Saturday, March 27

Review of Foreclosing the Dream

There may been no shortage of monday morning quarterbacking over the housing crash, but University of Virginia planning professor Bill Lucy sits in a unique position to offer a more comprehensive analysis of how the recession may be reshaping our communities. Having studied for over thirty years the spatial ebbs and flows of the housing market, and publishing in 2006 with colleague David Phillips Tomorrow's Cities, Tomorrow's Suburbs, he is prepared to fit this event into the longer view and wider frame of the contemporary situation. His recently released book Foreclosing the Dream tells this story.

Last week's numbers from the National Association of Realtors reveal that home values have turned downward again, dampening hopes that the economy may be out of the woods. We've already heard all of the blame being poured onto predatory lenders, credulous homebuyers, negligent oversight agencies, and maybe a corrupt politician or two, but we're left with the feeling that there must be some deeper undercurrent to all of this. Do we really think a few tweaks in the financial system and legal structure will patch things up for good? Bill Lucy suggests that the "American Dream" itself, or at least how it's currently visualized, will have to be adjusted to thrive in a new economy.

"We are at the threshold of some sort of reversal," Lucy writes.
There's evidence of a reversal of the conventional flight to the suburbs, according to a variety of indicators.
  1. Studying the spatial distribution of foreclosures in the 35 most populous metro areas, Lucy found that many of the farthest flung exurbs were hit the hardest. Of course, every city is different and foreclosures were very clustered in certain geographic areas (Nevada, California, Florida). Some inner cities like Cleveland and Detroit were hit hard, but cities such as San Francisco and Washington DC show a clear spectrum of foreclosures emanating outward. More often than not, this is the evident pattern.

  2. Sale prices have confirmed a similar pattern in many cities. Washington DC saw an 8 percent increase in home values between 2007 and 2008, while exurban Loudoun County homes lost 17 percent of value. (The difference in sale prices in the DC metro have stabilized slightly in the last year, but that could just be a blip when viewed in context.)

  3. For the last couple of decades, the age-old formula of "trickle down housing" has seen a new twist. It used to be the case that homes had their highest value when they were new, and the value dropped through time as they aged. Since the 1990's, this pattern is still the case with the exception of the oldest bracket - homes built before 1940. These are valued, on average, more highly than the newer houses built in the 50's and 60's. Apparently, their location in predominantly walkable neighborhoods closer to an urban center overcomes their age disamenity.

  4. The gas price spike of 2008 alerted many homeowners to the volatility of living in a high-mobility environment. Prices may have dropped since, but there is more awareness now of the fixed costs of transportation associated with a particular housing choice.

  5. Demographics nationwide are moving toward more households that are elderly, emptynesters, and singles. These are all cohorts that tend to favor urban or inner suburban settings. Perceptions of school quality and safety continue to make suburbs attractive to families of all races, but this may be changing in some places. The Lower Manhattan School Board recently ran into trouble when they grossly underestimated the number of children that would be enrolled in public schools.
However, there are strong entrenched interests that push back against this changing market (and the interests of the planet):

Local governments in metro areas are fragmented, more suitable for the much smaller population centers they once were, and they tend use zoning to protect their tax bases by pushing residential growth to the edges. The federal government has been slow to move away from the preference for highway funding over other transportation options. Many homeowners still don't want density for other people near their own home, and they rally against it. Some developers and corporations have hefty financial interests tied up with continued outward expansion. For these reasons and more, there's considerable friction involved in moving toward a more sustainable urban future.

Yet against all of these forces, it seems to be happening anyway in many cities.

The thesis of this book received some confirmation this January with an EPA study of building permit distribution over that last few decades:
"The permit data showed that, in several regions, there has been a dramatic increase in the share of new construction built in central cities and older suburbs."
Even throughout the housing crisis, many multifamily developments in denser areas remained stable. Urban development was particularly strong in major global cities and medium-sized cities known for smart growth policies. The study sounds a lot like Foreclosing the Dream. They call it a "fundamental shift."


Eric Orozco said...

On #5, I'm curious why he doesn't mention the trend for households "doubling up" or the emergence of multi-generational households.

Does he mention anything in this regard? So yes elderly, emptynesters, singles ...but I don't think these folks are living alone. Does he tease out more in the book? Especially with regard to people who are necessarily "downsizing", but who have lost jobs and such. What is happening with all the folks who are getting foreclosed on? If anything, I suspect people are "doubling up" or singles are rooming together in order to afford things. Some are doing it by choice to afford a place in pricier, walkable neighborhoods. I think the census is going to give us some surprising numbers in this regard.

Daniel Nairn said...

I definitely suspect that doubling up is happening. I heard an NPR story on this subject a couple of weeks ago. I'm not sure what research they were referring to, but they were finding an uptick in the number of post-college graduates staying with family and elderly moving in with boomer parents. They said this started increasing before the housing bust, indicating that it may be a mostly demographic shift (more boomers to live with) and/or change in cultural attitudes.

On top of this, I've heard lots of anecdotal stories about people hard on their luck moving in with family or friends for a while. Or others intentionally seeking out less traditional household arrangements to make ends meet. This seems totally logical.

I don't recall this being mentioned in the book, but I don't have it on hand at the moment to double check. It could have been in there.

LH said...

Daniel, thanks for this; I will have to check this out.

Anonymous said...

When we were young, and when living with our parents seemed an option to be avoided at all costs, we lived for a long time in a large house with a dozen or more friends, sharing meals and food costs. On a smaller scale, many young people rent apartments or houses together to keep costs down. My husband and I didn't move out and buy a house together until we'd both been out of college for nearly ten years. It seems obvious to me that people in straightened financial circumstances would share housing. Why take on a mortgage before you can afford it?

Living in a community can be maddening, of course, but it does have its compensations. It sure beats taking on debt you can't service. We're now retired and completely debt-free -- even mortgage-free. It's hard for a housing downturn to hurt much if you've always lived in less house than the banks told you you could afford, never let your house be a significant part of your net worth, never taken on a mortgage with more than a 15-year term, and consistently paid more than the monthly minimum on the mortgage.

-- Texan99

Unknown said...

The book "Foreclosing the Dream" is truly an eye-opener for us all. By reading the book, we tend to question things like homelessness, unemployment and underemployment, cultural shifts, and even the remodeling of urban and sub-urban settling. I'm pretty much concerned of these ideas because I realized that individuals should always be mindful of their future in terms of shelter and housing issues. This thought has been shared to me by a friend who is a dependable and well-trained broker. He's been serving so many people, helping them with their Alberta home loans concerns.

By the way, nice review, Daniel! Keep it up!