BETTING ON ATLANTA....

http://economix.blogs.nytimes.com/2010/03/09/betting-on-atlanta/

Atlanta has been one of the biggest boomtowns of the past decade but, like other such places, its housing market has received such a severe drubbing that its future seems far less secure.

Atlanta added 1.13 million people from 2000 to 2008, more than any other in the country except Dallas. But from 2005 to 2009, the number of annual building permits fell by 66,352, the biggest decline in any metropolitan area.

Will Atlanta continue to emerge as a mighty metropolitan economy, or will the housing downturn turn the area into a place that might have been?

The present and future of cities always reflect their past, so I’ll begin by sketching the arc of the city’s growth.

While America’s older cities were located on major waterways, Atlanta’s location was determined by the happenstance of railroad lines.

It was the eastern terminus of the state-subsidized Western and Atlantic Railroad, and the city’s name honors that line. During the 1860s, the city was first burned by the Union Army and then turned into a military capital during Reconstruction. In 1868, Atlanta became the state’s capital, and in the two decades after the war, Atlanta became an educational hub with the opening of Clark College and Atlanta University (now Clark Atlanta), Spelman College, Morehouse College and Georgia Tech, and the reopening of nearby Emory.

From 1870 to 1930, the population of Atlanta surged from 22,000 to 270,000 as its rail access and proximity to cotton country made it a natural location for factories like the giant Fulton Bag and Cotton Mill. Atlanta’s growth attracted entrepreneurs, like John Pemberton and Asa Griggs Candler, who would turn an erstwhile patent medicine, Coca-Cola, into a global mega-brand.

In the 20th century, Atlanta grew along with the rest of the Sun Belt, but the city’s education, politics and scale made its success an exception even for the South.

The broader economic success of the old Confederacy reflects political improvements and regional convergence, the tendency for poor places to grow more quickly, which was documented by Robert Barro and others. The figure shows the negative correlation (minus 0.70) between median income in 1950 and growth in the logarithm of median income between 1950 and 2000.

The South was poor and it grew more quickly, supported by an accompanying improvement in political institutions.

While the pre-World War II South was famous for single-party corruption that could scare off any industrialist, the post-Civil Rights Era South became known for being pro-business.

Right-to-work laws — laws, disproportionately enacted in the South and West, that generally bar requiring employees to join unions as a condition of employment — had a deep impact on manufacturing growth, as shown by Thomas Holmes. Before World War I, Atlanta experienced its immense 1906 Race Riot and the lynching of Leo Frank in 1913; in later years, Atlanta sold itself as the “City Too Busy To Hate.”

Heat-biased technological change bolstered the economic emergence of Atlanta and the South. Advances, like the air conditioner and cleaner water, made life easier and less deadly in hot places.

But the growth of the Sun Belt was not driven primarily by quality-of-life issues.

A core insight of spatial economics is that wages and prices and quality of life offset each other across space. Places with wonderful climates, like coastal California, have low real wages since people are willing to pay for the pleasant location. If the Sun Belt rose because people increasingly valued its amenities, then real wages in the region should be falling, but they are not. Incomes there are rising and prices are falling.

Housing supply, not quality of life, has been the crucial helpmate of economic convergence. Atlanta has kept housing prices low, despite a vast increase in its size, because there are few natural or legislative limits to new construction.

The city was built in the middle of the state with neither mountains nor an ocean to block its growth. The dominant political players have long been pro-growth, and as a result, much of suburban Atlanta is a paradise for builders. The resulting low home prices have helped bring millions to the region.

What about Atlanta today? Surely, a city that depended so much on building should be poised for collapse. Certainly, Atlanta’s 10.1 percent unemployment rate reflects its eviscerated construction industry. Certainly, like many other places, Atlanta is in for a rough few years.
Yet there are three key reasons to think that Atlanta will weather this storm and continue to thrive.

First, Atlanta benefits from the fact that it is the dominant agglomeration in the region. The continuing vitality of large cities is a remarkable feature of our age and Atlanta benefits from that fact.

Atlanta also benefits from its business-friendly politics, which will continue to attract plenty of companies.

Finally, Atlanta also benefits from being highly skilled — something that outsiders too often forget.

Nearly 43 percent of adults in the city of Atlanta have college degrees, as opposed to 27 percent in the nation as a whole, and 41 percent in Boston. The figure is even higher in surrounding Fulton County.

Skills have long led to urban success, especially when mixed with large urban size.

Smart money never bets against the ability of a huge concentration of smart people to weather an economic storm. Don’t count Atlanta out.