Friday, October 24, 2008

Recessions and Geographic Mobility

I spent part of Wednesday at a National Association of Home Builders (NAHB) conference on the outlook for housing and the economy and one of the presenters, sorry but I forget who, made a great point about the regional impact of recessions. The point was that in the past a recession would hit one or two areas harder than others but that other areas would muddle through and perhaps even prosper.

In the 1991 recession, for example, California, and especially the Los Angeles region were particularly hard hit because of cuts in the defense industry. But other surrounding areas did okay and people could move to Las Vegas with reasonable hopes of finding good work. More recently, when the tech bubble burst, California, Boston's Route 128, and a few other areas were particularly hard hit, but again other regions did fine. Moving to Nevada, Arizona, Oregon or other parts of the northeast was a viable option.

This go round however, things look a lot worse. While many of the housing problems are concentrated along the coasts, former boomtowns like Las Vegas no longer offer sanctuary. In fact, aside from a very small sliver in the Midwest, there are few places that won't be negatively affected. Add to this record homeownership rates and we'll likely see less mobility than in previous recessions. Because we are unlikely to see this mobility, unemployment will likely carry on longer than if people were able to move to more successful areas. While all of this may seem depressing, and let's face it, it is depressing, now might be a good time to think about what cities have brighter futures.

Earlier this year Forbes covered some research that Phil did on up-and-coming-tech centers (Forbes). Forgive me for ruining the suspense, but the top city in the study was Columbus, Ohio. Surprised? “The cities on this list aren’t the places you’d expect to be up-and-coming centers for the next generation of technologies,” said [Philip] Auerswald [professor of public policy at George Mason University], “But 30 years ago, few would have imagined Las Vegas as the center of a real estate boom.”

Actually one of my best friends grew up in Ohio and the number 1 pick didn't surprise him a bit.

Update: My friend writes: "If you drive through Columbus, you can witness firsthand that it is a thriving city that is focused on the service sector. It did not get pulled down by the decline in manufacturing like the rest of the state did."

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