Phoenix's affordability, economy draw middle class

Posted on April 24, 2005 | Type: Op-Ed | Author: Joel Kotkin
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Phoenix may lack many of the desired accoutrements of historic great cities - grand boulevards, a plethora of inspiring architecture, seething bohemian districts - but it does possess one of the most critical assets of all, a growing middle class.

It is here that Phoenix, not the much ballyhooed "cool" cities like Portland, Seattle or San Francisco, shines as an urban beacon.

Two key elements drive Phoenix's middle-class growth: affordability and an expanding economy. Cities that make local critics swoon, like San Francisco, are effectively wiping out their middle class. In that city it takes an income well over $150,000 to buy a home; less than 10 percent of locals can hope to purchase a residence at today's prices. advertisement

On average, Phoenix families are several times more likely than those in San Francisco, Boston or New York to own a home. Simply put, the essence of the middle-class dream is becoming increasingly difficult in many of these cities.

Housing affordability is one of the factors that make Phoenix such a magnet for the aspiring middle class. During the late 1990s, for example, the region enjoyed among the largest net in-migrations of educated people from the rest of the country, according to the U.S. Census Bureau and demographer Bill Frey of the Brookings Institute.

Over the past two decades Phoenix also became a major destination for immigrants, with the foreign-born population more than tripling during the 1990s.

These two migrations are distinct in terms of their education levels and skills, but they both reflect the aspirational appeal of this region. "People," notes local economist Elliot Pollack, "vote with their feet."

Affordability, as well as sunshine, explains part of this movement, but the economy may be the key factor. Middle-class jobs have eroded since 2000 in many other favorites of the local new urbanist, including San Francisco, Boston, Philadelphia, Portland and New York.

If you are under 40 and not blessed with inherited wealth, these places might not be the best places to migrate.

In contrast, Phoenix, although not immune to the post 2000 recession, has generally performed far better in terms of creating jobs. In comparative terms, the Phoenix area has shone compared with many of its key competitors, ranking third, for example, among the "best-performing cities" in 2004 rated by the Milken Institute, an economic think tank based in Santa Monica, Calif. Unemployment remains among the lowest, and workforce participation among the highest, of major cities.

Local critics, although sometimes acknowledging the city's job-producing prowess, have taken aim instead at the quality of its jobs. In the words of one prominent local columnist, Phoenix has become an "urban Austin Powers" mired in 1960s development pattern, dominated by low-end industries like tourism, call centers and basic manufacturing. It is widely castigated for lacking the sophisticated industries associated with places like Boston, Seattle or San Francisco.

This approach misses many critical points and fails to address critical differences in historic evolution. As a fast-growing city in terms of population, Phoenix's economy has tended to have more of its workforce involved in the servicing of local growth. With an ever-expanding new base of customers, many local entrepreneurs have found opportunities that would be hard to find in slower-growing markets.

Yet this does not necessarily mean that Phoenix is a laggard in creating higher-end jobs critical to growing the local middle class. In terms of creation of higher-wage jobs, Phoenix actually had more percentage growth in the 1990s than Portland, Seattle and Denver.

Phoenix's lower cost of living also makes its jobs more competitive, especially from the point of view of middle-class families, than many assume. Although economies like San Francisco and Silicon Valley may generate higher wages in fields like software or financial services, weighted against the cost of living, Phoenix actually pays its workers, in real terms, higher salaries. The cost of living in the area is estimated at roughly 25 percent below that in places like San Diego and considerably lower than that in Denver, Austin, and Atlanta. Viewed from this perspective, Phoenix's average wages are competitive with the likes of Austin and Denver and higher than San Jose, Portland or San Diego.

Critics also make much of the fact that Phoenix has experienced somewhat lower per capita income growth than other regions. This, however, stems in large part from the area's rapid growth in both household size and population. Places with few children, like San Francisco and Seattle, tend to have higher per capita incomes; the little tykes can have a powerfully negative impact on such incomes, as do new arrivals, who often come with more hope than money in their pockets.

Indeed, some of the fastest rate of per capita income growth has occurred in those cities - St. Louis; Pittsburgh; Milwaukee; and Brockton, Mass. - with generally slow rates of job and population growth.

Even if desired, this "growth without growth" model cannot be applied to Phoenix, where in the 1990s labor force expanded by 38 percent and employment by more than half.

In such an economy, with a young and burgeoning population, perhaps the more critical measurement is household income. In this respect Phoenix actually did reasonably well; from 1989 to 1999, household income grew by 8.2 percent, considerably higher than the national average of 6.9 percent. Meanwhile, some of the cities most beloved by the region's detractors, notably Boston, San Diego and New York, all suffered either lower rates of increase or outright declines.

Phoenix today also provides a higher-than-average level opportunity for the entrepreneurs who both constitute one of the key elements of the middle class and provide the pathway for many others. During the past three years of the 1990s, the region boasted among the nation's highest rates of new business formation, well above places like Boston, Portland, Seattle, New York and Chicago.

A 2000 study by the National Council for Entrepreneurship also placed the region ahead of other cities of 1 million to 3 million in terms of generating high-growth companies, well ahead of Atlanta; Minneapolis; Raleigh, N.C.; San Jose; and Portland.

These facts need to inform the current policy debate in the region. Unlike many of the cities held up as exemplars by local elites, Phoenix is growing the way great cities have throughout history: by providing an opportunity to a broad, socially diverse band of newcomers.

This growth, of course, also brings with it many challenges, from stress on infrastructure and schools to traffic congestion.

But these are not the problems of a decaying city; they are the problems faced by a city that, like Amsterdam in the 1600s, or New York in the early 1900s and California cities in the later part of that decade, seen by new generations as places of aspiration and mobility.

Joel Kotkin is an Irvine Senior Fellow at the New America Foundation and author of The City: A Global History published this month by Modern Library. He is also author of the study "Phoenix: A City of Aspiration" to be published later this month by the Goldwater Institute.

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