national rate for the 50 largest metropolitan areas.

This is good news for those who hold property, but has been less than a blessing for those middle-class families who might want to enter these markets. In some superstar cities less than 10% of households can afford a median-priced home. Nationally the average is about 50%.

Mr. Gyourko traces these surging prices to two basic causes. First, there remains in superstar cities a remarkable concentration of very high-earning families who can bid up real estate. The second factor lies with the regulatory and tax regimes, which greatly limit the production of housing and job opportunities, particularly for middle-income families, not only in the city cores but in surrounding areas.

Of course high productivity from educated workers and companies resident in these cities also contributes to the superstar phenomena. But Mr. Gyourko asserts these earning are not nearly high enough to explain the massive real-estate price differential. "You don't have to be productive to live in these places, you just have to have money," Mr. Gyourko suggests.

What drives the process is a simple combination of limited middle-class housing options combined with strong demand among the wealthy. Given the economic centrality and cultural vitality of a place like New York, there remains a sizeable top echelon, many in business, that can and does consume the [NYC Mayor] Bloombergian "luxury product" as their primary or secondary residence.