Minnesota’s housing market is stabilizing, but prices dropped more here than the national average. Mortgage delinquency is at or over the national average in Isanti, Sherburne, and Chisago counties. These three, as well as Anoka and Scott counties, are among the state’s ten counties currently hardest hit by foreclosure, according to the New York Federal Reserve Bank.
A new study suggests this is consistent with a national trend. Households located in areas far from jobs and services are more reliant on long car commutes and their expense, creating another hurdle for households as job losses have accumulated. These maps illustrate who pays the largest share of household income to transportation and housing costs – exurban residents.
Foreclosure and vacancy is toxic for any community, urban or elsewhere. It’s not particularly constructive to introduce “slumburbia” as a new label for hard-hit exurbs and suburbs. If access to parts of our region is contingent on cheap, subsidized gas prices, people who buy property are exposing themselves to changes in those prices. If many homeowners in one area do so, the effects can be brutal for neighborhoods.
The Twin Cities region has grown by up to 25 acres per day in recent years. Providing houses with water and sewer, roads and other infrastructure demands a long-term and expensive public commitment. The foreclosure wave serves to highlight how households, local and state governments are all leveraged by development that relies on cheap, distant commutes to workplaces and services. As we’ve relearned in recent years, leverage works just as swiftly in reverse as it does moving forward.
Note: This piece is also published on the Star Tribune website in its Your Voices forum. See Commers posts on Your Voices here.
Last April, en route to a conference of the International Economic Development Council in Washington, D.C., I encountered a feature story in National Geographic and became lost in the journey. The topic? The history of Velcro.
Among other things.
Velcro (photographed up close, at right) was invented in 1948 by Swiss chemist George de Mestral who, according to the article, was inspired by the effectiveness with which burrs would become entangled in his dog's coat. De Mestral could be counted as a pioneer among modern biomimeticists, who seek to create innovation based on the aerodynamic design of a fish's body, the ability of a thorny devil to "drink" by wicking water up its legs from the ground, or the way a desert beetle collects fog for needed moisture.
The thorny devil, and biomimetics generally, is important to urban planning and development, too. Ecology and the benefits of biological diversity are reflected in modern portfolio theory, which suggests the importance of holding multiple assets whose values fluctuate independently of each other. Some of the neighborhoods hit hardest by the current wave of foreclosures are those communities with monolithic development patterns – very similar single-family homes with limited or no proximity to commercial or retail services or other assets. Builders and homeowners alike witnessed the positive side of life without diversification during the real estate boom, with values marching upward. Today, the same parties are experiencing the negative side of the same approach, because a decline in prices for one type of land use is not mitigated by a diverse mix.
The capabilities of today's biomimeticists to understand the functions of plants and animals inspired a response of marvel from me. Human understanding of the complexity of the relationships among the flora and fauna around us is similarly advancing. Placemakers shaping our cities and metro areas have much to gain from imitating nature, extending from building healthy human habitat to applying the lessons of diversity to our urban economic thinking.
Photo courtesy of American Museum of Natural History. Map courtesy of Donjek.
Originally, a familial connection to the Netherlands introduced me to Tulip Mania,
a 17th-century example of a financial bubble that reads like a
parable. Who would invest in a tulip
bulb, wondrous as the blooms themselves can be? As Burton Malkiel
documented well in his book titled “A Random Walk Down Wall Street,” many Dutch joined in the tulip phenomenon, and many lost fortunes large and small. Teaching the theory and practice of investment at the College of St. Catherine in recent years, I have made sure to visit this interesting chapter of Dutch and financial history with students.
There’s nothing Dutch or historic about the bubble now known as the housing and mortgage crisis. Robert Shiller’s assessment
of the flagging housing market concludes not just with pessimism but also recommendations about information in the real estate market. Here’s an excerpt of the article the economist (whose Case-Shiller
housing index has gained fame in recent years) published in the latest Atlantic magazine:
Such an article is surely cold comfort to colleagues hit
We also need to get better—and more—information to
more-sophisticated investors and financial professionals. In real estate, one
important way of doing that is by further developing the financial market
rather than focusing only on regulating it or reining it in. For instance,
real-estate futures markets, which have existed since 2006 but are still in
their infancy, have the potential to tame future housing bubbles. Without them,
there is no way for skeptical investors who think they see a rising bubble to express
that opinion in the market, except by selling their own homes. If futures
markets grow, then any skeptic anywhere in the world could profit from a bubble
in, say, Las Vegas, by short-selling real estate there. Substantial short-selling would reduce
bubbles, and provide information to home builders, ratings agencies, and
others. In turn, builders, for instance, might not overbuild if they see that
most of the money in the futures markets is being bet on price declines.
Subsidized financial advice and the encouragement of
real-estate futures markets are just two examples of the sorts of actions that
could limit future bubbles. The larger point is that increasing the amount,
accessibility, and reliability of information about investments should be a high
priority for policy makers. Epidemiology suggests that even very small changes
to the transmission rate of a disease can make the difference between an
epidemic and a low-incidence disease. If better information inoculated even
relatively few people against boom thinking, that could prevent many bubbles
hard in the architecture field and others, but these ideas belong in the debate
about how to proceed with mortgage industry reforms and housing market
stabilization. If pointing fingers at
anonymous speculators is the extent of the reform, the financial bubble will be
historic, but certainly not extinct.
Against the backdrop of continued reeling in the residential real estate market, New York-based Local Initiatives Support Corporation (LISC) hired Donjek this winter to develop a review of the barriers to a coordinated, large-scale response to endemic vacancy in neighborhoods.
The emphasis of the inquiry has been on reducing the costs of vacancy in residential areas – which range from increased public safety expenses to property devaluation – by acquiring property prior to or at the time it becomes unoccupied.
At this point, fundamental challenges to a coordinated approach include:
• Policy makers, investors and housing advocates do not currently have an effective way to deal in batches of properties with unclear title, rather than on a case-by-case basis.
• We are unable to provide the kind of rapid response required to prevent vacant properties from further deteriorating, due to the scale of the challenge, lack of communication and centralized leadership.
• The level of capital or liquidity required to deal with stress in multiple neighborhoods simultaneously is not in place.
The report focuses in particular on the land bank models exemplified by the Genesee County Land Bank (operating in and around Flint, Michigan), and the Atlanta Land Bank. Click here to download the full Donjek report to LISC.
Photo: Courtesy of Flickr.
“The housing market has a new problem: aging Americans” suggest the editors of the Economist magazine in a recent article. A study released recently by researchers at the University of Southern California suggests that the approaching conversion of baby-boomers from net home buyers to net home sellers will effect a significant shift in the residential housing market. According to the study, the trend will likely last until at least 2030 when the last boomers turn 65.
The premise of the paper is that an ongoing, robust supply of buyers aged 30-34 who are able to afford housing stock at current pricing is essential for a balanced market. With sellers potentially outnumbering able buyers by a significant number by 2010, the study’s authors suggest this slack will cause the “generational housing bubble” to pop. The result: Downward correction in the price of houses in many states. Younger buyers’ growing reticence about buying in a downward market may compound this trend, creating a painful cycle for sellers. And, of course, the erosion of retirement savings locked in housing equity will create additional issues for boomers individually and all of us by proxy.
Donjek was recently hired by the Local Initiatives Support Corporation (LISC) to examine promising models nationwide for cushioning neighborhoods from the impact of foreclosure-related vacancies. In the preliminary phase of this project, I’ve encountered an excellent 2006 study of the impact of foreclosure on neighboring property values, and a more recent analysis of the same topic. These kinds of analytic methods, and the kinds of programmatic responses that LISC seeks to develop, may have additional value – 30 years into the future.
Graphic: Courtesy of Economist magazine.