President Obama has announced a special program of assistance for home owners in the five states that have been hit hardest by the housing crisis. The proposed program is targeted at California, Florida, Arizona, Nevada and Michigan, where house price declines are more than 20% from the peak of the bubble.
The greatest losses occurred in California, Florida, Arizona and Nevada (see note), where peak to trough house price loses exceeded 40% in all 12 metropolitan areas over 1,000,000 population except Jacksonville. These markets accounted for 70% of the gross housing value loss in the nation before the Lehman Brothers collapse. House prices were driven to unprecedented levels of up to four times historic norms by overly prescriptive land use regulations (“growth management” or “smart growth”) that makes land unaffordable.
Average losses were more than $175,000 in the markets of these states, more than 10 times those in traditionally regulated markets such as Atlanta, Dallas-Fort Worth, Houston, Indianapolis, Kansas City and Cincinnati. These intense losses were beyond the ability of the mortgage industry to sustain and it is generally acknowledged that this precipitated the Great Recession.
Smart growth had nothing to do with the Michigan price collapse. There, the strong economic downturn pushed prices down even as the state escaped without a housing bubble.
The President’s program means that the nation is now paying twice for smart growth policies. The first payment was, of course larger, which cascaded into the huge household wealth losses in the Great Recession.
Note: While Las Vegas and Phoenix are sometimes perceived as not having prescriptive land use policies, the Brookings Institution ranks both metropolitan areas as toward the more restrictive end of the regulatory spectrum. These overly prescriptive regulatory environments are exacerbated by the fact that in both metropolitan areas much of the developable suburban land is owned by government, and is being auctioned, though at a rate less than demand. These factors combined to drive auction prices per acre up nearly 500% in Phoenix and nearly 400% in Las Vegas during the housing bubble.
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Re: Smart growth had nothing to do with housing bubble
Nicomaco
Portland has an Inclusionary Housing law as part of its "Smart Growth" policies. By definition, Inclusionary Housing is "inflationary housing." Typically, to create one "inclusionary" housing unit, about 4 other market rates units must have their sales prices or rents increased to provide the subsidy for the inclusionary unit. Thus, at least a 25% price inflation is included in even the non-subsidized units in Inclusionary housing developments. That reflects about $62,500 on a $250,000 condo, $125,000 on a $500,000 condo.
But there is an additional side effect of Inclusionary Housing too -- it also inflates the prices and rents of nearby competitive housing. There is a concept in real estate appraisal called progression (aka inflation). This means that once developers and landlords are able to get a 25% higher price or rent that other nearby developments will also have their prices and rents increased. Add "easy money" or "free money" created by the Community Reinvestment Act to this and you have runaway housing inflation. So now if you have a "no-down" payment loan and your housing price is inflated by at least 25%, when the market turns downward the market value falls below the loan value. Inclusionary Housing works well in an inflationary market but as soon as the market turns downward you have the formula for a banking and economic disaster.
There is an even more insidious sociological effect of informal land use policies that are not reflected by zoning and "smart growth." Many "smart growth" cities also have informally defined neighborhoods for economic migrants to create a cheap labor pool for hotels, tourist venues, upscale restaurants, museums, etc. often found in "smart growth" cities. The economic migrants are often able to drive out other competitors for smaller, cheap housing units by doubling and tripling and quadrupling up. So rents get bid up higher and higher as local politicians look the other way at this "block busting." Liberal municipalities may create liberal eviction laws and courts loaded on the side of migrants to make evictions very costly for landlords. So slowly a beachhead is established for taking over the smallest and cheapest housing stock and driving out the first time homebuyer who might compete for that housing. Typically the first time homebuyer has to find housing out on the urban fringe in "suburbia" or "exurbia" (i.e., "sprawl"). In urban planning and real estate appraisal this is called the "push-down/pop-up" phenomenon. If you push first time homebuyers out of the city to create cheap housing for economic migrants for a cheap labor pool, these first time buyers pop up out in the suburbs. So-called "smart growth" is a rear guard action to try and lure first time homebuyers and upscale renters back into the city that they were driven out of in the first place. In short, "dumb" informal land use policies drive "smart growth." If the smallest, oldest, and cheapest housing stock in an urban community were available for first time buyers there wouldn't be so much "sprawl" and any need for "smart growth" and "inclusionary housing."
This is my experience as both a real estate appraiser and sociologist. In conclusion, I concur with Wendell Cox about how land use policies hyper-inflate housing prices.
Your view on the CRA is controversial
From Wikipedia on the CRA
"Some legal and financial experts note that CRA regulated loans tend to be safe and profitable, and that subprime excesses came mainly from institutions not regulated by the CRA. In the February 2008 House hearing, law professor Michael S. Barr, a Treasury Department official under President Clinton,[65][111] stated that a Federal Reserve survey showed that affected institutions considered CRA loans profitable and not overly risky. He noted that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. Barr noted that institutions fully regulated by CRA made "perhaps one in four" sub-prime loans, and that "the worst and most widespread abuses occurred in the institutions with the least federal oversight".[112] According to Janet L. Yellen, President of the Federal Reserve Bank of San Francisco, independent mortgage companies made risky "high-priced loans" at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis.[113] A 2008 study by Traiger & Hinckley LLP, a law firm that counsels financial institutions on CRA compliance, found that CRA regulated institutions were less likely to make subprime loans, and when they did the interest rates were lower. CRA banks were also half as likely to resell the loans.[114] Emre Ergungor of the Federal Reserve Bank of Cleveland found that there was no statistical difference in foreclosure rates between regulated and less-regulated banks, although a local bank presence resulted in fewer foreclosures.[115]"
However, this "housing crisis" would be different, if what you stated were accurate. The reality, is that lenders were not responsible for holding the mortgages that they were originating. This lead to an unprecedented building boom, of suburban properties. These are the properties that are having the most significant loss of value, because their value was artificially inflated to begin with.
Nicomaco You read too much
Nicomaco
You read too much and do not indicate that you have first hand experience with real estate markets and with land use policies. So what if CRA loans were not the ONLY fault of the housing meltdown? That wasn't my point in the first place.
What CRA did was mandate informal quotas for affordable housing for lenders. Housing policy had to conform with this. Thus in California the legislature mandated that Housing Elements must be filed with the state by each municipality with quantified targets for affordable housing. As the General Plans came into effect "Smart Growth" followed. The only political way to comply was Inclusionary Housing for multi-family housing (condos and apartments) in built-up urban areas.
In every area that I have appraised properties I have found that "Inclusionary Housing" and "Smart Growth" results in a net LOSS of affordable housing. Affordable housing is old, obsolescent, with no amenities, distant from conveniences like transit stations and shopping centers. Inclusionary housing is new, has luxury amenities such as gyms, pools, etc., and is located on very pricey prime commercial land adjacent to light rail stations, upscale markets, etc. So affordable housing has been redefined as luxury housing by "smart growth." But typically the land use that preceded the "inclusionary housing" or "transit-oriented housing" was housing stock that was older, obsolescent, with no amenities, and was cheap. This is a regressive policy that hurts the poor.
What affordable housing indirectly also does, whether formally created by Inclusionary Housing or informally by housing enclaves for economic migrants, is provide welfare for the migrants families in their homes of origin (mainly in South America). It is estimated that $20 to $25 billion per year in California is sent home to South America by economic migrants here in the U.S. That creates a huge hole in taxes and state and local governments in the U.S. All we're doing by providing so much generous housing and other subsidies is providing welfare for South American nations.
Now this all may or may not be sound housing or economic or social policy. But what is needed is more transparency as to what "smart growth" and "inclusionary housing" really is.
what you're speaking of is gentrification
also from Wikipedia
Causes
Two discrete, sociologic theories explain and justify gentrification as an economic process (production-side theory) and as a social process (consumption-side theory) that occurs when the suburban gentry tire of the automobile-dependent urban sprawl style of life; thus, professionals, empty nest aged parents, and recent university graduates perceive the attractiveness of the city center—earlier abandoned during white flight—especially if the poor community possesses a transport hub and its architecture sustains the pedestrian traffic that allows the proper human relations impeded by (sub)urban sprawl.
It's been my experience, that Gentrification has been an issue in Portland. disadvantaged neighborhoods in NE Portland have gradually been pushed to suburban areas in Gresham, Damascus and outer SE Portland. There has been attempts to counter this with a Portland Land Trust.
This is also interesting, from the article about Gentrification on Wikipedia:
"The gentrification of a mixed-income community raises housing affordability to the fore of the community’s politics.[46] Cities, municipalities, and counties have countered gentrification with inclusionary zoning (inclusionary housing) ordinances requiring the apportionment of some new housing for the community’s original low- and moderate-income residents. Because inclusionary zoning is a new social concept, there are few reports qualifying its effective or ineffective limitation of gentrification. In Los Angeles, California, inclusionary zoning apparently accelerated gentrification, as older, unprofitable buildings were razed and replaced with mostly high-rent housing, and a small percentage of affordable housing; the net result was less affordable housing."
So, perhaps the issue you describe is more unique to Los Angeles.
And you are correct, I do not work in real estate. I am a homeowner, and a landlord in the area. I also have been located here for almost forty years, and have seen firsthand the shear destruction that poor planning causes. I've watched the line between urban, and rural areas become so blurred as to become a vaporous expanse of suburban waste. I have been in community meetings, regarding the CRC project, zoning changes and transit development. A very important thing that the authors of this article miss is that suburbia harms city and country alike. Farmland is "appropriated" by greedy developers that is turned over hideous tract housing. I've watched the waves of people move in, when fuel was cheap thinking that it's "good enough" until they can afford better. They contribute little to the community, because they don't plan on remaining part of the community. No, sir, I may not know the numbers, but I do know the results.
Smart Growth is not sustainable for water resources
Nicomaco
But the attempt to reverse suburbanization, called Smart Growth, channels population at least in California toward the urban coastal areas where there are fewer groundwater resources and away from the inland areas where there are greater water resources. Thus Smart Growth increases dependence on imported water from the Sacramento Delta and the Colorado River. Is worsens sustainability.
And right now California has signed a deal with Oregon to remove dams along the Klamath River that flows through both Southern Oregon and Northern California. This proposed dam removal project is contingent on approval of a bond issue in California to help finance the removal of the dams and the final approval of the Secretary of the Interior (Federal). By removing the dams the Klamath River will run "wild" again -- but irrigation water for farmers will be lost. And California will grab more water from its neighbors. And it is Smart Growth policies that are driving this. Read link below for more:
http://aquafornia.com/archives/5663
Water is a different issue entirely
But it has been shown that suburban development (as we know it now) isn't very good at conserving water. it is important to realize the limited carrying capacity of any given area, when it comes to locally available resources. One of the concerns that I have about southern california, is a combination of sudden fuel price hikes, and water shortages simultaneously. That may cause a mass-exodus of people from that region. I fear, that they'll come here.
Nicomaco Smart Growth and
Nicomaco
Smart Growth and Inclusionary Housing is touted as using less water. But the so-called experts doing the tabulating did not count water used in common living areas in multifamily housing; water for swimming pools, gyms, spas; and the water lost to recharge underground water basins by building high density concrete urban villages.
Another problem is that the Housing Bubble created a huge inventory of unsold and unrented new multifamily housing (condos, apartments) in downtown areas of cities that are no longer paying water bills. The City of Pasadena, California for example has a $4 million deficit in their water fund due to lack of water sales. The land uses that preceded the inclusionary housing (older housing and commercial) entailed considerable use of water and thus revenue for municipal water departments. With that revenue lost and new housing stagnant, a budget hole has developed in many cities in their water funds. Most cities in California have blamed the "drought" instead of overbuilding and overplanning.
Micomaco,
I'll have to meet you half-way on this. It seems like apples-oranges, in our comparisons. Multi-family housing isn't experiencing this bubble here. Even with rather rapid expansion of multi-family units inside of the Portland Core. We also have different water issues. For us, when the rains come in heavy, it has caused our water treatment system to "Crash". A system is being built to rectify this now. The other thing, is that swimming pools are comparatively rare here, since they can only be used for a few months a year.
The concern that I have with pro-suburbia priorities, is that it marries the population to petroleum. None of the writers on this site have addressed what will happen when fuel hits $5.00 a gallon toward the end of 2010. Most of the suburban developments are not considered walkable, and are not well served by electric transportation. Many of these developments will have to be abandoned, and the line between city and country will be firmed up. If southern california wishes to continue rapid growth, policies regarding water, and transportation will have to change. Many lifestyles will have to change also. One good example, can be found at www.survivela.com.
Of course...
Five minutes after I post, I run into this:
http://www.fastcompany.com/1558244/inspired-ethonomics-portland-a-global...?
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