Via Matt Y., interesting piece over at Ryan Avent’s DC Streestblog on how government policy might actually be bailing out sprawl:
Foreclosures have been concentrated on urban fringes, so federal efforts to modify mortgages and otherwise reduce defaults have tended to direct more aid to exurbs than inner suburbs and city centers. In addition, rates of home ownership and car ownership are higher in the suburbs than in city centers, so federal housing subsidies (including the new home-buyer tax credit and low interest rates generally) and automobile subsidies (”Cash for Clunkers”) have had a geographic bias toward suburbanites.
To a certain extent, this has been unavoidable. Most Americans live in auto-oriented areas in suburban places, and a large share of those Americans are facing financial difficulty. Any measure that helped stressed households, including checks of equal value cut to all workers, would tend to benefit suburbanites more than urban dwellers.
But it’s his anaylsis of the dynamics of the bust, and it’s affect on suburbia, suggest that some suburbs could go the way of the inner city:
When the crash came, it quickly became apparent that housing inventory on the fringe had grown out of all proportion to the actual demand for such housing. Meanwhile, there continued to be excess demand for homes in center cities.
So while the bust ended up being painful for everyone, it was far less painful for urban centers. In those places, price declines brought in buyers, helping to keep inventory down and price declines orderly.
In exurbs, by contrast, falling prices went hand in hand with huge numbers of vacancies. Prices fell chaotically and dramatically as inventory overhang led to falling home values, which contributed to foreclosures, which added to inventory, which further depressed home values and led to still more defaults and foreclosures.
Another way to say this is that center-city housing markets experienced a correction, while exurban housing markets entered a vicious cycle leading to wrenching housing price declines that will likely push prices below replacement costs in some areas.
This is a dangerous place for neighborhoods to be. Vacant homes will begin to deteriorate, and occupied homes unlikely to sell for more than replacement costs (or more than the value of the owner’s mortgage) will suffer from disinvestment. The housing stock will become second-rate.
As neighborhoods fall apart, wealthier and more mobile homeowners will move away, while excess inventory and rock bottom prices will attract low-income households. The tax base will fall and so services will decline, and the general desirability of such areas will drop. Some, and perhaps many, of these neighborhoods will become slums.
How do we know? Well, this is a storyline we’ve seen before, both in center cities during the decades of urban decline and in depopulating Rust Belt cities for much of the past half century. It is a process that is very difficult to reverse.
