Metropolitan Statistical Area Shuffle (or the coming Demographic Inversion)

"Demographic Inversion", what is it, where has it occurred and why should you take note of this developing trend in the United States. My good friend, David Ginsburg, the President and CEO of Downtown Cincinnati, Inc., forwarded to me an article posted on The New Republic website entitled Trading Places written by Alan Ehrenhalt. The article discusses a trend which has its roots far back in the development of the urban centers of Europe, from Paris to Vienna, where middle class society lived within the urban core and the working poor and newly arrived immigrants lived further out beyond the urban core. Cities in North America from Chicago, Manhattan, San Francisco to Vancoover have witnessed demographic inversion over the last 30 years. The de-industrialization of our cities has made demographic inversion possible. As manufacturing and distribution facilities relocated in our outlying suburbs and exburbs the urban cores of these great cities opened up to permit the infusion of a service industry economy and the housing stock for those new "urbanites" to live and raise families.

As pressure is put on our "auto" economy the suburbs and exburbs in the second tier United States cities (Cleveland, Columbus, Cincinnati, Indianapolis, Dayton, Toledo, Akron, Pittsburgh, St. Louis) are ripe to take advantage of their own "demographic inversion." It is not just the need to change transportation and commuting habits, but lifestyle changes are driving this trend. The Generation X and Y segment of our population wants to live in an environment condusive to the social networking they participate on-line. An urban lifestyle in which work, play and learning can take place and stimulate growth and enhance the urban experience. Government and public institutions need to help stimulate this trend by permitting zoning law changes, development tax incentives, re-building the inner city public schools and development of efficient public trnasportation systems.

High Speed Rail for Ohio

In today's Cincinnati Enquirer the lead article discussed the allocation of anticipated state tax revenue generated by a proposed casino to be situated along I-71 around the Wilmington area. Just like the tobacco settlement funds, everyone is now going to spend the revenue even before the casino is approved and built. So, why not float another idea. One which will attract business investment into Ohio, make Ohio the center piece of a regional passenger rail network ??

This is the idea: Using the rights of way already in existence along Ohio's interstates and highways, build a high speed rail system linking Ohio's cities (see my earlier post). Of course a stop along the route would be the Casino. The first two legs of the system could be: (i) Cincinnati, Wilmington (Casino) Columbus, Akron, Cleveland; and (ii) Toledo, Dayton, Wilmington (Casino) where a transfer station would be constructed to link the two lines. Later Toledo-Cleveland and Dayton-Cincinnati could be built.

Federal transportation funds can not be counted on for financing rail transportation initiatives, so Ohio needs to be creative and think out of the box to take care of itself.

Now close your eyes and think about what this plan would mean for the real estate community. Rail stations, whether situated in downtown, suburban or rural areas would spur the need for commercial and residential development in and around the same. They would also serve as the local hubs for alternative transportation such as local light rail and bus transportation.

So, if you consider the other ideas presented earlier in this Blog (2% Solution) all of these efforts when taken together create a really powerful and solid base for economic development and growth.

The 2 % Goal for Ohio's Cities

The Brooking's Institute is known for promoting ideas and suggestions which promote out of the box thinking. Recently, I read Bruce Katz and Jennifer Vey's, fellows at the Brooking's Institute studing urban issues and trends, article The Goal for Ohio Metros: 43,000 residents suggests that Ohio's cities achieve 2% growth. The authors write "Imagine the economic, fiscal and psychological impacts of housing 43,000 residents in downtown Cleveland, 40,000 residents in downtown Cincinnati and 17,000 residents in downtown Dayton - substantial jumps from their current populations. The critical massing of people would attract amenities that lure businesses and jobs for downtown and metro-area residents, shoppers and tourists, and help stem the exodus of young workers. And appealing new housing with street-level cafes and shops would bring life and a virtuous cycle of growth to metropolitan hubs."

So, how do our leaders achieve this 2% growth and clustering of residents ? We are all familiar with the use of tax incentives for commercial development and entertainment venues. We are also familiar with the benefits brought to residential development by low income housing tax credits, new market tax credits, tax increment financing and other such tools.

The authors further suggest that universities locate satellite campuses in areas where residential and commercial growth is desired. Universities include associate, bachelor and masters degree programs. Take Chicago as an example. Several undergraduate, graduate and professional school programs are located in the LOOP business district and east and west of Michigan Avenue. These programs have helped spur the development of residential projects, commercial projects and transportation projects while integrating a student and professional academic population into the demographic mix of the respective areas.

The authors write "Some 50 four- and two-year colleges are located in the eight Ohio cities highlighted by our report and should be encouraged to develop downtown satellite campuses. Higher education institutions are not only major employers but incubators of new, creative businesses and jobs. As low-wage service-sector jobs replace industrial jobs, encouraging the expansion of tech ventures and health care facilities is essential to expanding the number of Ohio residents earning a good living in reborn downtowns."

The message to pull out of this article, the trend to create or capture, is that development projects will require a conglomeration of ideas and efforts pulling together the needs and interests of all sorts of private and public institutions. The development community should work with the universities, colleges and municipalities to enhance our use of our cities and expand educational horizons beyond the traditional campuses they call home.

Interstate Rail ?

Recently, I came across an article written in 2001 by J.H.Crawford entitled Interstate Rail: Adapting the Interstate Highway System to Rail Use. Mr. Crawford advocates that the Interstate highway system has the benefit of an already dedicated right of way which is engineered to a standard that would require little retrofitting for conversion to rail use. He envisions the use of the center strips and center most lanes being converted to rail use, or where necessary elevated rail track constructed. Given that the most significant cost of all transit and highway projects is the cost of the land acquisition by eminent domain, Mr. Crawford's idea is worth a second look by our leaders since the rights of way are in place. Sure, some engineering and land acquisition would be required for certain aspects of an Interstate Rail system, but the idea of it is intriguing. As real estate professionals the development and financing of stations, junctions and stops could make for some wonderful urban commercial and residential developments. Can you picture high speed passenger trains running along I-71 from Louisville to Cleveland; and along I-75 from Lexington to Detroit ?.

Breaking Real Estate News In Cincinnati

Thursday evening I had the opportunity to attend the First Annual Cincinnati Blogger's Convention held at the Mercantile Library downtown. Our hosts, the Mercantile Library, made all of the attendees feel welcome. The library was a nice venue for the local blogging community to meet each other and trade "war stories." My estimate is that approximately 50-60 people attended the event.

I had the opportunity to meet and speak with Kevin Lemaster, whose blog is Building Cincinnati. If you have not yet visted Building Cincinnati, I highly suggest you do so, as it is current with project news and real estate developments in and around Cincinnati.

Small Homes ?

Friday, July 19, 2008 the Wall Street Journal published an article entitled The Newest Cottage Industry. The article discusses how less can be more in home development. The focus is on two developers in the Northwest (Washington State), Ross Chapin and Jim Soules, who have designed and built several small home (cottage) communities. Each home is under 2,000 square feet in size, garage and vehicle access is only located in the rear of the homes, the homes are close together and each home faces a community public space (play area, gardens or the like). Do you see where this is going ? The developments are constructed to build a feeling of community.

The designs are smart and well thought out. Wall space we usually leave unfinished is utilized for storage, book shelves, display areas. Much attention is given to details. Obviously, a smaller home will use less energy to heat and air condition and be less expensive to live in and maintain. However, given the attention to detail in the construction the prices per square foot range from $175-$250 per square foot (Northwest US). This means that the upfront savings in downsizing may not be apparent at first. This could be a hard sell in the land abundant Mid West.

As we see inner core communities develop their town centers and incorporate retail, office and service uses and interest in public transportation, these type of developments actually seem appealing and can integrate well into the "New Urbanism" we are seeing take hold.

Sample floor plans can be viewed at http://www.rosschapin.com

The WSJ has a nice video about cottage community living and design here