Tuesday, June 05, 2007

It's all about substitution

The best when to analyze a market is to think in terms of substitution. Are the prices of comparable opportunities equal or higher to my choice? If so, then I'm probably paying about right.

In real estate, for example, is that house I'm thinking of buying on this block similar to the one for sale a block away? How similar? Is it in like condition? Is it less expensive? Is the block as nice? If so, then I'll probably go to the substitute and leave my original choice behind.

The idea of choosing substitute opportunities has me thinking about recent news of some popular people leaving St. Louis. We always are sad to see talented people not "choose" St. Louis. It makes some of us feel a little rejected.

When people leave, especially in such a strong neighborhood place as St. Louis, it can make us feel a little less validated about our own decision to choose St. Louis. For a long time, St. Louis has had issues and challenges in retaining young people. However, when people leave, they are making a similar substitute decision.

What are they substituting? Weather. Traffic. History. Neighborhoods. Friends. Cost of living. Gritty urban fabric. Stable economy. Strong academic institutions. Great parks. Easy access around town. Lots of free amenities. Great restaurants. Overall, a great quality of life.

A friend and I were discussing this issue yesterday. I was asking him about what sorts of things would motivate him to leave St. Louis. Then we talked about it in terms of the overall substitution choice. You might get better urban density somewhere else, say in Manhattan or downtown Chicago, but what about the cost of living? You get the idea.

So what about you? Are there substitution choices so powerful that they'd motivate you to leave town? Besides a lover, a job, a teaching assignment?

For years, weather was a huge choice, driving millions of people to California. However, now other factors in a California choice, such as congested roads and high living costs, are having would- be emigrants to the west coast reconsidering the California option.

If you put everything in the lifestyle substitution basket together, you have your overall quality of life. Has anyone ever seen a quality of life ranking for US Regions? It would be interesting to see how St. Louis rates.

However, these lists always seem a little suspect. San Francisco probably rates very highly in terms of quality of life. However, unless you're an investment banker, a real estate tycoon, a dot-com millionaire, or a trust fund baby, you would have a hard time affording it.

If you're like most average income Americans, by choosing San Francisco, you'd be living in an area with great scenery, resort weather, congested roads, and probably crowded into a tiny apartment or a house under a freeway interchange. Which substitutions are you willing to make?


Anonymous said...

I know of many families that have left the StL area. The reasons obviously vary but there're two common themes. They were the best and the brightest of our friends and all left for superior alternatives.

All enjoyed living here but as many of us know and realize, StL is no longer a world-class city. To fix this, locals have to first accept this fact and get over their defensiveness.

I have met a other families that moved here from more prosperous and urban-like cities and remain in the region. They were convinced by others to stay out of the city and moved west. They are shocked by the general attitude, auto-dependency, political apathy and thus have nothing positive to voice about the region (except for their paycheck and inexpensive housing). They also have zero interest in dealing with the SLPS, issues of crime and thus would never consider living in the city.

These are great families and in each case the parents have advanced degrees in business, education, medicine, etc. But the StL region no longer is an international hub and in most cases, this caliber needs good and reliable international transportation services.

Cheap housing helps, but with career success, this variable has less importance. To keep the best and the brightest, regional leadership must be more inclusive and concentrate on improving the business and political climate.

Anonymous said...

I left STL about 3 years after graduating from college. My main factors were that I had lived in STL all my life, and that I wanted to experience a more urban environment. My job offered me an opportunity in Chicago and my wife and I moved into the city.

Chicago is a truly great urban city. Great transportation, great architecture, great bike path near the lake, etc...

However, my wife and I bought a house in STL city and are currently renting it out. When we are ready to start a family, we'll be moving into the house in the city. Why? We can't afford a house in the urban area of Chicago, but we can in STL. In fact, STL offers many of the same benefits of Chicago, great architecture, great neighborhoods, good transportation (metrolink and bus system), and definately a more affordable housing stock. I also feel that raising kids in the city of STL is more reasonable than Chicago, despite the SLPS issues.

My main reason for coming back to STL is because I left STL in the first place. I have a much greater appreciation for the city and what it offers than most that probably live in STL. Many are so stubborn in the STL region, and don't explore the city and see the beauty that it has. Now that the city is focused on rehabilitation and it is taking place within the neighborhoods, it is turning the city around and making it much more attractive to those outside the region. The city leaders need to make sure this trend continues, and STL can again become a world class city because it will re-attract those who left, and attract new people who appreciate it's beauty and benefits.

Anonymous said...

If you can afford it, be sure to keep the property in the more prosperous city. Our home in Chicago has tripled in value while our home in St Louis has only increased 20% in the same time period. Live and learn...

Jackson said...

"Our home in Chicago has tripled in value while our home in St Louis has only increased 20% in the same time period."

What time period is that?

Ted said...

I met a couple a few years ago who moved from San Francisco to St. Louis. At first they missed San Francisco, though after they built a core group of friends, they loved St. Louis and settled in the CWE. After May Department Stores was sold, they decided to move back to San Francisco since they still owned some property there. Today they miss St. Louis and would jump at an opportunity to move back.

Anonymous said...

St. Louis is the best buy for old urbanism. However, it has some of the worst parochial politics.

I'm moving for a better job in an area with better winters, better natural scenery (between mountains and ocean), less crime and comparable cost of living. However, my future sunbelt home will completely lack the character of St. Louis that costs too much in other old urban centers like Boston or SF.

St. Louis has dreaded weather, change-adverse politics and simple landscapes. But I'll miss living in my industrial brick city of old urbanism. Our built environment remains our greatest asset, especially for the price.