by Chris Jones, Vice President for Research, RPA
Like a bad marriage, every economic downtown has its own character - and provides a portal to what lies ahead if we take the time to look.
The region's long decline from 1969 to 1976 culminated in an urban crisis that had been brewing for a decade or more. The response to the crisis triggered long-overdue fiscal reforms and investments in transportation and housing that were critical to the region's expansion in the 1980s.
The 1989-1992 economic downturn hit cities and suburbs equally hard. It led to both corporate restructuring and public quality of life improvements, such as new crime fighting strategies, that contributed to the 1990s expansion. Instead of structural fiscal reforms, however, recovery from the recession was used as an opportunity for extensive tax cuts.
The most recent recession, which for the tri-state region began in late 2000 and ended in late 2003, has its own traits and in turn offers glimpses of the paths ahead that the region can choose to travel.
First of all, we should say that the region's economy is clearly growing again. For the 12 months ending in October, the region added 106,000 new jobs in industries ranging from health care to tourism. Retail sales are surging, housing demand remains strong and the office market is beginning to absorb its excess capacity.
Compared to the previous two recessions mentioned, the recession years from 2000 to 2003 were relatively mild. In the 1970s, the metropolitan area lost 6 percent of its jobs, 400,000 in total. In the early 1990s, the region lost 8 percent of its job base, or nearly 800,000. In the most recent recession, the metro area lost 340,000 jobs, or about 3.5 percent of the total. Of course, the region lost much more than jobs with the human loss and physical devastation of September 11.
The most recent recession was both a white-collar and a blue-collar one. Both office and industrial sectors tumbled. However, men appeared to be more affected than women, particular at the bottom of the income scale. As shown in studies by the Community Service Society, low-income women actually fared relatively well as employment continued to grow in sectors like health care, education and child care. However, male-dominated industries such as manufacturing and transportation took a sharp dive, along with male unemployment rates.
Apart from its relative mildness, this downturn had three characteristics that illuminate critical regional issues in the years ahead. They are: the divergence of economic growth and housing prices; the emergence of seemingly contradictory centralization and decentralization trends; and deepening fiscal problems that are out of proportion with the mildness of the recession.
The first of these - the divergence of economic growth and housing prices - is a strange anomaly. Usually, housing prices decline when the job market does. But this time, while jobs and incomes were descending to the cellar, housing prices were going through the roof. Indeed, the strength of the housing sector is one of the main reasons that the recession was relatively subdued. The reasons have been widely discussed, but they include Alan Greenspan's setting interest rates dramatically low to avoid an even deeper recession; the investment appeal of real estate as an alternative to a declining stock market; and a persistent shortage of supply. The rise in home prices regionally also indicates that the area was able to maintain its appeal in spite of a weak economy. Immigration, in particular, continues to fuel population growth in both urban and suburban communities.
In the intermediate future, in terms of housing, the most important question is whether rising interest rates or other factors will dampen the housing market. Over the longer term, the issue is whether a combination of high housing costs, an aging housing stock and limited choices will decrease the region's quality of life and put a brake on the region's growth prospects.
The second characteristic of this downturn is a new relationship between centralization and decentralization. In the 1970s, decentralization was clearly the predominate force as the region's cities emptied out, and exurban areas boomed. In the 1990s, New York City and other core cities declined at the same pace as the suburbs during the recession and grew as strongly, and sometimes more so, during the expansion. For 2000-2003, the evidence is mixed, but measured in terms of jobs, the recession hit New York City particularly hard. The city lost more than 5% of its jobs between August 2000 and August 2003. Most of the areas outside of the city experienced a shallower decline and a faster recovery. Southwestern Connecticut, which experienced job losses nearly as great as New York City's, was the exception.
The World Trade Center attack was clearly a big reason for the core city's decline in share of jobs in the region. Of even greater importance is that the recession was led by industries that are concentrated in the city--finance, travel and tourism. In some industries, such as finance, there also appeared to be a growing trend toward decentralization for both cost and security reasons, a worrisome development for the city's driving sectors.
But lest the city's prospects appear too gloomy, it's significant that the dichotomy between economic growth and housing production is even more striking in New York City than in the rest of the region. In spite of suffering the greatest job losses, the city's share of the region's new housing construction has more than doubled since the mid-1990s. Why is this the case? In part, it reflects quality of life factors ranging from crime reduction to neighborhood revitalization efforts, that have made the city's communities more attractive. But it also probably reflects the strengthening of "no growth" sentiments in the suburbs as increasing congestion, higher property taxes and depletion of open space have led to restrictive zoning and thus higher home prices, and an inability for many households to afford a suburban lifestyle. How these two trends--decentralization of jobs and recentralization of population--play out and rebalance over the long term is a critical issue for regional transportation, land use and development policies.
Third and lastly, this recession was marked by deep fiscal problems at all levels of government way out of proportion to the severity of the recession itself. That this occurred points to a great imbalance between the need for long-term investments in the region's economic foundations, particularly transportation, education and housing, and the mechanisms with which to make them. All three states, New York City, the MTA, New Jersey Transit and county and local governments experienced deepening fiscal problems that the recovery has only partly abated. The roots of this fiscal stress are varied, but they certainly include collusion between leaders and the public to not face up to the investments needed to secure long-term economic growth. While no one likes higher taxes, it should be remembered - to name one example - that the large investments in the region's mass transit system in the mid 1980s set the stage for the growth of the 1990s and today.
Whatever the reason for the region's current dire fiscal situation in its public budgets, its implications are serious. The region faces a monumental task of finding revenues to invest in both the human and physical infrastructure needed to sustain growth over the next generation. How we accomplish this - while restoring public financial stability - is the greatest challenge to emerge from the recession of 2000-2003.
Like a bad marriage, every economic downtown has its own character - and provides a portal to what lies ahead if we take the time to look.
The region's long decline from 1969 to 1976 culminated in an urban crisis that had been brewing for a decade or more. The response to the crisis triggered long-overdue fiscal reforms and investments in transportation and housing that were critical to the region's expansion in the 1980s.
The 1989-1992 economic downturn hit cities and suburbs equally hard. It led to both corporate restructuring and public quality of life improvements, such as new crime fighting strategies, that contributed to the 1990s expansion. Instead of structural fiscal reforms, however, recovery from the recession was used as an opportunity for extensive tax cuts.
The most recent recession, which for the tri-state region began in late 2000 and ended in late 2003, has its own traits and in turn offers glimpses of the paths ahead that the region can choose to travel.
First of all, we should say that the region's economy is clearly growing again. For the 12 months ending in October, the region added 106,000 new jobs in industries ranging from health care to tourism. Retail sales are surging, housing demand remains strong and the office market is beginning to absorb its excess capacity.
Compared to the previous two recessions mentioned, the recession years from 2000 to 2003 were relatively mild. In the 1970s, the metropolitan area lost 6 percent of its jobs, 400,000 in total. In the early 1990s, the region lost 8 percent of its job base, or nearly 800,000. In the most recent recession, the metro area lost 340,000 jobs, or about 3.5 percent of the total. Of course, the region lost much more than jobs with the human loss and physical devastation of September 11.
The most recent recession was both a white-collar and a blue-collar one. Both office and industrial sectors tumbled. However, men appeared to be more affected than women, particular at the bottom of the income scale. As shown in studies by the Community Service Society, low-income women actually fared relatively well as employment continued to grow in sectors like health care, education and child care. However, male-dominated industries such as manufacturing and transportation took a sharp dive, along with male unemployment rates.
Apart from its relative mildness, this downturn had three characteristics that illuminate critical regional issues in the years ahead. They are: the divergence of economic growth and housing prices; the emergence of seemingly contradictory centralization and decentralization trends; and deepening fiscal problems that are out of proportion with the mildness of the recession.
The first of these - the divergence of economic growth and housing prices - is a strange anomaly. Usually, housing prices decline when the job market does. But this time, while jobs and incomes were descending to the cellar, housing prices were going through the roof. Indeed, the strength of the housing sector is one of the main reasons that the recession was relatively subdued. The reasons have been widely discussed, but they include Alan Greenspan's setting interest rates dramatically low to avoid an even deeper recession; the investment appeal of real estate as an alternative to a declining stock market; and a persistent shortage of supply. The rise in home prices regionally also indicates that the area was able to maintain its appeal in spite of a weak economy. Immigration, in particular, continues to fuel population growth in both urban and suburban communities.
In the intermediate future, in terms of housing, the most important question is whether rising interest rates or other factors will dampen the housing market. Over the longer term, the issue is whether a combination of high housing costs, an aging housing stock and limited choices will decrease the region's quality of life and put a brake on the region's growth prospects.
The second characteristic of this downturn is a new relationship between centralization and decentralization. In the 1970s, decentralization was clearly the predominate force as the region's cities emptied out, and exurban areas boomed. In the 1990s, New York City and other core cities declined at the same pace as the suburbs during the recession and grew as strongly, and sometimes more so, during the expansion. For 2000-2003, the evidence is mixed, but measured in terms of jobs, the recession hit New York City particularly hard. The city lost more than 5% of its jobs between August 2000 and August 2003. Most of the areas outside of the city experienced a shallower decline and a faster recovery. Southwestern Connecticut, which experienced job losses nearly as great as New York City's, was the exception.
The World Trade Center attack was clearly a big reason for the core city's decline in share of jobs in the region. Of even greater importance is that the recession was led by industries that are concentrated in the city--finance, travel and tourism. In some industries, such as finance, there also appeared to be a growing trend toward decentralization for both cost and security reasons, a worrisome development for the city's driving sectors.
But lest the city's prospects appear too gloomy, it's significant that the dichotomy between economic growth and housing production is even more striking in New York City than in the rest of the region. In spite of suffering the greatest job losses, the city's share of the region's new housing construction has more than doubled since the mid-1990s. Why is this the case? In part, it reflects quality of life factors ranging from crime reduction to neighborhood revitalization efforts, that have made the city's communities more attractive. But it also probably reflects the strengthening of "no growth" sentiments in the suburbs as increasing congestion, higher property taxes and depletion of open space have led to restrictive zoning and thus higher home prices, and an inability for many households to afford a suburban lifestyle. How these two trends--decentralization of jobs and recentralization of population--play out and rebalance over the long term is a critical issue for regional transportation, land use and development policies.
Third and lastly, this recession was marked by deep fiscal problems at all levels of government way out of proportion to the severity of the recession itself. That this occurred points to a great imbalance between the need for long-term investments in the region's economic foundations, particularly transportation, education and housing, and the mechanisms with which to make them. All three states, New York City, the MTA, New Jersey Transit and county and local governments experienced deepening fiscal problems that the recovery has only partly abated. The roots of this fiscal stress are varied, but they certainly include collusion between leaders and the public to not face up to the investments needed to secure long-term economic growth. While no one likes higher taxes, it should be remembered - to name one example - that the large investments in the region's mass transit system in the mid 1980s set the stage for the growth of the 1990s and today.
Whatever the reason for the region's current dire fiscal situation in its public budgets, its implications are serious. The region faces a monumental task of finding revenues to invest in both the human and physical infrastructure needed to sustain growth over the next generation. How we accomplish this - while restoring public financial stability - is the greatest challenge to emerge from the recession of 2000-2003.
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