Tuesday, July 13, 2010

Guest post: Vegas Real Estate Explains it All?

Hi everyone, Ed here. Mr. Trolleypole has kindly invited me to do some guest posting here at the Overhead Wire, so I'll be writing here occasionally. Hope you enjoy. I figured I'd start off with everyone's favorite urban planning contrarian - Joel Kotkin.

Joel Kotkin is at it again.

It's funny. The links to this article from Kotkin (which also made it into the Wall Street Journal) suggested that it was about demographic trends and would include lots of evidence to show that people aren't moving to central cities anymore. But then I read the article, and the whole thing is really just a cautionary tale to the commercial real estate industry. Kotkin asserts that alleged trend of folks moving back into cities seems to be reversing itself. Now, maybe this is true. Maybe that's what the population data show. And this is an important conversation to have – it's not at all clear to me that cities are thinking rigorously enough about how best to grow, and who is likely to show up. We won't find any useful answers from Kotkin, though, who bizarrely bases the bulk his argument on price movements:

Housing prices in and around the nation's urban cores is (sic) clear evidence that the back-to-the-city movement is wishful thinking. … Condos in particular are a bellwether: Downtown areas, stuffed with new condos, have suffered some of the worst housing busts in the nation.

He then engages in some brazen cherry picking, discussing house-price declines in Miami, Vegas, and Los Angeles, and only focusing on new condo construction as opposed to the market at large. Beyond the fact that these aren’t exactly beacons of walkable urbanism, using these cities in particular to make a point is just misleading when you look at how their markets have been behaving:

These lines in the chart are the Case-Shiller Home Price Indices for the metros that Kotkin cites, along with the 20-city composite in purple (which isn’t exactly the same as a national average, but is a reasonable proxy). As you can see, LA, Vegas, and Miami all had much bigger bubbles and much bigger crashes than the nation as a whole. This means two things: 1. these are terrible examples to use for the nation, since they are where much of the bust has been concentrated, and 2. of course the market activity in these places looks terrible, and of course it looks really bad in their downtowns, which is where much of the growth had been taking place. You could make the exact opposite argument by choosing the Bay Area as your focus, and comparing price moves in exurbs like Stockton and Tracy to those in San Francisco. The truth is that this is just a nonsensical way to analyze a national trend since different metro areas have had very different experiences during the housing bust. The numbers he cites aren’t necessarily wrong, but they prove absolutely nothing, other than that people were making some crazy moves in Miami and Vegas during the housing boom.

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