Why the Economic Fates of America’s Cities Diverged
theatlantic.com
theatlantic.com
1. Weather is a huuuuuge factor. The large, growing population centers in the US are in warm or mild climates. Nobody wants to live in Buffalo or Minneapolis unless you're from there.
2. Location is far less important to the industries that generate the majority of value today. A lot of industrial jobs (and cities) sprung up in the midwest in the early part of the 20th century thanks to its proximity to raw materials (iron ore, coal, etc) and easily navigable waterways. That's not as important to the economy as a whole anymore, so companies have little reason to start (aka create jobs) in locations that are otherwise undesirable.
3. Given that there are fewer job opportunities that are reliant on proximity to natural resources, and that more of the new job opportunities will be located in cities with milder climates, it's no wonder that rust belt cities are bleeding people. Would you start a new business in Buffalo? Or would you just go to Chicago, New York or Philadelphia instead?
It doesn't take much capital to turn a 19th century mansion into an incubator/hacker house. Sure the weather and the Bills suck but inside you'll find a welcoming community spirit at a price you can start a business and raise a family at.
Buffalo has also been experiencing a boom in green tech investment (http://mobile.buffalonews.com/?articleRedirect=1&url=http%3A...)
As for Upstate NY in general, I think it's a great place to start a business. At the end of the day, most businessss can be run anywhere (hence the boom in remote work), and, again, putting aside the biblically shitty weather, you have an affordable region with plenty of fresh water and local farms, and isn't at risk for rising tides (NY,FL,CA), earthquakes (Cascadia,CA), droughts (CA, southwest, Midwest when the aquifer runs dry), name it. This is a great region to start a family, and at the end of the day, your best employees are the ones tied to your office and location, not mercenary college grads shopping around every couple years for a raise.
In 100 years, Upstate NY can exist without desalinated/pumped life support. Not so sure about the rest...
"Can I imagine Private Equity coming in and doing a regional rollup of this business model, slapping a slick marketing package on it and returning 10x the value?"
If the answer is "no", then it's probably a money-losing business, because that's the exit strategy for a lot of these local delivery businesses.
There a numerous businesses that make plenty of money that don't fit that scenario. They're just ones that are often dismissed as "lifestyle businesses".
Upstate has a lot of advantages (its a great place to raise a family), but has some massive disadvantages as well (the weather is one of them). There isn't enough tech to keep developers, because they know if your company tanks or fires them, the market isn't very good.
That's the big one. I moved from a "small town" with a single tech employer to the SF Bay Area to reduce the risk of unemployment. It was not a financially great decision (+50% salary, +300% cost of living) but here, if things go south, I can more easily find another employer. This is not true for most of the country.
I'd gladly move back to small town America--I like backyards and big houses--but not if it means my life is at the whim of one or two local employers.
Seems like that's a problem that could be solved with a big enough compensation package, right?
[Edit: I'd also argue that, if you can't imagine having a future in a particular locale, it may not make sense to take a job there unless it's with the explicit intent of having it be a limited time thing even if the pay is good. The networking associated with being physically in an area where job opportunities are good shouldn't be overlooked.]
There are exceptions. There are successful tech companies outside of the usual places. And certainly outside of Silicon Valley and NYC. But attracting talent for non-remote positions can be challenging.
As for families, NYC and SF are unattractive because of their extremely high cost of living, especially if home ownership is important. If long-term zip-code stability is important, the competition for Buffalo wouldn't be NYC or SF. Texas or North Carolina, maybe.
There is a stereotype on HN that 20-somethings are all moving into a city without cars. There is a slight increase in college-educated millennials living in a handful of particularly dense urban areas but the overall trend is much exaggerated.
If you are recruiting top end college grads, forget it, they'll get snapped up by the bigger companies, even if you are offering them the same, it's about the name and moving out west. If you are recruiting senior engineers, none of them will move from the bigger cities, and there aren't really that many local if at all that can solve certain problems, they all move away.
Plus, there are many people interested in Mr. Money Mustache (who espouses financial independence through low cost-of-living), rural activities (rock climbing, hunting, etc.), or any number of other things you can't find in NYC or SF.
> This is a great region to start a family, and at the end of the day, your best employees are the ones tied to your office and location, not mercenary college grads shopping around every couple years for a raise.
In other words, you take what you can get from the local hiring pool and hope your best people don't have better options. This is great if you're looking to bootstrap a small business, but once you get past that stage it can be difficult to recruit executives with the market savvy you need to a small town. I'm all for remote work arrangements, but when developing a product strategy, colocation is a huge help.
Don't get me wrong; I don't mean to shit all over Buffalo -- I only used it as an example because the weather is awful. But as a city to build a tech startup in 2016, it's not high on the list. Hell, the list pretty much stops after "Silicon Valley" and "New York City" -- which leads to its own problems (like how you can't really afford to live in either city on less than $125k/yr).
Now if you're talking about raising a family on a single income of that much, that's a different story...
It is certainly "doable" to raise a family on $125,000 a year or less in NYC as evidenced by the fact that millions of people are doing so.
Sure, living in NYC for less than $125k is doable under the following circumstances:
1. You have a rent controlled apartment.
2. You are on welfare or other government assistance programs (which often come with public housing).
3. You have other income (like a trust fund).
4. You live in New Jersey, Long Island or Yonkers and commute an hour each way.
5. You pay the high rent anyway, build no savings because you're spending $2,000/mo on a studio you split with a roommate, regret living in NYC - and move away a few years later.
At least among my friends, NYC is a revolving door of "Yeah, New York is awesome!" and "New York is awesome but I'm a successful 30-year-old professional can't afford more than a studio" to "Fuck this place, I'm moving to Austin."
The only reason there are any poor people left in Manhattan is because the city essentially subsidizes them living there. I have nothing against that, but Manhattan real estate is unaffordable for mere mortals otherwise.
One can live in e.g. Kew Gardens, have a 35 minute commute to midtown, and pay $2000 / month for a spacious two bedroom shared with spouse and child. No trust fund needed.
If your friends prefer Austin to Queens, more power to them. But they ought not to go around saying it is impossible to live/raise a family in NYC on less than $125k when it isn't true.
So the long and short of it is, $125k, even before tax, is far more than you need to live in SF for a single person. That isn't to say it's wonderful to have to spend so much on rent, but it's beyond hyperbole to say you need $125k+ to survive.
My experience disagrees. In my experience, the best employees, by definition, will have other options. Worst case, Amazon, Google, Microsoft, Facebook, or whoever else will be willing to pay to relocate them to the Bay Area or Seattle. The ones that are tied to your company, the ones who can't get a job anywhere else, are more likely to be a drag on productivity than a boost.
2. Agreed, network effects are what drive these headquartering decisions now.
3. It's interesting that you're choosing Buffalo as an example. It's currently experiencing a resurgence [1] [2], as is Pittsburgh [3] [4].
[1] http://www.nytimes.com/2015/07/21/business/energy-environmen...
[2] http://www.ci.buffalo.ny.us/Home/Leadership/City_Comptroller...
[3] http://www.usnews.com/news/articles/2014/09/02/an-urban-revi...
Of course, there are often Tier 2 locales for a given industry that have less of a concentration but still have a reasonable hiring pool and/or people willing to relocate there (plus remotes). They may not be as in-demand as the center of the given industry, but they can be a lot cheaper or attractive in other ways. In tech, the housing pains of the Bay area are arguably the perfect storm of historical happenstance, a great climate for the most part, and constrained geography.
Yeah, I remember when the area beyond Tech Square or so was basically "there be dragons here." There was a lot of, shall we say, underutilized land from Cambridge's day as an eastern Detroit a fair chunk of which MIT owned but hadn't developed.
I would walk to Kendall when I was an undergrad but I thought of that as being totally disconnected from where the long-gone Lechmere was.
Even though the distances are all the same everything seems so much closer now just because it's almost a single contiguous entity now instead of 5 min walks through parking lots and empty space just to get to the next building.
NYC population in 1950: 7,891,957, vs 8,175,133 in 2010.
Houston, Tex. population in 1950: 596,163 vs 2,016,582 in 2010.
PS: Without AC, even NYC get's unpleasantly hot in the summer so there are clear tradeoffs on the east coast.
Buffalo and Pittsburgh are experiencing a resurgence only because when you fall as far as those cities have, there has to be a bottom somewhere. But residents of places like that are looking at a lot of problems in the future: they have less than half the population they did 50 years ago, so there is a lot of urban blight (and the other problems that come along with it) to clean up and a very small tax base to pay for it. So while they may see a resurgence, they're still not out of the woods yet.
http://www.theguardian.com/cities/2015/feb/05/detroit-city-c...
Pittsburgh's decline predates the fall of Detroit by a decade or two (most of the steel mills shut down in the early 70s) but the parallels are striking.
I would actually attribute the income disparity to the powerful political opposition to labor unions in both Georgia and Texas. Unions have far more protection under New York law than in either of those states.
And that is a 5% difference? 25% difference? 55%? Is that number inflation adjusted?
I hate stats like this. When they show up they make me really assume the rest of the article is junk as well.
1966 average income:
$3,962 - New York City area
$3,875 - Cedar Rapids area
So, 2% less.
But yes, by all means, dismiss a long and carefully researched article because it irks you the way a single figure is cited.
But my point was about articles in general that do these sort of absolute value comparisons without providing any context, which is what I wrote.
Sounds like you stopped reading at the first page and didn't bother to check the rest.
This is my take home for everything. Lawyers are the ones in congress. Who ultimately benefits from the arrangements we have now? Lawyers and pretty much no one else.
Simplistic? Yes. However, if you play the 'follow the money' game I'm not sure who else benefits, because I'm fairly certain it isn't the landlords.
Towards the end of the book he examines what a number of American cities did when they were allowed to barrow vast sums of money with little oversight. Thumming through it now he covers Vallejo and San Jose. TLDR would be they bankrupted themselves with pensions and tax cuts.
Oh and it's a light read too. And it has an Arnold Schwarzenegger interview.
The public sector unions across California circulated a letter in each municipality that they would only support candidates willing to approve 8% guaranteed annual pension returns.
And they got it. As a result, California cities are all bankrupt today.
FYI: San Jose is bad, but ironically wealthy Palo Alto has one of the worst budgets.
I don't find this to be true. New York City subways are better now than they were in the 1970s. Public transportation into Manhattan has not changed much in the past decades, although the prices have risen. There are plenty of places to live for working class people with decent commutes to Manhattan. I know plenty of people at startups who lived in Manhattan - engineers could live by themselves, others needed roommates. You're not going to live on 5th Avenue, of course. I live in the suburbs so my apartment has some space, not due to expense - I could rent a smaller Manhattan apartment for the same price.
It's not just a local phenomenon - public REIT's are buying up affordable units nationwide and renting them out at >20% above market...
http://www.multifamilyexecutive.com/business-finance/luxury-...
This has led to a couple of side effects: a shortage of rental units (and the associated high rental prices), a shortage of qualified buyers (people aren't able to roll the equity from their starter house into a new home because they never bought the starter house), and an extreme shortage of new construction at the low end of the market (the only people who can even qualify to buy today are upper-middle class).
We're still not out of the subprime quagmire yet. The rental market in the US was sized for a world where subprime mortgages existed -- and now that they largely don't, those people have to live somewhere.
Regardless, "affordable" housing will not exist unless it is subsidized by the government. The private sector has no interest in renting to the low-income segment when the "up-market" segment is lower cost, higher margin and has significantly lower legal risk.
High cost of living, where cost of living is mostly housing, is associated with high economic productivity combined with low housing stock. It cannot be used to normalize high salaries to some other abstract concept that says useful things about economic productivity, because it only co-occurs with high salaries.
The article is asking why city A and city B became differently economically productive, not for excuses as to why one isn't technically rich or comparisons of disposable income. That's a different discussion.
I'm also dubious of the negative effects of deregulation of the airlines and rail/trucking industries - because of the machinations of the ICC Railroads broadly almost ceased to be a going concern.