This is an excellent follow up to Richard Florida (RF) first two seminal books. In the first
The Rise of the Creative Class: And How It's Transforming Work, Leisure, Community and Everyday Life in 2003, he introduced the concept of the Creative Class. The greater the % of the creative class within a region, the more prosperous its economy. In the second book
Who's Your City?: How the Creative Economy Is Making Where to Live the Most Important Decision of Your Life in 2008, he introduced the concept of "megaregions" such as the New York, Boston, Washington DC corridor. Those regions have a high concentration of the creative class types. He rebutted
The World Is Flat 3.0: A Brief History of the Twenty-first Century theory and stated the world is increasingly spikier as the creative talent is clustering in just the megaregions.
Here, RF leverages his concepts of the Creative Class and megaregions to develop an outlook for major cities. He states that the financial crisis will actually strengthen the two worldwide leading financial centers: London and New York. Historically, leading financial centers have lasted much longer than their nations' economic supremacy. London remains the preeminent financial center even though the U.K. has not been a dominant economy since before WWII. London and NY will rebound better than the second tier of financial centers such as Tokyo, Frankfurt, and Singapore. Leading financial centers have a widely diversified Creative Class and economies. They are strong in key postindustrial fields including the arts and culture. Thus, they remain magnets for creative types.
RF is upbeat about cities at the intersection of Government and capitalism. They are capitals such as Washington DC. They benefited from the financial crisis because the Government now controls a greater percentage of the economy. With more economic power, RF indicates that Washington DC has the most educated labor force in the U.S. and is also a thriving high tech center second nationwide only to San Jose.
College towns are also doing well as they have a high % of creative types. Their local employment is boosted by two thriving sectors: education and health care (university hospitals, med schools, and research). Often, college towns are also hi tech and start ups centers.
RF does not have much hope for Detroit. Detroit has experienced a depression for decades. The average home price in Detroit is lower than the average price of a new car. Its unemployment rate is 27%. But, in October 2009 Mayor Dave Bing stated it is closer to 50% if you count the discouraged workers not counted. Detroit has 62,000 vacant lots and buildings. Total vacant land is almost the size of Boston. Detroit is a post apocalyptic town. Its main hope is to keep on shrinking by abandoning vacant urban space back to nature. Wild life is getting a stronghold in such abandoned areas.
RF is also concerned about many formerly thriving Sunbelt cities. Those include Phoenix, Las Vegas, and cities in Florida. They experienced unsustainable growth as their housing sector bubbled the most. Home prices as a multiple of income became too high. And, the real estate and construction sectors represented between 25% to 40% of their respective economies. They ended up with excess supply of real estate. Now, many properties are in foreclosure. By April 2009, both Las Vegas and Phoenix home prices dropped by more than 50% since their peak. In Miami and Tampa they dropped by 40%. Among the top ten cities for the concentration of homes underwater (current value below purchase price), the vast majority were in Nevada, Arizona, California, and Florida. And, their local economies are experiencing a downward spiral. As real estate and construction have crashed, those cities are plagued with high unemployment rate.
After this crisis, the finance sector is shrinking as a share of GDP. The brightest young minds are now redirecting from finance to other sectors. Between 2008 and 2009, Harvard graduates have shifted away from finance (11.5% of graduates vs 23% in 2008). And, they are increasingly going into education (rose from 10% to 15%) and health care (rose from 6% to 12%). This is a good thing as the Creative Class excessive concentration in finance lead to diminishing returns for society. We don't need new CDOs structures. We need the next IPad.
In this post-crisis thrifty era, RF sees a seminal shift in lifestyle. The younger generations want to lead more environmentally friendly and flexible lifestyle. Consumers spend less on real estate and cars. SUVs are out. Zipcar and public transportation are in. Mcmansions in the suburb are out. Loft apartments walking distance to work are in. Consumer status symbols are shifting to green products. People buying a Toyota Prius do it more for the social status than the actual savings.
RF thinks the next shift in consumer spending will accelerate the integration of suburbs into megaregions. He refers back to his work in "Who's Your City" and mentions that taken together, the world's 40 largest megaregions account for 2/3d of the world GDP, 85% of technological innovation, while housing just 18% of the World's population. Megaregions expand and intensify our use of space. Suburbs are transformed into higher density mixed used space with modern working campuses proximate to residential areas.
Hub cities within those megaregions often prevail for centuries because of faster "urban metabolism." The rate of innovation, patent activity, and GDP accelerate as a city size increases. This is because of the network effect. Clusters of highly skilled people trigger faster idea generation and implementation.
RF feels that high speed train is a key component in the advent of megaregions. Such trains reduce distance in time by a factor of three or more vs driving. New commuting patterns between far flung cities can emerge.
RF thinks the social benefits of home-ownership are way overblown. U.S. social policy with tax benefits and subsidies supporting home-ownership have caused us to over-invest in homes at the cost of investing in R&D and other more productive areas. We need mobility and flexibility so people can relocate where opportunities are. Home-ownership stifles such flexibility. He feels home-ownership is way too subsidized vs renting. According to the CBO, the federal government provided $230 billion in home ownership subsidies in 2009 vs only $60 billion for renters. It is time to revise this imbalance.
He feels U.S. mortgage finance practices cause unstable real estate markets with bubbles and crashes. This is because they encourage homeowners to borrow irresponsibly. In the U.S., one can buy a home with very little down, the entire interest is tax deductible, and if a home falls in price, one can just turn the key to the lender with no penalty. RF who lives in Toronto, Canada states that none of that is done in Canada. In tandem with higher bank capital requirements, Canadian regulations caused its real estate markets and banking sector to weather the worldwide financial crisis pretty much unscathed.
