Given the current state of affairs in the California economy, it should come as no surprise that change is expected, and indeed needed.  However, half the battle is pinpointing the exact cause of the problem. What has caused the roller coaster of economic failures in California? Why has it been so hard to lift ourselves back onto our feet after the infamous housing bubble knocked us down? And why are Californians suffering through massive personal debt as upside-down loans continue to consume their lives, and more often than not, lead to the loss of their property? The answer is simple: California needs jobs. [For more information on the impact jobs have on real estate, see the May 2010 first tuesday Market Chart, Jobs Move Real Estate.]

Decades ago, after the phenomenon known as urban sprawl drove large portions of the city population to the less developed rural regions known as suburbs, California’s cities began to suffer a slow, but very painful, deterioration. They began to break down socially and economically as the crime rates soared, cultural amenities were shut down and, perhaps the largest wound of all, businesses and available jobs began fleeing on the coattails of the suburb-driven evacuees. San Diego had lost almost all its corporate culture by the early 1990s as major corporate headquarters left for locations of more receptive populations.  The fact that within the past decade this trend has reversed in the country’s seventh largest city speaks volumes for central city changes.

Up until the rise of the suburbs, it was believed people followed jobs. It was assumed that the power cohort — the newly-educated working force of America — would gather their families and their possessions and migrate to locations of rich job opportunity. While this is true for some, it is not the most common trend. Instead, this educated populace often seeks something slightly more obscure than economic prosperity. The power cohort moves to areas boasting cultural significance; places with museums, schools, professional and financial centers, sporting events and eating and drinking establishments. As a result, jobs and businesses follow people who can fuel them, and who can fund them — more specifically, jobs opportunities follow the power cohort.

The primary weapon cities have in curing the state’s job plague is the high-rise building.

While economic pressures drove people from the cities to the suburbs, we may be seeing the start of another such shift. However, this time, that shift will be in the opposite direction. Due to the new energy ratings that homes will soon require, developers are becoming more apprehensive to take on contracts for large “suburb-style” homes despite the extensive freeway system that has been built to accommodate buyers.

In conjunction with building standard changes, the desire of wanting everything as spread out as possible is starting to wane as people are feeling the pressures of time, fuel  expenditures and the continuing rise of carbon emission concerns. Cities hold the key to each of those dilemmas facing California, but more importantly, cities hold enormous potential for unleashing a kinetic wave of job creation. [For more information on the pressures on suburb housing, look for the upcoming July 2010 first tuesday article on new housing energy ratings.]

The primary weapon cities have in curing this job plague the state’s been trying to shrug off for the past five years is the high-rise building. The high-rise building allows for large amounts of people to live in the smallest amount of space. That is not to say their living quarters are small, but rather the plot of land they take up is hugely reduced. Consequently, traveling time is reduced from an individual’s residence to his job, school and places of socializing — in fact, public transportation will finally be used to its fullest potential again. But the largest benefit of a denser population is the surge of employers who will pour in looking to take advantage of the centralized work force.

The more people cities are able to fit inside of their core centers, the greater their potential to flourish becomes. Businesses are drawn to people, and like-kind businesses tend to collect in single spots, as the exploitation of ideas and the possibility of transferring readily available product information becomes more easy and efficient. Consider Silicon Valley, the Fashion District in Los Angeles, Hollywood, Sacramento’s government headquarters, San Diego’s military industrial complex and the financial market businesses of South-Central Orange County. When the density of a location allows for it, businesses will cluster, and create oases of economic prosperity.  Suburbs are dormant, and sloth-like in comparison.