Home Sweet Apartment

This weekend, the Los Angeles Times provided a nice, personal take on what's going to be a big story as the local economy slowly emerges from the recession. Single-family homes are out. New apartment complexes are in.

The Times caught up with Jerry Epstein, the "last surviving original developer of Marina del Rey," who donned a very Old School seersucker jacket and hard hat to break ground on the new Shores development there. You really couldn't frame up this trend any better: like skinny suits and ties from the swinging Mad Men era, apartment living is coming back to L.A. Break out the cocktail shaker and sign a lease on a place with a view of the Pacific!

It's not hard to see why this is going down: Southern California was one of the regions that took the full brunt of the housing crisis. We had it all, from overbuilding in the Inland Empire to seriously unethical subprime entrepreneurship in the form of Countrywide Financial in Calabasas. Now owning is out and renting is in.

Renting is great, except when it isn't

You can ponder the economics of that, as have respected econo-bloggers like Felix Salmon of Reuters and Megan McArdle of the Atlantic. You can even question the whole "a home is a great investment" argument, as Wall Street gadfly James Altucher did right in the teeth of the downturn in 2009.

But it's useful to get away from the numbers and consider what renting vs. owning, at its core, means for the So Cal economy: people leaving the state.

Goodbye to all that

Renting has one financial advantage over owning: When times get tough, you can always pick up and go. The property, declining in value, is the landlord's problem. So here's what will happen in California as apartments displace houses as the preferred type of dwelling, possibly for a decade or more: We'll lose a generation of settled-in taxpayers. In exchange we'll get a steady flow of itinerant consumers who like sunshine and palm trees.

Labor mobility sounds great, except when your region has shed more than a million jobs and is facing budget crises at both the state and city levels. What Southern California really needs isn't a massive new apartment complex on L.A.'s Westside -- it needs mortgage reform. The region is counting on people who can't or don't want to buy staying put. But without jobs, that's going to be a tall order.

Unemployment: It Doesn't Look Good for L.A. Country

They say that people who don't have the personalities to become accountants become economists. And economists who have a masochistic streak become labor economists.

OK, so I made that last part up. But if you've spent the last three years studying employment data in Southern California, you're probably ready for a nice, long vacation. The region has been dealing with labor catastrophe since the beginning of the financial crisis. May was the first month that saw the Los Angeles County unemployment rate drop below 12 percent -- barely! It's a sign of how sluggish the recovery is that we're tempted to get excited about 11.9 percent.

It's about the growth, stupid!

You could call this good-bad news. Good because at this point any decline in unemployment is welcome. Bad because the decline is so meager that it proves growth isn't strong enough to bring the unemployment rate down to 5-6 percent, which would represent a return to what economists usually mean when they refer to "full" employment.

What's also worrisome is that many of the jobs that were added came in leisure and hospitality and construction. Tourism is a real pillar of the regional economy, and growth there shows that people are confident enough about their personal balance sheets to pay a visit to sunny L.A.

But these aren't the kind of high-wage, stable jobs that would signal a sustainable recovery. As for the construction uptick... well, it amounted to 1,200 more jobs than were created in April. The trend-line is positive, but at this rate it will take more than a decade to re-employ every construction worker who lost a job when the real-estate bubble popped. Chances are those laid-off carpenters aren't going to stick around.

The dog days have arrived

Are you depressed yet? It gets worse. Economists are now optimistic that the regional economy may see robust growth...by 2013. Two years away. And by "optimistic," what they mean is that growth will run at around 5 percent, what one would expect coming out a severe recession and enough to bring the unemployment rate down to pre-recession levels.

You don't have to be a labor economist lying on a bed of nails to figure out what the likely scenario is here: Persistently high employment for the next 12-18 months, with perhaps some light at the end of the tunnel in early 2013. This gloomy outlook was confirmed by the latest UCLA Anderson forecast.

Is there a way out of this quagmire? Here's one -- massive regional infrastructure improvements, which would re-employ thousands of construction workers and establish the region as a leader in modern transportation.

But that scenario depends on action both in Congress and at the White House, in the form of an infrastructure "bank" that could speed up development. And that's unlikely to be funded until 2014 at the earliest, if at all.

Executive Investment: Are College Presidents Worth What They're Paid?

California State University students are facing a yearly tuition bill that's nearly doubled since 2008. What was $2,400 will now cost $5,500, and although the hike was passed 13-2 by the Cal State trustees, one of the two voting "nay" was trustee -- and Lieutenant Governor -- Gavin Newsom, no stranger to staking out bold positions.

"We’ve almost gotten used to the notion that there’s going to be a tuition increase not once every cycle but potentially 2 or 3 times," he said in a KPCC report from July 12.

But at the same time as students are being asked to pay more for a Cal State education -- if they can get in at all, given that enrollment has been slashed by 10,000 -- they're seeing pay at the top keep pace with a national trend. Elliot Hirshman, San Diego State University's new president, will get a $100,000 raise over his predecessor, Stephen Weber.

Are college presidents really worth this kind of scratch? Especially when the state that employs them is dealing with a major fiscal crisis?

Um, well, yeah...

It depends on how seriously you take the idea that higher education is as big a management challenge as a private-sector enterprise. Hirshman's compensation package adds up to $400,000, which makes him ... very average, as far as college president pay goes. (CSU's Chancellor, Charles Reed, pulls down about $421,000 a year.)

The national median pay for presidents in 2009-10, according the Chronicle of Higher Education, was a little over $375,000. Ohio State's E. Gordon Gee, however, makes $1.3 million. Sounds rich, until you consider that J.S. Watson, the CEO of California-based oil giant Chevron makes $16 million.

Rising pay for college presidents has been controversial for a while now. We don't expect them to take a vow of academic poverty, but because they run non-profit institutions that are supposed to be devoted to the development and edification of the young, private sector-esque earnings strike some as unseemly.

How to hook the talent

But schools in the Cal State system are facing some major challenges. Their mandate is to educate serious but less-than-elite students, the ones who don't get into the University of California system. CSU bears a critical burden: providing the still-high-caliber learning environment that the state needs to maintain a competitive edge in an increasingly global economy.

If it weren't for CSU, California might lose these students -- and their economic potential -- to other states. CSU trains a lot of teachers, but also a huge number of engineers. It's also staked out a leadership role in biotech, an industry that could be critical to California's future growth.

Maintaining those standards amid a statewide fiscal crisis is a brutal commitment. In the private sector, a CEO with a reputation for turnarounds might be paid substantially more to fix a troubled firm than a CEO who's steering a company at profitable peace with itself.

Dealing with the backlash

Obviously, this doesn't always make students happy (although successful college presidents tend to capture the loyalty of the student body). But education is, unfortunately, becoming more of a necessity and less of a bargain every year.

Should California really be under-investing in leadership? The worst-case scenario is a death spiral of declining endowments and flagging academic credibility. On balance, a president represents a very small expenditure, relative to a college's overall budget.

For example, Mark Yudof, who runs the University of California system, makes about $800,000 against a total budget of ... wait for it ... $20 billion, according to the Chronicle of Higher Education. That's a pittance, when you consider how complex Yudof's job is.

And the job is only getting more complex. Accomplished CEOs could wilt in the face of what SDSU's Hirshman is up against -- but still cash checks with several more zeroes on them. Remember, Cal State is battling its finances at a time when some policy provocateurs such as Charles Murray are questioning the four-year college degree as the gateway to a better version of the American dream.