Every year, I, along with Pepperdine’s Michael Shires, have what has become the often-dispiriting job – for a 40-year California resident – of evaluating the nation’s metropolitan regions in terms of both short-term and midterm job growth. Yet, this year, the results for our state’s metros are somewhat improved, as California’s post-recession job-growth rate now equals, and could surpass, the still-somewhat insipid national average.
After years of subpar growth, California is reaping the advantages of a fortuitous economic alignment of ultralow interest rates, high stock values and growing investments in high-end residential real estate. Vast sums are pouring into the state for new tech ventures, speculative hotel and residential developments. Low borrowing rates allow the state to keep pace with its massive debts, while buoyant stocks help the massive government pension plans, which invest in the market.
Silicon Valley successes
The big winner, without question, has been the Bay Area. In our 2015 rankings of the 70 largest metropolitan areas, San Francisco-San Mateo holds first place, while the San Jose-Sunnyvale-Santa Clara area ranks No. 2. The job gains here are nothing short of explosive. From 2009-14, these two areas increased employment by more than 230,000 jobs, roughly a 20 percent jump. Tech employment drove this expansion, with information-sector jobs expanding well above 50 percent in each metro.
These gains dwarf anything else in a state where job growth has barely tracked the national average since 2007. It also is a unique boom, based largely on employment in social media and software. It stems from the unique presence of some of the world’s most powerful tech firms – Google, Apple, Intel, Facebook – attracting swarms of app-writers, consultants and business service providers.
How sustainable this boom will prove is clearly a big question. The area is certainly running up against limits to growth. Faced with some of the most Draconian planning edicts in the nation, the Bay Area simply has little room to grow, outside of building very high-density housing. This tends to make the prices for the housing most people prefer – single-family residences – extraordinarily expensive, which then also affects rents paid by those priced out of a purchase. This poses a major threat to Silicon Valley’s expansion, according to recent study done by the state, as it makes it very difficult for area companies to expand.
At the same time, there is growing opposition to attempts by tech firms to expand their physical presence. Companies like Google have engendered opposition over its proposed new headquarters expansion, and, in San Francisco, there is a growing unease over the influence of tech money on the venerable City by the Bay. Over time, as occurred in the past, we should expect much of the job growth in among Silicon Valley-based companies to occur outside the state, where the cost of everything – energy, housing, regulations – is far less onerous. But for right now, it’s “party on” time.
For the most part, you can’t really discern anything like a major boom in the state’s other big coastal metros. Outside the San Francisco-San Jose strip, not one of our biggest cities makes it in the U.S. top 20. The best performer, however, is in Orange County, where the metropolitan statistical area including Anaheim, Santa Ana and Irvine ranks 26th, up eight places from last year. Last year, the area enjoyed 3 percent job growth, but, since 2009, the total increase has been 11.8 percent, barely half that of the two big Bay Area economies.
But the O.C. did outperform San Diego (28th) and the third Bay Area metro, Oakland-Hayward-Berkeley (29th), which advanced two positions
Clearly, the tech revolution has not quite leapt too forcefully beyond the Bay, at least not yet.
The O.C. area also did somewhat better than Los Angeles (35th), which gained two places. L.A.’s job growth last year was only 2 percent. Noncoastal Sacramento (36th) gained nine places, but still lags a bit.
What accounts for this gap between the Silicon Valley-San Francisco boomtown and the state’s other major metropolitan areas? Perhaps the biggest explanation lies in the relatively meager expansion of information-sector employment in Los Angeles, up barely 3 percent since 2009; such jobs actually declined in the San Diego, Orange County and Oakland areas. At the same time, manufacturing jobs have continued to erode in Los Angeles, the nation’s premier industrial center, although they have rebounded somewhat in Oakland and Orange County after many years of losses.
Perhaps the biggest surprise in our findings this year has been the clear resurgence of the Inland Empire. Often derided as too sprawling to succeed in the modern era, the San Bernardino-Riverside-Ontario area notched a very impressive 11th place, ahead of such longtime high-flyers as Dallas and Atlanta. One key factor may be housing costs that – although rising – are a bargain compared with the increasing unaffordable Southern California coastal counties.
The IE’s recovery has been surprisingly robust, up 4 percent last year and almost 15 percent since 2009, a gain of more than 150,000 jobs. This growth has been broad-based, including critical sectors, from construction and manufacturing to warehousing and business services. Information jobs declined, but this sector is relatively small in the Inland Empire compared with coastal areas.
The big question facing California is whether the Bay Area boom will start to spread the wealth to other parts of the state. The Jerry Brown administration’s media admirers have proclaimed the state totally recovered, but the detritus of the recession remains: high welfare rates and continuing relatively high rate of unemployment and poverty. New initiatives to further tighten environmental rules could serve to slow growth, particularly in inland. State regulations against suburban housing and ever-rising energy costs (amid lower prices elsewhere) are likely to impact the poorer, more interior regions more severely than the increasingly gentrified coast.
The potential vulnerability of this bifurcated economy may not be fully realized until the current low-interest regime finally changes – making homes even more unaffordable – particularly along the coast, and as businesses begin to adjust to what seems to be an ever more Draconian planning regime. The essentially free money printed by the Federal Reserve and given to the investor class eventually will come with a cost. Companies that make no profit – and seem unlikely to ever do so – eventually will see a decline in capital lured by the promise of ever-increasing stock prices.
California has seen similar booms before, most recently in the middle of the prior decade, led by exploding prices for Google shares and relentlessly buoyant housing values, before slipping miserably during the ensuing downturn. The illusion of a great boom may help Gov. Brown and his followers sell their agenda, but only at the cost of future growth outside the Silicon Valley, and, eventually, perhaps there as well.
Joel Kotkin is the R.C. Hobbs Fellow in Urban Studies at Chapman University in Orange and the executive director of the Houston-based Center for Opportunity Urbanism (www.opportunityurbanism.org). His most recent book is “The New Class Conflict” (Telos Publishing: 2014).