Tag Archives: homeownership

The Atlantic declares “The Beginning of the End for Suburban America”

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While this is not the only recent claim that the suburban era in America is coming to an end, this piece still has a bold headline and claim:

In the years following World War II, the United States experienced an unprecedented consumption boom. Anything you could measure was growing. A Rhode Island-sized chunk of land was bulldozed to make new suburbs every single year for decades. America rounded into its present-day shape.

Along the way, there were three inexorable trends at the base of the societal pyramid. First, we plowed more energy into our homes each and every year. We cooled and heated our houses more (sometimes wastefully, sometimes not), brought in more and more appliances, added televisions and computers and phones. Per capita electricity shot up from about 4,000 kilowatt-hours per US resident to over 13,000 kilowatt-hours by the 2000s. Second, we needed more electricity because our houses got huge. The median home size shot up from about 1,500 square feet in the early 1970s to more than 2,200 square feet in the mid-200s. Third, we drove more and more miles every year to get around and between our sprawled-out cities. Back in 1960, Americans drove 0.72 trillion miles. By 2000, that number had reached 2.75 trillion miles. In 2007, vehicle miles traveled hit 3.02 trillion…

Taken together, the end of growth in residential electricity consumption and vehicle miles traveled form a momentous signal. The United States we all grew up with is changing, or rather, it’s changed and the numbers are beginning to reflect that. The growth in housing size, electricity demand and miles traveled were the hallmarks of the suburban/exurban era. They were the statistics of sprawl — but also of economic growth. Now that their relentless upward march has stopped, what happens? We need a new model for American prosperity that doesn’t require ever greater injections of fossil energy. That’s a generational challenge that hasn’t been captured by the pro- or anti-green jobs rhetoric here in Washington.

Two quick thoughts come to mind:

1. I wonder if these are symptoms regarding sprawl and don’t really tell the full story of what is happening. None of these factors alone makes sprawl happen. Many would argue that certain government policies, stretching back to the New Deal and decisions made to spend government money on interstates and roads and make mortgages more affordable. Such policies are still in place: more money is spent on roads than mass transit, there is much talk about how to boost home sales and write off mortgage debt, and how to lower the price of gasoline. Could these figures cited in this article simply be reactions to certain market factors and not reflect deeper cultural and political shifts?

2. We’ve heard this story about the end of sprawl before. I was reminded of this when my American Suburbanization class recently finished Kenneth Jackson’s 1987 classic Crabgrass Frontier. In the final chapter, Jackson also suggests that American suburban growth will eventually slow, probably due to energy problems. This article in The Atlantic and Jackson are not the only people predicting this: many more have said that the suburbs are unsustainable and eventually Americans will have to pursue other development forms. But harkening back to my first point, whatever crisis may arise still has to be big enough to overcome an established cultural and political ideology that supports suburbs. In terms of miles driven, what if electric cars make driving cheaper (or, “Is a Car Battery Subsidy Just a Sprawl Subsidy?”)? What if new technology can ensure that McMansions are energy efficient? Who wants to be the first politician to tell voters that the suburban dream of a single-family home on at least a little yard in a good neighborhood is no longer attainable? What if the economy picks up again and homes get larger again?

In the end, how do we know that this is really the point where we have turned a corner and the American suburbs are now on the decline? Could the future suburbs be more dense, a la New Urbanist developments, and more energy efficient while retaining their key suburban traits? These three statistics do suggest something has changed – but there is a long way to go before we can write off the American suburbs.

More difficulty with housing vacancy data

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I’ve written about this before but here is some more evidence that one should be careful in looking at housing vacancy data:

In early 2009 the Richmond, Virginia press wrote numerous articles after quarterly HVS data on metro area rental vacancy rates “showed” that the rental vacancy rate in the Richmond, Virginia metro area in the fourth quarter of 2008 was 23.7%, the highest in the country. This shocked local real estate folks, including folks who tracked rental vacancy rates in apartment buildings in the area. The Central Virginia Apartment Association, e.g., found that the rental vacancy rate based on a survey of 52 multi-family properties in the Richmond, VA metro area was around 8% — above a more “normal” 5%, but no where close to 23.7%. And while the HVS attempts to measure the overall rental vacancy rate (and not just MF apartments for rent), the data seemed “whacky.”

When I talked to Census folks back then, they said that there quarterly metro area vacancy rates were extremely volatile and had extremely high standard errors, and that folks should focus on annual data.

However, “annual average” data from the HVS showed MASSIVELY different rental vacancy rates in Richmond, Virginia than did the American Community Survey, which also produces estimates of the vacancy rate in the overall rental market…

There are several other MSAs where the HVS rental vacancy rates just look plain “silly.” Some Census analysts agree that the HVS MSA data aren’t reliable, and even that several state data aren’t reliable, but, well, er, the national data are probably “ok” – which they are not.

If you want to read more on the issue, there are a number of links at the bottom of the story.

If the estimates are so far off from other estimates generally regarded as being reliable like the American Community Survey or the decennial Census, it would look like a new system is needed to calculate the quarterly vacancy rates.

I wonder how much these figures could hurt a particular community. Take the case of Richmond: if data suggests the vacancy rate is the highest in the country even though it is not, is this simply bad publicity or would it actually affect decisions made by residents, businesses, and local governments?

Stereotypes of apartment renters

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Americans who are homeowners, whether they own single-family homes, condos, and townhomes, are typically regarded as respectable, hard-working, and upstanding citizens who have sought after the American Dream. But there are different opinions regarding those who rent apartments. Here is an example from Manteca, California:

You rarely see landlords for single family homes that stringent and quite frankly, not all homeowners could pass such muster.

That is why it is a tad absurd that a number of homeowners when confronted with news that someone is proposing a $30 million apartment complex in their neighborhood believe it will be allowed to be occupied by rowdy, inconsiderate slobs, who will park cars all over the adjoining neighborhood and pursue a lifestyle that will drive home prices down.

If you want to see such behavior, there are plenty examples in Manteca neighborhoods – including those built since 2000.

No one is debating that there aren’t examples of somewhat trashy older apartment complexes that let everything go to hell. In Manteca, though, they are fairly rare due to the aggressive stance the city has taken. And in fairness to many owners of smaller and older apartment buildings in town where rents definitely are more affordable they are doing a good job of keeping their complexes in shape and devoid of problem tenants.

To go after single family homes whose tenants create such problems is much more difficult as often a landlord will have only one or two homes and live out of the area.

It is also true that the much more stringent construction and development standards of today make it next to impossible for rents for new complexes to be relatively low. That is why Paseo Apartments starts out at $975 a month for a one bedroom and one bathroom apartment.

In my research on suburban development, I found a number of examples where suburbanites were opposed to apartments because of the type of people who live in apartments. One complaint was about the transient nature of apartment living. The assumption was that single-family homeowners are more rooted in a community while apartment dwellers move more frequently and care less about individual municipalities. Having too many apartments would mean that a greater proportion of residents wouldn’t really care about the community. This was commonly tied to the disruption of a community’s single-family home character

But a second complaint included thoughts about low-income residents and seemed tied at times to race and ethnicity. Since these suburbs were heavily white, apartments were seen as places where less wealthy and non-white residents could live. Such residents might engage in more uncouth behavior, sullying the reputation of idyllic, white suburbs. Apartment complexes are viewed as crime magnets because lower-income, non-white residents are assumed to be more prone to crime.

It sounds like both issues might be taking place in Manteca: even nicer apartment complexes with high rents and amenities are not granted the moral equivalency of a nice single-family home neighborhood. Additionally, the author tries to point out that there is anti-social behavior in single-family homes as well as apartment complexes but this isn’t often recognized.

With all of the talk about more multi-family housing construction, these issues will need to be overcome in many communities.

(Side note: a third complaint about apartments I found is the argument that apartments don’t generate enough tax revenue for the services that will be required. This commonly is tied to school funding as apartments, depending on their price and size, might attract more families who will overburden the schools. So senior apartments might be more likely to be approved than three or four bedroom apartments that will likely draw families to the community.)

Revisiting “Privatopia”

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One of the key texts in the last 20 or so years regarding gated communities and homeowners associations was Privatopia, published in 1994. With a recent book, Beyond Privatopia: Rethinking Residential Private Government, the same author updates his thoughts and talks about the financial viability of homeowner’s associations:

A: The (housing) boom is clearly over, and right now few of these associations are being created. The problem shifts to sustaining the ones we have. What was sustaining them was an endless rise in housing prices. People could always sell at a profit, and the association would get its money. Now we have foreclosures and people not paying their assessments for six months or a year, and associations aren’t getting their assessments. The banks in foreclosures don’t want to pay overdue assessments…

It’s presumed that monthly assessments will cover operating expenses, which can include things like trash collection, pool maintenance, even resurfacing the streets. But studies that have been done show they probably don’t have enough money in reserve. At least a third of them … don’t have half of what they should have. After the housing collapse and the foreclosures, it’s probably more like half don’t have enough. Many of them are having to go to the bank and get a loan, but if you have a high delinquency rate, you can’t get a loan…

Q: Do you have any numbers on how many such associations are in dire financial straits?

A: No, and that’s a problem. I’m starting a six-month sabbatical now to work on exactly that. Everything I get is anecdotal, and I want to get a quantitative handle on how bad the problem is.

If many local governments are having budget problems, it is a surprise that many homeowners associations are facing similar troubles? I would imagine that the locations with more associations in financial trouble would mirror locations with more foreclosures and the most depressed housing prices. I wonder how many people within these associations are aware of these troubles. Actually, I wonder how many residents pay much attention at all to what their associations are doing.

Ultimately, perhaps this will all end up in the courts as associations and lenders who own foreclosures battle over assessments.

Great Quotes in Homeownership #2: Herbert Hoover on the value of owning a home in 1931

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Herbert Hoover is not a well-regarded President. But he did have a lot to say about home ownership even as the country was going through the Great Depression. Here are some of Hoover’s thoughts from 1931:

“Next to food and clothing, the housing of a nation is its most vital problem. . . . The sentiment for home ownership is embedded in the American heart [of] millions of people who dwell in tenements, apartments and rented rows of solid brick. . . . This aspiration penetrates the heart of our national wellbeing. It makes for happier married life. It makes for better children. It makes for courage to meet the battle of life. . . . There is a wide distinction between homes and mere housing. Those immortal ballads, ‘Home, Sweet Home,’ ‘My Old Kentucky Home’ and ‘The Little Grey Home in the West’ were not written about tenements or apartments. . . . They were written about an individual abode, alive with tender associations of childhood, the family life at the fireside, the free out-of-doors, the independence, the security and the pride in possession of the family’s own home. . . . Many of our people must live under other conditions. But they never sing songs about a pile of rent receipts. . . .”

Over these warm words and some 1,900 others like them President Hoover had worked with a full heart for two months. One evening last week he took them all, in the form of a keynote address, to Constitution Hall and there, in a voice brimming with emotion, delivered them to the assembled delegates of the President’s Conference on Home Building & Home Ownership. At this great gathering President Hoover again demonstrated his ability and leadership in an unofficial activity outside the constitutional realm of the Presidency.

The conference’s major purpose, President Hoover said, was “to stimulate industrial action,” not “to set up government in the building of homes.” To promote home owning the President urged a better system of home financing, thus keying his program in with his proposed Home Loan Discount system (TIME, Nov. 23).

Of course, Hoover gets some of the blame for not being able to move the country out of a position where it was difficult for many Americans to imagine homeownership, let alone a steady job. But these and other quotes from Hoover suggest he was a President who was committed to helping average Americans move from a monthly rent to a mortgage even in dark economic times. He suggested homeownership would lead to better social outcomes plus lead to feelings of nostalgia, “independence,” “security,” and “pride.”

This is also a reminder that the American value of homeownership was not just a post-World War II phenomenon. The rate of suburbanization was impressive in the post-war period but there had been a wave of suburbanization in the more prosperous 1920s that was interrupted by the Great Depression. I have occasionally found it interesting to think about how suburban growth patterns would have been different without the Great Depression and World War II. Several things might have happened earlier, like the building of interstates or the mass building of suburban communities (exemplified by the Levittowns). Perhaps the whole process might have simply taken longer, giving citizens and politicians more time to react and adjust.

I also wonder how Hoover’s goals of homeownership are viewed by today’s scholars who look back at this period: did these sentiments directly contribute to prolonging the Great Depression? How many of Hoover’s ideas ended up getting implemented in some form by subsequent leaders?

Great quotes in homeownership #1: Owning a home keeps Americans from Communism

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In a recent conversation with a college friend, we talked about how keeping up with a home takes a lot of time. This reminded me of a quote from William Levitt, a member of the famous family who built the Levittowns:

He [William Levitt] was a prime facilitator of the American Dream in its cold war formulation. “No man who owns his own house and lot can be a communist,” he once said. “He has too much to do.”

So the key to fighting the Cold War through homeownership was not about owning private property; it was about keeping men (and women?) busy taking care of their homes so they can’t get involved in causes like communism.

The trick is that people have to want to and be able to put the time, effort, and money into homes that they buy. Starting mainly in the 1960s, Americans were given new options for homeownership that didn’t require as much work: townhomes and condos. (Contrary to the typical interchanging of the two terms, these two types of units are actually different: in a townhome, the homeowners own the land while condo owners do not.) The associations in these developments take care of much of the outdoor work leaving the homeowners to tackle the interior.

In addition to Baby Boomers who are retiring and downsizing to homes that will require less work, I would guess that many in the younger generation want homeownership without all the work.

With banks and lending institutions owning so many homes, housing values will be lower for several years

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Foreclosures are not just an immediate problem; the New York Times reports that the number of foreclosed homes now owned by banks and mortgage lenders are likely to depress the housing values for years to come:

All told, [banks and mortgage lenders] own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.

Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months…

Over all, economists project that it would take about three years for lenders to sell their backlog of foreclosed homes. As a result, home values nationally could fall 5 percent by the end of 2011, according to Moody’s, and rise only modestly over the following year. Regions that were hardest hit by the housing collapse and recession could take even longer to recover — dealing yet another blow to a still-struggling economy.

Not good news for those who want to sell a home in the near future. It is interesting that we now hear very little about this at a policy level. There are certainly other important pressing issues in the world (jobs, gas prices, military actions, Republican candidates for President?) but housing values affect a lot of people.

At the same time, I have heard and seen new advertisements from the National Association of Realtors. I wonder why they are running these ads now: are they worried that more people will rent rather than buy? Is there an uptick in the number of people who are trying to combat lower housing values by selling the home on their own? Do they feel that there might soon be changes in public policies, perhaps through measures like limiting or getting rid of the mortgage-interest deduction, that would limit the government’s promotion of homeownership? And interestingly, these advertisements have stressed that homeownership helps create jobs.

High housing prices in Vancouver due in part to increase in Chinese homeowners

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Vancouver may be known as one of the most liveable cities in the world but the housing prices are also quite high. This is in part due to an increase in Chinese homebuyers:

Buyers from mainland China are leading a wave of Asian investment in Vancouver real estate as China tries to damp property speculation at home. Good schools, a marine climate and the large, established Asian community as a result of Canada’s liberal immigration policy make Vancouver attractive, said Cathy Gong, who moved from Shanghai to the Shaughnessy neighborhood on Vancouver’s Westside about three years ago.

China, where home prices rose 28 percent in Beijing and 26 percent in Shanghai last year, according to the country’s biggest real estate website owner SouFun Holdings Ltd., has taken steps to curb property speculation within its borders. Chinese home prices gained for 19 straight months through December and climbed in almost all 70 cities tracked by the government during the first quarter. Premier Wen Jiabao placed curbs on mortgage lending, boosted down-payment requirements and limited the number of purchases.

“As the Chinese get more and more prosperous, they are diversifying their assets out of China,” said Jim Rogers, an American investor who moved to Singapore from New York four years ago so his daughters could learn Chinese. “Vancouver is very high on the list.”…

The current group of Chinese homebuyers in Vancouver is the third “wave” from Asia since 1990, following Taiwanese and Hong Kong immigration, said Manyee Lui, a veteran Vancouver realtor. “People from mainland China are the new immigrants,” Lui said.

This is a reminder that real estate truly is a leading industry in the global economy as people from different countries seek out desirable properties. In escaping a real estate bubble in China and increased regulation but with money to spend, Chinese homebuyers are now looking at Vancouver. (Vancouver may not be the only place: I also recently wrote about a story of Chinese residents building “monster homes” in New Zealand.)

It is interesting to note the reactions of Vancouver residents: the influx of Chinese homebuyers has raised housing values, perhaps pricing others out of the market, and the schools now have a large number of non-native English speakers. At the same time, I assume Vancouver residents take pride in the cosmopolitan nature of their city. One resident mentioned the possibility of the government restricting foreign homeownership – is this really the route to go? Will this end up turning into a debate between local and global interests?

Another article on declining homeownership rates

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Bloomberg Businessweek highlights how American’s view of home ownership has changed in the last few years:

The most affordable real estate in a generation is failing to lure buyers as Americans like Pauli sour on the idea of home ownership. At the end of 2010, the fourth year of the housing collapse, the share of people who said a home was a safe investment dropped to 64 percent from 70 percent in the first quarter. The December figure was the lowest in a survey that goes back to 2003, when it was 83 percent.

“The magnitude of the housing crash caused permanent changes in the way some people view home ownership,” said Michael Lea, a finance professor at San Diego State University. “Even as the economy improves, there are some who will never buy a home because their confidence in real estate is gone.”…

“If we’ve learned anything from this mess, it’s that housing is not a risk-free investment,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch Global Research in New York. “Everyone knows someone underwater in their mortgage or struggling to sell a home.”…

The U.S. home ownership rate dropped to 66.5 percent in the fourth quarter, the lowest in more than a decade, according to the Census Department. The rate probably will retreat another percentage point by 2013, according to Meyer, of Bank of America Merrill Lynch, and Lea, the finance professor. That would put it back to a 1997 level.

“People will still aspire to own their own homes,” Lea said. “They’ll just be a lot more practical about it.”

This article tends to focus on the money side of things (housing as less of an investment, tighter credit, lots of people with underwater mortgages, a future with a reduced or no involvement from Fannie Mae and Freddie Mac, etc.) but I think the key (or exciting) information is in the last two paragraphs I cited above:

1. The homeownership rate has dipped but not a whole lot. Even in the housing boom of roughly the mid 1990s to the mid 2000s, the US homeownership rate increased from 63.6% in early 1993 to 69.2% in late 2004. So over an eleven year stretch of relative prosperity and increasing home values, homeownership rose about 6.5 percentage points. From this peak in late 2004 (69.2%), the homeownership rate had dropped to 66.5% for the fourth quarter in 2010. In a six year stretch, the rate had dropped 2.7%. If you look at the historical data since 1965 (all of these figures are from an Excel table on the Census website – Table 14 on this page), before the 1990s, the homeownership rate moved fairly slowly either up or down. Perhaps what is not so unusual about homeownership is not that it has fallen in recent years but rather that it rose so much between 1993 to 2004.

2. Additionally, this is all tied to American aspirations: do they still aspire to own their own home? While this article (and many others) highlight how this might now be more difficult, this key part of the American Dream still seems to be intact. Even if future neighborhoods or suburbs look different (like this article suggests they might), the interest in owning one’s property still appears to be high. While there is no guarantee that more and more Americans will be able to own their own homes (how high might the American homeownership rate realistically go anyway?), it will likely take more than this what has happened in this particular economic crisis to cast a new vision of American fulfillment that doesn’t include a single-family home or space.

Habitat for Humanity limits foreclosures for lower-income homeowners

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Some recent data about Habitat for Humanity suggests that it may still be possible to have lower-income homebuyers without higher risks of default or foreclosure:

A recent study led by the Cox School of Business at Southern Methodist University, which was commissioned by the Dallas branch of Habitat, found that foreclosures in Habitat’s Dallas market were less than 2% last year. Although the report only looked at the Dallas office of Habitat, the findings mirror those found in other Habitat offices across the country, the organization says.

If this data holds up across the country, we should then ask why Habitat owners have such low foreclosure rates. Is it just because Habitat for Humanity has a limited operation each year (a small sample to work with) or is there something about their program that makes a difference?

The article suggests that Habitat’s particular program is what makes the difference: the homebuyers go through “home-ownership education,” there is consistent interaction with Habitat after the home purchase, the purchased homes are relatively modest (not “McMansions”), and Habitat imposing a less punitive late fee for late mortgage payments. One of the study’s authors sums up the impact of what Habitat does:

“These are practices that I think any bank should implement, particularly after looking at the foreclosures in the last five years,” said Paul Hendershot, lead author of the Dallas Habitat report and an adjunct University of North Texas professor.

It would probably cost quite a bit for lending institutions to adopt the practices of Habitat for Humanity for each mortgage holder. While the up-front costs are prohibitive, the lenders would save down the road as homeowners would go through fewer foreclosures.