Greetings

Greetings! Since Thomas will be on vacation until the 25th, I will be guest blogging until he comes back from his Alaskan cruise.

A little about me: I'm his Research department colleague with Colliers in Los Angeles, my research coverage is the South Bay, as well as the San Fernando Valley & Ventura County office and industrial markets, and I think his home-made beer rocks.

Anyway, this was from this week's issue of The Economist:

THE END OF THE DREAM?
Aug 14th 2008 | MORENO VALLEY

The suburbs have been hit hard by the credit crisis . But reports of their death have been exaggerated.

“KEEP your house” reads the handwritten sign on a chain-link fence some 60 miles east of downtown Los Angeles. It is an advertisement, although it could be the attitude of an overstretched buyer who owes the bank more money than his home is worth. Many people in Moreno Valley have simply walked away from their properties. As abandoned lawns turn brown in the desert climate, the fallout spreads. It is no longer a matter of saving individual houses, but a whole city.

Until recently Moreno Valley was one of the fastest-growing cities in America. It lies in the Inland Empire, a two-county region in southern California that is so called largely because it is difficult to know how else to characterise such a sprawling expanse of detached homes, strip malls and warehouses. Between 1990 and 2007 the Inland Empire’s population grew from 2.6m to 4.1m—the equivalent of adding a city the size of Philadelphia.

As in other regions now suffering from a rash of foreclosures and falling house prices, such as south Florida and Nevada, rapid growth is itself largely to blame. Moreno Valley had the misfortune to swell at a time of lax lending practices. Whole neighbourhoods were built on cheap credit and inflated expectations—palaces for the middle class. Around Camino del Rey, on the city’s southern edge, huge Spanish-style houses with three-car garages sit empty. The city’s population growth appears to have gone into reverse. Moreno Valley’s high schools expected to enrol 9,850 pupils last year. They fell short by 780.

Fewer people with less disposable income is bad news for shopkeepers. The Moreno Valley commerce centre (a strip mall, despite the grand title) has six vacant units in its main building. Stores along Alessandro Boulevard, the city’s main drag, have been occupied by Pentecostal churches—a sure sign of low rents. John Husing, an Inland Empire economist, says the housing slowdown has scared off financial-services and civil-engineering firms, for the moment at least.

A bigger economic threat is just coming into focus. The Inland Empire is America’s warehouse: goods, mostly from China, are sorted and assembled there before being distributed across the country. Until recently increasing trade could be counted on to prop up the economy. Traffic through the ports of Long Beach and Los Angeles, America’s two biggest by container volume, levelled off only briefly during the early 1990s recession and continued to grow in 2001. Now it is declining. In June imports through the two ports were 15% and 12% below last year’s level. Moreno Valley’s office-vacancy rate is already the highest in the region.

All this would be a shock to any city, but it is particularly startling in a place used to double-digit percentage increases in tax revenues. Moreno Valley has been forced to tap its reserves to make up a $7.1m shortfall. That may grow, says Bob Gutierrez, the city manager. State politicians are still trying to close an enormous hole in California’s budget, which is now seven weeks late. When it comes, the budget is likely to involve a raid on local finances that will put places like Moreno Valley further in the red.

Despite the gloom, a few souls are rather cheerful. Public-transport advocates and planning groups such as the Congress for the New Urbanism have seized upon the crisis in far-flung regions like the Inland Empire as evidence that sprawl is no longer viable. “The frontier of endless mobility that we’ve known our entire lives is closing,” wrote Bill McKibben, an environmentalist, in the Washington Post. At last, the urbanists predict, Americans will return to city centres. They will swap their sport-utility vehicles for public transport and begin to act more like well-behaved Europeans.

Some of these cheerful forecasts appear to be coming true. Across southern California, use of the skeletal rail network is rising. Property prices are indeed holding up fairly well in older neighbourhoods near the coast. It can be difficult to convince people in Beverly Hills or Santa Monica that the state has a housing crisis. But the growing price gap between such burghs and places like Moreno Valley can be read in two ways. It is both a sign of the suburbs’ plight and the thing that is gradually renewing their competitive edge.

The Inland Empire’s housing market did not collapse because people chose not to live in sprawling suburbs. They clearly did, hence the huge growth there. The problem was that buyers could not really afford the houses that were being built. Now they can. Mr Husing reckons 39% of residents can now afford the average property—up from just 18% in 2005. House-builders are at last creating smaller homes, and a few buyers are returning. Now the task is to ensure that neighbourhoods are not snapped up by slumlords. The nearby city of Grand Terrace has done that in part by levying a small tax on renting.

Places like Moreno Valley retain two enormous advantages over traditional cities. They have lots of cheap, available land and a pool of workers keen to avoid the ever-lengthening commute to Los Angeles and Orange County. When it comes to attracting businesses, these two factors outweigh high petrol prices. The city of Ontario, which contains the Inland Empire’s main airport, already has more than two jobs for each home. Greg Devereaux, the city’s manager, reckons it will eventually have more than three.

Bill Batey, Moreno Valley’s mayor, is frank about the city’s present problems. When asked about its future, though, he brightens. Pointing to a large aerial photograph on the wall, he outlines plans for a new warehouse, a cluster of medical offices and a lot more houses. There is plenty of empty space in the photograph; indeed, there is a huge expanse of bare earth directly across the street from city hall. The frontier is not closed yet.

One of the most profound thinkers on the topic of urban sprawl is Robert Bruegmann who is an architectural historian at the University of Illinois Chicago. A few years back, Bruegmann wrote a book called Sprawl: A Compact History. One of the most interesting things Bruegmann brings up in his book is that sprawl is more a function of societal affluence.

That said, one of the long-time criticisms of sprawl stems from elitist views of how people "should" live as opposed to how they really want to live. In the book, Bruegmann mentions how wealthy Londoners and members of the aristocracy in the 19th century expressed outrage at suburbs constructed for London's new middle class since a.) what was being constructed destroyed the natural environment and b.) the types of row houses being built looked ugly. Today, these neighborhoods like Islington in North London are held up by many urbanists as the pinnacle of how people should live in the 21st century.

If anything, The Economist is correct in that the IE's abundance of cheap land isn't going away anytime soon. However, the pressure is on developers and municipalities to find creative ways to finance the appropriate levels of infrastructure for new development. In addition, the challenge will be to develop communities that include a mix of uses, less auto dependency, and employment opportunities already in place once houses are built so that homebuyers don't have to commute two hours in order to get to work.

In essence, the era of high energy prices may not signal the end of the suburbs in general but instead, the end of the traditional bedroom community in particular.