Suburbs

Beyond The Bailout: What’s Next in the Housing Market?

Elliott Pollack — Sat, 18 Oct 2008 01:16:48 -0400

The Emergency Economic Stabilization Act of 2008 (we’ll call it the “Bail Out”) was signed into law on October 3rd. This, combined with the new reality in capital markets and current economic conditions, will result in some major shifts in the outlook for housing over the next few years. It is always possible that the federal government will try to do even more to fix what will be an agonizing housing problem over the next few years, but seems unlikely even Bernake, Paulson or their appointed successors will be able to change the basic story line.

The Credit Market
Let’s set up the dynamics. The era of easy credit, especially in terms of mortgages and home equity lines, is over. The 2002 through early 2006 period will turn out to be an aberration in history. During that period, about all a person needed to do to qualify for a mortgage was to be healthy. For the foreseeable future, we will see the return of such requirements as a down payment and the ability to repay your loan based on income, along with a good credit history, that will allow a person to qualify. The tighter credit and the slow down of the economy already is making it difficult for all but the best borrowers to get mortgage loans. Thus, the housing market will remain under significant pressure and the excess supply will be absorbed only slowly.

The Consumer
Consumers have accumulated far too much debt; they don’t have much in the way of traditional savings; are faced with job declines and declines in hours worked and are also facing a reverse wealth affect (i.e. people tend to spend more when they feel richer and less when they feel poorer). In the 1990s, consumers felt wealthier because the stock market did very well. Studies of the wealth effect indicate that people spend about five cents out of every dollar of increased net worth from stock and housing price appreciation over about a three to five year period of time. In the early part of this decade, not only were housing prices rising rapidly, but, almost unbelievably (in retrospect), easy credit allowed people to use their house as a credit card. The result was a boom in retail spending and home buying. In fact, the rate of homeownership in the U.S. went from a long term average of about 65% in 2002, to a high of nearly 69% in 2006. The percentage of people who bought homes, as a percent of total households, reached a record level.

Supply and Demand
Today, there are roughly two million more homes for sale in the nation than normal (4.3 million new and resale listings versus the long-term average of 2.3 million homes for sale). In addition, foreclosures are skyrocketing and are likely to stay high for quite some time. Many recent buyers simply were not financially ready for home ownership’s financial realities. Basic demand has diminished significantly as the number of prospects who can qualify has declined. Put all of these things together and you will have a period where not only will there be fewer homes purchased, but there will be high levels of foreclosures, a decline back to the normalized level of homeownership. There will be fewer people moving (i.e. if you can't sell your house in California, Michigan or Pennsylvania, you are not moving to Arizona). What this implies is that the demographic demand for housing will be lower than normal over the next few years until the excess supply is absorbed.

How long will this take? Analysis suggests that it is two to four years away nationally and longer in the bubble states: Arizona, California, Florida and Nevada. All this suggests that as the homeownership rate comes down, more people will be moving to apartments, people will “double up” or move back home. As a result much of the housing demand will be absorbed by foreclosures and the excess existing housing inventory, mitigating the need for significant new housing in the near term.

If you add this all up, this also means slower growth in what were normally rapid growing areas (like Phoenix) where a full recovery could take four to five years for housing. As the home-ownership – including condos – rate moves back to its long term trends there will be a shift back to apartments.

Overall, there will be fewer single family homes demanded, more apartments demanded, and the homes that are demanded will be more affordable. The most affordable areas will continue to be at the edge of town. In addition, given how difficult it has been to get the entitlements necessary for new apartment construction in areas like Phoenix over the past several years along with the number of condos that are being converted back to multi-family rentals, rents are likely to increase past 2009 or 2010 as the excess supply of rental single family homes, condos and apartments are absorbed.

Overall homeownership will still be the American dream, but that dream will not again be something people think about until housing prices stop declining and start recovering. It’s going to be a tough ride, particularly in Sunbelt ‘boomtowns’ like Phoenix.

Elliott D. Pollack is Chief Executive Officer of Elliott D. Pollack and Company in Scottsdale, Arizona, an economic and real estate consulting firm established in 1987, which provides a broad range of services, specializing in Arizona economics and real estate.

The Geography of Inequality

Richard Morrill — Fri, 17 Oct 2008 01:47:23 -0400

The global financial crisis has drawn greater attention to the world of the super rich and to the astounding increases in inequality since 1980, returning the country to a degree of inequality last seen in 1929 or perhaps even 1913. In the year 2006 alone, Wall Street executives received bonuses of $62 billion. Financial services increased from 10 percent of all business profits in 1980 to 40 percent in 2007, an obscene and indefensible development that now threatens the rest of the ‘real economy’.

Here’s what happened to income and wealth between 1970 and 2005

These figures reveal an inexorably growing concentration of income and wealth, which has taken place under both Democratic and Republican regimes. Conversely, given inflation over the last 35 years, lower and middle classes receive smaller shares. Only the affluent - the top 10% - and the rich – the top 1% - have gained ground.

This pattern of inequality also has a geography with variations across the country between different places (here counties). Generally between 1970 and 2000 the greatest inequality has developed in the largest metropolitan regions and their suburbs.

Large metropolitan core counties are by far the most likely to have higher inequality. In contrast other geographies have much lower inequality, with small metropolitan, small city and rural counties near the national average. In other words, core metropolitan counties are skewed toward greater inequality (higher shares of very rich and of very poor), while suburban and exurban areas generally exhibit lower inequality (values bunched centrally, with fewer extremely rich or poor households).

Overall the greatest inequality lies in the very largest metropolitan cores (Los Angeles, Chicago, New York, Houston, etc), areas with large racial or ethnic minorities (e.g., in FL, TX, CA and much of the South), as well as in selected large northeastern metropolises (suburb as well as core, as in Chicago, Cleveland, Pittsburgh, New York, Philadelphia, and Washington DC) and across the southern half of the country more generally. Lower inequality occurs mainly in suburban or small metropolitan counties, and mainly in the north.

Among smaller metropolitan (< 50,000 households) and non-metropolitan counties there emerges a truly dramatic north-south cleavage just around the Iowa border and along the Ohio River divide. A more mixed pattern prevails in the west and in the northeast, where intermediate levels of inequality are common. Especially high rates of inequality characterize racial and ethnic minority areas and Appalachia, as could be expected, but also many environmental amenity areas, especially in the west. Low inequality is fairly extensive in the hinterlands of selected Great Lakes and upper Midwest metropolises, like Omaha, Minneapolis and Chicago.

Generally more egalitarian areas boast higher incomes, female labor force participation, more shares in manufacturing, greater incidence of husband-wife families, of whites, of home ownership, but lower percentages of government and service jobs, fewer residents with less than a 9th grade education, people 18-24, singles, single parent families, and less Blacks and Hispanics.

High levels of inequality are generally the opposite of the egalitarian areas: more minorities, single parent families, less manufacturing and dependence on government as well as service sector jobs.

Inequality varies by both kinds of settlement geography and by the social and economic character of areas. The most obvious and visible attributes that signify greater inequality are social characteristics: racial and ethnic minorities, low levels of education, low proportions of traditional husband-wife families (partly because of fewer earners), and high dependency (many of the very young and very old).

Unequal places tend to be those with low concentrations of manufacturing and higher shares of both managerial-professional occupations and service jobs. Geographic impacts vary. Most rural, newer suburban and exurban areas tend to have lower inequality because they tend to maintain middle income homogeneity. Yet rural areas that are isolated and have weak economies, like Appalachia, suffer high inequality. Large metropolitan areas with the highest inequality also tend to have large concentrations of racial minorities and of non-families, especially young singles

Overall it is clear that inequality has been on the rise since 1970. This was a time when the nation was prosperous, manufacturing was strong, as were unions, income taxes fairly progressive, while “war on poverty” legislation had helped those at the bottom, the baby boom was still on and families dominant.

But if the extent of inequality has grown, its geography has changed far less. Large metropolitan cores had the highest inequality in 1970 and 2000, and metropolitan suburbs and exurbs the lowest, with small cities in between. Yet inequality grew fastest in large metropolitan cores and suburbs. Small metropolitan areas (many were small cities in 1970) had the next highest increase (80 percent) and rural small town areas the lowest (69 percent).

Sadly, only a few counties had decreases in inequality. Many were military base counties, mainly in the south. Another group of counties with lower inequality are new suburban counties, which have become more uniformly middle class as a result of significant urban growth, mainly in the South with more rapid urban and industrial growth.

Overall, the change in inequality between 1970 and 2000 was substantial and wide ranging. The causes for this tend to be national and structural, including deindustrialization, the rise of a service economy, the decline of the traditional family and tax changes favoring the very wealthy. Areas that traditionally were most unequal – notably the great global cities – have simply become more so.

It is here, in the command and communication centers of the economy, that the greatest wealth has been accumulated and where we can see the rise of a new aristocracy nevertheless dependent on a large low wage service class. The next Administration and Congress should start to address these trends or the traditional American dream will become, for most citizens, no more than that.

Richard Morrill is Professor Emeritus of Geography and Environmental Studies, University of Washington. His research interests include: political geography (voting behavior, redistricting, local governance), population/demography/settlement/migration, urban geography and planning, urban transportation (i.e., old fashioned generalist)

Sprawl is ubiquitous, even in my beloved Copenhagen

Roger Selbert — Wed, 15 Oct 2008 23:59:13 -0400

The year I attended the University of Copenhagen as an undergraduate, I lived in a suburb north of the city and commuted to the central city via bus and rail (the famous S-trains). What a great system, I remember thinking as an impressionable ingénue (you could go anywhere, and trains were on time to the second!). When I returned as a graduate student I lived right in the city center and discovered that great public transit did not obviate the need for extensive walking (I must have worn out five pairs of shoes that year). Besides my two stints as a resident, I have been fortunate enough to return to Copenhagen countless times as a visitor for business, scholarship and pleasure, and I am familiar with the place both as a motorist and public transit user.

In all the 37 years I have been traveling to and living in Copenhagen, it has always struck me that despite one of the best public transportation systems of which I am aware (in terms of coverage, efficiency, ease of use and affordability), and despite the fact that cars are at least twice as expensive as here in the States (the sales tax on cars is 180%), and despite the fact that gasoline is three to four times as expensive as here, and despite the fact that city parking is difficult, non-existent or prohibitively expensive (and parking fines severe) – despite all of this – rush hour traffic congestion is awful (a constant source of grief and complaint), and the endless streams of cars seem to contain, as in so many cities with lesser alternatives, lone drivers.

It wasn’t supposed to be this way. The city development plan was designed as a hand with five fingers outstretched – the palm as city center and each of the five fingers as a corridor of residential, commercial and retail development (along rail lines, of course). This was smart growth before the term had been invented. It worked, but what was perhaps unforeseen was that development would also occur in areas in-between and beyond the five corridors. As a result, Copenhagen has become, like so many modern cities, a multi-centered urban metropolis. In order to function in this post-industrial economy and society, residents and workers need to travel freely and frequently to many different points around the metro area, at different times of the day, for different reasons, for different lengths of time, for different purposes. Because the existence of the five corridors has created a defacto hub-and-spoke system, it is difficult and prohibitively time-consuming to use public transit for such travel (and ungodly in winter). So of course Copenhagen has become as car-dependent as Los Angeles.

Another piece of this picture is that Danes, being a free and intelligent people, prefer suburban living in detached single-family residences over enforced residential density, and prefer owning and driving their own cars over taking public transportation (if given the choice!). So despite a very leftist political orientation among elites, media, academia, government and public policy professionals (including urban planners), and despite a highly socialized component to its otherwise free-market economy, the Danish capital’s suburban job, business and population growth has been outpacing its urban growth for decades.

According to Ronald D. Utt and Wendell Cox, writing on www.heritage.org (in response to a World Watch report, "City Limits: Putting the Brakes on Sprawl"), from 1950 to 1990 Copenhagen's population dropped from 760,000 to 465,000, nearly 40 percent.

Since 1960, the Copenhagen urbanized area (including suburbs) has dropped in population 14 percent, while its land area has expanded 24 percent. And from 1970 to 1990, per capita automobile usage increased nearly 70 percent in the Copenhagen area, while public transit's market share declined 15 percent.

This of course is a problem. People are not behaving according to our plans! According to the report "Urban Sprawl in Europe? The Ignored Challenge," released by the European Environment Agency (based in Copenhagen, by the way), sprawl is affecting almost all of Europe’s cities: "If this trend continues, the European urban area will double in just over a century. Sprawling cities demand more energy supply, require more transport infrastructure and consume larger amounts of land. This damages the natural environment and increases greenhouse gas emissions."

The report identifies the key problem as too much local control of urban development decisions, and calls for "urgent action by all responsible agencies and stakeholders to realize common objectives," or in other words, centralized planning and control. Among the report's conclusions is this little chill-inducing nugget:

"The EU has specific obligations and a mandate to act and take a lead role in developing the right frameworks for intervention at all levels, and to pave the way for local action. Policies at all levels including local, national and European need to have an urban dimension to tackle urban sprawl and help to redress the market failures that drive urban sprawl."

It's all pointless, of course: sprawl is ubiquitous, natural, desirable, beneficial, and preferable. As Edward Glaeser (Harvard, Brookings) and Matthew Kahn (UCLA) document in "Sprawl and Urban Growth" (National Bureau of Economic Research), transportation technologies dictate urban form, and in the 21st century the dominant transportation technology is the car. Hence, the urban form of the 21st century is sprawl, or city living based on the automobile. Isn’t this a bad thing? Quite the contrary, per Glaeser and Kahn: "Sprawl has been associated with significant improvements in quality of living, and the environmental impacts of sprawl have been offset by technological change."

Robert Bruegmann, author of Sprawl: A Compact History (2005), would agree. He calls sprawl a logical consequence of economic growth and the democratization of society, a pattern of development that has provided millions of people with the kinds of mobility, privacy and choice that were once the exclusive prerogatives of the rich and powerful. Add Bruegmann, Glaeser, Kahn, Cox and Utt to the growing component of anti-anti-sprawl policy analysts such as John Carlisle (Capital Research Center), Peter Gordon (USC School of Urban Planning), Peter Huber (Manhattan Institute), Mark Mills (Competitive Enterprise Institute), Steve Hayward (Pacific Research Institute), Anthony Downs (Brookings Institution), and Harry Richardson (Cascade Institute).

Copenhagen remains one of my favorite cities, a marvelous combination of the old and new. It has a great quality of life and in my experience, the Danes know how to live it. The central city is charming, and the urban sprawl adds to the possibilities and potentials for all manner of experience and opportunity. I'm already looking forward to my next trip back.

Dr. Roger Selbert is a business futurist and trend guy. He publishes Growth Strategies, a newsletter on economic, social and demographic trends, and is a professional public speaker. Roger is US economic analyst for the Institute for Business Cycle Analysis in Copenhagen, and North American representative for its US Consumer Demand Index.

Neither fish nor fowl: Emerging urban enclaves in inner-ring suburbia

Peter Smirniotopoulos — Mon, 13 Oct 2008 23:50:39 -0400

By Peter Smirniotopoulos

As I was walking my dog the other morning I was struck by the fact that the City of Falls Church, Virginia, the quaintly bucolic suburban “village” to which our family moved in mid-2001, was no longer suburban. It isn’t a city in the proper sense, like Washington, DC or even Alexandria, Virginia, but it is reflective of the trend towards quasi-urban places in the close-in rings – the original turn-of-the-century and pre-Levittown suburbs – enveloping our city cores.

The City of Falls Church was formed around the middle of the last century by a group of secessionists residing in what was then a sliver of Fairfax County along the Arlington County border. The candy coated version of the city’s history holds that these secessionists were seeking to create a better school system for their children; the more cynical view is that they were creating a segregated, white school system. Whichever version of the truth you prefer, the Falls Church City Public Schools subsequently became the first public school system in the Commonwealth of Virginia to adopt the International Baccalaureate (I.B.) curriculum. In 2001, the city’s George Mason High School ranked #5 among the country’s most-challenging high schools, eventually reaching #2.

Like many other metro areas, the geographic pattern of regional growth in the Washington metro area has been driven in by the successes of its suburban public school systems, with the Fairfax County and Montgomery County, Maryland, school districts being the most notable. A metro Atlanta county executive explained this phenomenon thusly: “People don’t want to live where they can’t educate their kids,” rationalizing why his county, with a well-respected public school system, was growing and thriving while the neighboring county, with a somewhat derided public school system, was not.

So homebuyers have flocked to the City of Falls Church and its nationally ranked high school, putting sufficient pressure on home prices (primarily single-family detached homes on modest-sized yet verdant lots) to raise the median price precipitously. The high school certainly was a primary motivation for our move from Del Ray.

Yet when we left our Del Ray neighborhood in Alexandria we also wanted to replicate – to the greatest extent possible – our community’s walkability and mixed-use character. Yet these fundamental attributes were not as pronounced in the City of Falls Church, in part because it is bisected by two major arterials: Va. Route 7 (cleverly named “Broad Street,” being four lanes wide), an east-west connector; and Washington Street, also known as Lee Highway or Rte 29, a north-south connector (also four-lanes wide but the name “Broad Street” had apparently already been taken).

When we arrived in the city the stretch of Route 7 that extends west from this major intersection was characterized primarily by low-scale (i.e. one and two-story) retail and commercial buildings. The predominant commercial building typology along one stretch of Route 7 was one-and-a-half story single-family residential structures fronted by surface parking adapted for commercial uses (palm reading, anyone?), reflecting neither good urban nor suburban values.

And yet since 2001 things began to change for the better. Local elected leaders had an epiphany that a city of two-square miles is not sustainable. Relying almost exclusively on property tax revenues from single-family detached homes simply does not generate enough money to cover the expenses they generate. The success of similar suburban-to-urban transformations in nearby Arlington County along the Metro line – like Clarendon and Ballston – was both instructive and politically comforting. City leaders and staff began to embrace the concept of denser mixed-use development, although not without taking some political heat from those insisting that their suburban village be protected and preserved.

Today, Route 7 benefits from four, very urban mixed-use buildings – ranging in height from four to eight stories – adding dramatically to the diversity of the city’s housing stock, helping to diversify the city’s tax base, and putting boots (or at least pumps and loafers) on the street. These new buildings also provide a much better focus for the city’s “Main Street” than the single-story structures they replaced, with the new building heights and strong street walls better modulating the width and traffic flow on Route 7. A fifth new building is currently under construction and a hotel has also been approved.

In addition, two new, mid-rise, mixed-use projects now anchor either end of Lee Highway, and an ambitious City Center project may finally become a reality, potentially trumping the visual cacophony of the nearby Route 7/Lee Highway intersection (an excellent example of bad urban forms meet typical low-rise, suburban development). Moreover, the attendant broadening of the tax base will eventually insulate the city’s fortunes from the ebbs-and-flows of either the commercial or the residential real estate markets.

As a result, in terms of physical form and character the City of Falls Church is now much closer to “urban” than “suburban.” As ground floor retail spaces fill in and mid-rise residential units become fully occupied, that evolution from suburban to urban will become more pronounced. Residents in the single-family detached homes and newly minted McMansions lining the neighborhood streets on both sides of Route 7 also will benefit from having many more things to see and do within walking distance of their homes.

The small-town origins of the city can still play out in somewhat nostalgic events like the Annual Memorial Day Parade (and who doesn’t love to see Shriners in their fezzes and tiny race cars). Neighbors will continue their weekly chats at the Saturday morning Farmers’ Market at City Hall. However, the train has clearly left the station on the question of whether the City of Falls Church is still a classic suburb: The only question remaining may be “What the heck do we call this thing?”

Do any of you have a good idea?

Peter Smirniotopoulos, Vice President – Development of UniDev, LLC, is based in the company’s headquarters in Bethesda, Maryland, and works throughout the U.S. He is on the faculty of the Masters in Science in Real Estate program at Johns Hopkins University. The views expressed herein are solely his own.

Bubble Opportunity: A New Life for Public Housing?

Andrew Kirby — Thu, 02 Oct 2008 23:40:17 -0400

The globalization of housing markets stood at the center of the vast, now unraveling, economic change of the past decade. The creation of new investment vehicles in the 90s diverted vast amounts of capital into housing markets around the world. The results were many and varied. Design features began to converge, with gated communities following shopping malls into cites in Latin America, China, Turkey and most other countries. Home prices began to rise, with The Economist even publishing a table of global house prices, indicating those with the most inflated costs (Spain and the UK usually led this undesirable ranking).

It’s been clear for the last few years that housing was becoming the primary investment vehicle for many American families, who otherwise had a negative savings rate. Everything that happened up to 2007 was built on that premise. So here we are in 2008, facing an unraveling not just of the housing market and its financial networks, but much more besides. As the cliché has it, the devil is in the details, and those are getting much less attention. Obsessed with design features and public-private contrasts, it is hard for many urbanists to return to the old-fashioned concern for what is happening ‘on the ground’. Long gone are the days when researchers tramped the streets; now Google and GIS have replaced shoe leather.

This is unfortunate, because there is a ‘new geography’ emerging from the wreckage. During the bubble, home buyers would purchase larger and more expensive homes because that was how they maximized the returns on their investment. And, for several years, that worked. Now, as I roam around in my neighborhood, I see that it’s the newest and largest homes that are standing empty.

Why? In large part these were speculative constructions, and the speculation went awry. Elsewhere in this relatively affluent part of Phoenix, small subdivisions are standing virtually idle, the construction workers long returned to Central America. But this is one of the costlier parts of town. In the blue-collar West Valley, the impact has been hardest on the new master planned communities of relatively affordable homes. These were examples of what is sometimes termed in the trade ‘qualifying by driving’—that is, the homes are cheap because they are a long way from job concentrations. Many first time buyers were lured into home ownership with the teaser rates that have been replaced by higher monthly payments, along with higher gas prices. The result: whole developments with a forest of ‘for sale’ signs.

Most discussion of the mortgage crisis has been at the elite level --- where it impacts banks, Wall Street investment houses, interest rates, liquidity. But on the street level, there are other, less obvious, consequences. Animals are abandoned as owners decamp; untended swimming pools breed mosquitoes. Abandoned dwellings in far suburbs don’t attract vagrants but they do get used by human smugglers as drop houses, since there are few neighbors to notice. Owners stop paying their HOA dues and maintenance is neglected, even as the dues escalate for those who stay behind. And much of the time there is no-one to do the work, due to the disappearance of the Latino labor-force.

So what happens now as the current crisis blows through suburban neighborhoods and some form of federal bailout comes into place? If a new Resolution Trust agency begins to buy up hundreds of thousands of single family homes, we could find ourselves face to face with a new form of public housing that hasn’t been seen since the end of the First World War. In the UK, for instance, local government built many thousands of duplexes, in what are now inner suburbs, for returning soldiers. These were high quality dwellings which provided excellent accommodation for decades, until they were sold off, at suitably inflated prices, by the Thatcher government. Over time, this design experiment was forgotten, as public housing across Europe and the US became associated instead with the construction of vast apartment complexes that turned into visions of hell, strewn with burned out cars. Only in Singapore was this kind of failure avoided, for very specific social, political and cultural reasons.

So, we may be on the verge of reconnecting with that original vision of public housing, one that emphasized homes in neighborhoods rather than vast and anonymous apartment blocks. For this to happen, the impulse to scoop up these bad mortgages and dump them back on the market at fire-sale prices will have to be avoided.

Instead, the Federal government should venture back into the public housing sector by keeping these bad mortgages and re-letting the properties that it accumulates. There are two good reasons for this. First, they are, in the main, desirable homes of acceptable quality, so there will be no stigma attached to public housing. Second, because no-one will be building publicly-owned houses from scratch, they will not be concentrated in public housing enclaves. Rather, they will be diffused across the city, concentrated in some neighborhoods to be sure, but not to the exclusion of other forms of tenure. Of course, some existing owners will be less than pleased to find renters living next door—but at least the grass will be mowed and the pool will cease to stink.

How to prevent this crisis from reoccurring when things get better? Rules need to be observed. Three times your income dictates your mortgage, and you can’t buy a home in an HOA if you aren’t going to live in it. This would greatly restrain speculative frenzy. And let’s take advantage of this crisis by making affordable homes available to families in a variety of forms—as permanent rentals, as leases, or as leases-to-own. And most important, this new public housing will not be concentrated in the inner cities, far from most employment opportunities, or in dense Stalinesque apartment complexes. For years, planners have been wringing their hands about how to get low-income housing into desirable neighborhoods. Perhaps fate has now shown them the way forward.

Andrew Kirby is the editor of the interdisciplinary Elsevier journal “Cities.”This is his 20th year as a resident of Arizona.

The future of suburbs? Suburbs ARE the future

Roger Selbert — Thu, 02 Oct 2008 23:33:59 -0400

I entered the field of futures research in 1981. No, not futures – contracts to deliver a certain commodity at a certain price at a date certain (God, I wish I had) – futures research, as in scenarios, trends, strategic planning and market planning. Unfortunately the place was soon lousy with what I call “futurism”: extrapolations of the unsustainable to make the improbable look inevitable.

A current example: suburbs are doomed because of high energy prices (peak oil!), the housing bubble, the obsolescence of the internal combustion engine, and yes, global warming (and what hasn’t been blamed on global warming?). Besides, the urban renaissance is underway; people want to live in the city for the culture, food, music and hipness, don’tchaknow. This is what I read in the Freakonomics quorum on the future of suburbia (New York Times, 8/12/08), and in The Atlantic magazine (“The Next Slum,” Christopher Leinberger, March 2008), The International Herald Tribune (“Life on the fringes of U.S. suburbia becomes untenable with rising gas costs,” 6/24/08), and elsewhere, ad infinitum.

Well, I could be clever and say that predictions of the demise of suburbs are premature, be in fact they are just plain apocalyptic and absurd. Suburbs are the nexus of American life, have been for decades, and will certainly remain so (because, like, where else are we going to put the next 100 million Americans). Suburbs are where the majority of Americans today, and in the future, live, work, shop, create, consume, recreate, educate and, perhaps most importantly, procreate.

Suburbs remain home to a majority of Americans and a plurality of American families. Suburban population, business and job growth each outpace those of cities, have done so for decades and will likely continue to do so. In fact, from 2001 to 2006:

90% of all metropolitan population growth occurred in the suburbs (American County Survey, US Census Bureau)
Job growth in suburbia expanded at 6 times the rate of that in urban cores (Praxis Strategy Group)

A small recent surge in mass transit won’t really change this. Of the 130 million Americans who commute to work every day, 41 million – by far the largest number and share – commute within suburbs (i.e. to the same or another suburb). Only 18 million, or 14% of commuters, commute from a suburb to a central city. To put it another way, 60% of commuting is suburb-related in some way. [IAC Transportation (July, 2008)] By the way, 75% of all commuters drive alone in their cars.

Repeat after me: “multi-centered metropolitan region.” This is the model that characterizes most city/suburban regions in the US, where the urban core is just one of several nodes of development or centers of economic, residential, office, industrial, educational and recreational facilities and life. This is the model that, planned or unplanned, has evolved in the United States. It works, we like it, we’re keeping it. I know, congestion is horrible, but it’s horribly unnecessary: as explained by both Roth in Street Smart and by Stanley and Balaker in The Road More Traveled (both books published last year) [can we find a link to sites for these books] , we have the knowledge and means to reduce or even eliminate traffic congestion (more capacity, and more rational use of current capacity), but we don’t have the political will to deregulate, privatize and build.

Repeat after me again: “mixed-use.” OK? I’m not talking about New Urbanism or smart growth, which are concepts whose utility and desirability are debatable. I’m talking about the availability, in a suburban setting, to access services and amenities, or what Wally Siembab calls “smart sprawl” – retrofitting suburbs of any density so that residents can shop, obtain services and work all within a mile or two of their home.

One last point: Telecommuting, small home-based businesses and self-employment make suburban living all the more plausible and sustainable. If you add the number of part-time and full-time telecommuters plus home-based businesses, you’re talking about 36 million Americans, more than a fourth of the workforce.

Welcome to the future: suburbia.

Roger Selbert is a business futurist and trend guy. He lives in Los Angeles, edits and publishes the newsletter Growth Strategies, speaks and consults [www.rogerselbert.com]. He graduated from Bowdoin College in 1973, missed his graduation ceremony and has yet to return. But he thinks Brunswick, Maine was a great college town.

The future of urban settlement? Look in the suburbs

Richard Morrill — Wed, 01 Oct 2008 23:17:34 -0400

Let’s look at general urban settlement and suburbia from a geographic and demographic, not a planning or ideological viewpoint. There’s really no point to the fruitless and unscientific harangues about how people ought to live or about allegedly better or poorer forms of settlement. This is really trying to understand what is happening in the metropolitan level of settlement, agglomerations of at least 50,000 and their commuter hinterlands --- where at least 80 percent of Americans live.

Definitions: I will use terms precisely. The central city is the historic, largest core incorporated place (OK, there are a few with 2 or 3 core cities). Suburbs are the rest of the urbanized area and may be usefully be differentiated between older, inner and newer, outer suburbs. Exurbia is the area of intense commuting to the urban core from beyond the urbanized area boundary, and it can be differentiated between rural territory (a.k.a. “sprawl”) and satellite towns.

As of 2000 “central cities” had 70 million persons (25 %) of the population, suburbs 120 million people (43 %) and exurbia up to 36 million (12 %). That puts the suburban and exurban share to well over 50 percent of the US total population, not even including the suburbs or smaller towns and cities.

Even worse for urban boosters, the suburbs --- and particularly the exurbs --- is where the growth is. In the Seattle metropolitan area, which is under unusually strong growth management restrictions and has a stronger than usual urban core, growth continues to head outwards, with inner, outer suburbs, as well as exurbs easily adding many more people than the central city.

The question now is whether this pattern will hold for a longer term or whether significant change can be expected. My sense is that these trends will broadly continue ---that suburban and exurban growth will continue to be greater than central city growth, despite the passing of peak oil, the passion of anti-suburb intellectual currents, the energy crisis and new urbanist planning policies. But central cities will probably do somewhat better than they have in the last 20 years. So it is sensible to ask: what are forces for and against central city, suburban and exurban growth; and, as important, how will the character of these components of urban settlement change?

Demography

The combination of many suburban empty nesters, later marriage and fewer children for generation X’ers (those born 1965-1981) should foster selective central city growth . But this appears to apply only for the subset of more glamorous cities with a well-developed amenity structure. . But these cities often suffer housing price inflation and strong anti-growth lobbies which constrain may constrain growth. Many, perhaps most, cities lack the appeal to attract population in from lower-density areas.

Older inner suburbs represent a zone of significant change between and the traditional newer middle class family suburbs and the gentrifying or stagnant central cities. Some are receiving the displaced poor and minorities; some have matured into quality communities, and, like parts of the central city 50 years earlier, are still attractive to families, with or without children, as well as many recent immigrants.

Housing prices and taxes vary greatly across the US, which will like push movement toward lower cost places, including to non-metropolitan small towns and rural areas. This may be particularly true for those with adequate retirement income. But middle class families remain a huge demographic component for far suburban and exurban living (see market forces below).

On balance, demographic forces seem to reinforce existing patterns rather than favor either central cities or suburbs, or more rapid non-metropolitan growth.

Economic factors

Economic changes are even more uncertain. The vast expansion of producer services to replace the huge decline in primary and secondary (manufacturing) jobs clearly is in some jeopardy, as evidenced by the problems evident finance and insurance sector. The key is whether American entrepreneurs can partially restore a greater industrial base. In general, suburban and exurban sites are likely to be cheaper, more politically pliable and more available than central city sites, particularly compared to more elite gentrified core cities. A partial recovery of production in some less glamorous cities with available idle plant could occur but does not seem very likely.

Energy, technology, environment, and cars

Most observers concerned with the “end of oil” and with global warming argue that these will inevitably drive people to denser concentrations of settlement in central cities and older inner suburbs. They even predict a decline in far suburban and exurban settlement. US technological history, however, suggests that if innovation and investment take place anywhere, it will likely be on alternative energy sources, conspicuously including the continued popularity and dominance of trucks and cars. Nevertheless, persistent high energy prices could yield some acceptance of moderately higher densities for housing and business, and a slightly higher growth in central cities and older inner suburbs.

Market forces

Markets refer to preferences and needs, and the willingness to pay among households and businesses. There is relatively little uncertainty as to preferences. Even in the biggest metropolises, no more than 30 to 40 percent of households prefer denser urban settings and enjoy apartment or townhouse living. For the nation as a whole, the share is only 10-15 percent! Those who prefer it tend to be younger, unmarried persons and empty nesters without children and are (or will be) more educated and professional than the US norm. But 60 to 70 percent of households, and not just families with children, prefer single family homes and cars. These households will pay or MOVE in order to act on these preferences. At the same time perhaps 35 to 45 percent of jobs thrive in dense urban settings, as downtown towers, leaving 55 to 65 percent to seek less dense suburban and exurban settings, often by logistic necessity. These are the continuing and overwhelming facts that created and will sustain suburban living.

Planning

Intellectual hatred of suburbia is a century old and has been especially fervent in the last 60 years. From the late 1970s the planning profession has embraced what has come to be called “new urbanism,” advocating urban containment, urban redevelopment, densification, urban villages, and a new wave of rail transit, now under the broad rubric of growth management. These efforts often have been strongly supported by environmental groups concerned with the loss of open space as well as by central city political and business interests.

Several metropolitan areas are becoming increasingly regulated by such planning ideology. But to date the movement has not been successful at significantly slowing suburban or exurban growth. A few central cities, such as San Francisco, Seattle, New York, San Francisco and Portland, have gentrified, but have not grown much in population, since the mass of new housing is occupied by much smaller non-family households. Costs of growth management include displacement of minority and less affluent families, often to the older suburbs or to other neighborhoods of the core city.

Conclusions

Market preferences have prevailed. Businesses as well as households have resisted substantial concentration or been priced out of the gentrifying core. So the suburbs persist. But they have changed, especially in those more regulated metropolises. The older inner suburbs have become more central-city like, with more diversity in ethnicity and class. But this has not slowed the long-standing trend of net growth of housing and of jobs at the suburban edge – even in the most growth managed cities, and even in the most recent 2000-2007 period.

Suburbs will decide the election

Joel Kotkin and Mark Schill — Tue, 30 Sep 2008 08:05:10 -0400

By Joel Kotkin and Mark Schill

Suburbs may not have cooked up the mortgage crisis, but they absorbed much of initial damage. Now that Wall Street and the big cities are also taking the fall, suburbanites might feel a bit better — but there’s still lots of room for anger out in the land of picket fences, decent schools and shopping malls.

Widely demeaned in the media and academe, suburbs still exercise their power at election time. Home to roughly half the country’s population, and likely a greater share of its voters, suburbs seem destined to remain — to borrow from that great wordsmith George W. Bush — “the decider” in this election.

Indeed, as the campaign has evolved, the critical position of suburbs seems to have grown. Barack Obama’s stranglehold on the urban vote seems unshakeable — even against a maverick “moderate” such as John McCain.

At the same time, after seeming unsettled, the rural and small-town electorate appears to be returning to the GOP fold. Alaska Gov. Sarah Palin’s place on the Republican ticket and, perhaps even more, the mainstream media’s snooty reaction to her, may have sealed the GOP deal in the countryside, at least at the presidential level. One sure sign: The small Obama strike team sent to reliably red North Dakota this summer has departed for more competitive terrain in nearby Minnesota and Wisconsin.

So now it’s really up to the suburbanites, who come from the only geography that has grown faster than the national average over the past 30 years. But it’s critical to recognize that suburbs themselves have changed, becoming more reflective of America’s diversity, just as cities have grown more bifurcated between rich and poor. Once lily white, suburban America is now roughly 21 percent minority.

Voting behavior among suburbs overall also has changed over the years. In the 1980s, Ronald Reagan carried the suburbs in the key swing states by between 20 points and 40 points. Bill Clinton ended this dominance, essentially battling the GOP to a suburban standoff. He even beat the Republicans in the peripheral communities of Pennsylvania, Michigan, Missouri and Florida.

In 2000 and again in 2004, President Bush recovered some of the Republican edge, running as much as 10 percent better than Sen. Bob Dole’s weak 1996 effort. But in the 2006 congressional elections, Democrats regained much of the ground Clinton had carried.

As of now, polls suggest McCain, who lagged in the suburbs into the summer, has pushed back some of the Democratic momentum. He now enjoys, according to the latest Wall Street Journal poll, a 10-point edge among suburban voters, not far from what Bush garnered in those parts of the swing states. If McCain can combine this suburban group with his rural and small-town base, he could be in striking distance of staging an upset.

But this may not be so easy. Democrats’ recent gains seem to be solidifying, particularly in older, metropolitan suburbs. Fairfax County, home to one out of seven Virginians, has been trending strongly Democratic in recent years, even supporting John F. Kerry in 2004.

McCain, who appeals more to independents than Bush did, should be able to erode some of this advantage in such communities. But Palin’s social conservatism could turn off many generally well-educated, middle-of-the-road voters who are so prominent in many of the most upscale suburban communities.

At the same time, Palin — herself a former mayor of an Anchorage exurb — could help McCain consolidate Bush’s gains in the fast-growing exurbs, which tend to be more heavily composed of traditional families and generally less ethnically diverse. In his 2004 victory, Bush won 97 of the nation’s 100 fastest-growing counties with roughly 63 percent of the vote. If McCain can duplicate that feat, he will be well-positioned.

Several factors, notably the financial crisis, could work against these efforts. Foreclosure rates in many of these exurban suburban counties are well above the national average, particularly in Florida and the Virginia suburbs of Washington and also outside Denver, Detroit and Cleveland.

The mortgage crisis affects not only foreclosed homeowners, but also homeowners who are still above water. First, foreclosures lower everybody’s home values and bring on the possibility of renters replacing owners — not a good development in a suburban context. Second, particularly in exurban counties, construction has often been the basis for a lot of job growth in this decade, because construction jobs and other employment related to the real estate industry has been centered there.

All of this makes suburbs a theoretically good target for Obama. In places like Pennsylvania, as longtime Republican activist Dennis Powell suggests, Obama should try to duplicate Democratic Gov. Ed Rendell’s wildly successful performance in 2002 in the so-called collar counties around Philadelphia. By winning those counties, in addition to building up a huge margin in his native Philadelphia, Rendell built a margin of more than a half-million votes that helped him win, even while he was getting thrashed throughout most of the rest of the state.

In 2004, Kerry also won Pennsylvania’s collar counties, not by a large margin but by enough to secure his victory in the state. If Obama does as well as Kerry in the collar counties, he will win the state — perhaps not at a Rendellian scale, but comfortably enough.

For his part, McCain needs to emulate the success of maverick Republicans, such as Sen. Arlen Specter, who have won by winning the Philadelphia suburbs. If McCain can replicate Specter’s performance and add some of the disgruntled Clinton Democrats in the rural south and west of the state, he could pull off a game-changing upset.

McCain also has an opportunity to win in the Detroit suburbs, where Obama’s ties to disgraced former Detroit Mayor Kwame Kilpatrick could hurt him. Bush won those areas in 2000 and 2004, but not by enough to capture the state’s electoral votes. As in Pennsylvania, McCain needs to forge a rural-suburban coalition to capture this traditionally blue-tinged state.

For Obama, suburbs in wobbly red states such as Ohio, Florida, Colorado, Virginia and Missouri offer similarly critical opportunities. Even traditionally conservative exurban voters may feel that under Bush they have been led down the bubble path only to have it pop painfully in their faces.

Ultimately it may all come down to “body language.” In our estimation, Obama’s weakness stems not so much from his race — he may well run better in suburbia than did the very white Kerry — but with his close identification with Chicago and Mayor Richard Daley’s Democratic machine. Having spent his adulthood in college towns and big cities, Obama seems to lack the instinctive Clintonian understanding of the suburban mindset. You never got the sense that Clinton was too urbane to wolf down a Big Mac or get a Slurpee at the local strip mall — and he really seemed to “feel the pain” of an overstressed homeowner.

In contrast, Obama and his team, including campaign manager David Axelrod, reflect the mentality of a totally urban political culture. Obama’s intellectual and media supporters also include elements — ensconced at publications such as The New York Times and The Atlantic Monthly as well as within the leftist Netroots — that often regard suburbs and their denizens as a form of social and environmental pestilence.

Obama is simply too smart, as a candidate and perhaps also as a president, to publicly give in to this mindset. He’s certainly trying to appeal to suburban voters who are too concerned with issues such as health care and foreclosures to worry about his lack of geographic empathy.

If he can convey this message effectively, Obama could benefit from the suffering now taking place in suburban communities. There may well be enough disgruntled suburban voters, even in the more peripheral areas, to blunt McCain’s suburban lead down to manageable numbers.

If so, McCain’s rural and small town base will not be enough to win the critical swing states and the election. If the Republicans can hold their 2004 suburban base, though, McCain could yet triumph. Whatever the result, one thing is clear: Suburban voters will be the deciders.

Joel Kotkin is a presidential fellow at Chapman University and executive editor of www.newgeography.com. Mark Schill is a principal at Praxis Strategy Group and the site’s managing editor.

How Low Can House Prices Go?

Wendell Cox — Mon, 29 Sep 2008 23:07:05 -0400

There is much speculation among economists and others about how close we are to the bottom of the collapse of housing prices. This is, of course, an important question, and goes to the heart of the wisdom or folly of the proposed $700 billion government bailout of financial markets, which is a consequence of their own profligate lending practices.

You would think that the experts would look at history. We have decades of experience with housing prices. Indeed, for at least the past six decades, median house prices have tended to be around three times an area’s median household income. It bears looking at where house prices are today compared to that standard.

And looking at it from the perspective, we may have a long way to go. As late as 1999, there was only one major metropolitan market among the top 100 with a median multiple (median house price divided by median household income) exceeding 5.0 (Honolulu), according to data compiled by the John F. Kennedy School of Government at Harvard University. The national median multiple was less than 3.0. By 2006, 23 markets, all highly regulated, had median multiples of more than 5.0.

Last week, we estimated that the aggregate value of the owned housing stock in the nation had risen nearly $5.3 trillion since 2000. Approximately 85 percent of that figure – $4.5 trillion – had occurred in metropolitan markets with severe land use regulations (strategies often called “smart growth”). These areas accounted for only 30 percent of the nation’s population. The large, more traditionally regulated markets experienced an estimated value increase approximately $200 billion, while outside the major metropolitan markets, the increase was approximately $500 billion.

If you accept this logic we may not be close to the bottom yet in many markets. Based upon an analysis of housing price declines from the peak, it appears that the losses in the highly restricted markets have taken back between one-third and, at most one-half, of the unprecedented house price increases relative to incomes.

If the economists and analysts had been paying attention, they might have looked at what happened in the last bubble, in bubble-land itself, California. From the middle 1980s to the housing bubble of the early 1990s, median house prices rose nearly 40 percent relative to household incomes in California’s largest markets (Los Angeles, San Francisco, Riverside-San Bernardino, San Diego and Sacramento metropolitan areas). By 1996, after a particularly deep recession in the early 1990s, the median house prices had declined to their previous household income relationship.

Yet there the bubble of the 2000s dwarfs what happened in the 1990s, a decline set off by a severe economic decline, particularly in Southern California. In the latest run-up California house prices doubled relative to household incomes in the five largest California markets by 2007. In effect the present bubble topped out at about a 2.5 times increase from pre-existing prices relative to the previous bubble. In 1985, the median multiple in these Golden State markets was 3.7, not much above the historic norm. By 1990 the median multiple had peaked at 5.3 and fell to 3.9 by 1996, rising to 4.2 by 1999. By September of 2007, the median multiple in these markets had risen to 9.1, far above the 1990 peak of 5.3.

It is not inconceivable that history will repeat itself – that prices will fall to the equilibrium level that has been the rule for so long. That would mean that the bottom may not yet be in sight. Moreover, it could well mean that the house prices reached at the peak of the bubble will never return except in another bubble, or in a hyper-inflating economy (another potential consequence worthy of concern).

In the next few weeks there will be no shortage of speculation about whether or not the bottom has been reached. Before house prices began to collapse in the highly regulated markets, many analysts gleefully reported on the unprecedented house price increases as if could continue without relation to the economy. The law of gravity appeared to have been repealed.

But my guess is Newton is still a very relevant person. If so, we should expect additional price decreases of 30 percent or more could occur in already declining markets such as Los Angeles, San Diego, Washington, D.C. and Miami. Similar declines from now could take occur in places like New York, Boston and Seattle, which have only recently experienced a downturn in prices.

Of course, it is always possible that smart growth regulation in these markets might have created a new floor that prevents prices from falling to historic norms. That would be good news for the owners of real estate – largely older and Anglo – in these areas. On the other hand, it would be disastrous news for millions of households and the next generation, many of them younger and minority, who will now have to remain on the sidelines of the housing markets of their choice. For many the choice may be moving to one of those places – like Indianapolis, Dallas-Fort Worth or Kansas City, Houston or Atlanta – where the opportunity to own a home still will exist for those without trust funds and elite occupations.

Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

How to Protect Main Street While Saving Wall Street

Steve Pontell — Sun, 28 Sep 2008 22:33:29 -0400

The current discussion in Washington can either lead to a rapid processing and recovery at the local level or a long drawn out destruction of local economies. This is particularly true of regions – Las Vegas, Phoenix, San Bernardino-Riverside, much of Florida – that have been hardest hit by the foreclosure crisis.

The current discussion is being limited to maximizing the yield on the securities that the Federal Government would acquire and then sell at auction nation wide. The disconnect that needs to be bridged lies with the focus on securities. In reality, these mortgages, however arcanely packaged, represent residential real estate. The smoke and mirrors of securities too complicated to understand must be cleared away. Otherwise, a few Wall Street interests will do even more damage and reap all the returns.

The key issue, then, is not how the paper gets marketed but how to maximize real estate values locally. If the Feds dump securities that then lead to high levels of absentee ownership in local communities for example, many neighborhoods will be seriously damaged. If local regions can manage the disposition of these assets - higher returns will be realized and goals such as home ownership and local economic development can be advanced.

We have seen this before. In the 1980s, the Federal Home Administration dumped large numbers of foreclosed homes on the market in San Bernardino. Instead of finding buyers, speculators preferred to rent these residences out. The result was a long-running decline in parts of the city, one that could now be further exacerbated.

Again in the 1990s, the Federal Resolution Trust Corporation dumped apartments, commercial, office and Industrial properties. Depressing real estate values in local economies, it killed many deals and devastated local property taxes.

But this time the Inland Empire will not be alone. If these securities are purchased nationally, Wall Street speculators could transform significant parts of formerly middle class suburban areas into largely renter-dominated badlands.

What we need is a locally controlled intermediary – perhaps a Regional Asset Value Recovery Corporation (AVRC) – that would seek to maximize asset value by taking full advantage of local real estate knowledge. Such a regional public-private partnership could help retain value for real estate assets while stabilizing communities, and minimizing the fiscal impact on the taxpayer.

These local groups – using both government and private matching funds – would be able to use the crisis to bring new life, and new homeowners, to these communities. This is something we are already working on in San Bernardino and Riverside counties, geographically known as the Inland Empire. This area is among the most impacted regions in the country.

San Bernardino and Riverside county governments, along with more than 15 city governments within those counties and over 30 business owners, are prepared to come together to manage the acquisition and disposition of properties. The group would manage the unraveling of income streams so that packaged mortgages can more suitably be restructured for the benefit of homeowners. It would also capture other current Federal resources, for instance the New Market Tax Credits, and fully utilize them in order to “prime the pump” of housing recovery.

Among the priorities of this entity would be to ensure the housing stock is maintained or renovated to meet basic health and safety standards. Abandoned housing stock is posing a serious public health risk. Addressing those risks has a direct impact on federal, state and local governments and on asset value.

It would also work to create opportunities to meet low and moderate income housing needs. On the one hand, not everyone can buy. Making units available to rent in the right areas would be a good way to maintain and support value. On the other hand, eventually, price stability and performance by tenants makes those same tenants candidates as future homeowners. The AVRC would be the right vehicle to undertake those efforts.

Another primary focus would be to maintain local property taxes and critical services. Depressed property values have an obvious ripple effect on local government’s ability to provide basic government services. Local communities stand ready to partner to protect our economy, their communities, their taxpayers, and their homeowners. We cannot leave the health of our communities solely to the discretion of either Washington or Wall Street.

Tony Mize
President, Workforce homebuilders

Jeff Burum
President, Inland Empire Opportunity Fund
Chairman, National Community Renaissance

Steve PonTell
President, La Jolla Institute
Germania Corporation