Concerning incomes without geographic limits, foreign buyers drive up rents in global neighborhoods. With a strong desire to live, work, and play in global neighborhoods, millennials commit more of their annual wage to shelter than others are willing to bear. Many urban millennials toil in non-tradable jobs, usually services that require face-to-face interaction (e.g. hairdresser). Locals are generating the demand for certain kinds of businesses (e.g. restaurants) and labor (e.g. waitstaff). Such wages tend to be too damn low. Meanwhile, other city dwellers (including some millennials) have found employment in tradable industries. Employees in tradable jobs are more like foreign real estate investors. Incomes without geographic limits comprise the market for tradable goods and services. Hence, tradable jobs pay a lot more money than non-tradable jobs. In global neighborhoods, non-tradable wages run up against tradable wages. Even in zoning deregulated Houston, we have a problem.
Even in shrinking Rust Belt cities, we have a problem. Services normally associated with regional markets—you have to live there to receive them—can be tradable. Most institutions of higher education cater to the population residing nearby. However, some colleges and universities import freshmen from other regions, states, and countries. In these cases, higher education services are tradable. Same goes for health care, although large scale “exports” are rare. The Cleveland Clinic is one example. Another is Mayo in Rochester, Minnesota:
A $10 million sale of a downtown building shows the city center’s real estate remains hot as the temperatures start to drop.
An international real estate investor, represented as Baheya LLC, purchased the Brackenridge Skyway Plaza at 21 Second St. S.W. on Sept. 30. People involved with the deal declined to release the investor’s name or more details. …
… Rochester’s Oxford Property Management organized the deal for the Middle Eastern investor as it did in two previous downtown real estate purchases connected to the plaza. In 2011, Oxford helped Baheya buy the Odd Fellows building at 23 Second Ave. S.W. for $5.3 million. The 18,000-square-foot corner building houses the Eagle Drug Store, Essence Skin Clinic, the Nail Bar, WSB & Associates, HDR architects and Newt’s Express.
Oxford is known to work with international clients interested in investing in Rochester. Last year, Oxford helped orchestrate the $7 million purchase of the seven-story Associated Bank building at 206 S. Broadway. That acquisition, by Bloom Properties LLC based in Abu Dhabi, United Arab Emirates, is not connected to the Brackenridge project. …
… [Oxford Management President and CEO Mark Dickson] does concede that the value of downtown property is climbing due to the excitement spurred by Mayo Clinic’s Destination Medical Center.
“There is a lot of international interest in Rochester. They are watching all of growth here,” said Dickson. There is a lot of opportunity here right now.”
What’s the “Mayo Clinic’s Destination Medical Center”? It is the definition of tradable health care that attracts wealthy clients (and investors) from the Middle East. Abu Dhabi knows more about Flyover America than U.S. residents on either coasts do. Rochester, Minnesota, is on the global mental map and off the national one. Carnegie Mellon University in Pittsburgh has a stronger brand outside of the country than within it. Globalization knows all about Rust Belt real estate even if New York City cosmopolites do not. Domestic real estate investors suck at geography.
In Rust Belt cities, look at the neighborhoods near tradable eds and meds. Real estate appreciates dramatically. It’s like a second central business district (see the Oakland neighborhood in Pittsburgh) of tradable activity. Money flows into these concentrated geographies, an island of prosperity in a sea of urban blight. The better-paid price out tenured residents and young adult newcomers. Gentrification follows the lines of transit that connect homes to tradable jobs. Globalization diffuses in industrial backwaters.
In economic parlance, there is no “substitute” for the global neighborhood. All the demand for housing concentrates where globalization has a toehold. Dirt cheap digs, sometimes literally a few blocks away, fail to attract buyers. Ironic redlining hems in the prosperity of tradable eds and meds.
