In response to popular demand (well, one commenter asked for it), I’ve put together what I promise will be my last multi-colored Case-Shiller housing price chart for a while, this time with the price indices adjusted for inflation:
This chart gives me the opportunity to explore something that Curious Capitalist reader Richard “Creative Class” Florida wrote on his blog in reaction to my chart of the Case-Shiller numbers from about a month ago:
Generally speaking, metros that score highly on our creativity index continue to perform well. Seattle and Portland remain up as do Denver and Atlanta. Boston and Minneapolis are down a but not too much. Places like Miami and Las Vegas are literally crashing and the outlook is bleak in Rustbelt centers like Detroit which never saw much appreciation to begin with. Before anyone says anything, LA does not score highly on the overall creativity index. Washington DC is really a tale of two housing markets: prices remain relatively stable in the city but are plummeting in the suburbs. San Francisco’s declines are modest.
I’m a little dubious of using just a few years of data to draw conclusions about the real estate value of the creative class. But two decades of data, that’s something else. So here are the metropolitan areas from the chart above, as ranked by creativity index in the paperback edition of The Rise of the Creative Class:
San Francisco, No. 2, (Austin, Tex. is No. 1), 136% real home price appreciation since Jan. 1987
Boston, 5, 30%
Portland, 7, 141%
Washington-Baltimore, 11, 90%
Denver, 14, 47%
San Diego, 19, 117%
New York, 20, 48%
Los Angeles, 31, 129%
Chicago, 39, 64%
Tampa, 51, 45%
Charlotte, 60, 14%
Miami, 72, 94%
Las Vegas, 95, 72%
Cleveland, 118, 17%
The creativity index measures how important high-tech is to a region’s economy, how many patents are issued per capita, and how many gays and people working in “creative” occupations an area has relative to population. The creativity/real estate link doesn’t not appear to be what you could call a slam dunk. Miami, Vegas and LA are the outliers on the real estate upside, although I guess we’ll just have to wait and see how far they fall. Boston is the big outlier in the other direction, although I think the area’s poor real estate performance can be partly explained by the fact it went through a real estate boom in the mid-1980s (remember the “Massachusetts Miracle“?) that was just peaking in 1987, which is where the Case-Shiller measure starts.
It’s also the case that regionwide comparisons are of necessity pretty sloppy. On a neighborhood level, Florida has found pretty strong correlations (danger, pdf!) between real estate price increases and various of his creativity measures. Of course, a bigger question may be whether you really want your region’s real estate prices to go up like Portland’s. Charlotte has the smallest increase on the chart, yet it’s no economic basket case. I imagine it’s just a lot easier to get new houses built there than it is in and around Portland. Then again, I’d rather live in Portland than in Charlotte, but I don’t think journalists really have much of an economic multiplier effect. Artistic, gay journalists with high-level computer skills, maybe.
Update: Florida elaborates on his blog. A (longish) snippet:
… over the long-run, the big outliers in terms of the Creativity Index boil down to two cities – Miami and Las Vegas – both of which perform much better on the Case-Shiller Index over the past two decades than their (low) scores on my Creativity Index would suggest. One explanation might be that both regions have high Gay Index values (their technology and talent scores are low) which as Charlotta Mellander and I have found are extremely closely associated with median housing prices.
However, I think there is another, even more significant factor at work. The significant real estate appreciation experienced by Miami and Las Vegas over the past couple of decades was speculative and thus badly out of whack with their economic fundamentals. These are fun-and-games resort destinations which saw huge and unsustainable gains during the go-go years of the housing boom.
My main point is that now things are coming back to earth – and more into line with what the Creativity Index would predict. After two decades of significant appreciation Miami and Las Vegas have experienced big declines and are headed for even bigger ones, as the Case-Shiller Index documents. (I live in Toronto and want a house in warm weather and I`m prepared to wait it out another year or two until the south Florida market starts to really correct). My top Creativity Index regions – places like San Francisco, DC, Boston, Seattle, Portland, Denver, etc. – are showing mixed performance – some are declining more than others. But, if my priors are right, they should decline much more modestly than Miami and Las Vegas, and rebound quicker once things start to turn around.