Monthly Archives: March 2009
The Wall Street Journal recently published an article on the increase in rental housing in the far-flung suburban communities that were home to some of the fastest-rising property and housing values before the sub-prime crisis set in in full force.
The article profiles a family that moved to an exurb of Chicago in search of more space for the kids – certainly an understandable goal. When the mortgage and property tax payments ballooned from $1500 to $2900 a month, the family abandoned their home to the bank and sought a new place to live.
If the normal narrative would have this family downsizing their home drastically or moving in with relatives temporarily, the twist in the article is that neither of those things happened next.
They didn’t have to look far: The Disciannos found a smaller home in the same development for $1,500. That home was owned by investors who had hoped to sell it — but settled on renting it instead. The new home is about the same size as the apartment they used to rent.
While things could have been worse, after paying the mortgage they have no equity to show for it.
Now, as the housing bust and recession has turned the exurbs from engines of growth to economic laggards, many of these families have the worst of both worlds. They are still on the fringes but have no equity. In many cases the amenities they hoped would follow — new shopping centers, movie theatres — have ceased construction or opened with only a few stores. Government projects like new schools and parks have also been delayed as budgets get cut and population growth has slowed.
In response to a student question about the rental housing market during a class on landlord-tenant law, my professor suggested that rental prices would be the indicator of the housing market decline. Basically, the point was that when the cost of owning is equal to the cost of renting, people will start buying again and the housing market will begin to stabilize and rebound. This makes sense (assuming – and this is a large assumption presently – that mortgage funds will be available and those who want to buy will qualify for a mortgage), but a question seems to remain. Is it conceivable that when the costs of renting and owning reach parity that the general level of uncertainty about the economy will cause people to stay away from purchasing and building in favor of the increased mobility afforded by renting? I would not claim to have the correct answer, but it would seem that one of the fundamental assumptions that fed the recent housing boom – and particularly the speculation and rapid growth in exurban communities like those covered in the article – was that housing prices and property values would continue to rise indefinitely. The understatement of the year may be that that assumption was slightly off.
This New York Times article advances the idea of using available federal funds to reinvest in our cities to improve efficiencies in the way we live and reduce the barriers between neighborhoods. New Orleans, Los Angeles, The Bronx and Buffalo are provided as examples. (It could have just as easily listed Allentown.) According to the article:
The problem in America is not a lack of ideas. It is a tendency to equate any large-scale government construction project, no matter how thoughtful, with the most brutal urban renewal tactics of the 1950s. One result has been that pioneering projects that skillfully blend basic infrastructure with broader urban needs like housing and park space are usually killed in their infancy. Another is that we now have an archaic and grotesquely wasteful federal system in which upkeep for roads, subways, housing, public parkland and our water supply are all handled separately.
Here is an excerpt from a Pittsburgh Post-Gazette op-ed from David Lewis, emeritus professor of urban studies at Carnegie Mellon. The op-ed is a framed as a letter from Davis to President Obama:
Neighborhoods are the essence of urban America, and they are desperately in need of revitalization. We have huge capital value in our urban heritages — not just in our people and their local cultures, but in our buildings, our streets and even in our utilities and sewers. Yet our local and metropolitan governments are strained to the breaking point to maintain these amenities because tax revenues are inadequate — tax revenues that in large part now depend on debased property values.
One thing we do not need is the expansion of highways, which would expand suburbs, industrial parks and big-box retailers, and which would further deplete opportunities for the revival of our cities.
We need precisely the opposite. Our neighborhoods and cities need to rise up and demand to be heard. We need to follow your lead, Mr. President, and say yes we can. We need the financial tools that would empower us to recreate our middle class, neighborhood by neighborhood, town by town, all across America. We, the people, can do the rest.