Tag Archives: economic crisis

Suburban sunbelt population soars again

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Was the economic crisis just a blip in the ongoing growth of the suburban Sunbelt?

The unavoidable takeaway from the Census report is that Americans have resumed the westward suburban ho of the early 21st century, before the Great Recession came crashing down. None of the 20 fastest-growing metros are in the northeast. Rather, they’re in the sunny crescent that swoops from the Carolinas down through Texas and up into the west toward the Dakotas. Americans are back to sun-worshipping…

The story of immigration is slightly different. The list of cities with the greatest foreign-born influxes since 2010 includes some of these warm metros, like Houston and Dallas, but also filling out the top-ten metros for immigrants are areas where more native-born Americans are leaving, like New York (#1), Los Angeles (#2), Boston (#7), and Chicago (#9).

But the upshot seems to be that even as the recession sparked interest in an urban revival, the metros that seem to be winning the population lottery are suburbs of warm metros—including many of the very Sun Belt areas that seemed devastated by the recession.

Suburban sprawl continues…

And who are the people moving to big cities?

This is a tight feedback loop. The densest cities tend to be the most educated cities, which are also the richest cities, and often the biggest cities. They’re gobbling up a disproportionate share of college grads. And, as a result, they are becoming richer, denser, and more educated.

Both patterns can be going on at the same time: large numbers of Americans continuing to move to the Sunbelt suburbs while a good portion of educated young adults moving to hot neighborhoods in the biggest cities.

You’ve been warned (again): McMansions are back!

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Newer American homes are bigger than ever:

New American homes were bigger than ever last year, according to data from the U.S. Census Bureau. After a few years of shrinkage in the aftermath of the Great Recession, the median square footage of newly-built homes last year tipped the scales at over 2,400 square feet. That’s nearly 1,000 square feet larger than the median home built in 1992. The death of the McMansion has been greatly exaggerated…

There are any number of explanations for this trend. Young first-time buyers, who are less inclined to buy big suburban houses, are largely sitting out of the market. Credit requirements are still much tighter than they were before the housing collapse, so much of the activity in the housing market is from wealthier families looking to trade up — and they’re looking for bigger and better.

Another, possibly overlooked contributor? Politics. A 2012 paper by Stanford political scientist Adam Bonica found that builders and construction firms were among the most politically conservative businesses in America, judged by their owners and employees’ contributions to political parties. And a Pew Research Center study last year found that conservatives overwhelmingly prefer communities where “the houses are larger and farther apart, but schools, stores and restaurants are several miles away.”

I don’t know how much of this is just political. To suggest so means that both sides can claim the other is trying to push a particular agenda: conservatives argue liberals are trying to force everyone into big cities and liberals can argue developers are politically connected people who only want to serve the wealthy. Either cities or McMansions become the big enemy. I would instead privilege two factors. First, an economic situation where many Americans don’t have the money to purchase a home (the homeownership rate is down overall) as well as a housing market that is primarily catering to wealthier buyers (there are more profits to be made in more expensive homes). Second, there is an American ideology that privileges individualism and private space, values that aren’t exclusively conservative or necessarily related to the exurbs. For example, the suburbs are not full of McMansions; suburbs range from inner-ring suburbs to exurbs with a wide range of housing and populations.

Comparing Greece’s debt problem with the McMansions of the 2007-2008 subprime crisis

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One writer links the issues with McMansions in the last decade with the debt issue in Greece:

Sometimes the best way to summarize a complex situation is with an analogy. The Greek debt crisis, for example, is very much like the subprime mortgage crisis of 2007-08.

As you might recall, service workers earning $25,000 annually got $500,000 mortgages to buy McMansions in subprime’s go-go days. The applicant fudged a bit here and there on income and creditworthiness, and lenders reaping huge profits from originating and selling mortgages were delighted to ignore prudent underwriting standards and stamp “low-risk” on the mortgage because it was quickly sold to credulous investors…

The loan was fundamentally imprudent and risky because the borrower was not qualified for a loan of such magnitude. But since the risk was distributed to others, the banks ignored the 100% probability of eventual default and skimmed the profits upfront.

Greece was the subprime borrower, and its membership in the euro gave the banks permission to enter the credit rating of Germany on Greece’s loan application. Though anyone with the slightest knowledge of Greece’s economy knew it did not qualify for loans of such magnitude, lenders were happy to offer the loans at interest rates close to those of Greece’s northern neighbors, and then sell them as low-risk sovereign debt investments.

In effect, the banks were free-riding the magical-thinking belief that membership in the euro transformed risky borrowers into creditworthy borrowers.

Two quick thoughts:

1. Most analogies made about McMansions are not likely to reflect well on such homes. Here, McMansions are part of huge financial problems. Later in the piece we have more negative ideas about McMansions:

Meanwhile, the poorly constructed McMansion is falling apart…So the hapless subprime borrower with the crumbling McMansion and Greece both have the same choice: decades of zombie servitude to pay for the crumbling structure, or default and move on with their lives.

Not exactly attractive options. Yet, the assumption here is that all or most McMansions fall apart within ten years or so. Is this truly the case with McMansions – do they have more repair issues than other homes? Perhaps Consumer Reports could sort this out for us since they like collecting such data.

2. I don’t recall seeing strong evidence that the subprime crisis was primarily driven by people purchasing McMansions. Rather, mortgages were granted that were too risky. But, how many of these loans were actually made for McMansions as opposed to other kinds of housing? The whole housing market was doing crazy things, not just in the McMansion sector.

 

Loss of housing wealth hits black suburbanites hard

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The housing and economic crisis of the last decade has hit black suburbanites particular hard:

But today, the nation’s highest-income majority-black county stands out for a different reason — its residents have lost far more wealth than families in neighboring, majority-white suburbs. And while every one of these surrounding counties is enjoying a strong rebound in housing prices and their economies, Prince George’s is lagging far behind, and local economists say a full recovery appears unlikely anytime soon…

The recession and tepid recovery have erased two decades of African American wealth gains. Nationally, the net worth of the typical African American family declined by one-third between 2010 and 2013, according to a Washington Post analysis of the Federal Reserve’s Survey of Consumer Finances, a drop far greater than that of whites or Hispanics…

Not only is African American wealth down, but the chances of a quick comeback seem bleak. Just over a decade ago, homeownership — the single biggest engine of wealth creation for most Americans — reached a historic high for African Americans, nearly 50?percent. Now the black homeownership rate has dipped under 43?percent, and the homeownership gap separating blacks and whites is at levels not seen in a century, according to Boston University researcher Robert A. Margo…

Many researchers say the biggest portion of the wealth gap results from the strikingly different experiences blacks and whites typically have with homeownership. Most whites live in largely white neighborhoods, where homes often prove to be a better investment because people of all races want to live there. Predominantly black communities tend to attract a narrower group of mainly black buyers, dampening demand and prices, they say…

Scholars who have studied this dynamic and real estate professionals who have lived it say the price differences go beyond those that might be dictated by the perceived quality of schools, or the public and commercial investment made in particular neighborhoods. The big difference maker, they say, is race.

In other words, simply promoting homeownership – a key part of the ideal of the American Dream and also something taken as a sign that various groups have made it – is not the complete answer for thinking about equality among different groups. What homes people own and where they are located also matter. Decades of research in urban sociology and related areas shows that blacks and other minorities often don’t live in the same suburban settings as white suburbanites. Their homes tend to be located in poorer neighborhoods and neighborhoods that have higher non-white populations. This is due to a variety of reasons including long-term white wealth that gives whites better opportunities to move to wealthier and whiter places, zoning practices in wealthier communities that tend to limit cheaper or affordable housing (examples here and here), mobility patterns among whites that show they leave neighborhoods and communities as they become more non-white (the process of “white flight” continues in some suburban areas), and patterns of mortgage lending as well as renting that tend to take advantage of poorer and non-white residents. Tackling the issue of residential segregation still matters today even as more minorities and poor residents move to the suburbs.

 

Sales of McMansions up 21%; remaining 99% of market down 7.6%

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At least one statistic suggests the housing market is still split into two divided camps: one that is thriving and one that is not.

Consider this incredible statistic from the research analyst Redfin: through last April, sales of the McMansions of America – the top 1% of homes by price – rocketed up 21% compared to last year. But sales of the other 99% of homes were down 7.6%.

It’s not even clear that rising home prices – traditionally a way to measure a recovery – would be good for the middle class. Price increases harm the affordability of homes, particularly for first-time homebuyers, who have not returned to the market at their historical level. This is an important group: first-time homebuyers drive the entire market, allowing sellers to step up into bigger homes…

When prospective homebuyers are actually asked about their biggest obstacle to purchasing, a majority cites “rising home prices” and “quality of inventory”, meaning the lack of decent homes in the buyer’s price range. So it’s not surprising to see a drought in lending, and a reduction in homeownership rates from 69% in 2006 to 65% in 2014. It has nothing to do with bank regulation; it has to do with purchasing power.

In the words of senior loan officer Logan Mohtashami, “we simply don’t have enough qualified home buyers to have a true housing recovery in America.”

While I’m not sure that the top 1% of houses are all McMansions – the term tends to refer to certain styles of homes rather than just the price – the data seems fairly consistent in recent months: the housing market has not fully or evenly recovered. More expensive homes are hot as are particular locales, such as luxury condos in New York and Miami. The slump continues at the lower end of the market where builders aren’t that motivated (why build cheaper housing units when there are bigger margins on those luxury units?) and potential homebuyers don’t have the savings to move in or up and also may still be trapped in their current mortgages.

Real estate sign? Prices in Compton, CA back on the rise

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The California real estate market is heating up again – and housing prices are rising in Compton:

She is proud that what she has achieved so far was done, not through heavy policing, but conflict mitigation. The last several months have seen a reduction in violent activity of about 65 per cent, she said. For her, seeing people jogging at night is a key indicator of success…

The residential property market is surging, up more than 10 per cent in the last year, as people are priced out of other Los Angeles neighbourhoods. Properties are being snapped up by investors and professional house flippers have started targeting the area. Compton’s first home with a price tag of $1 million recently went on the market.

Key to attracting companies and families is Compton’s geographical location close to LAX airport, Long Beach port which is the second busiest container port in the US, and near office buildings in downtown Los Angeles.

 

Violence and gang activity is down, housing prices in California are rising, Compton sits at an advantageous location, and so the prices in Compton go up. As the graph suggests, prices aren’t near what they were pre-economic crisis but the trend looks like it is heading up.

Two questions this raises:

1. This article makes a big deal about the reduction in violence due to a gang truce but what happens if the two gangs start fighting again? Perhaps the article begins with the gangs and gangsta rap because it is from a UK perspective but it does hint at the fragility in the community.

2. What happens if a community like Compton gentrifies? Not only would this bring new people in Compton but it also gets at one of the big issues in the big cities in California: affordable housing. Housing prices in Los Angeles are already relatively high and there may not be many places left that offer reasonable housing prices.

The reasons behind a collection of dead shopping malls in the Chicago suburbs

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Another shopping mall in the Chicago suburbs closes, joining several other “dead” malls:

Last week, it was announced that Lincoln Mall in suburban Matteson would close after the holiday season, due to its operator’s inability to keep the mall properly maintained and staffed. However, the 700,000 square foot shopping center is not alone, as it joins a growing list of dead malls in the greater Chicagoland area. Chicago photographer Katherine Hodges has been documenting so-called dead malls and other abandoned sites for several years, and has visited numerous shopping centers throughout the Midwest that have either completely shuttered, or are on the verge of closing for good.

Hodges shoots many other sites beyond malls that are on death row, however the images of humungous vacant shopping centers speak for themselves. One mall that Hodges has highlighted — The Plaza in Evergreen Park — was the first modern shopping mall in the Chicago area, having originally opened in 1952. It closed last summer. The Charlestowne Mall in St. Charles, another mall featured in Hodges’ series, is currently the focus of a major redevelopment effort that could potentially revive the shopping center.

With big empty spaces comes big problems. Some shopping centers have been successful in turning things around, and others — not so much (Lincoln Mall for example). However, with these vacant spaces come new opportunities, and in the case of Lincoln Mall, there have already been some ideas floated for a possible redevelopment of the property. It’s still a bit early to speculate exactly what will happen to the site, but at least for now, it’s certain that the mall will join the area’s growing shopping center dead pool.

There are a variety of forces at work with these shopping malls – and I’ll throw out some speculative ideas as well:

1. The economic crisis of recent years did not help: consumer spending slowed and stores simply couldn’t have locations all over the place.

2. Population shifts can contribute. Malls are often built in thriving suburban areas but there are no guarantees that the communities around the malls will continue to thrive.

3. Big box stores can locate right next to malls but probably compete for customers. Outside of department stores, malls feature a variety of smaller, niche stores. But, a Walmart or a Target can sell a bunch of goods in one location.

4. How much has the Internet hurt malls? This would include actual sales but might also include less need for a physical social gathering spot (which can now happen online).

5. Malls themselves have changed design over the years. The old model was to construct a large facility of stores with lots of surrounding parking lots. More malls today have added other uses, particularly sit-down restaurants, in order to attract people to the mall and keep them there longer. Malls are not just for shopping; they are now often lifestyle centers.

It may be difficult to imagine but suburban shopping malls don’t have to exist in the future.

Making something out of hundreds of unfinished subdivisions

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The economic crisis of recent years had broad effects including stalling the construction of hundreds of suburban subdivisions across the United States:

There are hundreds of zombie subdivisions like this one scattered across the country. They’re one of the most visible reminders of the housing boom and bust, planned and paved in the heady days where it seemed that everybody wanted a home in the suburbs, and could afford it, too. But when the economy tanked, many of the developers behind these subdivisions went belly-up, and construction stopped. In some cases, a few people have moved into homes in these half-built subdivisions, requiring services to be delivered there. In others, the land is empty, except for roads, sidewalks, and the few street signs that haven’t been stolen yet. In some counties in the West, anywhere from 15 to 33 percent of all subdivision lots are vacant, according to the Sonoran Institute…

But if roads have been paved or a developer has installed infrastructure improvements, it’s very hard to just revert the space back to farmland. Local governments who try to stop building—even if there is little demand—can be sued for preventing development where it had once been approved…Still, some developers  have come up with creative ways to turn zombie subdivisions into something other than rows upon rows of empty McMansions.

Maricopa, Arizona, for instance, had issued about 600 residential building permits a month during the boom, and then saw many of these developments stall. Rather than just wait to see if demand would ever return, the city hooked up a Catholic church with the owners of an empty development. The church had been looking to erect a new building, and was searching for a site with existing water and infrastructure services. The developer had been looking for someone willing to build. With a little bit of rezoning help from the city, the church could start building on the land…

And in Teton County, Idaho, population around 11,000, where the Sonoran Institute estimates that 68 percent of land parceled into subdivisions was undeveloped, local officials passed ordinances that would allow subdivisions to be rezoned. One development, called Canyon Creek Ranch, changed its plans from a resort with 350 lots to a community project with only 21 lots, shrinking the infrastructure price tag by 97 percent and reducing the environmental impacts.

From zombie pedestrians to zombie subdivisions. It sounds like communities have to hope that someone wants the land – whether a residential developers or some other user – so they can do something with it. As noted, communities might be able to speed that up by rezoning the land for other uses. Perhaps this might lead to some ultra-flexible zoning where these spaces could be residential, commercial, industrial, or other as long as somebody has a plan.

I do wonder how many of these subdivisions would have legitimately filled up. Where were all the people going to come from? If they moved to the new homes, they opened up other units. Are there so many people rooming together or living with family to create the demand for all these new houses?

My suggestion for what these settings can be used for: sets for all of the post-apocalyptic or dystopian TV shows and movies. Studios could likely get cheap long-term deals on these properties and use them however they wish.

Gas prices go down, SUVs and Hummers return. Could the same idea hold for McMansions?

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SUV sales have picked up in recent months as gas prices dropped across the United States:

Over the last month, auto analysts say, consumers have shown a fresh interest in the kind of SUVs — Hummers, Lincoln Navigators, Ford Explorers — that typified America’s bigger-is-better mindset of twenty years ago. The new mindset among some car buyers is one of the most unexpected consequences of a domestic oil boom that has helped cause global crude prices to plummet in recent months, with the cost of a gallon of gas now below $3.

As oil prices hit a three-year low, Americans are starting to see price changes that could ultimately influence everything from their grocery shopping to their heating bills to their travel. The lower prices — should they be sustained, as expected, for the next few months — have the potential to nudge the U.S. further away from its dreary post-recession mindset, leaving instead a nation with more affordable air and road transportation options, higher consumer confidence, and yes, a few more gas guzzlers driving around…

One measure is the share of “trucks” — including pick-ups, SUVs and crossovers — among total vehicles sold. Before the financial crisis, trucks almost always outsold cars, in some months grabbing as much as 59 percent of the market. Post-recession, the industry has flip-flopped; cars are more popular.

But not in recent months. In September, the truck market share was 53.5 percent. In October, it was 53.6. That is the best sustained two-month stretch since 2005.

As for those Hummers? Autotrader.com said interest in Hummer H1s on its site rose 11 percent last month, making it the fastest-growing older model among all vehicles.

As gas prices drop, Americans are returning to some of their consumption patterns from the late 1990s and early 2000s when the economy was doing better. Even though they have seen higher gas prices (which could return soon), gone through a great recession, and government regulations encourage more MPGs across all vehicles in the coming years, some Americans want bigger vehicles that require more gas.

This is interesting in itself but I wonder if the same general concept could apply to McMansions. One argument about reducing purchases of SUVs and McMansions, often paired symbols of excessive consumption, is that Americans needed to be shocked by high gas prices and hard economic times before they would change their behavior. Yet, the recent data about gas prices suggests Americans might just return to their spending patterns once things look better. (And, with the gas prices, it is not like they are likely returning to the $1.20-$2.00 range of not that long ago.) Might the same apply to McMansions? Even with all the fanfare about smaller homes, more reasonable debt loads (whether through mortgages or car loans), and critiques of the kind of sprawling communities in which communities are often built, will Americans return to McMansions once the economy picks up?

I, for one, wouldn’t be surprised. Even during the recession, people with money continued to purchase and build large homes. Homes do require a larger financial commitment than SUVs but they also are highly symbolic and linked to suburbs, all dealing with the American Dream. Perhaps the best hope for fighting these consumerist impulses is pervasive generational shifts, particularly kids, teenagers, and young adults who don’t want cars and suburban houses in the same way over time.

Empty stores at the mall? Fill them with data centers

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Here is one new solution to vacant stores at the shopping mall: use the space for data centers.

In Fort Wayne, Ind., a vacated Target store is about to be home to rows of computer servers, network routers and Ethernet cables courtesy of a local data-center operator. In Jackson, Miss., a former McRae’s department store will get the same treatment next year. And one quadrant of the Marley Station Mall south of Baltimore is already occupied by a data-center company that last year offered to buy out the rest of the building.

As America’s retailers struggle to keep up with online shopping, the Internet is starting to settle into some of the very spaces where brick-and-mortar customers used to shop. The shift brings welcome tenants to some abandoned stretches of the suburban landscape, though it doesn’t replace all the jobs and sales-tax revenue that local communities lost when stores left the building…

Many malls and neighborhood shopping centers are still grappling with vacancies five years after the recession. The average mall vacancy rate hovers around 5.8%, according to market researcher CoStar Group, the same level as in the third quarter of 2009. Strip-mall vacancy sits at 10.1%, down from 11.5% five years ago. Rents are down too. Asking rents at malls have fallen 16% over the past five years, while strip mall rents declined 12%, according to CoStar…

Converting retail properties isn’t simple, however. Data-center operators have specific needs for their properties including access to heavy-duty fiber optic communications cables and reliable and affordable power access. The buildings need to be able to withstand tumultuous weather, from hurricanes to tornadoes. Windows are a negative.

An interesting use of space. Since presumably some of these empty stores are in malls where there still are open stores, how exactly do these new data centers interact with their surroundings? Probably not very well if they are windowless.