Richard Florida on walkability and foreclosures

06/30/201007/01/2010 Lisa Schweitzer

Normally, I defend Richard Florida from my fellow urban social science types. He’s an interesting guy, he’s obviously learned how to work the media, he’s raised some interesting issues, etc, even if his research doesn’t hold up very well under scrutiny. So what if he’s more focused on staying a celebrity than making scholarly contributions anymore?

But that doesn’t mean the rest of us have to go along with what he says.

In particular, his high-profile claims about the way foreclosures are occuring just make no sense. Here are Richard Florida’s comments on how “central” and “walkable” places are less hard hit by the foreclosure crises.

We’ve had evidence for quite some time that central city locations and inner-ring suburbs have gentrified with higher income people less likely to have mortgages, less likely to default, and less likely to have taken on mortgages at all during the most hazardous time periods to do so. The chart Florida shows demonstrates that places which had a large portion of their housing stock constructed and sold during boom years are also getting hit hardest with the contraction and foreclosures. Why that’s evidence of anything is beyond me; it’s a regional-level chart, and it is basically an upside-down chart of Rob Lang’s descriptive work on “boomburgs.”

Florida’s little anecdote about Miami Beach REALLY sets my teeth on edge, however. You mean to tell me that Miami Beach real estate hasn’t lost much value? Surely you jest. That must be because it’s so darn walkable and such a good value therefore and not because rich people still have money, and rich people spend money on beachfront playspaces. Of course, walkability wouldn’t correlate with moneyed environments, either, would it? Or with the basic economic principle that increased land value prompts density and diversity in land uses which increase walkability, which then cycle through and increase land values?

How’s about this logic, instead: if affluent Americans weren’t such jerks about excluding people from housing opportunities in existing urban and regional environments over the past 30 years, people on the margin of home ownership wouldn’t have bought in far-flung, unwalkable suburbs.

I live in one of the densest urban environments outside of Manhattan with a very high walkability score, and there are three foreclosures in my high-rise, centrally located, infill development. Does that prove Florida wrong? No. It’s an anecdote. It’s not research.

So yes, walkability might be related, but not in the way people want it to be, and actual research findings? We’ve got nothing.

Meghan Daum on mortgages and the bubble in Los Angeles

06/25/201006/25/2010 Lisa Schweitzer

Now that the housing bubble (or whatever it was) has gone pear-shaped, we tend to see the whole episode discussed in highly clinical, economic terms. For those of us who had been trying to cope with the costs of housing during that time period, it was hardly clinical, and the people holding short sticks now were hardly then the sad little victims of the big bad banks then that they are generally portrayed to be now. Yes, I do think some people are victims, but the truth is, for every victim, I encountered back then swaggering realtors, mortgage lenders, and home owners who believed they were the smartest people in the world for being the market while was the dumbest and most pathetic person in the world for not being in the market.

Meghan Daum’s new book is called Life Would Be Perfect If I Lived In That House, and I have to admit I stayed up all night last Monday reading it. She’s an absolutely marvelous prose stylist, wonderfully funny, and remarkably insightful about how the external trappings of the house and decorating became, for Americans during our second Jazz Age, a way to demonstrate to others and ourselves our personal character and distinctiveness. Bourdieu, my favorite social theorist, will probably get to use this episode as a nice double entendre wordplay for his concept of habitus.

The brilliant writing of this next passage from Daum’s does more to capture the reality than all the sanitized economic writing about the “Bubble that wasn’t a bubble” I’ve consumed in months:

It was, by now, 2004. We were not at the apogee of the market, but we were getting there. The way I’ve always imagined it is this: if the real estate bubble were a distended piece of chewing gum in the mouth of a teenage girl, it would have been about the size of a lemon at that point–formidable but not yet out of control. By early 2005 the bubble would have covered her nose and eyes, and by the end of that year, it would been as big as her head. By 2007 it would have deflated slightly, and by 2008 it would have popped and been all over her face. By 2009 she’d have choked and died on the gum, but let’s not go there now.

She continues:

Instead, let’s remember 2004. Money was everywhere: talk of it, displays of it, envy of those who had it, and pity for those who didn’t. In the spring of 2004, you could find a thirty-year fixed interest rate of 5 percent. Adjustable-rate loans were, of course, practically falling off trucks–not just shiny, new expensive trucks but old, beat-up trucks, garbage trucks, even. People were paying $600,000 or $700,000 for properties that, four years earlier, would have been worth $200,000. people were taking out low-interest loans for $700,000, buying houses for $550,000, and using the difference to buy Range Rovers and vacations in Anguilla.

I remember thinking about this when I came back to Los Angeles from Virginia and I was staying with dear friends. I had made an above-average steak dinner, and we sat around that night and talked of three things: food, as these friends are foodies, the shootings Virginia Tech which still exert a profound effect on me, and real estate. And real estate and more real estate. I wondered then if I hadn’t simply been overloaded with real estate talk because I was looking for housing, but I don’t think so. It was everywhere, in the air, like the heady-sick sweet smell of jasmine past its prime.

Rachel Meltzer and my colleague Jenny Schuetz on Inclusionary Zoning

06/21/201006/21/2010 Lisa Schweitzer

Meltzer, R. & Schuetz, J. (2010). What drives the diffusion of inclusionary zoning?Journal of Policy Analysis and Management, 29(3), 578-602.

Social scientists offer competing theories on what explains the policymaking process. These typically include economic rationalism, political competition or power struggles, and policy imitation of the kind that diffuses across spatially prox- imate neighbors. In this paper, we examine the factors that have influenced a recent local policy trend in California: inclusionary zoning (IZ). IZ programs require developers to make a certain percentage of the units within their market-rate resi- dential developments affordable to low- or moderate-income households. By 2007, 68 percent of jurisdictions in the San Francisco Bay Area had adopted some type of IZ policy. We test the relative importance of economic, political, and spatial fac- tors in explaining the rapid diffusion of IZ, across 100 cities and towns in the Bay Area. Consistent with an economic efficiency argument, results of hazard models provide some evidence that IZ is adopted in places with less affordable housing. However, political factors, such as partisan affiliation and the strength of afford- able housing nonprofits, are even more robust predictors of whether or not a local government adopts IZ. There is no evidence of spatial diffusion in the case of IZ adoption; jurisdictions are not, on average, responding to the behavior of their neighbors.

This manuscript is a nice exemplar for students interested in mixed methods. They have a set of hazards models that predict the adoption of inclusionary zoning, and they supplement those models with a very short case study of San Jose to illustrate some of their key points. I generally do not like shortie case studies, but this is nicely done and is offered for illustration; the authors do not overstate what the case means or shows.

So one of the key factors is having an affordability problem, which is good as we don’t need to be passing rules and policies places don’t need. Important to the passage of IZ are well-established housing nonprofits. The authors note that these nonprofits create an advocacy base for IZ and provide a group of stakeholders poised to engage in IZ implementation. But the fact that the nonprofits are well-established suggests that time matters: it takes time for people to recognize social problems, it takes time for nonprofits to form and become well-established, and it takes time to get things passed. Places where affordability problems have not been around awhile would have none of the above.

One of the things I wonder about concerns the IZ output. This study is just looking at whether local governments pass IZ rules. What would be interesting is the nature of those rules, and whether places in California–the location of the study–have passed IZ rules pre-emptively. That is, the state of California technically has a inclusionary housing rule–like it has a bunch of other rules it doesn’t always enforce but some times does. I had been thinking about IZ rules as the outcome of a strategic game where local council members in jurisdictions that have a problem with housing affordability pass some moderate attempt at IZ to preempt their nonprofits from bringing the state in, which would undermine local control. The result may more paper ordinances that do less than they otherwise would.

Growth restrictions: green or mean? Joel Kotkin isn’t quite so sure

06/18/201006/18/2010 Lisa Schweitzer4 Comments

Over at the New Geography, Joel Kotkin has an essay up on how the UK’s neglect of white poverty, and the lessons it may entail for the US. Particularly haunting:

Rising housing prices, driven in part by “green” restrictions on new suburban developments, have further depressed the prospects for upward mobility. The gap between the average London house and the ability of a Londoner to afford it now stands among the highest in the advanced world. Indeed, according to the most recent survey by demographia.com, it takes nearly 7.1 years at the median income to afford a median family home in greater London. Prices in the inner-ring communities often are even higher. According to estimates by the Centre for Social Justice, unaffordability for first-time London home buyers doubled between 1997 and 2007. This has led to a surge in waiting lists for “social housing”; soon there are expected by to be some 2 million households–5 million people–on the waiting list for such housing.

link: The Future Of America’s Working Class | Newgeography.com

American Smart Growth researchers tell me that restrictions on the suburbs do not reduce the supply of housing, and thus do not raise house prices. Instead, housing gets supplied through more density and smaller units; the land consumption goes down, the housing supply goes up nonetheless; creative financing and better mortgage instruments enable home ownership among those whose finances would be strained by having a car or a house.

This is hard for me to believe past a certain level of metropolitan population.

First off, if banks or anybody else with money to lend actually believed in the location efficient mortgage, why haven’t they been all over LEMs by now? Every other riff on mortgage innovations that promised profits–no matter how ill-advised– took off like wildfire over the past 10 years. In an LEM-thriving world, people would be trying to cook their “I’m so close to transit score” the way they’d like to cook their credit scores. Yet for the most part, people with cars have more money than people who don’t. I have yet to see research that really convinces me that, expensive though cars are, they really aren’t better at enabling higher long-term returns to wealth for individuals than transit is, cheaper though it is. Saving yourself the on-average $8000 a year cost by not having car is financially dumb (for individuals) if the car would add more than $8000 to your productivity, including the marginal increase in the number of consumption and production possibilities you get and can trade against each other.

The endogeneity problems here are daunting. Do people have cars because as they get wealthy they buy more expensive things, or do people with cars see real returns in wealth from the spatial expansion of consumption and production opportunities made possible, unfortunately, with cars? Chances are, both, and it’s hard to suss those relationships out empirically.

Looking at the price differentials between cities, it seems pretty clear that high land values prompt densities through markets and politics, along with a political impulse to place restrictions on growth. Once some level of population gets surpassed, it has to put upward pressures on prices in a way that outpaces wage growth; island city-states are a good example.

How do we break open the cycle between affordability and growth controls once you reach 10 million in population, give all that entails for the land needed for both housing and economic production?

Eric Cantor: Tough Guy, Taking on the worst people: Graduate students

05/23/201005/23/2010 Lisa Schweitzer

In a master stroke of entirely meaningless, chump-change budgetary politics, Virginia Rep. Eric Cantor has instituted the YouCut program.

I’m not linking, and you can’t make me.

Representative Cantor has this idea in mind: using the entirely scientifical methodology of web polls, he will put the top-vote-getter up for cuts in the House budget.

What are these programs? Here’s one: the HUD Dissertation Fellowship Program. Here’s Cantor’s write-up:

HUD Program for Doctoral Dissertations ($1 million in savings)
Recently, taxpayers have financed research on media strategies for housing policy and the use of eminent domain for urban redevelopment. Why should families who are struggling to pay for their children’s college also being asked to fund stipends from the government for those who want to write their dissertation on certain government-preferred policies? At approximately $200,000 in grants per year, terminating this program would save $1 million over five years.

A million over 5 years!! That’ll clear up the deficit in no time. Swell! I don’t even know what he means by “government-preferred programs,” but I’m for cutting whatever the government prefers. You can have governments go around preferring things. Now you might think that if the government preferred that people study these things, the government would manage more than $225,000 a year to support it out of a $3.6 trillion budget, but that just goes to show you how ineffectual government is at the same time it’s evil.

The only problem: this write up doesn’t go far enough. He should have gone on to explain how these PhD students, having gotten their $15,000 cut of the big pork that is the HUD dissertation fellowship program, just fling that hard-working taxpayer money away on such fripperies as “food” and “rent.”

Keep up the good work, Chief Deficit Buster.

Note: this doesn’t mean the deficit doesn’t scare me. It does. That’s what makes this kind of rannygazoo all the more irritating.

Minimum wage, unemployment, and increasingly out-of-reach rents

04/23/201004/23/2010 Lisa Schweitzer

NLIHC: National Low Income Housing Coalition has released their annual report on rents and wages: Out of Reach 2010. This report basically looks at the area’s Fair Market Rents (FMR) for 30 percent of income on housing. This is their Housing Wage. They find that extremely low income renters are paying about 71 percent of their income for housing. This number has been this way for as long as I can remember.

This, however, is not a housing crisis. A housing crisis, I guess, occurs when homeowners and bankers make bad decisions about borrowing. I’m writing a piece on this right now, on the “too big to fail” logic surrounding homeowners. Ideas welcome.

Questions I would like to ask economists

04/05/201004/05/2010 Lisa Schweitzer

1. The fact that some entities were “too big to fail” suggests to me that anti-trust policy is either ineffective or a thing of the past. True or false? Isn’t letting anti-trust die away a recipe for recreating the same economic conditions that led us to the bailouts?

2. The belief that we “have no choice but to save the dumb buyers”–people who bought high and with poor mortgage structures–suggests to me that US economy has little resilience and that a continued, long-term reliance on economic growth and home ownership portends a huge structural weakness. True? False? What’s the advantage of being so dependent on individual home ownership?

Am I just being dumb here ?

My colleague Richard Green as usual has some interesting stats that point out how people’s behavior has changed around home ownership and debt from 1989 to 2007:

Richard’s Real Estate and Urban Economics Blog: A little more on Mortgage Debt and Aging

Who gets the foreclosure bail-out money?

03/25/201003/25/2010 Lisa Schweitzer

NYTimes.com has a story on the tough choices ahead to figure out how to disperse homeowner relief in Arizona. Here’s the story: Microcosm of the Housing Crisis on an Arizona Street

I am trying to be convinced that foreclosure relief is a good idea. I have enormous respect for the real estate economists in my school, and in general, they support foreclosure relief based on the externality argument: ie, that foreclosures cause home values to fall in the neighborhood, and thus are an externality. There is some empirical work out there measuring the externality, but I am often unconvinced by externality arguments that don’t actually involve physical environmental problems. External costs and benefits get bandied around too often in the public sphere as code for “this is something I want/don’t want, so it will benefit/cost everybody” instead of really reflecting the downstream phenomenon the concept should.

Here’s why I can’t get on board.

1. People tell me that the reason I shouldn’t fret about poor people is that housing filters down to them as houses age and prices fall. But if we are keeping people in their houses and making housing a can’t-lose investment, which will increase or at least stabilize house prices, how does that filtering happen?

2. Nobody was complaining about externalities when their neighbor’s inappropriately high housing sale value was inflating their own home prices. Is this really a market failure, or is this just a painful reversal of neighborhood effects?

3. How is it that we are in housing crisis now but not when housing prices were higher?

It seems to me that the means test for justice here is that we can and should help out struggling homeowners, but that the program should be more like guaranteed student loans than operating subsidies to households. I mean, hell, Section 8 housing doesn’t get this kind of love. The government ponies up the money to help out the owner and keep them in their house, but that money has to be paid back. Just like student loans, you can apply for a forbearance on the repayment if you remain unemployed or fall ill. But it’s to be at a subsidized rate after a certain amount of time.

Why isn’t that enough?

The one place I don’t see such a plan working is for elder housing. There I can see a rationale for a straight compensation.

Lisa Schweitzer

Working to understand the complex connections between people, cities, and environments

Tag: housing

Richard Florida on walkability and foreclosures

Meghan Daum on mortgages and the bubble in Los Angeles

Rachel Meltzer and my colleague Jenny Schuetz on Inclusionary Zoning

Growth restrictions: green or mean? Joel Kotkin isn’t quite so sure

Eric Cantor: Tough Guy, Taking on the worst people: Graduate students

Minimum wage, unemployment, and increasingly out-of-reach rents

Questions I would like to ask economists

Who gets the foreclosure bail-out money?

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