The rise of the “Creative Class” and what it means for Bay Area real estat
I recently picked up a fascinating book by Richard Florida, the best-selling author and world-renowned expert on urban studies. In his book, The Rise of the Creative Class, Professor Florida argues that a region’s economic health and vibrancy will increasingly depend on how well it attracts and retains what he calls “the creative class” – a fast-growing, highly educated and well-paid segment of the workforce.
Florida describes the creative class as “a profound new force in the economy and life of America.” Members of the creative class do a wide variety of work in a wide variety of industries, from technology to entertainment, journalism to finance, high-end manufacturing to the arts. “They do not consciously think of themselves as a class. Yet they share a common ethos that values creativity, individuality, difference, and merit,” he writes.
What attracts the creative class to an area? In an article for The Washington Monthly, Florida writes that “creative centers provide a solid mix of high-tech industry, plentiful outdoor amenities, and an older urban center whose rebirth has been fueled in part by a combination of creativity and innovative technology, as well as lifestyle amenities.
“More and more businesses understand that ethos and are making the adaptations necessary to attract and retain creative class employees –everything from relaxed dress codes, flexible schedules, and new work rules in the office to hiring recruiters who throw Frisbees. Most civic leaders, however, have failed to understand that what is true for corporations is also true for cities and regions: Places that succeed in attracting and retaining creative class people prosper; those that fail don't.”
How do you build a truly creative community – one that can survive and prosper in this emerging age? “The key can no longer be found in the usual strategies,” Florida writes. “Recruiting more companies won't do it; neither will trying to become the next Silicon Valley. While it certainly remains important to have a solid business climate, having an effective people climate is even more essential. By this I mean a general strategy aimed at attracting and retaining people – especially, but not limited to, creative people. This entails remaining open to diversity and actively working to cultivate it, and investing in the lifestyle amenities that people really want and use often, as opposed to using financial incentives to attract companies, build professional sports stadiums, or develop retail complexes.”
It struck me as I was reading The Rise of the Creative Class that where the creative class decides to migrate can go a long way to determining the long-term health of a region’s housing market every bit as much as it determines the health of the economy. So how does the San Francisco Bay Area fare? Extremely well. In fact, when Florida decided to rank large urban areas in the U.S., the Bay Area came out as No. 1. (see the chart below from The Washington Monthly).In his article, Florida says that “the San Francisco Bay Area has everything from posh inner-city neighborhoods to ultra-hip districts like SoMa (South of Market) and lifestyle enclaves like Marin County as well as the Silicon Valley.”
Those of us who live here know that we pay a price to do so. Our housing market is certainly one of the more expensive ones in the country. But we’re willing to pay a premium because this region has so much to offer, from a vibrant and growing economy to world-class restaurants, arts and entertainment, from wonderful weather and beautiful scenery to seemingly endless outdoor activities. Just as important, I believe, is the Bay Area’s overall quality of life, our rich culture of diversity and creativity. It’s why we will continue to be a premier destination for the “creative class” – the entrepreneurs and leaders of tomorrow. It’s also why our housing market should remain strong and growing for years to come.
Large Cities Creativity Rankings
Rankings of 49 metro areas reporting populations over 1 million in the 2000 Census
Top Ten Cities
1. San Francisco
3. San Diego
6. Chapel Hill
9. New York
Below is a market-by-market report from our local offices:
North Bay – The local market feels sluggish, according to our Greenbrae office, with buyers slow to pull any triggers and sellers slow to make the necessary price reductions. Condo sales are down slightly from the same time next year, partly due to FHA financing and buyers having to put down at least 25%. Single family home sales are up slightly while inventory and days on the market are down – just as they are on condos. In Northern Marin, the market is still slow and soft, except in the lower price segment of Novato, where it is now a seller's market. Although our Southern Marin office reports that sales activity and inventory are both up, it adds that agents continue to be frustrated by buyers sitting on the fence and some sellers being unrealistic on price. Our Petaluma office says we’re seeing a lot of price reductions in the upper end, and still a limited amount of sales, though they are still happening. Sales are holding steady in Santa Rosa. Lower price points seem to be drifting lower while upper end sales are increasing. Our Sebastopol office says listing activity is almost nonexistent. There are buyers in the market place but every day they have a new reason to put off their buying decision. Even these historically low interest rates are not influencing their motivation.
San Francisco — Open houses have had a steady stream of interested buyers and sellers, our Lakeside office reports. The inventory is still pretty high but our agents are chipping away at it with sales. Our Lombard office says condo inventory is the highest it has been a year. Buyers are out there, but they are deal-hunting and cautious. According to our Market Street office, open house traffic was slower than usual in the past two weeks with a few exceptions. Maybe it’s not surprising that the traffic was slower considering the beautiful weather Fleet Week. A condo in district 5 had 80+ visitors in over the weekend. Ratified offers are coming in with solid well qualified buyers who have not compromised in their home search. Short sale listings are coming in at a steady rate and they are being sold quickly, so it’s a matter of getting approvals.
SF Peninsula — Activity on the coast is slow, according to our Half Moon Bay office. We have 1 years worth of inventory in all price ranges. The home must be in special condition, location and price to generate activity. In Menlo Park, the market has been fairly steady. We have had a very busy two weeks – it almost felt like the spring market. Buyers are stepping up. But even with multiple offers on our mid level prices, prices are generally not going over list. A few higher end properties are moving – price ranges in the $2 to 2.5 mil range are now moving a bit better. In Palo Alto, open houses still seem to be relatively strong up to the $3M mark. If priced well, there are multiple offers and very little inventory. Our Redwood City office reports that it has been very slow the last couple of weeks. Both sales and listings are down. Some buyers are moving very slowly, believing that the market will continue to decline. Our San Mateo office says that inventory is moving slower than normal at this time of year. The accumulation seems to be gradual, but it is slowly building toward the end of the year. In Woodside, the local market is alive and has had a clear renaissance. Four homes have sold in Woodside in the last 10 days all over $6 million – and three of them had multiple offers. This is a stunning development since we have had just four sales over $6 mil in the last 12 months. Big money is getting confident, our local manager says.
East Bay – Our Berkeley office reports that open houses are well attended at all price points, especially if they are well located and fairly new on the market. The 400k to 1.2 million dollar properties are getting lots of looks, usually 45 to 70 visitors. Meanwhile our Oakland office says the market is busy with buyers turning out for open houses. In Orinda, our local office reports that sales and inventory have declined recently, while in Pleasanton the market is reported as steady. In Castro Valley, it appears that the market is picking up. Homes are staying on the market for a shorter period of time. On the downside, our local office is experiencing a higher than normal sales cancellation rate. Homes are not appraising for the sales price and on short sales the banks are not willing to lower their asking price. Listing inventory has decreased in Fremont with the start of school and the upcoming holidays. Sales are increasing, possibly due to people wanting to close before the end of the year. In the past two weeks in Livermore, active inventory has increased 10%, while total pending sales have dropped 8%. Open houses are less active in Livermore than earlier in the year. Finally, in Walnut Creek, sales activity is slow. Buyers are looking for real value, our local manager says. Listing inventory is increasing slightly and we’re seeing more non-distressed properties coming on the market.
Silicon Valley – Sales activity is on the rise and inventory is declining, according to our Cupertino office. If a home is really well priced, it gets a lot of attention. Otherwise it sits. Open house traffic was slower, but still respectable. Our Los Altos office says sales and inventory are decreasing. The Previews market is slow above $2M and get slower as the price increases. In Los Gatos, properties that are priced at or below market value continue to sell rapidly and in some cases with multiple offers, which seem to be increasing. Our San Jose offices report sales activity steady to declining. Our San Jose Main office says open house activity, however, is increasing, especially in the $500,000 to $800,000 range. Inventory seems to be leveling off and/or decreasing, which is typical this time of year. Low interest rates are keeping some buyers in the market currently. In Saratoga, agents are having numerous problems with unsure buyers and lenders not closing transactions on time.
South County – The South County car dealers have an advertising slogan, “Drive a little, Save a Lot.” This can also be said for the South County Real Estate Market. There are a myriad of buying opportunities in Gilroy and Morgan Hill. This is especially true for our “upper-end” market—where truly remarkable estate type homes are being offered at extraordinary prices. For just over $1 million, buyers can purchase a 4,000-5,000 square foot home on acreage with many amenities—pools, stables, etc. For those looking for upper-end homes, the South County is truly a buyers’ market.
Santa Cruz – Sold properties in the county are down over 2009 levels by about 11%. Prices remain almost identical to 2009 with the median at $525K. Inventory levels remain the same as a year ago with about 650 single-family homes on the market. The days on the market is longer by 22% over the same time last year. Santa Cruz is experiencing the very best weather of the year and real estate sales typically stay steady though Oct./Nov, so we’ll have to see how it turns out this year. Agents continue to work harder than ever as getting the deals closed has proven to be more challenging in 2010 than ever before. Buyers remain conflicted and cautious. Short sales continue to have a strong impact on the market and the approval times remain long – usually more than 4 months.
Monterey Peninsula – The Monterey area is enjoying a wonderful fall, which is generally a time when many of potential buyers like to visit and look at properties here. Our local offices are holding about 50 open houses each weekend and attendance has been good, particularly in Carmel. Sales activity has continued at a good pace, with sales from the very low price ranges to multi-millions, even one sale at almost $5 million last week. Of course, there are far more sales in the lower price ranges. We are noticing some sellers concerned about capital gain taxes next year, so are anxious to sell before the end of the year, if they can, even willing to give on price and repair requests for a close in 2010.
So as we begin this final quarter of 2010, let’s stay mindful of the fact that we are truly in one of the most desirable areas in the world in which to live. It’s no surprise that the San Francisco Bay Area has been given the #1 ranking in the US as a creativity center – and it’s why the Bay Area will always be an excellent place to live and to invest in real estate.