Consequences of an auto loan bubble

With more financing options available for purchasing cars, American driving is up:

By increasing access to cars, lax financing standards also appear to be contributing to a national rise in driving, and with it, declining public transit ridership. In the latest edition of its biennial survey of who’s riding buses and trains in U.S. cities, Transit Center, a public transportation research and advocacy group out of New York, notes that the share of households without vehicles fell 30 percent between 2000 and 2015, with foreign-born residents, who are more likely to earn lower incomes and ride transit, posting even sharper declines.

In the survey, respondents who reported decreasing their bus and train use overwhelmingly replaced transit with private cars. And almost half of respondents who said they’d purchased a car over the past two years received a loan to finance it. Of those, 56 percent said that getting a loan “was easier than they had expected.”

Of course, improved car access among lower-income groups might look to be a positive trend on its face, since a personal vehicle can equate opportunity. So strong is the historic link between car ownership and household income that a trio of transportation equity scholars recently called for subsidizing access to wheels for poor Americans. But fewer rides made by public transportation and more by private automobile is a trend with consequences that transcend the U.S. economy: It feeds the planet’s existential problem of rising carbon emissions, especially since SUV and truck sales have become particularly popular during this auto-loan boom. “The rise in auto debt is evidence that we’re dependent on cars in an unsustainable way,” said Cross.

The new high-water line of defaulted auto loans also suggests that personal vehicles aren’t always golden tickets. Instead, for Americans living paycheck to paycheck, they’re a catch-22: If you don’t have the money and can’t buy a car, you’ll struggle to make ends meet. And if you don’t have the money, but still buy a car, you’re liable to fall even further behind. Vehicles may be the table stakes for playing in the U.S. economy, but in so many ways, it’s getting harder to win.

As noted by many, just as homeownership came within the reach of more people in the 2000s due to creative lending options and subprime options, the same is true of the auto industry. Does this mean that a burst bubble in car loans – due to many people being behind on their vehicle payments – would cause Americans to rethink driving and the reliance on personal vehicles?

I would guess no. At this point in American history, the country is too far in on its dependence on driving. It is not just about driving to work; driving offers opportunities to access cheaper housing, independence for drivers compared to utilizing mass transit which works on consistent schedules and requires being around other people, and a host of consumer and recreational opportunities primarily accessible through driving (think big box stores, shopping malls, fast food places, road trips, etc.). This list does not even account for the auto industry and the construction industry which have huge stakes in more driving.

At the same time, while Americans have resisted public housing, would they be more amenable toward government help in obtaining or paying for cars? Few communities or government agencies have provided cars or money towards cars but it may be necessary in a society heavily dependent on getting around via a car.

 

Is my 45 year old suburban home worth preserving?

I realized recently that my suburban home of nearly two years is 45 years old. While there are no major problems with the home, it made me think: how long could the house last? And, how much effort and money should be expended to keep it going?

The home has some nice features but I don’t think there is much that distinguishes it from millions of other suburban homes. Its architecture is bland if not McMansion like and the lot has a good location.

As the postwar housing stock ages, many homes like ours may face more issues and newer housing units in a variety of places provide new competition. Complicating matters is that many of these older suburban homes command a decent price. When located in more desirable communities, these dwellings will likely prove attractive for some time.

But, when will the tide turn? When will the repair costs become extensive? Are older suburban neighborhoods destined for teardowns or complete redevelopment, not just in the wealthiest areas? Will populations shift away from postwar suburban neighborhoods?

I have little idea of how many years I should predict my suburban home will stand. Twenty-five more years? Seventy-five? One hundred? The builders and developers of postwar suburbs probably spent little time considering what their neighborhoods of tract homes would look like in a century but we are not too far from that. Future generations will decide whether homes like mine are worth investing in or no longer the trouble.

Linking the uniformity in the architecture of new apartment buildings to stick framing

The architectural commonalities among new apartment buildings may be connected to how the edifices are built:

The number of floors and the presence of a podium varies; the key unifying element, it turns out, is under the skin. They’re almost always made of softwood two-by-fours, or “stick,” in construction parlance, that have been nailed together in frames like those in suburban tract houses.

The method traces to 1830s Chicago, a boomtown with vast forests nearby. Nailing together thin, precut wooden boards into a “balloon frame” allowed for the rapid construction of “a simple cage which the builder can surface within and without with any desired material,” the architect Walker Field wrote in 1943. “It exemplifies those twin conditions that underlie all that is American in our building arts: the chronic shortage of skilled labor, and the almost universal use of wood.” The balloon frame and its variants still dominate single-family homebuilding in the U.S. and Canada. It’s also standard in Australia and New Zealand, and pretty big in Japan, but not in the rest of the world.

In the U.S., stick framing appears to have become the default construction method for apartment complexes as well. The big reason is that it costs much less—I heard estimates from 20 percent to 40 percent less—than building with concrete, steel, or masonry. Those industries have sponsored several studies disputing the gap, but most builders clearly think it exists…

The advance of the mid-rise stick building has come with less fanfare, and left local officials and even some in the building industry surprised and unsettled. “It’s a plague, and it happened when no one was watching,” says Steven Zirinsky, building code committee co-chairman for the New York City chapter of the American Institute of Architects. What caught his attention was a blaze that broke out in January 2015 at the Avalon apartments in Edgewater, N.J., across the Hudson River from his home. “When I could read a book in my apartment by the flame of that fire,” he says, “I knew there was a problem.” Ignited by a maintenance worker’s torch, the fire spread through concealed spaces in the floors and attic of the four-story complex, abetted by a partial sprinkler system that didn’t cover those areas. No one died, but the building was destroyed.

Cutting building costs makes sense. Still: if the costs of construction are reduced, this means there could be more money for interesting architectural or design elements. Enhancing the building in this way could lead to higher rents. (Of course, this assumes Americans are willing to pay a little more for apartment buildings that look good. I could imagine why this may not be the case. See the appeal of ranch homes – though not modernist homes.) Are there some developers out there who see value, aesthetically or monetarily, in helping their “stumpie” complex stand out?

I still marvel at times at this ingenuity in building homes and houses with balloon frames and its descendents: take standardized sizes of mass-produced wood and millions of dwellings are born. The pieces of this supply chain that had to come into place for this to be possible is interesting to consider as is the permanence of such dwellings that are based on frames of two-by-fours.

#1 payment priority for Americans: car loan

In a country dependent on and built around driving, perhaps the importance of making car payments is not a surprise:

“Your car loan is your number one priority in terms of payment, “said Michael Taiano, a senior director at Fitch Ratings. “If you don’t have a car, you can’t get back and forth to work in a lot of areas of the country. A car is usually a higher priority payment than a home mortgage or rent.”

People who are three months or more behind on their car payments often lose their vehicle, making it even more difficult to get to work, the doctor or other critical places…

After the financial crisis, there were a lot of restrictions placed on mortgages to make it harder to take out a home loan unless someone could clearly afford to make the monthly payments. But experts warn that there are far fewer restrictions on auto loans, meaning a consumer has to be more savvy about what they are doing when they take out a loan.

This article made me think a little: does this mean that cars come before homes in the United States? This would counter my own claim that suburbs are more about single-family homes then they are about cars – see my rough rankings of Why Americans Love About Suburbs.

Yet, the suburbs existed before cars. By the early 1900s, suburbs existed and utilized transportation technologies like railroads and streetcars. Mass suburbanization certainly occurred on a different scale with the availability of cars in the 1920s and then after World War II. But, the United States would have had some form of suburbs and their emphasis on single-family homes without cars even if that was on a smaller scale.

The whole relationships between cars and homes was cemented in the postwar era when increasing sprawl really did limit other transportation options for many people. And the shift of jobs to the suburbs made this problem even worse. Perhaps we could shift the what-if scenario to the future: could the suburbs go on without cars (hard to imagine) or cars on without suburbs (probably)?

When the landlord for a single-family home is an institutional investor…

Alana Semuels explores what happens when you rent a house from an institutional investor:

I talked with tenants from 24 households who lived or still live in homes owned by single-family rental companies. I also reviewed 21 lawsuits against three such companies in Gwinnett County, a suburb of Atlanta devastated by the housing crash. The tenants claim that, far from bringing efficiency and ease to the rental market, their corporate landlords are focusing on short-term profits in order to please shareholders, at the expense of tenant happiness and even safety. Many of the families I spoke with feel stuck in homes they don’t own, while pleading with faraway companies to complete much-needed repairs—and wondering how they once again ended up on the losing end of a Wall Street real estate gamble…

As the industry started to grow, the major players all described their desire to standardize and improve the business of being a landlord. But even to the companies’ employees, the effort to become more efficient started to look more like craven attempts to squeeze tenants. “It shouldn’t be just about making money, but that’s what it turned into,” Shanell Hanson, who was a property administrator for Colony American Homes in an Atlanta suburb from 2014 to 2016, told me. Hanson said the company had six maintenance workers for 2,100 homes in the area she managed. Residents would frequently call with substantial problems: Sewage was overflowing, or the house was full of mold. But with such a small staff, Hanson could rarely deal with the problems quickly. And the law was on the corporations’ side: If tenants want to seek financial remedy for a landlord not keeping the property in adequate condition, under Georgia law, they have to take the landlord to court, a costly and lengthy process. “It’s almost impossible to do without an attorney,” Lindsey Siegel, an attorney at Atlanta Legal Aid who works on housing issues, told me…

Many other single-family landlord companies were cutting corners on maintenance and repairs. “As the corporation got bigger, it just got worse, in terms of what we had to work with and how we had to deal with problems,” a former Los Angeles leasing agent who worked for Waypoint between 2015 and 2017 told me. (She spoke on the condition of anonymity because she still works in real estate.) Regional teams received bonuses for keeping costs low, she said, which incentivized them to skimp on spending. Instead of responding to tenants personally, supervisors would send calls for maintenance to out-of-town call centers—which would in turn assign maintenance workers dozens of repairs in a day, not realizing that Los Angeles traffic could mean that relatively short distances could take hours to traverse…

Tenants also say that rather than taking advantage of economies of scale, the rental companies are taking advantage of their clients, pumping them for fines and fees at every turn. This impression is backed up by the financial reports of the companies themselves. American Homes 4 Rent increased the amount of money it collected from “tenant charge-backs” (essentially billing tenants for repairs after they move out) by more than 1000 percent between 2014 and 2018, according to company earnings reports, though it only grew the number of homes it owned by 70 percent over that period. In some states, Invitation Homes keeps the utilities in its name, and charges tenants a monthly $10.99 “utility service fee,” which is in addition to the cost of water, gas, and electricity. The company increased its “other property income”—the amount it collected from resident reimbursement for utilities, service charges, and other fees—by 114 percent between the first nine months of 2017 and the first nine months of 2018, despite only growing the number of homes it owned by 71 percent. On an earnings call in 2017, Invitation Homes’ then-CEO John Bartling said that “automated charges to residents” drove profits in the quarter, leading to a 22 percent increase in “other income.”

I wonder how much of these issues are due to overwhelming emphasis in the United States on homeownership rather than renting. Do large companies think they can do this to renters because the long-term goal is to sell the property for a large sum to a homeowner (or another investor)? Similarly, do renters put up with this for a longer period of time because they expect to leave the rental market? Or, perhaps in markets where renting is more common and more rental units are available, renters would leave these situations sooner and institutional investors would have to do more to keep renters?

I would also be interested in more information on the profitability of such companies. How lucrative is it to purchase thousands of homes? While Americans historically are opposed to government involvement in housing (unless it is subsidizing suburban single-family homes), stories like these seem like they could be used to justify more government intervention in regulating housing. But, what if regulations cut into profits? The housing industry is a large and profitable one.

Another angle to take here would be to examine how these institutional investors do or do not contribute to local communities. One justification of homeownership in the United States was that it gave owners a stake in their local community and government. Yet, much capital in the world today is global and real estate decisions made thousands of miles away could heavily influence smaller communities that look like – they are full of single-family homes – they are constructed to emphasize local control.

Publication on the Soprano’s McMansion

The home of Tony Soprano and his family on HBO’s The Sopranos is a key setting for the show. It is here that Tony considers his own unrest and anxiety, where the family interacts with each other alongside Tony’s other “family,” and the home embodies the search for the suburban good life as encapsulated in a spacious home in a wealthy neighborhood.

I am grateful for the opportunity to explore this in more detail in a recently published paper: “A McMansion for the Suburban Mob Family: The Unfulfilling Single-Family Home of The Sopranos” in the Journal of Popular Film and Television.

Google Maps and more overlaid on what you see in front of you

The next era of Google Maps may soon be underway:

By making use of smartphone cameras, apps can get a more-detailed sense of where you are and where you need to go. The app knows which direction you are pointing in, even what you’re looking at. And because it’s all seen through a camera view on your phone, the app can layer directions on top of the real world, turning navigation into an augmented-reality experience.

Lots of companies are working on improving your maps, but nobody’s maps matter more than Google’s. The company announced an AR walking feature for Google Maps at its developer conference last May and now is making it available to some users before a wider release coming… later. (Google says only that it requires more testing.)…

A moment after the app found me, a set of bold, can’t-miss-’em 3-D arrows appeared on my phone screen, hovering in the middle of the street. The arrows pointed right, so I headed right. That’s when a rectangular blue sign appeared, floating above the sidewalk: 249 feet until my next turn. At the corner, the arrows again pointed right, and down the street a phone booth-size red pin marked my destination. It was as if Maps had drawn my directions onto the real world, though nobody else could see them….

And directions aren’t the sole point either. AR maps could help you learn more about everything you pass. Tory Smith, product strategy lead for autonomous vehicles at Mapbox, a navigation startup, envisions a possible future in which your windshield could display the nearest parking garage, then tell you how many spots are open, how much it costs and whether there’s a good coffee shop nearby. You might someday navigate indoors—where GPS doesn’t work—using AR maps, with Google Translate instantly turning every sign you pass into your own language.

It is not a matter of whether this happens: it is just a matter of when. I wonder if the first company/app/place that really goes all in on this early on will benefit greatly or if this will be feature that takes a long time to catch on. This seems like what Google Glass was truly made for.

What this will do to our abilities to read maps and know places is uncertain. This is not just digital maps versus paper maps: this is a combination of realities where pedestrians could soon just expect to have directions and information in the their view at all times. Whether this makes people more or less knowledgeable about their communities would remain to be seen. If individual users had a lot of control over their settings, perhaps people would literally only see what they want to see.