I was born in 1957. That year, a 3 bedroom track home in Wichita, KS sold for the same price as that very same track home in Palo Alto, CA – about $10,000. Of course, things have changed hugely since then. Agriculture value had declined markedly, and automation has allowed for dramatic productivity improvements, robbing the heartland states of hundreds of thousands of agricultural jobs. Without people on the farms, the need for agricultural cities supporting the farms declined. No growth, and values decline. Today that home in Wichita is worth something like $50,000.
The land where the track home once sat in Palo Alto is worth $500,000. Because the explosion of technology jobs in Silicon Valley made demand for housing much greater, and as the value of technology soared those employed in the industry saw their incomes rise, allowing for higher home values.
It all comes down to growth. Geographic areas are like businesses in that growth leads to all kinds of good things – including higher home values. People go where the jobs are. Especially good paying jobs. And that comes from investing in innovation, and the companies that develop new solutions aligned with market needs.
According to Forbes magazine in "Houston: Model City" Illinois has lost 260,000 jobs in the last decade. No wonder home values in Chicago never soared like San Jose. But it's also no mystery why the 15-20% decline in Chicago real estate seems never to be improving. When a city stops growing – well – look at Detroit.
Today Crain's Chicago Business reported "Chicago Economy Sees Signs of Life, But Rocky Recovery is Forecast." Why? Little has been done to improve job growth. Once an agricultural center (the famous stockyards of The Jungle fame) Chicago became a powerhouse manufacturing center. But over the last 15 years the city and state have done almost nothing to drive more jobs related to information or the coming biological growth wave.
Few realize that the University of Illinois is ranked as the 4th best engineering school in the world. Yet, most graduates end up "going coastal" in order to find high paying jobs. Worse, innovators who want seed money or venture capital find none from the state, as it continues struggling to support the costs of jobs and pensions related to the now-gone manufacturing economy! Spending money trying to Defend & Extend the old manufacturing base. And there is almost no angel or venture private financing, which has grown considerably on both coasts, because that is targeted largely in non-manufacturing industries. And the large companies in Chicago – from Kraft to Sara Lee to Motorola to Lucent – to even Boeing – invest nearly nothing in spin-off companies and innovators in their own back yard. Many start-ups report they have to move either west or east in order to obtain financing for their ideas and rapid growth.
For cities and states, growth is the key. It is OK that once all the cowboys ended their cattle drives in Wichita. And that the world's largest grain elevator is just southeast of town. When agriculture was the center of the universe that was a good thing. But because the leaders did not transition toward new job growth as the economy shifted, Wichita is now a backwater. It is so hard to recruit talent to Wichita that Pepsi moved the headquarters of Pizza Hut to Dallas, and most of the decisions for Beech aircraft are made at Raytheon Headquarters in suburban Boston. Face it, do you want to live in Wichita?
How quickly will people say the same thing about Chicago? Already, nobody wants to live in Detroit. If Chicago city leaders, and Illinois state leaders, can't get out of old Lock-ins to manufacturing mind sets we all may be surprised how quickly Chicago follows its sister cities into unattractive outcomes. For politicians, and corporate leaders, a focus on growth is extremely important if they want to keep their city vibrant.
For residents of Chicago, there is ample reason to be worried about the future of their infrastructure and home values.