Ventura City Manager Rick Cole to California Real Estate Industry: ‘Get Real!'

Looking back three years ago, it is hard to fathom how much has changed from the frenzied pace of development then going forward. Land and housing prices were still rising, ever-larger development projects were being launched, and growth debates were raging across Southern California.

That's all gone now.

As key real estate players suddenly find themselves without jobs, as more developers file bankruptcy, and more projects bite the dust, the depth of this "downturn" is sinking in.

Many, of course, have "been through this before." By that they mean, they've weathered the cyclical postwar busts that have intermittently interrupted the long boom, including the deep downturn that followed the collapse of the local aerospace industry and the Rodney King riots. But it is becoming increasingly clear that this is different.

How different?

It is too soon to tell. But for the first time in my lifetime, the question is not "when" the market will come back, but "whether."

Growing up in Pasadena, I was always struck by the Fish Building on Colorado Boulevard. It has gone through many changes since I first noticed the date on the cornerstone. At the time it was a thrift store. Now it is a trendy Urban Outfitters store. It was the last building in the city's historic core constructed before the Great Crash, and the cornerstone reads: 1929. It was nearly sixty years before another building was built in that now-thriving neighborhood.

We all know other areas of our region that growth has bypassed for decades-and we all know other regions across America that have long been stagnant, like the factory towns in Bruce Springsteen's haunting song, "My Hometown":

Now Main Street's whitewashed windows and vacant stores

Seems like there ain't nobody wants to come down here no more

They're closing down the textile mill across the railroad tracks

Foreman says these jobs are going boys and they ain't coming back to your hometown

But with our booming population and unending influx of immigrants, it has never seemed conceivable that the Southern California region might confront such a gloomy prospect. Yet for the first time in 20 years, national magazines are again predicting our demise.

Contrarian Joel Kotkin, in a scathing Newsweek essay entitled "Death of the California Dream," attacks familiar targets, including real estate speculators and our dysfunctional political class, with particular disdain aimed at elitist "green politics." But the real problem isn't with California. The problem is with our national approach to real estate-one pioneered in California, long the poster child for sprawl.

We are witnessing an historic sea change. It is no coincidence that the global economic crisis was triggered by the collapse of American sub-prime mortgages. Sprawl is now the poster child for our unsustainable way of life, starting with "real estate."

In his brilliant analysis of the Great Depression, economist Karl Polanyi pinpointed the fallacy of what today we would call "free market fundamentalism" in mistaking land for a commodity. It is not, for the simple reason that his contemporary Will Rogers famously pointed out in his quip: "Buy land, they ain't making that stuff anymore." Treating land purely as a marketable commodity produces disastrous "externalities," ranging from massive (but hidden) public subsidies of sprawl to environmental disasters like the Dust Bowl.

We seem to be belatedly rediscovering this inconvenient truth. Answering questions in Florida last week, President Obama talked about the need to invest in new transportation alternatives because, he stated: "The days where we're just building sprawl forever, those days are over. I think that Republicans, Democrats, everybody... recognizes that's not a smart way to design communities. So we should be using this money to help spur this sort of innovative thinking when it comes to transportation."

It was a largely off-hand observation and the topic remains largely absent from the great debates in Washington. But more and more, voices are finally connecting the dots between our dependence on foreign oil, our appetite for carbon-based energy, our colossal infrastructure deficiencies, our eroding standards of living, and our structural public deficits. Sprawl isn't the only cause of these crippling threats to the American Dream, but it is certainly one of the most important and undoubtedly the least examined.

Of course, I here use the word in its broad (and often abused) sense. By sprawl, I mean the whole pattern of auto-dependent, single-use real estate development that has spread across the American landscape in the last 60 years. Not solely development at the edge-but all the formula-driven churning-out of "product" from residential subdivisions to strip centers to business parks. That business model has produced billions in profits and put the public on the hook for trillions in bail outs, including "shovel-ready stimulus" highway projects aimed at reviving the real estate Ponzi scheme that got us in this predicament to begin with.

Economist Herb Stein is best remembered for his observation that "things that can't go on forever, don't." So it is with sprawl, the real estate and development industry as we have known it, and the confusion of "economic development" with building shopping centers and auto malls.

I made a bet with my wife in 2007 that the Dow would fall below 9,000 before Bush left office (virtually inconceivable then, a no-brainer in retrospect). Yet I remain an optimist. I believe that out of the "creative destruction" of this global meltdown, Southern California can again be a pioneer. But not by hoping and planning for a return to an unsustainable "normal." No, this time it is not just market demand that has gone missing. It is the economic, environmental, and social model on which we have based our growth policies, investment patterns and development practices.

For thousands of years, people have built increasingly sophisticated and prosperous cities and towns, long before the advent of zoning, autos, cheap oil, real estate investment trusts, and corporate development companies. In the tough times ahead, we will need to relearn from those timeless ways of building. That does not mean turning back the clock on progress. It means adapting modern technology to human scale, harnessing private investment to life cycle returns instead of quarterly profits, and shaping great places instead of chasing great deals.

For cities, it means reforming zoning with form-based codes to legalize a mix of complimentary uses at human scale. For regions, it means developing "blueprint" visions that form the foundation for a comprehensive and collaborative approach to coordinating land use and transportation polices and investments. For the federal and state governments, it means revising policies that promote sprawl and auto-dependency. For the real estate industry, it means retooling to create sustainable value.

There is money to be made in building places where people live and work-there always has been. But when local "real estate" investments get bundled and traded on anonymous global markets, making money has eclipsed the creation of lasting value.

It's time for "real estate" to get real. It's time to overhaul the broken system. If the Southern California market is to come back, it can't be based on another round of sprawl. The time is now to begin building a new model.