Bismarck, North Dakota has the lowest unemployment rate in the nation at 3.1 percent (www.bls.gov/metro) (Click here to view the complete list of 100 lowest unemployment cities) , but despite the abundance of available employment the city is not listed among the top one hundred fastest growing cities. On the other hand, Los Angeles is ranked as the fastest growing city in the nation (www.citymayors.com/statistics) (Click here to view the list of top 100 fastest growing cities) , yet it has a staggering unemployment rate of 12.1 percent. What attracts thousands of people to a city such as Los Angeles with a high unemployment rate? Why do cities such as Bismarck have an abundance of available employment yet hardly experience growth? Are either of these situations ideal for real estate? In his book, Flight of the Creative Class, Richard Florida states, “My research and many other recent studies have shown that place does matter; many people choose location first and then look for jobs in those locations” (Florida, 44). In this paper, I will apply Richard Florida’s location concept to identify the location factors that create jobs, highlight the location factors that attract people, and explain the significance of a mismatch between growth and employment to the real estate industry.
Bismarck, North Dakota’s abundance of employment paired with mediocre growth debunks the myth that if city officials create the jobs that people will follow. Using the Richard Florida location concept, people simply are not choosing this location in order to seek the available jobs. “Location, location, location” is a phrase commonly associated with real estate or as Dr. Hansz teaches in his Real Estate Analysis course, “situs, situs situs”! The critical property features such as accessibility to a nearby market area or natural resources present on the property are the situs (Hansz & Diaz, 66). These critical property features create opportunities for entrepreneurs who then create jobs. As an example of situs creating jobs, a broadcaster on the National Public Radio Show explains, “Developers of solar power have a keen interest in the Mojave Desert. There’s lots of sunshine, potential mother lode of renewable energy” (NPR, Sept 23, 2010). (Click here to listen to the entire radio show). The nearly continual sunshine as an example of the situs for the property has created the opportunity. If developers were to act on the opportunity, then the actions would create jobs. The jobs would attract a small amount of people. The question then remains, if jobs draw a small number of people what else is the city of Los Angeles (or places similar to it) doing that are attracting more people than cities such as Bismarck?
Los Angeles utilizes factors other than employment to attract thousands of people. In his book, Flight of the Creative Class, Richard Florida explains the factors that attract people to a city with three T’s (technology, talent, and tolerance). He states, “to be successful, regions need to do all 3 T’s well and to offer people lots of options. …This is what regions like Boston, San Francisco, and New York provide: lots of options that appeal to different contributors of talent” (Florida, 54). In addition to Richard Florida’s 3 T’s geography is also a factor that attracts people. Cities near coastlines or large bodies of water such as the Gulf of Mexico or Great Lakes tend to attract more people than cities in the Central United States. If cities such as Los Angeles are strong in attracting people, but don’t have enough employment how does this affect their real estate market?
After identifying high employment and fast growth situations, one may then question the impact of these scenarios on their respective real estate markets. Cities with low unemployment have an advantage for their real estate markets because they have a strong economic base. In his Real Estate Analysis course, Dr. Hansz defines an economic base as, “the business and industrial composition of the region’s local economy” (Hansz & Diaz, 75). He further asserts, “the values of our property and the success of our real estate developments and investments are directly related to the economic base” (Hansz & Diaz, 76). Cities with fast growth have an advantage in their real estate markets because they have a strong central business district (CBD). In our real estate analysis course, we define CBD as a central point for outward growth and areas near central business districts have higher property values due to the attractiveness of accessibility. If a city such as Los Angeles has large central business districts which follow Richard Florida’s 3 T’s, then the city is able to offer many more properties with high values compared to a city such as Bismarck, North Dakota.
Since low unemployment and fast growth each offer advantages to their respective real estate market, a synergistic approach to managing growth and employment would be ideal to realize the advantages of both scenarios. Upon recognizing the synergistic possibilities of these competing forces, rather than epiphanies, the recognition leads to yet more questions. In our Real Estate Analysis course we study the concept of highest and best use for a piece of land, which is the use that yields the maximum return to the landowner. First, there is an issue of whether the highest and best use primarily attracts more people or creates more jobs. Secondly, it then becomes a question for city officials, real estate academics, and developers to decide the ideal balance between growth and employment to recognize the maximum return in the form of the highest property values possible for the respective real estate market.
“City Mayors: Fastest Growing US Cities”. City Mayors: Mayors Running the World’s Cities. Web. <http://www.citymayors.com/gratis/uscities_growth.html>
Real Estate Analysis Environments and Activities. Kendall Hunt, 2010.
“Unemployment rates for Metropolitan areas”. US Bureau of Labor Statistics. Web. <http://www.bls.gov/metro/laummtrk.htm>