New Geography of Jobs by Enrico Moretti
New Geography of Jobs by Enrico Moretti
Moretti is a researcher at Berkeley working on dynamic cities. He explains that cities changed a lot since the mid-80s, with a strong divergence between cities where educated workers congregate and those left behind.
San Francisco is not the same as in the 1980s.
Competitive Jobs vs Local Jobs
He distinguishes between trade jobs whose production competes with other regions (software, industrial production) and local jobs which get all their customer from the local consumers (local artisan, waiters, hairdressers, yoga instructors).
- industrial jobs have a positive effect on the economy, creating 1.6 local jobs
- high paying software jobs create up to 5 local jobs
- the high tech industry give cognitively talented person but many physical jobs get created locally, and they can have double pay in dynamic cities
- founders moving from Latin America or Denmark to San Francisco to be able to find the best environment
- Venture Capital: many VC only fund local companies
- Thick job market: Zuck moved from Harvard to SF to be able to hire the right web developers for Facebook
- Ideas emulation: ideas have a tendency to propagate locally first.
- such locations are also referred to as Schelling points
The best cities according to him are San Francisco, Seatle, Boston, Austin, Durham/Raleigh. Even then, SF is really far in front of Austin.
Efforts at offshoring or nearshoring can lead to teams that have much lower productivity so that companies keep their innovation hubs in these competitive cities.
Delving deeper into his data. High-income cities are:
- Stamford, CT
- San Jose, CA
- New York, NY
- Washington, DC
- San Francisco, CA
- Minneapolis - St Paul
- Seatle, WA
Moretti then comments on the unholy alliance of Nimby homeowners and intellectually dishonest progressives who advocate measures against "gentrification".
Policy Implication: Immigration and Education
Moretti explains that immigration brings in a barbelled population of high-value educated and uneducated workers. He also comments that what he calls "native" Americans do not study math as much as Indians and Chinese immigrants do, leading to visible differences in STEM graduation rates.
He advises that increasing budget for education and incentives to higher education help not only the recipients of the education but the whole community due to this high multiplier effect.
Because of the high multiplier effect, he also advises that immigration rules be relaxed for high value migrants. He repeats his view that gentrification and neighborhood improvements benefit everyone in the community.
Real Experience: Boston, London vs Buenos Aires
Below is a discussion I had with J, an investor I met online in 2020. What's interesting is how she confirms that Moretti's explanation that Boston did very well in the 90s, just as I saw London do very well. She was also saw the high productivity growth in such a dynamic city. That Jen and I did buy deep value real estate (South France, Japan, Argentina) resulted in the same: these did not perform anywhere near as good as "overpriced" dynamic city real estate.
I'll try to summarize my whole history of thinking about property
- late 1990s: first job in Boston. I wanted to buy a three family in South Boston for around $125k, my salary was $25k so would have been a bit tight them but would have been a good house hack. My boss told me not to buy because it would tie me down. I listened, he was ten years older than me, had a sports car so seemed rich and successful. Those sell for $1.3 million now (this was from the general Meds /Eds boom in the city plus the specific gentrification of that neighborhood)
- then I lived in NYC. I was still poor and low earning so rented a railroad style apartment in Greenpoint Brooklyn. I started sniffing around to buy because it was starting to gentrify. My mom visited and said "this is the dirtiest place I've ever been in my life" (from the biggest hippie ever so that was saying something). Prices went from $100-200k to $1-2 million
- moved to London for masters degree then Switzerland for three years. Didn't look at property, just focused on my school loans. Was reading Gloom Boom Doom newsletter and getting worried about Florida property as early as 2005
- Back in London in 2006. Boom times, interest only loans, champagne flowing from every cup. Could have afforded to buy by then but there was a big huge bubble almost everywhere in US and UK
- That led to our Buenos Aires buy. My husband is from there. When GFC hit things were just crazy...so many stressful Sunday nights wondering who was next to fail. China was booming, so was Argentina, selling them soy at high prices. But gorgeous Paris style property was available for cheap because of all their prior meltdowns. We paid £40k on USA credit cards (cash advance) for an apartment that we could rent for 600 per month (in USD) on airbnb. We thought we could "escape" there if NYC and London crashed. We balanced transferred for a while and paid it off and so it was a cash cow for a while with peak rents at $1000 Value hard to say now...market is frozen because of populism. We'd probably be able to get USD 100k. I'll try harder to sell next year. Local inflation has hurt us so our net yield has been falling but it still cash flows
- post crisis I wanted to jump into Florida but I had some major family drama back in Boston that cost me probably close to $200k over the years. Long story. I had to help out my mother and sister who were practically homeless.
- Bought a 2 bedroom condo in a gentrifying area. $270k and market rent $1300 in 2010. 3% down payment with Obama program at that time. They paid me $1000 in rent. My mom died in 2019 and so I sold for $435k. Rents had risen to $2200 by then and my total cost was $1700 so I could have held it with monthly cash flow but UK tax law changed so it was better for me to sell because I now have to deal with both US and UK tax code
- UK: primary home bought in a gentrifying part of South London. Up 50% since we bought in 2014 while prime areas have been flat since then (Brexit and possible crack downs on money laundering by oligarchs?)
I'd like to sell to take profit before brexit but it's not possible family wise, my son likes his school etc
I'm not that good at assessing what I might call a standard suburb or SFH market in the US. I'm just drawn to improving cities or improving areas within cities.
The standard suburbs seem quite exposed to overbuilding , so I imagine they're great after a crash but what now...where to go for value.
I'm focused on Colorado Springs because there's a barrier to building: the west side of town faces the Rockies . If you go further east it gets dusty and a bit generic . North /South expansion will happen but it will be generic plastic houses, it's just not my thing. The yields are not great anymore so it might not happen. Benefiting from Denver overflow and has tons of military for diversification
Even though Durham NC has a cool factor (research triangle, foodie town), the numbers don't seem to work anymore and I don't see the same barriers to new construction like in Colorado, nor the waves of people and money coming in from California like happens in the West
These are just my personal opinions, I'm nothing like the people on bp with ten million doors.
Miami: an emerging 2022 Schelling point according to FT
According to this Feb 3rd 2022 FT article, Miami has become after Jack Abraham, and then Keith Rabois escaped to Miami, getting Bitcoin conference to be organised there instead of in LA.
This is due to the Miami major being more friendly to bitcoiners than legacy brands cities. So arguably, Miami might be next on the list.
This is relatively recent (since 2020 only) but could go on for a while. The people cited in this bought houses worth 17mn. It is not my core strategy to buy at this market level, but one could play further rent increase, like a SF without the rent control.
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