Comparing Phoenix to Seattle and Austin

Chad Graham of the Arizona Republic writes an article this week that begins with this headline:

Phoenix can learn economically from robust Seattle and Austin

Already, my BS antenna are deployed.  Why?  I don't know anything about Mr. Graham, but nearly every 20- or 30-something journalist would like all the world to be hip and freaky and trendy and cool like Seattle or Austin (or Boulder or San Francisco).  So they have a natural predisposition to writing a story and interpreting facts to say that Phoenix (or whatever uncool city they hail from) should do everything it can to emulate Seattle or Portland or whatever is the hip city of the moment. 

I have lived in Phoenix and Seattle and Boulder, and have done business in Portland and Austin.  And if you want to find a really great music club, Austin would be your place.  And if you are a really rich guy who wants a unique lake front home and a dock for his floatplane, Seattle would be the pick.  But if you were a middle class family trying to get the most home for your money, you would take Phoenix all the way.  And if you wanted to start a real business that makes stuff, you would be insane to do it in any of these cities except Phoenix (and perhaps Austin).  Portland and Seattle and Boulder and (more recently) Austin are what one might call rich snob - poor snob towns.  They appeal to the millionaire with the fractional ownership jet and the pierced and tattooed slacker club goer.  Which is fine, but does every city really need to be like them?

Unlike the Valley, some parts of the U.S. such as Seattle and Austin
have been only slightly affected by the national economic slowdown.

Neither area has experienced the Valley's level of falling home prices, increased foreclosure rates nor its slowed job growth.

Those regions are places that Phoenix could learn from as it charts
a future based less on housing and growth and more on competing in the
global economy.

OK, lets start with the home thing, since the article focuses A LOT on housing.  I am willing to concede that in some recent period Austin and Seattle had less of a home price drop than Phoenix.  Ignoring for a moment the absurdity of extrapolating 30 year trends from 6-12 months of data, we should look structurally at these housing markets.  It turns out that Seattle, for example, has MUCH higher median home prices than Phoenix, in large part due to structural regulatory factors that I would presume the author would like Phoenix to emulate. 

As a result, the median home price in Seattle is about $450,000 while the median in Phoenix is closer to $275,000.  In fact, the Seattle median is very close to the Phoenix 75th percentile.  [note figures do not match those in article - I could not find any two median home price numbers that were the same for a market] One comment on Seattle housing was this:

The pattern is very strong: In Seattle you have affluent, largely
single people chasing a small supply of urban housing. The result is
small household size, an exodus of families to the suburbs, and very
high housing prices in the city.

Is this really what Phoenix should emulate, just because our home prices dropped more over a 6 month period?

One year ago, the Valley's job growth ranked No. 7 among
metropolitan markets with more than 1 million workers, according to the
latest Blue Chip Job Growth Update released by the W.P. Carey School of
Business at Arizona State University.

It now ranks No. 20, while Seattle is  No. 2.

In job markets with less than 1 million workers, Austin ranks  No. 14.

So, until recently, Phoenix led both cities in job growth.  In the last year, we have fallen behind.  Can anyone on the planet tell me why the last year of data is more relevant than the previous five, or ten, when Phoenix dusted these markets?  One year of downturn and suddenly Phoenix's economy needs to be restructured by some massive government 5-year plan?

But here is the really funny part.  Let's take Seattle, the economic juggernaut with which the author is so enamored.  In 1960, Seattle had a population of about 550,000 people.  In 2000, Seattle had a population of about.... 550,000.  In the same time period Phoenix grew from 726,000 to 3.2 million.  Wow, that Seattle is a growth juggernaut.  But it is hard to get apples and oranges on MSA's and such, so here is data from a single source:  From 1990-2000, the Austin MSA added 400,000 people, Seattle MSA added 382,000 people and Phoenix added 1.01 million, more than the other two combined.  Presumably, most of these folks found work, so where are all the jobs being added?

In Phoenix, "housing-related employment is falling fast, and the
impact on the economy is extreme since the industry comprises over 15
percent of total employment . . . compared to 10 percent nationwide,"
an April Moody's Economy.com report said.

This is hilarious.  We happen to be in a housing market downturn, so Phoenix is doomed because it is overweighted towards home construction.  But did anyone visit Seattle or Austin in 2001/2002 after the tech bubble crash?  It was a bloodbath, far worse than what Phoenix is experiencing today.  This kind of analysis is so short-sighted as to be absurd. 

Maricopa County's average weekly wages increased 3.8 percent to $822
in the third quarter of 2007, according to the latest numbers available
from the U.S. Department of Labor.

Weekly wages in King County, home to Seattle, rose 8 percent to
$1,129. Wages in Travis County, home to Austin, rose to $911, a 2.7
percent jump.

Meanwhile, Arizona's average per person income ($33,029) grew by the
smallest percentage among states in 2007, according to the U.S. Bureau
of Economic Analysis.

One word for you:  immigration.  Arizona has gotten hundreds of thousands of new immigrants with relatively low skills, so they come in at the bottom of the income scale and drive median wages down.  Seattle and Austin immigration, to the extent they have it, are high-skilled and highly paid.  Does every city have to be a high-income yuppie white-Asian enclave like Seattle?  I like Arizona and its Hispanic influences, even if this immigration means the governor can't puff her chest out at the governors' conference over average wages.

The two cities have a greater percentage of employment in tech jobs,
with 9.2 percent in Austin and 8.8 in Seattle compared with 4.6 percent
in Phoenix.

Sorry, but I have never thought it a goal of government to subsidize and maximize "tech jobs."  The other 95.4% of us in Phoenix without a job statistically categorized by the government as a tech job are happy not to be subsidizing the other 4.6%.  This is the kind of effort that does nothing to help the average person, who will never have a tech job, but makes government officials feel really good about themselves.  Another way of putting it:  The author is suggesting the government single-mindedly focus on subsidizing a class of jobs that 90+% of the people in all three cities do not hold.

Postscript: For those of you who want to laugh yourself silly, you really need to read the "vision" in the sidebar of this article.  It is the most incredible collection of politically correct notions without any relationship to real value creation that I have ever seen.  I can't really do it justice, but here are some highlights:

2010

The latest housing bust finally convinces the Arizona Legislature to
fund an aggressive international-economic-development program that
invests in science, engineering, technology and higher education.

Incentives draw nutraceutical firms, which use food substances to make
products that provide health benefits, such as lycopene.
Green-technology firms partner with universities to launch companies
that turn a profit...

2035

High-paying technology jobs are clustered in three major areas from
Prescott to Phoenix to Tucson. The economy boasts an $800 billion
nutraceutical industry and the world's largest solar facility with
10,000 acres of sun power.

I bet they include no offset in their study for lost growth due to higher taxes to fund this.  And our city of 5-10 million people is going to build its economy on nutraceuticals?  We're going to have a vitamin water business that, at $800 billion, is 6% the current size of the entire US economy?  I sure hope some of the business school students who wrote this either wise up or go into academics, because if they try to walk in to a real corporate board room with this stuff they are going to get skewered.

  • http://politicalcalculations.blogspot.com/ Ironman

    Those structural regulatory factors that have inflated the cost of housing in Seattle are also a leading reason why housing prices haven't fallen there as much as in other places of the country - simply put, the supply of housing is so constrained that even reduced demand doesn't lower housing prices much:

    Backed by studies showing that middle-class Seattle residents can no longer afford the city's middle-class homes, consensus is growing that prices are too darned high. But why are they so high?

    An intriguing new analysis by a University of Washington economics professor argues that home prices have, perhaps inadvertently, been driven up $200,000 by good intentions.

    Between 1989 and 2006, the median inflation-adjusted price of a Seattle house rose from $221,000 to $447,800. Fully $200,000 of that increase was the result of land-use regulations, says Theo Eicher — twice the financial impact that regulation has had on other major U.S. cities.

    "In a nationwide study, it can be shown that Seattle is one of the most regulated cities and a city whose housing prices are profoundly influenced by regulations," he says.

    A key regulation is the state's Growth Management Act, enacted in 1990 in response to widespread public concern that sprawl could destroy the area's unique character. To preserve it, the act promoted restrictions on where housing can be built. The result is artificial density that has driven up home prices by limiting supply, Eicher says.

    Long building-permit approval times and municipal land-use restrictions upheld by courts also have played significant roles in increasing Seattle's housing costs, he adds.

    There is also speculation that these constrictive regulations were a contributing factor to the current mortgage crises, as regulation-inflated prices led to the increased use of subprime mortgages for people to buy their homes (HT: PrairiePundit, who also excerpted the Seattle Times article).

  • Bertha Minerva

    You are right about Austin. The reason house prices here haven't fallen like elsewhere is because they never rose, in the Seattle/Portland/SF/etc manner, to begin with. After the tech bust, while prices were skyrocking on the coasts and in other "hot" markets, prices in Austin stayed flat for many years - due in large part (IMO) to the huge surge in building that had taken place during the boom years, which left us with a glut of housing, especially apartments. Rental prices during this time dropped fairly dramatically too.

    Austin's house prices are finally starting to rise again, thanks in part to people priced out of the boom markets in other cities coming here for what is still, compared to the other cities you mention, quite an affordable market. (Especially if you're willing to live out in the exurbs and commute.)

    One reason Austin's doing well economically is that from a legal perspective it's a VERY employer-friendly place - despite the hipster/green rep Austin enjoys, it's still very Texan in that regard. Let's hope it stays that way.

  • http://profile.typekey.com/aynrandgirl/ aynrandgirl

    Of course they have a natural predisposition. Progressivism seems to breed narcissists, who naturally think everybody should be like them. Why exactly anybody should want to be like San Francisco, which has the smallest proportion of children of any major metro and is closing schools because families are leaving for more affordable climes is beyond me.

  • Dr. T

    I'm shocked: you don't want to be the leucopene manufacturing capital of the world? Ironically, that would turn the desert area around Phoenix into a water fowl refuge, since so many quacks would move there.

  • http://www.humanadvancement.net/blog Kyle Bennett

    In 1960, Seattle had a population of about 550,000 people. In 2000, Seattle had a population of about.... 550,000. In the same time period Phoenix grew from 726,000 to 3.2 million.

    There's one obvious conclusion to this: 2.5 million people thought Phoenix was a better mix of the things they want than Seattle was (though of course, "closer" was likely the primary preferred quality for a significant number of those.)

  • la petite chou chou

    Every day I wonder how people can afford Portland. As a Portlander making (approximately) the median income, I can barely afford it. And I'll be honest---aside from a hefty student loan payment, my expenses are REALLY low.

    My friends and I discussed recently how Portland is actually driving OUT the middle class. Disregarding students, downtown itself is housing-friendly to only section 8 or people making a LOT more than my crowd or me. We all live in neighborhoods surrounding the city center because that's all we can afford. Portland is absolutely teeming with homeless, meth addicts, street kids, petitioners, and pretentious hipsters.

    Why would anyone want their city to emulate that?

    I think one reason for Portland's high apartment rents is to do with all the condo-conversions. Since the housing market is still strong here, everyone who can is converting and the vacancy percent is really low. One would speculate then, that condo prices would go down, but they aren't.

    Any other thoughts on this?

  • Scott Wiggins

    Mostly off topic but...I like your reference to a real business. I dare say the journalist in question was addressing the majority of followers out there who don't know anything about business and even less about life...Far too many Americans have turned away from our entrepreneurial roots and now put their faith in government, big corporations, or college degrees. I'm pretty sure we have a generation of young people who have no idea how to make money and they will eventually grow tired of not having any. No wonder they desperately want to put their faith in a messiah like Obama. I recommend they read the once best seller "The Millionaire Next Door" and perhaps the follow on book "The Millionaire Mind". There are lots of great ideas there and they put college degrees in perspective as well. As for Phoenix, it would be my pick over Seattle or Austin. Great weather, beautiful desert landscapes and I love the Snowbirds. Man there are some real people with a world of great experience retired and spending their time in the deserts of Arizona...Got love em...They are truly part of the greatest generation...Cheers.

  • Bob Smith

    Portland has expensive real estate because its urban growth boundary creates a permanent undersupply of housing, because its "affordable housing" mandates make market-rate housing more expensive to make up the difference, and because it's so time-consuming and expensive to actually get a project approved that developers can't make money unless they're building luxury units. The city managers don't care because all this expensive real estate means property tax revenue, and therefore their budgets, are sky-high. Low apartment vacancies aren't surprising, in a market as distorted as Portland's affordable units will be at a premium because all new units are luxury ones.

  • la petite chou chou

    Bob-

    That all makes total sense. Portland is AT its boundary, isn't it? Therefore, any additional housing would have to be built in the form of high rise---which they are all for doing, but as you said, they are all luxury. Just look at the Pearl District. All the units I looked into were around $500,000.

    Property tax is another reason a person like me can't buy in Oregon at all, let alone Portland.

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  • Yoshidad1

    Trying to understand land-use planning as currently constituted in the U.S. is a little like inviting bees to come live in your head. Both irritating and annoying -- and, as the discussion here demonstrates, not a model of comprehensive understanding or clarity.

    For example, without a discussion of what subsidies exist in the current setup, *and* a conversation about what constitutes sensible civic design, the growth/no-growth argument or a conversation about "affordability" is just a waste of time.

    About current city planning practice, one authority says this: "The pseudo science of planning seems almost neurotic in its determination to imitate empiric failure and ignore empiric success. ...to put it bluntly, [planners] are all in the same stage of elaborately learned superstition as medical science was early in the last century, when physicians put their faith in bloodletting." — Jane Jacobs

    Subsidies:

    Subsidies are critical to development as it occurs now. The iron law of architecture is not Frank Lloyd Wright's "Form follows function," it's "Form follows finance."

    Consider how development occurs in California (my home state). A land speculator (the accurate description of a "developer," at least here) purchases some agricultural land for a few thousand dollars an acre, then persuades (or suborns) some local government to grant him development rights. Presto! that same land is now worth as much as a hundred times more than he paid for it.

    If you don't think this is the impetus for some enormous crookedness, well, you're naive.

    The poster child for the awful development prompted by this setup is North Natomas -- some godforesaken 20-foot-under-water floodplain surrounded by weak levees just north of downtown Sacramento. To give you an idea of how unsuited to development this land was: When the regional sewer plant got a federal grant to expand its capacity, the feds said they knew it would encourage increased development, but said "If you develop North Natomas with that capacity, you'll also have to pay a $6 million penalty" -- and $6 million was real money at the time.

    The speculators controlling this land didn't bat an eye. They went all the way to then-Vice-President G.H.W. Bush and got the penalty transformed into a pay-as-you-develop installment plan, rather than the prohibitive up-front fee it was originally. They also got $43 million in levee improvement money.

    On the face of it, that's a terrific deal. Where do I get to pay $6 to get $43? But wait, there's more!

    When they started selling the land, the speculators made literally 10,000% gross profit, and they had a few expenses. They had bought the Sacramento Kings to drum up a constituency clamoring for the rezone, and they had to pay the chump change in planning fees and the real estate taxes on the ag land. But they 1031 exchanged out of the land into new investments, so they paid literally zero in income taxes on the profit.

    So...thousands of percent profit based on public policies, and they're tax free. Oh yes, and they stiffed the school district. North Natomas Schools were 10% short of the needed funding -- this at a time when Sacramento City schools were trying to find the money to pay to fix leaky roofs, etc.

    I couldn't make this up.

    For a contrast: In Germany, developers have to sell the ag land to the local government at the ag land price, then re-purchase it at the (much more expensive) development land price. And the schools in Germany don't have to sell lollipops so they can have after school programs. The arts budget for the City of Berlin exceeds the outlays from the entire U.S. National Endowment for the Arts.

    The extraordinarily crooked U.S. model leads to what we have now: dysfunctional cities (Detroit!), a de-funded public realm, and some extremely favorable treatment for a small oligarchy of land speculators and commercial interests.

    There's more about this in David Cay Johnston's "Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill)." Check it out.

    Design:

    It's one thing to develop land, but another to develop it with dysfunctional design. Suburban sprawl -- the Phoenix model, or basically most of what has been built since 1950 -- is the poster child for such bad design.

    As most sprawl dwellers are finding out since the recent rise in gas prices, every single trip of any significance must be in an automobile. Sprawl builds in long commutes.

    And U.S. petroleum use reflects that: 70% of U.S. petroleum use is for transportation. So the U.S. ratio of transportation to everything else (petroleum feedstocks, home heating, etc.) is 2-to-1. In the rest of the world, that ratio is 1-to-2. It's one of the reasons Europe and Japan use half as much petroleum per dollar of GDP as the U.S.

    Traditional cities, by way of contrast, offer a variety of ways to get around. Their streets designs favor not just for vehicles, but pedestrians too. Neighborhoods in such traditional cities offer a mix of uses. Neighbors can walk to work, or to shop, or to school. If those alternatives are not immediately available, they can walk to transit.

    In contrast, sprawl forbids all of this. It is single-use (all residences, all commerce, all offices, etc.) As for transit, sprawl typically does not have enough potential customers within a walk of the transit stops, and even if it did, the sidewalks or other pedestrian connection (footpaths) are either dangerous because they're immediately adjacent to fast-flowing traffic, or they're non-existent. (FYI, Sacramento estimates it would need $50 million just to connect all the disconnected sidewalks.)

    In traditional neighborhoods, parks, shopping streets and other civic monuments are not dominated by commerce (as is the mall), or by parking lots. People can actually experience what it means to be a member of society, rather than an atom in a traffic jam.

    Portland has made a few feeble steps in the direction of returning to traditional neighborhoods, but the structure of subsidy and design has been infected by the models that led to sprawl (of which it has plenty).

    And for those who believe Houston has no planning -- that is correct only if you believe zoning is the only kind of planning. Houston enforces sprawl street design standards and minimum lot sizes to achieve sprawl, sprawl, and more sprawl. It may not be intended in the sense that it's planned, but it's what has happened there.

    If you want to see the alternative, take a look at http://www.dpz.com/transect.aspx

    Finally, for the "conservatives" still reading: No, the market does not request sprawl, any more than the voting public requests corrupt politicians. Inertia and ignorance -- and the collusion of some powerful interests -- is what keeps sprawl as the default. The acceptance of old and new traditional neighborhoods remains much stronger than sprawl. Sales prices typically include premiums for traditional neighborhoods.

    The most valuable real estate in the Sacramento region is in such a neighborhood (McKinley Park). Newer traditional neighborhoods typically get premiums of 40% (e.g. Orenco Station in Portland, or Kentlands in Md, or Celebration, FL). The pioneers of this movement are Duany-Plater Zyberk (dpz.com). Their Seaside development in Florida (the set for "The Truman Show") gets 500% premium for interior lots when compared to neighboring sprawl developments.

    Finally: Security! "But I don't want to live in a more compact neighborhood like they did in the old days! Criminals are everywhere and are provoked by proximity!"...says the sprawl dweller.

    The facts say otherwise: Per capita crime is lower in NY City than in Phoenix or Sacramento (sprawl cities).

    No less profound thinker than Peter Drucker lamented the typical Americans' willingness to think locally, but act globally. We need a comprehensive look at this problem, or we're just re-arranging the deck chairs on the Titanic.

  • http://www.reflight.blogspot.com Rick Darby

    Coyote,

    I too would rather live in Phoenix than the other towns you compare it with … but we seem to have very different reasons. I prefer Phoenix because of the desert environment, the pleasant winters (yes, a trade-off for three awful months in summer), the lack of pretension outside of Scottsdale, the relative affordability. You like it because -- "From 1990-2000, the Austin MSA added 400,000 people, Seattle MSA added 382,000 people and Phoenix added 1.01 million, more than the other two combined"? Because it's full of Mexican illegals?

    Try Los Angeles. I expect you'd really like it there.

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  • john shelley

    Phoenix is a horrid, depressing, desolate wasteland filled with uncultured brutes.

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