Tag Archives: economic crisis

A surplus of 5 million McMansion in the United States?

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In the middle of a review of the Foreclosed exhibit at MoMA, a housing analyst makes an interesting statement about the surplus of housing currently in the United States:

It’s still easier to borrow for a McMansion, even though the U.S. has about five million too many of them, according to Arthur C. Nelson, a housing analyst who directs the Metropolitan Research Center at the University of Utah.

Nelson was also cited in stories about turning McMansions into affordable housing that I wrote about back in October 2011. In that story, it was said that there “America [is] saddled with about 30 million more homes on large lots than the market needs.” Whether the number if 30 million or 5 million or even 1 million, that is still a large glut of homes that must be hampering the housing market.

I wonder if Nelson is defining a McMansion just by square footage. This is the most basic trait of a McMansion when the term is generally used though it is unclear how big a home has to be in order to be called a McMansion. Is 3,000 square feet big enough? Is 10,000 square feet more of a mansion than a McMansion? We could also ask whether a home this size necessarily is a McMansion as it may be an older home or it may have more architectural quality than a McMansion is assumed to have.

 

Banks are foreclosing on more churches

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Houses aren’t the only structures being foreclosed on during this economic crisis. Churches have been hit hard in recent years:

Since 2010, 270 churches have been sold after defaulting on their loans, with 90 percent of those sales coming after a lender-triggered foreclosure, according to the real estate information company CoStar Group.

In 2011, 138 churches were sold by banks, an annual record, with no sign that these religious foreclosures are abating, according to CoStar. That compares to just 24 sales in 2008 and only a handful in the decade before…

“Churches are among the final institutions to get foreclosed upon because banks have not wanted to look like they are being heavy handed with the churches,” said Scott Rolfs, managing director of Religious and Education finance at the investment bank Ziegler…

Church defaults differ from residential foreclosures. Most of the loans in question are not 30-year mortgages but rather commercial loans that typically mature after just five years when the full balance becomes due immediately.

Its common practice for banks to refinance such loans when they come due. But banks have become increasingly reluctant to do that because of pressure from regulators to clean up their balance sheets, said Rolfs.

Several things strike me here:

1. It would be interesting to talk with banks about how they negotiate this situation where they don’t want to appear heavy-handed with churches and yet still need to profit off their mortgages. Where is the line – is it just about the amount of money involved or does the possible response from the congregation also factor in? The article hints that these aren’t strictly business decisions but include consideration of cultural and moral values.

2. While the article suggests these foreclosed on churches are often bought by other churches, what kind of market is there for people to buy former churches who want to use the existing building? I’ve seen some interesting pictures over the years of churches that are converted into residential spaces (either large homes or multi-family units) but this requires the extra time and resources for rehab. I assume newer, auditorium-type churches might be more attractive here.

3. Will there be any extra indignation about churches outspending their means and not being able to meet their mortgage obligations?

New economic plan for Chicago region from Emanuel, World Business Chicago

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Chicago Mayor Rahm Emanuel announced a new economic plan for the Chicago region earlier today:

What’s clear from the 60-page report is that the city is aiming to shake up the status quo. Too many agencies have been making uncoordinated efforts to boost economic development, the report finds, and greater collaboration is needed. Job training programs have not been well-aligned with employers’ needs and should be tailored to specific job demand. And new funding models are needed for infrastructure and transportation projects, given the economic times.

“A global city like Chicago needs a clear set of goals, a clear framework for analysis and clear strategies for economic growth and the creation of jobs,” Mayor Rahm Emanuel said in a statement…

It is one of two major regional planning endeavors that has been under way for months. Next week, the Chicagoland Chamber of Commerce will unveil the results of a study conducted by the Paris-based Organization for Economic Cooperation and Development (OECD), of how the region can better compete in the global economy.

Read the executive summary of the plan here.

A few quick thoughts on the plan:

1. I’m not particularly surprised by any of the 10 primary suggestions. What seems most pertinent here is that the plan is regional and wants to leverage the assets of the whole region for this one plan.

2. It seems to me that the trick will be uniting all of the local governments and taxing bodies in order to work on this plan. Some of the recent battles in Chicagoland indicate that this will not be easy: the battle over the expansion of O’Hare Airport and the battle over the purchase of the Elgin, Joliet, & Eastern railroad tracks by Canadian National. Perhaps this most recent economic crisis presents an opportunity – after all, Emanuel is well-known for saying, “You never want a serious crisis to go to waste” – where even the wealthier suburbs will want to tackle these issues together. Balancing all of these interests will be difficult as will having the right kinds of structures to enact change across communities.

3. This reminds me that while Mayor Emanuel may be considered liberal by some, he is pro-business in a similar way to President Clinton and other more moderate Democrats. This plan comes out of the World Business Chicago group that Emanuel has tapped to help lead Chicago forward. Emanuel’s vision may have more governmental involvement than some would like but matters like infrastructure are already government’s concerns and if managed well (which includes preparing for the future rather than simply trying to keep up today), can help everyone else succeed. If this plan is a success and the Chicago region continues to be or even builds upon its standing as a world-class city, Emanuel will be remembered fondly by many on both sides of the political aisle.

4. I would be curious to know how many plans like this have been developed in the past, how many were successfully followed, and how many were successes.

5. There are a number of groups who do regional planning in the Chicago area, such as the Chicago Metropolitan Agency for Planning which has its own Go to 2040 Plan, and I wonder how they will respond to this plan.

“The moral self of bankers and brokers”

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A recent article in American Sociological Review looks at how some bankers and brokers were able to help lead the country toward recession:

Those bankers, stockbrokers, and mortgage lenders whose actions helped cause the recession were able to act as they did, seemingly without shame or guilt, perhaps because their moral identity standard was set at a low level, and the behavior that followed from their personal standard went unchallenged by their colleagues, said Jan E. Stets, a sociologist with the University of California in Riverside.
“To the extent that others verify or confirm the meanings set by a person’s identity standard and expressed in a person’s behavior, the more the person will continue to engage in these behaviors,” said Stets, co-author of “A Theory of the Self for the Sociology of Morality” in the February issue of the American Sociological Review. “If others have a low moral identity and do not challenge the illicit behavior that follows from a person’s identity standard, then the person will continue to do what he or she is doing. This is how immoral practices can emerge.”
Studying the moral self is opportune given the practices of bankers, stockbrokers, and mortgage lenders whose behavior, in some cases, helped facilitate the recent recession in the United States, said Stets and fellow researcher Michael J. Carter of California State University at Northridge.
“The fact that a few greedy actors have the potential to damage the lives of many brings issues of right and wrong, good and bad, and just and unjust to public awareness,” they said. “To understand the illicit behavior of some, we need to study the moral dimension of the self and what makes some individuals more dishonest than others.”

This sounds like a good illustration of some basic sociological principles: personal aspects of the self can be heavily influenced by their context. Humans have agency but their options are constrained and influenced by the social environment in which they find themselves.

Here is what I wonder: can regulations alone successfully promote a higher personal identity standard?

Another question: are Americans angry/distraught/upset about moral lapses from individual actors within the financial industry or with the entire system? In other words, do Americans blame the context or the bad actors? In thinking about this, do most Americans even know who the main individuals involved in the economic recession are (beyond government officials)?

The wealthy “walking away from the McMansions”

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One commentator suggests the number of wealthy homeowners walking away from their large mortgages is on the rise:

Nationwide, foreclosures on loans over $1 million are up nearly 600 percent since 2008…

Walking away has even become something of a boast among the more-or-less wealthy – a solution with few downside risks that also marks the walker as a smart player.

That’s because California is one of a small number of “non-recourse” states. Here, the mortgage lender cannot recover the full value of the loan if the homeowner defaults; the lender can only recover the house, not the owner’s other assets.

The effect is producing a death spiral for loaded McMansions in some upscale neighborhoods. When owners default, they expand the inventory of over-priced houses, undercutting the value of similar homes in the neighborhood, lowering their resale value and prompting a new round of “strategic defaults” by other owners.

I wonder how lenders are responding to this issue. Would they move more or less quickly since these homes are worth more and the bank could make more money (though they might lose more on the mortgage)?

Another issue: how much does walking away from a large mortgage hurt someone who was able to get such a large loan in the first place? While foreclosures for “average homeowners” are often portrayed as huge problems (looking for somewhere to live, a hit to their credit rating), is this as much of an issue for those with bigger mortgages? According to this look at Beverly Hills, this decision is being made by some who can pay the mortgage but don’t want to deal with the decreased value of their homes:

Many are walking away not because they can’t pay, but because they judge it would be foolish to keep doing so…

She said she had seen in Beverly Hills a big increase in “strategic defaults,” in which owners who can still afford to make their monthly mortgage payment choose not to because the property is now worth so much less than the giant loan used to buy it during the housing bubble…

Bremner said she helped a client buy a Beverly Hills mansion last year that the prior owner had bought for over $4 million. He decided to stop paying his $3 million mortgage – even though he could easily afford it – when the value of the property had dropped to $2.5 million.

“They were able to comfortably cover the loan,” Bremner said. “They were just no longer willing to see the value of the property drop.”

If more wealthier homeowners are walking away from their mortgages, is there anything that should be done? Should they have harsher penalties if they have other assets to cover the mortgage? Should we be concerned that the Beverly Hills housing market is having difficulties, i.e. does this effect other housing markets or is it simply an issue between wealthy players?

It would be nice to have some exact numbers on how much this is happening across the country…

“Scientists and scientific studies have a minimal effect on public opinion” about global warming

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While one might think that scientific data and reports are convincing, a sociologist argues that these matter little in the debate over global warming:

“Scientists and scientific studies have a minimal effect on public opinion,” says Drexel University sociologist Robert Brulle, lead author of a new climate attitude study in the Climatic Change journal. “What really drives public opinion on climate change are the ways that political elites describe the science.”…

In the current Climatic Change journal, Brulle and colleagues looked at 74 public opinion surveys from 2002 to 2010, in a bid to figure out the contradiction in opinions between experts and everyone else…

“The science doesn’t matter because the science isn’t the real issue,” Brulle adds. “It’s about politics and money.” All we have with climate change, he suggests, is politicians taking sides in an economic debate over whether we should spend money to address climate change, or not (with one side very strongly opposed), and hiding behind a smokescreen of debate about settled science to avoid making those issues clear.

Brulle is suggesting that instead of debating how much we should respond to global warming (which seems like an interesting debate to have in itself), the debate has turned to the credibility of the actual science. So if conservatives admit that there is warming, then they would have to admit that money needs to be spent on fighting it and they don’t want to do that? There seem to be two issues here: the actual data and then the value judgments about what should be done.

I’ve been seeing reports on Brulle’s findings for several months now. If he is correct, are politicians taking notes about how to change public debates? At the same time, I imagine it is more difficult to make the case for spending money on environmental concerns with such economic issues (see the Keystone pipeline debate).

I wonder if there are other areas where there is something similar going on and scientific studies have little impact. If there is a common view that science is the province of liberals and elitists, how many people will trust what it has to say?

Sociologist: downgrade threat of terrorism in US to a “tiny” threat

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Remember when terrorism was the number one concern in the United States? A new report features a sociologist arguing that terrorism is a “tiny” threat in the United States. Here is some of the evidence:

Kurzman’s report, “Muslim-American Terrorism in the Decade Since 9/11,” said that compared to the 14,000 murders in the U.S. last year, the potential for Muslim Americans to take up terrorism is “tiny.”

In the 10 years since the 9/11 terrorist attacks, 193 Muslim Americans have been indicted in terrorist plots, or fewer than 20 per year, Kurzman said.

Just one of those indicted last year was actually charged with carrying out an attack — Yonathan Melaku, who fired shots at military buildings in northern Virginia — compared to six Muslim Americans who carried out attacks in 2010, including Faizal Shahzad, the failed Times Square bomber.

“This number is not negligible — small numbers of Muslim Americans continue to radicalize each year and plot violence,” Kurzman wrote. “However, the rate of radicalization is far less than many feared in the aftermath of 9/11.”

This reminds me of the idea that the “war on terror” is more of a social construction than actual threat. Granted, the money and resources spent on fighting terrorism may just have contributed to the low number of terrorists but the large application of resources plus the political rhetoric (remember the days of terror alerts?) plus media accounts may have just blown this up into a bigger issue than it actually was.

It would be interesting to hear what Kurzman thinks should be done in response to this data. On one hand, perhaps we should spend less time and effort fighting terrorism, particularly in an era of a lot of other issues and fiscal shortfalls. On the other hand, who wants to be the politician or expert that says things are okay and some major incident occurs? Is just one incident of terrorism just too many to handle? This sounds like a very similar tradeoff to what the options are in dealing with (falling rates of) crime.

“Farewell to the suburban age”?

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One strategist argues that the “suburban age” is over in America:

Note how this process is self-reinforcing. As people moved out, municipal revenues stagnated in the old urban core. This meant that deteriorating urban services in downtown areas pushed out more people. Meanwhile, the expanding suburban population could use its growing political clout to demand more public spending on highways and other urban infrastructure for the suburbs. The expansion of urban infrastructure was fiscally very expensive, but America’s powerful mid-century economy could afford it. By the end of the 20th century, some suburbs had spread so far from any urban core that they were given a new name: “exurbs”.

Today, however, these very dynamics, both financial and sociological, have gone into reverse. Concerns about the state of US federal, state and municipal finances have grown sharply. In August 2011, ratings agency Standard & Poor’s downgraded the credit rating of 11,000 municipal issues following the downgrade of the federal government. In November 2011, Jefferson County, Alabama, filed for bankruptcy, the largest such filing in US history. At the very least, this means that the United States will not be able to afford further expansion of urban infrastructure for many years. Indeed, American city managers will be forced to recognise that urban services are much cheaper to supply in a concentrated urban form…

Meanwhile, the structure of American society is also changing rapidly. In 1950, households based on married couples accounted for 78 per cent of all households. Single-person households accounted for less than 10 per cent. Over the following 60 years, however, the institution of marriage went into steep decline in America. The latest census data shows that married couples accounted for only 48 per cent of households in 2010 and that their share is rapidly falling. In contrast, the single person household now accounts for 27 per cent of households.

The residential requirements of this new social structure are drastically different from those of the traditional family. The single individual, for instance, is likely to prefer an easily managed apartment and close proximity to bars, restaurants, hospitals, shops and friends. The implication of the above sociological and fiscal dynamics is that the future trajectory of American cities is towards increased density. Some old city-centres will revive even as new hubs will emerge.

There are two major arguments here against the suburbs:

1. They are too expensive to maintain in the long-run.

2. Family structures have changed and the new forms of social arrangement, such as living alone, would be best done in the city.

Both of these are problems though I’m not sure they necessarily mean that Americans will revert to city living and promoting urban policies over suburban policies. I wonder if the shift toward the densification of the suburbs, often built around New Urbanist developments or retrofitting, would adequately solve both of these issues.

The overall premise of this piece is echoed by others (see a similar argument from The Atlantic last year) and I wonder how much of this is simply the same suburban critique that we have heard now for decades: suburbs are unsustainable and their design does not cater to everyone (teenagers, singles, the elderly, etc.). Is this era of economic crisis going to be the period where these critiques actually move residents and policymakers toward other options?

There is another intriguing part about this analysis: how American policies about suburbs influence other country’s policies. This writer suggests that India is aspiring in some ways to follow the American model when the country would be better served to promote denser cities. If the American suburban model does decline (and we would have to think about how exactly you would measure this decline), would other countries abandon their smaller suburban plans?

Worst year ever for sales of new homes

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Here is another indicator that the American housing market has a long way to go before it is fully turned around: 2011 was the worst year for new home sales with records dating back to 1963.

About 302,000 new homes were sold last year. That’s less than the 323,000 sold in 2010, making last year’s sales the worst on records dating back to 1963. And it coincides with a report last week that said 2011 was the weakest year for single-family home construction on record…

Economists caution that housing is a long way from fully recovering. Builders have stopped working on many projects because it’s been hard for them to get financing or to compete with cheaper resale homes. For many Americans, buying a home remains too big a risk more than four years after the housing bubble burst.

Though new-home sales represent less than 10 percent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.

A key reason for the dismal 2011 sales is that builders must compete with foreclosures and short sales — when lenders accept less for a house than what is owed on the mortgage.

While several experts are quoted in this story suggesting this likely means the housing market has bottomed out, I am interested in whether this will become the “new normal.” In other words, perhaps we won’t ever get back to the level of new homes sales that we have seen in the past. This could take place for several reasons:

1. These foreclosures clogging up the housing market will continue to take years to clear.

2. There is less demand for new homes from consumers who decide to do other things with their money.

3. Policy makers turn their attention away from new homes and instead promote renting or rehabbing older homes.

4. Population growth is relatively small, driving down demand throughout the housing market.

The assumption I’ve seen from a number of commentators is that the housing market will bounce back at some point. Is this such an inevitable event?

Innovative solution to homelessness: taxpayer funded stadiums in Florida have to host homeless

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It sounds like this idea has a long way to go in the Florida legislature but it is an innovative attempt to deal with homelessness: insist that owners of taxpayer funded stadiums host homeless residents.

As reported by the Miami Herald, state legislators have unearthed an obscure law that has not been enforced since it was adopted in 1988. It states that any ballpark or stadium that receives taxpayer money shall serve as a homeless shelter on the dates that it is not in use.

Now, a new bill would punish owners of teams who play in publicly-funded stadiums if they don’t provide a haven for the homeless. Affected ballparks would include the Miami Marlins’ new ballpark in Miami’s Little Havana, the Tampa Bay Rays’ Tropicana Field in St. Petersburg and several spring training facilities. It also includes the homes of the Tampa Bay Buccaneers, Tampa Bay Lightning, Miami Heat, Jacksonville Jaguars and Florida Panthers.

The newspaper estimates that owners might have to return $30 million in benefits that were already bestowed if the bill passes and they can’t prove they were running homeless shelters (to the newspaper’s knowledge, no teams have been).

I think the overriding concern here based on one thing: governments (and others) are lacking money. This could be an innovative solution: use an existing structure that often sits empty which then cuts costs for building/renting other homeless shelters. Lawmakers have some leverage here because they helped secure funding for these stadiums. A growing body of research suggest that these taxpayer funded stadiums are not boons to the local community. Research suggests that taxpayer funded stadiums don’t help out communities as much as help line the pockets of owners. In other words, communities don’t get the money back that they put into stadiums in the form of taxes and team owners reap the benefits. Also, when teams leave, certain businesses may suffer but eventually residents spend their entertainment dollars elsewhere in the city so the city doesn’t lose out in the long run. Why shouldn’t stadium owners have to give back a little bit more?

I wouldn’t be surprised if more cities try to pursue similar ideas that attach more strings to accessing public funding.