Thursday, March 22, 2007

The beginning of the exodus from suburbia?

Here's a clip:
In a sign of the spreading economic fallout of mortgage foreclosures, several suburbs of Cleveland, one of the nation’s hardest-hit cities, are spending millions of dollars to maintain vacant houses as they try to contain blight and real-estate panic.

In suburbs like this one, officials are installing alarms, fixing broken windows and mowing lawns at the vacant houses in hopes of preventing a snowball effect, in which surrounding property values suffer and worried neighbors move away. The officials are also working with financially troubled homeowners to renegotiate debts or, when eviction is unavoidable, to find apartments.

“It’s a tragedy and it’s just beginning,” Mayor Judith H. Rawson of Shaker Heights, a mostly affluent suburb, said of the evictions and vacancies, a problem fueled by a rapid increase in high-interest, subprime loans.

“All those shaky loans are out there, and the foreclosures are coming,” Ms. Rawson said. “Managing the damage to our communities will take years.”

Cuyahoga County, including Cleveland and 58 suburbs, has one of the country’s highest foreclosure rates, and officials say the worst is yet to come. In 1995, the county had 2,500 foreclosures; last year there were 15,000. Officials blame the weak economy and housing market and a rash of subprime loans for the high numbers, and the unusual prevalence of vacant houses.
James Howard Kunstler sez:
If you really want to understand the U.S. public's penchant for wishful thinking, consider this: We invested most of our late twentieth-century wealth in a living arrangement with no future. American suburbia represents the greatest misallocation of resources in the history of the world. The far-flung housing subdivisions, commercial highway strips, big-box stores, and all the other furnishings and accessories of extreme car dependence will function poorly, if at all, in an oil-scarce future. Period. This dilemma now entails a powerful psychology of previous investment, which is prompting us to defend our misinvestments desperately, or, at least, preventing us from letting go of our assumptions about their future value. Compounding the disaster is the unfortunate fact that the manic construction of ever more futureless suburbs (a.k.a. the "housing bubble") has insidiously replaced manufacturing as the basis of our economy.
Elsewhere:
Much of the suburban real estate produced by this process is destined to lose its supposed value, both in practical and monetary terms as energy scarcities get traction. So, on top of the sheer distortions and perversities of the glut in bad mortgage paper, America will be faced with the accelerating worthlessness of the collateral – the houses, Jiffy Lubes, and office parks – as gasoline prices go up, and long commutes become untenable, and jobs along with incomes are lost, and the cost of heating houses larger than 1500 square feet becomes an insuperable burden.

All this is to say that the suburban rings of our cities have poor prospects in the future. They therefore represent a massive tragic misinvestment, perhaps the greatest misallocation of resources in the history of the world. It is hard to say how this stuff might be reused or retrofitted, if at all, but some of it, perhaps a lot, may end up as a combined salvage yard and sheer ruin.
The suburbs and exurbs might not become wastelands just yet (although the bursting of the housing bubble will certainly create some blight on Wysteria Lane that hadn't existed previously), but give it a few years as the petroleum products that fuel the suburbs and exurbs become more expensive and more difficult to procure. A combination of that with the fallout of running a national economy on credit (note: the creditors themselves are increasingly fuel-hungry consumers such as China) should within a couple decades signal the end of an era (I consider myself a bit of an optimist).

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