I started forming a theory (not
If the housing bubble doesn't burst, the economy is still in for it because there is a good chance the high price of homes will end up limiting the mobility of the workforce, thus causing a drag on the economy. In other words, those in the more expensive areas who were fortunate enough to have purchased several years ago, can stay or move to less expensive areas.....so its like trickle down housing (as opposed to economics). If you live in the middle of nowhere, forget about getting out....you don't have many options unless you made a fortune running an internet business!
One of the things our economy depends on is a dynamic labor force. Cost of living has become a huge limiting factor....the only people who can afford to move to places like the Bay Area are very well paid professionals and people coming from comparably prices metro areas. This means the companies that are located in the expensive metro areas will start having trouble recruiting at current salary levels. Eventually salaries will have to rise or, due to the lack of influx of people, home prices will have to depreciate. The other option is that companies start moving out of the more expensive metro areas.
I wish there were some statistics I could look at to buttress this theory (that people are increasingly stuck where they are, thus shrinking the available labor pool).
Wednesday, September 26, 2007
Immobility
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I think you're on to something. It's like a pendulum swinging back, which I'm not sure the demographic predictors expected.
I was part of a group of young professionals who moved AWAY from the Midwest so that we could get the higher salaries and more interesting jobs on the coasts. We also got to experience life in a more progressive environment with varied cultures and lifestyles.
The question becomes, will the younger people now take these progressive attitudes into the so-called "heartland" to bring about much needed social change there?
I feel that I have gained a lot and been much happier for having moved here from the Midwest in the early part of my career, but I also feel that housing finally went so far off the scale (and it's always been more expensive here) that younger people making the same choice now can see more disadvantage to living here. And that does not bode well for us.
There are a lot of variables in there, and it's tough to see the pattern.
There are other currents. I've re-designed my job so that it can be done remotely, and I have several peers who have done the same. I don't commute, ever (isn't that "green" of me?). I have left an expensive metro area and can now relocate to almost any area in the 2 western time zones, subject only to broadband access.
Perhaps more industries will see the cost benefit of out-sourcing to non-employees who don't require health insurance, an office, or a parking space. In fact, working from home seems to be a growing trend in my industry (advertising/entertainment).
I think it's great that there so many different kinds of places to live in this country, and I'm not at all convinced that the "heartland" needs to be more like the coasts. I'm not arrogant enough to think that everyone ought live the way I choose to, or adopt my way of looking at things.
I second that. You are onto something. Awhile back I read either in the Sacramento Bee or the San Francisco Chronicle that stated the schools were showing enrollment figures were going down ( by what % I forgot) in super expensive cities like San Francisco due to the cost of living. Parents could no longer afford to send their kids their & had to move out & that in turn reduces the labor that parent contributed too. Let's not forget the teachers,police ect who can no longer afford it there either so it's just a matter of time before calls take a little bit loooonger to get to at these million dollar homes. But cities like Frisco have the option of taxing the heck out of their residences to keep up civic perks. I mean after all if you can afford 1.5 mil home what's an extra 2k a year tacked on in the form of fee?
Yea, you're on to something, but the youth of today will not be looking for their first few dream jobs working from the house in the middle of nowhere. They'll live in the big cities, with the action, like paupers, like always.
And when as adults, you move to the country to raise your kids and work from your home, your kids will leave for the cities as they always have.
Not literally, but they (most) will leave for action.
Additional thoughts (now that I am back...wrote the post in the airport lounge).
I kinda see it as a labor pyramid. If you are at the top, say in Manhattan...you can go anywhere beneath. But if you are in the middle...you can't move up without major sacrafice. For instance you will always have your young adventurers, who move up the pyramid but have to live with roomates in small apartments where you turn on the light to boil the water for your Cup'o Noodles and the coackroaches scurry away (I say this from experience =)
Most of our econmic drivers lie are located in areas at the top of the pyramid....so the available pool of labor is limited...either at their current level or near the pinnacle of the pyramid.
If and when house prices come back to earth, I think the economy as a whole will actually be helped by the increased mobility that results (a flattening of the pyramid). The pyramid will always be there to some degree, but the slope will decrease. Which makes it easier to climb up the pyramid, as opposed to nearly impossible at its current slope.
Wow I have so much to say on this topic but I'll restrain myself. I have been banging the reverse bowl dust model since '03. In my previous workplace, the shift back to the midwest was well underway '04 and data collected in '06 showed this.
One interesting thing to consider is the substantial movement of hispanic families into the interior states. Be ready for lots of press and publishing on this topic in 08' through 12'.
So if current business models need to follow the labor pool and all the cheaper labor has moved to the midwest, what do you think will happen? Big hint - people close to retirement age are not going to take minimum wage jobs. They'll sell the house, move to a cheap locale and retire early. See the pattern?
Giacomo said "I think it's great that there so many different kinds of places to live in this country, and I'm not at all convinced that the "heartland" needs to be more like the coasts. I'm not arrogant enough to think that everyone ought live the way I choose to, or adopt my way of looking at things."
OMG, it would be so boring if we all lived the same way and had the same philosophy of life. And perhaps no one has such a jaded view of a culture or region as someone who was raised there. I guess it could be interpreted as arrogance, but it could also be interpreted as love and as a hope that minds/hearts that are closed to so much will come to allow a little light in. The only parts of regional cultures that I would change are the ones that tend towards racism, sexism, and religious bigotry, and like it or not the "heartland" and the "southland" still have perceptual problems in these areas. Not that ANY region is without them; I've heard some pretty shocking comments from people all over the Sacto region as well. But the difference is that here, they are not mainstream thought and the people who are voicing them seem to realize that they are saying something that is not socially acceptable.
I rarely agree with Sippn', but I do in this case. But what may be happening is young people moving to cities that are more reasonable to live in, instead of to NYC or SF or LA. And I think we really are seeing the beginnings of a notable exodus of actual California-raised younger adults heading to less-expensive cities like Atlanta, Denver, etc. Whereas before, they may have decided on Sacramento (like I did), we have now priced ourselves out of that market of entry-level young professionals.
Interesting theory, and there is a a lot of chatter about the difficulty of hiring in silicon valley tech companies. I've always wondered whether the cry to allow companies to hire more workers using H1B visas was due to a real labor shortage or US-born workers being less willing to migrate to areas with high costs of living.
This is a little off topic (and opening a dangerous can of worms), but this migration may also affect regional political affiliations. Who will be migrating out of California first, the red voters or the blue voters?
Well, I don't see how the price of houses is THE determining factor in the cost of living in a given area.
In L.A., for instance, it's perfectly feasible for a young worker to rent in the suburbs and commute; there's no requirement to buy an overpriced house near the office. Rents there, while they have gone up, haven't tripled within a few years, like house/condo prices.
I don't see the system as moribund at all. Young people will want to move into the city to start their careers, and retirees will give up their urban homes to mid-career people who can buy them.
It's only the absurd asking prices that have created a temporary log-jam. This will resolve itself as prices fall back in line with real salaries and traditional lending products. Until then, we rent - there's no housing shortage.
"I've always wondered whether the cry to allow companies to hire more workers using H1B visas was due to a real labor shortage or US-born workers being less willing to migrate to areas with high costs of living."
This thought was one of the data points driving my theory. For better or for worse, Americans have gotten used to a certain standard of living. So the same salary in a high COL area may not be palatable for an American. Whearas someone from another country used to a lower standard of living would find it perfectly acceptable.
When I hear the rhetoric that there are "no qualified Americans"...I don't believe it at all. Its just there are no qualified Americans at the salary levels they are interested in paying.
Its almost identical to the "I can't sell my house". You can...just lower the price.
"So the same salary in a high COL area may not be palatable for an American. Whearas someone from another country used to a lower standard of living would find it perfectly acceptable."
It doesn't take long for someone from another country (or region of this country) to adapt, though.
People the world over aspire to what they believe is "the norm" wherever they live. Which is why we end up with people making less than the median earnings trying to buy homes they can't afford, and why it is so dangerous to allow phrases such as "500K starter home" to go unchallanged. Many of the people now walking away from foreclosure were people from other countries who quickly learned to be just as greedy as us.
How 'bout kids moving to Seattle and Portland - Case-Shiller showed house price appreciation there still stong (Boeing, Microsoft, Intel).
An IT friend flying into Seattle says 13 cranes building in city. Also heard MS is building 1 mil sf of offices downtown plus buying/holding more downtown RE.
Forget Detroit, go Seattle.
G - the retirement "pattern" is snowbirds moving to FL/AZ.
Used to be FL/AZ. That has slowed to a crawl at best. Now the snowbirds are turing into halfbacks and settling in places like SC.
Think of it like weather patterns with high pressure/low pressure systems. Low prices open up and the high pressure moves to fill in.
Honestly, all this was predicted on and discussed ad nausem on Ben's blog. Hell we discussed it on Sac Landing too. It's unfolding just like we all speculated. No surprises for me.
What an interesting thread!
USA Today touted Idaho as the state with the most economic growth. They said this was due to "chips" -- silicon and potato. I guess Idaho has expanded its IT economy. I had heard this from a friend of mine who is an officer with a Fortune 100 company. She went to speak in Boise and was pleasantly surpised that it was more urbane than she expected. I think she expected a fruit stand and a '40's era gas station.
Hubby and I moved back to Sac from Denver because of older parents. But for the fact that we have parents here, we'd hightail it back to Denver in a New York minute! We made about 2/3 in Denver of what we make here, but we had a higher standard of living. Housing was cheaper (we owned, not rented), gas was cheaper, food was cheaper, utilities were cheaper. Plus, Denver had a lot of free fun stuff to do -- Cherry Creek Arts Festival, A Taste of Colorado, The Jazz Film Festival, etc -- and lots of beautiful parks. My dog loved it.
Our list of potential retirement places include Colorado, New Mexico, and the Gulf Coast (Katrina notwithstanding). As much as I adore California, I can't imagine retiring here.
Where I work, we're constantly advocating getting more people, especially people of color, into college. The problem I tell my coworkers that we're going to run into is, once these young people are educated and have options, what's going to keep them here? It seems that our state universities and community colleges are a steal in terms of quality and cost when compared to those of other states. What's going to keep that kid with a B.S. in engineering from U.C. Davis from packing up and moving to Boise? Even if we're successful in getting more people into higher ed, there's no game plan to keep them here.
That sucking sound you hear is the brain drain of professionals educated in California's public colleges and universities . . .
OMG, Ladies, am I really confused now.
If young gifted intellectuals of color want to move to Boise, isn't that a GOOD thing? Who else will take progressive attitudes into the so-called heartland to bring about much needed social change there?
Anonymous,
Yes, I think that it's great that young, gifted professionals of color who have been educated in California's public institutions of higher learning would move to Boise. However, the public community college and university systems of California are supported by California tax dollars. The hope, I think, is that California will reap the benefit of these underutilized and talented additions to the workforce who have been educated in California's public institutions of higher education. It's not like they would be like the workers from India or the Phillipines who might work outside of their places of birth but send remittances home that stimulate their home economies. Any benefit to the California economy will be lost if these young educated people move, even though the costs of their educations will be subsidized, in part, by California tax dollars.
With respect to the California community college system, there are very strict statutes and regulations regarding what community colleges can and can't charge for, and the intention is to keep costs low such that a community college education is available to almost everyone who wants it. To that end, the state kicks in money to help keep costs low. In fact,the legislature recently rolled back per credit fees to keep costs low.
I agree - I'm all for education and I'm especially for increasing the pool of students from all races and classes in our public institutions of higher ed. I'm just predicting that, once educated, they will exercise their options, maximize their utility (yes, I was awake for a wee part of Econ 101), and go somewhere cheaper, leaving California with a less educated workforce than it would have otherwise had if it had been able to attract and retain these young professionals of color.
I have had the experience of helping the state "compete" to keep a major California company from leaving the state. What kept the company here was the level of education of the California workforce and the fact that its currently employees, a highly skilled and educated workforce, refused to relocate outside of California. But for these two factors, the company probably would have gone to Texas or the Research Triangle in North Carolina. The level of education of California's workforce is an economic competitive edge. But if these workers can't reap the benefit of their education and skills, they're going to go elsewhere, eventually.
Watching,
All I can say is Testify!
I have been watching students come in, reap the reduced fees that CA offers, and promptly leave. Until recently, the parents were buying homes for these little darlings and then selling them to cover all the costs of their education as well and fleeing with the equity money.
Talk about wealthly taking advantage of the CA system - at least the people in Daddy houses are loosing money finally. Davis now has homes that proudly say "Bank Owned!" in the MLS listing. They're still over priced pieces of crap but it's a start.
We can't entice professionals and academics to our Universities and we can't keep the graduating students here either. The system is broken.
ps- if UC would move to the Research Triangle or damn near anywhere else, I'd follow them in a texas minute.
pss - you can be an educated liberal and still retain your regional flavor. Spend a day in Lawrence KS if you doubt me. Just because I talk slow doesn't mean I'm stupid.
I can understand a business or a private university wanting "compete" to keep talent. The idea that my STATE (or a state-funded university system) should compete with other states, I don't get that - it just seems like blind boosterism.
Actually, I can see a benefit to my family if there is an exodus from CA, since it would likely make houses here more affordable.
Anonymous,
On the federal level, it could be considered blind boosterism since the taxes received by the federal government are the same no matter where the company is located. On the state level, however, it isn't blind boosterism, IMHO -- it's tax revenue. Corporate, property, employment, sales, income etc. -- are all tax revenues to respective states generated by employers and their employees. There are those who believe that California has way too many of these state taxes, or "fees" as they are sometimes called.
watching:
I appreciate your thoughtful response, but I think it begs the question. WHY is the goal to generate more state income, when our government continues to spend it irresponsibly? The state is bigger than ever, but public services are worse with each passing year: if there are economies of scale, they're not being realized.
So.. why not see if our state government can balance the state budget with a SMALLER population/economy? Why give more funding and power to failed managers?
If a greater fraction of the national economy and workforce reside in other (smaller and better managed) states, why would that be a bad thing?
By "boosterism" I meant to say that promoting California -over other states- was rather arbitrary. Naturally, someone who works for UC Davis, or CA State government, might have a personal or institutional agenda, but that shouldn't be passed off as being in the public interest.
I work at UCD and I think the state needs a big ol' smack upside the head >; )
The thread has ranged far now, but I'll just pass this along as an anecdote.
A exceptionally well-informed young lady and I held a brief conversation today. She was visiting a relative here and said she and her husband had moved to South Dakota, I think -- may have been Idaho. They had purchased a home there for 84K a few years ago. She is well aware of the bubble and said that she and her husband are seriously contemplating returning to California. She states they plan to sell their home by pricing it well beneath the market, then putting the money aside and moving back here and renting until prices come down. She feels that they will easily have enough equity for at least 20% down on a house here once prices drop "in three or four years".
She says that there is a lot of negative feeling towards Californians where they live, and that added to other cultural and social factors, moving to cheaper states isn't necessarily a good move.
Just to be fair, I remember when we moved here the first time, there were bumperstickers that read "Welcome to California -- now go home." So I do see some wry humor in the anti-California stuff.
anonymous,
You're preaching to the choir on the issue of the state's irresponsibility with tax funds! I agree, but I don't think that is how state education policy makers and state labor economists think. In fact, I would hazard a guess that the kind folks at the Dept. of Finance and CalPERS are looking down the road at the enormous public pension liabilities and are crapping in their pants at the thought of a state-subsidized brain drain via the community colleges and state universities. Bill Lockyer doesn't seem to think the state has much of a debt problem, but, IMHO, that's because the state has always been able to find a market for its debt. When that dries up, lookout!
The state has been wrong for so long, I don't know if it can do right by taxpayers.
Anyone for a return to zero-based budgeting a la the Carter era?
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