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Solimar Research

California's Housing Crisis Presents Opportunity for 'Legacy Cities'

Josh Stephens on
Jan 18, 2018

As 2017 wound down, Emily Badger published an impressive article in the New York Times about the growing divide between America’s superstar global cities and the country’s smaller, less prosperous cities. She was followed up by approving commentary from Paul Krugman. Neither piece has much to do with California – and that’s sort of the point.

They both argued that the national network of producers, consumers, and suppliers that used to form a nice, mutually beneficial hierarchy has given way to what are, in many ways, separate universes, with Los Angeles, New York, San Francisco and others jetting around the world in business class and Akron, Erie, Hartford, and Rochester stuck on Greyhound. Many of these cities were once specialized industrial centers (Rochester: optics; Akron: rubber; Bethlehem: steel) or even superstars of their day (St. Louis, Cleveland, Detroit).

Alan Mallach and Lavea Brachman, in a 2013 book published by the Lincoln Institute of Land Policy, calls them respectfully but lamentably “legacy cities.”

This issue undergirded what was probably the most interesting question I got all year. A few months ago I gave a talk on California’s housing crisis to an audience consisting mainly of out-of-town housing developers visiting Los Angeles for ULI’s Fall Meeting. Given that nearly every article we wrote in CP&DR last year somehow involved housing – shortages, costs, battles over, plans for, legislation regarding – this was no small task.

The question I got was one that probably no Californian ever would have thought to ask but that is likely on the minds of 90 percent of the rest of the country: If housing prices are so high in California and the prospects for lowering them, through added supply, are scant, how can we entice people not merely to "escape" California out of desperation but rather to embrace and reinvigorate places that need activity and talent? 

On face, it may seem like an offensive question to ask in a banquet hall in downtown Los Angeles. California has always been about boosterism. But it’s one that – with 2017 behind us and many more years of high housing prices ahead of us – we would be wise to contemplate.

The benefits for legacy cities are obvious: more warm bodies, more jobs, more tax revenues, more vibrancy, more human capital.

California may reap benefits too. No jurisdiction ever wants to lose residents – nor the tax revenues and economic activity that they generate. But, as it stands now, California is hoarding residents, to its own detriment. The state’s cities, by competing with each other to see who can get away with approving the least amount of new housing, and the state – which until recently has done little to change cities’ attitudes – have witnessed job growth, capital accumulation, natural population increase, and in-migration (domestic and international; documented and undocumented) in defiance of all principles of sound planning. (At least on the housing side; transportation is doing a little bit better, with recent investments in public transit and other improvements.) The rising cost of living, coupled with declining quality of life for many residents, simply isn’t sustainable.

Californians are already leaving. The state has experienced steady out-migration since the Great Recession – with a net loss of 110,000 in 2016 – much of it to other Sun Belt states like Arizona, Nevada, and our increasingly intense mega-state rival, Texas. San Franciscans are moving to Seattle and Angelenos to Las Vegas. There’s even been a trickle of out-migrants to states like Montana and Idaho, especially among those for whom California’s liberal politics are a bit much. A few tech folks have even discovered that not every day needs to seem like an episode of “Silicon Valley.”

From a national perspective, the trouble is that many of these places are much like California: sprawling and new. Unfortunately, many legacy cities -- for all of their urbanistic charms -- go wanting. They shouldn't have to. 

Until California adds a few million units, the abandoned row houses of Philadelphia and the blue-collar houses of Cincinnati make great economic sense. Except, of course, for two things: 1) people are entitled to like where they live, regardless of hardships; 2) cheap housing isn’t worth much without jobs.

Which brings me back to that developer’s question. It’s not a bad question, but she was asking the wrong person. She should have asked it of herself and of her colleagues in the room. In fact, that’s probably what she was doing. I was just the mirror off of which it refracted.

California is not about to start a PR campaign to encourage people to move out. But, while the idea of “city branding” can be contrived and fraught, the Clevelands of the world have an opportunity to make their virtues – including cost of living – known to the world. For relatively little investment, they can partner with their local businesses and advertise their jobs to, say, graduates of UC’s and to programmers living out of their cars in Silicon Valley. They can appeal directly to tech companies that don’t need to be down the street from Y Combinator. They can remind millennials that they already have many of the urban amenities and old-fashioned bones that cities like Los Angeles and San Jose might never have.

As many economic geographers (such as UC Berkeley's Enrico Moretti) have pointed out, sometimes urban economies grow for completely arbitrary reasons. Microsoft could have been founded in Albuquerque (Bill Gates’s hometown) rather than then-depressed and soggy Seattle. I even think that a minor exodus could be healthy. A Californian who moves to Ohio or Missouri doesn’t just represent a unit of human capital for those places. He or she also creates a connection back to California – and those connections can go both ways, for mutual benefit.

So, while California can and should remain rightfully proud of its economic might and global prominence, we might also consider the benefits of sharing the wealth.