San Francisco's chief economist, Ted Egan, gave a pretty downbeat assessment of the region's economic outlook last week at a San Francisco Chamber of Commerce conference, citing the lack of employment growth and the anemic housing market as the major problems. That comes as no surprise.

But the contradictions of this recession were underscored when Egan noted that venture capital investment soared in the second quarter, and that industries like digital media, biotechnology and green energy are healthy and growing.

So how could it be that the businesses that are generally seen as the key drivers of the local economy are doing well, but they haven't made a dent in unemployment, personal income, consumer spending and other measures of economic health?

In part it's because these industries are still small, despite their high glamour quotient, Egan said in an interview. But the key lies in the moribund housing market, and that in turn raises a lot of questions about our region's attitude toward population growth, quality of life and immigration.

In California more than anywhere else, real estate has always been the economy's secret sauce. Real estate speculation — on the grand scale embodied in the great Los Angeles water grab that turned barren Southern California scrublands into prosperous farms and subdivisions, and on the small scale in which the modest Marin County house that Dad bought for $50,000 in 1960 is now worth a couple of million — is a big factor in our historic prosperity.

In simple terms, California real estate has been such a good investment for such a long time because lots of people have been moving here, and they need to live somewhere. Most of the places that have had intensive real estate appreciation in recent decades — many parts of California as well as Phoenix, Las Vegas and Florida — are places with substantial in-migration. In many cases the speculation eventually got ahead of the population, but it was the belief in continued population growth that inflated the bubble.

People move to California for jobs, and certainly the postwar growth of the aerospace, technology and entertainment industries played a huge role in drawing people here. (And income growth from those businesses also drove real estate prices higher.)

But people move here for a lot of other reasons: the weather, new opportunities, political freedom, the raw energy of our great cities. Gov. Arnold Schwarzenegger mentioned in his talk at the same conference last week that he moved to California from Austria when he was 21 because he saw California as the land of opportunity.

A lot of Californians feel that the state is full-up, so to speak, and don't see the benefits of more population growth. Anti-immigrant sentiment, whether it's aimed at illegal border-crossers or professionals holding H1-B work visas or foreign students who would like to stay on after their visas expire, is partly a reflection of this feeling.

But new residents need all kinds of things, especially housing, and that supports prices. An International Monetary Fund study of global housing markets shows that every 0.25 percent increase in population growth leads to a 1 percent increase in housing prices.

Housing demand will increase even without immigration, as aging baby boomers and echo boomers create more "empty nest" households. Moreover, in some of the most attractive Bay Area communities, like San Francisco, the limited supply of housing will keep prices firm or rising (and real estate markets in these communities have indeed suffered much less than in other places).

But in much of the Bay Area, and especially on the fringes, there is plenty of supply, and thus increased demand is critical to a housing recovery.

Yet with immigration to the United States declining — due to the weak economy, the crackdown on illegal immigration and post-September 11 restrictions on who can enter the country — and the decay of public services in California making the state less attractive relative to other parts of the country, it's not clear where that demand will come from.

Rising real estate prices have their downside, not least that they make it more expensive to do business. But as Egan said, toxic real estate loans are draining credit from the economy and dampening consumer confidence to such a degree that a housing recovery is critical to any broader economic recovery.

Whatever else you might think about immigration, or about the importance of spending money on quality-of-life infrastructure and services, they are ultimately the key to our economic health.