The economic downturn and urban development pattern

The Sunset of Tokyo Bay, by me

Global Downturn

The world has seen a great deal of record-breakingly frustrating economic figures and globally well-known tycoons and magnates of automobile and finance industries that have filed for bankruptcy protection, been in the desprate need of a bailout, or shut down. The global economic downturn resulted from the financial crisis that first appeared in the Wall Street. While those financially-talented hedge fund managers or clever derivatives inventors were making the most out of their talents by creating even more risky and lucrative products, the U.S. and other countries who have bought those creative products started finding themselves stuck in the condition of great risk.

Demand Side

With the soaring interest rates due to risk-pursuing behavior in the market, some people stopped buying houses and the others who have bought by mortgage loan found themselves having trouble paying it off. As a result, house prices started to plunge. The next? Automobile industry. Even in a period during which the oil price has dropped more than 75% (from the peak of $143.28 to $35.53 per barrel, chart), people still stop buying cars due to credit shrinking. House and car are two main commodities that people would take out a loan to purchase. Now, of course, without the backup of over swelling credit, the two have hit the worst record of recent years.

Supply Side

The extraordinarily inspirational victory speech delivered by the president-elect Barack Obama is still haunting around. He stated that “Let us remember that if this financial crisis taught us anything, it’s that we cannot have a thriving Wall Street while Main Street suffers.(see Barack Obama's Victory Speech, New York Times)" With such a strong slogan, the president-elect is not only talking about changing the political focus back to the the middle class who has felt left behind by President Bush, but also talking about creating jobs and solving the problems of house foreclosures and the falling down of the Big Three. In the economy-stimulating plan proposed by president-elect Obama, billions of dollars will be spent addressing the issue of aging urban infrastructures (see Restore and Improve Urban Infrastructure, Grand Challenges for Engineering in the 21st Century. ) that has been identified by National Academy of Engineering in the U.S. The academy noted that those once providing the country with the most safe and effecient economic backbone and quality of life have been ignored over the past several years."In 2005, the American Society of Civil Engineers issued a report card, grading various categories of U.S. infrastructure. The average grade was D." With the focus shift to middle class and the minority, more investment on the well-worn public transportation is to be expected.

Employment

The skyrocketing number of jobless applications is sending signals that the U.S. labor market has been deteriorating rapidly in recent months. The Labor Department announced earlier this month that employers cut a total of 533,000 jobs in November, lifting the unemployment rate up to 6.7 percent, highest in 15 years (see chart). As the companies around the world are slashing jobs, in Japan, the recent cut of more than 30,000 temporary workers (accounting for one-third of workforce in Japan) also made it one of the serious victims of the downturn. (see Japan's Recession Hits "Temps", WSJ). Even though the unemployment rate in Japan remains relatively low, at 3.7%, it might come at the expense of the temporary workers's welfare who work with no security and little benefit.

The Implication on Urban Development

Accordingly, there are more and more jobless people out there selling cars and houses, and trying to look around for more job opportunities. They would be likely to (or are forced to)move out of the suburb where the level of amenity is high and move into the more central part of a city where monetry transportation cost is much lower and where they can save travel time for fitting into more part-time job vacancies. Therefore, in a good time, we might think that movement of people looking for settlement is going outward (buying more cars, wanting more amenity, not needing a 2nd job), and that's when the property price of the outskirts is rising aruptly. On the contrary, in a bad time, the movement is inward to a city, and that is when the property price of the outskirts is sinking. However, the rental price around city center is more likely to rise as comapred to the selling price, because of the difficulties in credit market. The magnitude of this effect (the effect of economic downturn on travel mode choice and urban development pattern)will depend on how long people are going to bear to the brunt of the downturn that is said to be the worst in a century.