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Landmark Links March 7th – The World Needs Ditch Diggers Too

 

Lead Story… Early in the classic American comedy Caddyshack (possibly the finest film ever made, IMHO) protagonist Danny Noonan is caddying for Judge Elihu Smails in order to try to brown nose his way to an inside track for the Bushwood Country Club Caddy Scholarship.  Noonan tells the judge that he wants to attend college but his family can’t afford it, expecting some kind words of advice on how to better position himself to get the scholarship.  Instead, the always-caustic Smails responds with “Well, the world needs ditch diggers too.”  As harsh as Smails words are, they are technically correct and it’s advice that California should heed.

California is getting unbalanced and I’m not talking about the oft-repeated urban legend of the state breaking off at the San Andreas Fault and plunging into the ocean when the big one finally hits.  Phillip Reese of the Sacramento Bee wrote a rather un-nerving story this weekend about how California is losing lower income residents to other states while wealthier residents move here.

California exports more than commodities such as movies, new technologies and produce. It also exports truck drivers, cooks and cashiers.

Every year from 2000 through 2015, more people left California than moved in from other states. This migration was not spread evenly across all income groups, a Sacramento Bee review of U.S. Census Bureau data found. The people leaving tend to be relatively poor, and many lack college degrees. Move higher up the income spectrum, and slightly more people are coming than going.

About 2.5 million people living close to the official poverty line left California for other states from 2005 through 2015, while 1.7 million people at that income level moved in from other states – for a net loss of 800,000. During the same period, the state experienced a net gain of about 20,000 residents earning at least five times the poverty rate – or $100,000 for a family of three.

So what’s the big deal, you might ask.  Wealthier people moving in means higher incomes, less drain on government services, and arguably more consumption that drives the economy.  Unfortunately, it’s nowhere near that simple.  An economy can’t run on white collar workers alone.  You need the aforementioned truck drivers, cooks and cashiers as well as relatively low paying professional positions such as teachers and public safety personnel.  Once these people can no longer afford to live in close proximity to their place of employment, it has major negative consequences for an economy.  Yes, these jobs often pay better in San Francisco than say, Cleveland but the incrementally higher pay is eventually not worth it when an employee has to drive 1.5 hours each way to find a place where rent doesn’t cost 50% of their paycheck.  The consequences are everywhere.  For an example of how this is playing out in real time, San Francisco has been offering signing bonuses to teachers to help deal with a shortage  caused by the high cost of living there.
 
The problem, of course is that we aren’t building close to enough housing which has allowed for prices near job centers to soar while displacing hundreds of thousands of workers who don’t make $100k or more a year.  Again from the SacBee (emphasis mine):
 

The choices facing millions of low-income workers trying to rent in California’s urban centers are stark, LisaHershey (Hershey, executive director of Housing California) and others said. They can commute from far-away locales.

“People are having to move so far away from their jobs – driving two or three hours,” Hershey said.

They can spend a huge portion of their income on rent. Many experts recommend not spending more than a third of gross income on housing. But in California, “We are actually excited to see if people are spending less than 50 percent on housing,” Hershey said.

They can live in a cramped house with others sharing the bills. More than 750,000 California households live in a rental containing more people than rooms, according to the U.S. Census Bureau.

Finally, they can move to a more affordable area. “This is like the ultimate displacement,” Hershey said. “People are being displaced so quickly not only in our communities but from the whole state.”

Leaving CA
 
The cost of living has gotten so out of hand that it’s not longer only impacting blue collar workers and teachers.  Even tech workers are not immune to struggling with the high cost of living.  I’ve read several articles in recent months about how senior engineers making six figures are struggling with the high prices in the Bay Area.  Displacement is the ultimate outcome of decades of failed housing policy in the Golden State.  When the economy booms in a place like Houston, more housing units get constructed to meet the demand of a growing population.  However, coastal areas of California have devolved into a zero-sum game between the haves and the have-nots.  Thanks to CEQA and restrictive zoning, it takes years to get projects approved and even in the best years not nearly enough units are being built to satisfy demand.  The end result is that the housing supply in California has become somewhat of a finite good where rents and property values get bid up in a good economy and supply is not allowed to ever meet demand until a recession hits.  It’s not too late to do something about this.  However, recent efforts like AB 199 and LA’s Measure S would result in far less housing being built which is exactly the opposite of what we need right now.
 
The conclusion of the SacBee article was telling:
 

Other than housing, a key reason many are leaving is intense competition for jobs. Even in San Francisco, where the unemployment rate is low, there are so many people trying to make it that those without much education or training have trouble finding work.

“I just helped someone apply for a cashier position at CVS,” said Michael Bernick, a job training expert and former director of the state Employment Development Department. “Very competitive. The person I applied with failed, even though he has a college degree.” 

San Francisco “is the best employment market in the state – and yet even here, the cashier jobs, the restaurant jobs, are getting tens of applicants for most positions,” he said.

With persistence, it is easier to get an entry level job in some parts of California than others, though education and training helps greatly. “The minimum qualification for most jobs at $11 an hour is a high school diploma,” said Terri Carpenter, workforce development director at the Sacramento Employment and Training Agency. “If you don’t have any long-term experience to supplement a high school degree, you don’t have too much opportunities. Your most successful candidates are those who have at least a two-year degree.”

Several experts noted a growing income disparity between Californians with and without college degrees. That shows up in the data on domestic migration: About 800,000 more adults 25 and older without a bachelor’s degree left California for other states than came here; there was a simultaneous net gain of adults with graduate degrees.

“On a social basis, college degrees largely serve as sorters,” Bernick said. “People without college degrees are at a disadvantage in many jobs, especially decent paying jobs.”

Without a college degree, workers are generally, at best, stuck in low-paying jobs. And many of them decide to leave.

The jobs with the biggest net loss to other states from 2005 through 2015 were cashiers, cooks, truck drivers, material movers, retail sales reps and customer service reps. Those jobs alone accounted for a net loss of 200,000 California workers.

The professions with the highest net gain from other states? Software developers and physicians.

I suppose in some utopian fantasy land it would be wonderful for every citizen to have a college degree.  However, when one is required as a pre-requisite for an $11/hour cashier job at CVS, it simply doesn’t provide a very good return on investment.  It’s important to have software developers and physicians for sure but the world needs ditch diggers (and teachers, construction workers, police, cooks, drivers, cashiers, social workers and waiters) too in order for the economy to function on a daily basis.  Californians would do well to heed the immortal words of Judge Elihu Smails.
 

Economy

Can’t Do it All: There is simply no way for the Federal Reserve to maximize employment, stabilize prices and tame high asset prices all at the same time.  Something has to give.

It’s Happening: Fed Chair Janet Yellen all but confirmed that the Federal Reserve will be raising rates again at their March meeting.

Drill, Baby Drill: In the face of OPEC production cuts, shale drillers are proving to be more resilient than many believed they would be.  See Also: Bullish commodity bets hit record highs as investor seize on signs of growth.

Commercial

Getting Out of Balance?  Big box warehouses are getting constructed at a rapid pace but tenant interest is waning and vacancy has started to tick up slightly.

Lame Excuse: How do you know that traditional retailers are screwed?  They are now using delayed IRS income tax refunds as an excuse for poor performance.  Let the downward slide continue.

Residential

Final Frontier: The biggest test yet for the boom in luxury urban living is downtown Detroit.

Counter Intuitive: How developer Extell is selling units in Manhattan’s largest condo tower into a saturated market by raising prices.

Profiles

Don’t Try This at Home: It has proven incredibly difficult to build another Silicon Valley in other regions primarily due to a lack of capital and less depth of talent.  Google’ Kansas City Fiber experiment is just the latest example.

Cloak and Dagger: How Uber used a secret greyball tool to deceive authorities worldwide.

Never Would Have Guessed: I’ll give you one guess which state had the most consumer fraud on a per capita basis in 2016.  Spoiler: it was Florida. (h/t Darren Fancher)

FAIL: How an Amazon typo took down the internet last week.

Chart of the Day 

Productivity levels in residential construction sucks

productivity

Source: CityLab

WTF

Why Did the Chicken Cross the Freeway? Meet the crazy vegan who crashed her car into a chicken truck on a highway in order to “save the chickens.”  She fled after the incident but her license plate fell off, leading to her eventual arrest.  Just consider this your daily reminder that vegans are dangerous psychopaths.

What a Way to Go: A 50 year old Japanese man was found dead, buried under 6-tons of porno magazines that he had collected in his home nearly six months after he died.

Hard Grader: The world’s first “Smart Condom” claims to be able to grade your performance plus detect certain STD’s.

Nothing to See Here: A woman caught having sex with a homeless man behind a Walgreens was arrested for drug possession because, Florida.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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