by Joel Kotkin 02/09/2015

Housing the future lgDo the middle class and working class have a future in the Southland? If they do, that future will be largely determined in the Inland Empire, the one corner of Southern California that seems able to accommodate large-scale growth in population and jobs. If Southern California’s economy is going to grow, it will need a strong Inland Empire.

The calculation starts with the basics of the labor market. Simply put, Los Angeles and Orange counties mostly have become too expensive for many middle-skilled workers. The Riverside-San Bernardino area has emerged as a key labor supplier to the coastal counties, with upward of 15 percent to 25 percent of workers commuting to the coastal counties.

In a new report recently released byNational Core, a Rancho Cucamonga nonprofit that develops low-income housing, I and my colleagues, demographer Wendell Cox and analyst Mark Schill, explored the challenges facing the region. Although we found many reasons for concern, the region’s overall condition and its long-term prospects may be better than many might suspect.

Population trends

The region’s once-explosive growth has slowed considerably. From 1945-2010, the area’s population soared from 265,000 to 4.25 million. Already the nation’s 12th-largest metropolitan area, the I.E. could pass San Francisco and Boston by 2020 (unless faster-growing Phoenix does so first).

Yet, contrary to expectations (and, perhaps, hope among anti-sprawl campaigners), the area continues to be a beacon for people from the rest of the region. There is a notion, widely expressed in the mainstream media, that Southern California’s growth will now focus more on the urban core around Downtown Los Angeles. Yet, as is often the case, what planners and pundits desire is not widely shared by the vast majority of people.

People continue to vote for the Inland Empire – and other peripheral areas – with their feet. Census Bureau data indicates that, from 2007-11, nearly 35,000 more residents moved from Los Angeles County to the Inland Empire than moved in the other direction. There was also a net movement of more than 9,000 from Orange County and more than 4,000 net migration from San Diego County.

Several long-standing demographic trends favor a continued shift to the Inland region, according to Cox and Schill. Immigrants and their offspring may prove the critical factor. Over the past decade, the Inland region dramatically increased its population of foreign-born residents, more than three times the number and at nearly 18 times the rate of the coastal counties.

The influx of immigrants and their children is largely responsible for the region’s relatively young population, compared with the rest of Southern California. As recently as 2000, the proportion of population ages 5-14 in Los Angeles and Orange counties stood at 16 percent, the sixth-highest level among the nation’s 52 largest metropolitan areas. Thirteen years later, that proportion had dropped to 12.8 percent, 33rd among the 52 largest metropolitan areas. In terms of a dropping share of youngsters, the area experienced a 20 percent reduction, the largest in the nation.

In contrast, the Inland Empire remains a bastion of familialism, with 15.3 percent of the population aged 5-14, among the highest levels in the nation. This follows a general pattern; according to recent analysis of Census data, high-cost areas tend to repel families. Of the nation’s most expensive areas, such as the Bay Area, New York and Boston, all tend to have well below national norms in terms of families among their populations.

Perhaps more surprising, younger educated workers also are heading to the region. In fact, from 2011-13, according to American Community Survey data, Riverside-San Bernardino witnessed the 12th-largest increase among the 52 major metro areas in the share of college-educated residents ages 25-34. No major California metro area, including Silicon Valley, could match it. From 2000-13, the Inland region experienced a 91 percent jump in population with bachelor or higher degrees, just less than twice the increase for either Orange or Los Angeles counties.

Overall, the I.E. has become something of a growth area for millennials – basically, adults ages 20-29. San Bernardino-Riverside ranked second among 52 metro areas, adding 50,000 millennials, an 8.3 percent increase since 2010. Los Angeles and Orange counties – older, settled areas with far lower population growth – together registered 18th.

Economic Restructuring

These trends also may reflect improving prospects for the region’s economic recovery. The area remains some 30,000 jobs below its 2007 level, notes California Lutheran University economist Dan Hamilton, but is now growing faster than the rest of the Southland. The region created jobs over the past year at a 2.2 percent rate, well above the 2.0 percent increase in Orange County and almost twice that of L.A.’s 1.3 percent. Foreclosures have diminished to the lowest levels since 2007 and appear back to something resembling normalcy.

One important source of new employment is grass-roots entrepreneurship. Overall, the Inland Empire accounted for a large proportion of the new businesses created statewide from 2012-13 – despite hosting only 7.4 percent of the total businesses in California. A recent report by Beacon Economics suggested that growth will accelerate over the next five years.

At the same time, some of the core industries – such as manufacturing and warehousing – have shown signs of recovery. Industrial vacancy rates have fallen from nearly 12 percent in 2009 to roughly half that level today.

Much of the growth has been for “middle-skilled jobs,” paying $14 to $21 per hour, including positions in medical services, trucking and customer service. Overall, according to one recent survey, the Inland Empire ranked 13th among the nation’s large metropolitan areas in creating such positions. These jobs, notes economist John Husing, are critical to a region where almost half the workforce has a high school education or less.

Even the housing sector, the driver of the post-crash employment decline, has improved considerably. Today, the Inland Empire is experiencing a far greater increase in construction permits than either Los Angeles or Orange counties. This has also helped boost construction employment, although not to anything like the levels experienced a decade before. Construction employment, although up recently, still totals barely half the people it did in 2006.

Some, such as University of Redlands economist Johannes Moenius, express concern that important industries, like warehousing and manufacturing, are increasingly using part-time workers. Positions paying $15,000 to $30,000 annually constitute nearly half of all new jobs.

The ambiguity in the recovery is reflected in a recent survey by Cal State San Bernardino, which found the percentage of those saying the economy was excellent or good had almost doubled since 2010, from 9 percent to 17 percent, but this was considerably below the 40-plus percent seen before the crash.

The Path Ahead

The fate of the Inland Empire remains in the balance. The recovery of the region depends largely on continued widespread population growth, largely stimulated by the production of affordable housing. Yet, at the same time, state regulations, spurred on by the environmental lobby, which seeks to slow, or even eliminate, single-family construction, threaten to force up prices and drive young families outside the state.

Many other core industries of the area – such as warehousing and manufacturing – also face growing regulatory barriers. High taxes and energy costs originating from Sacramento are particularly difficult for industries that require power to operate. Southern California Edison’s rates, for example, are almost twice those found in Salt Lake City, Seattle or Albuquerque.

Some may celebrate these policies that encourage people to say “good riddance” to a region too sprawling and insufficiently cultured. Yet, it’s hard to see how Southern California can continue to add workers – notably, younger middle-class families – without a vibrant Inland Empire. It remains the one Southern California region with the land, and the housing cost structure, to accommodate much of the hard-pressed middle class. Without growth inland, Southern California will be largely relegated to a torpid economy and rapidly aging demographics, a fate that would compromise the aspirations of future generations.

This piece originally appeared in The Orange County Register.

Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050.  He lives in Los Angeles, CA.