Tag Archives: Urban Housing

How Pricey Urban Meccas Become Crime-Ridden Ghost Towns

As the exodus gathers momentum, all the reasons people clung so rabidly to urban meccas decay.

The lifestyle you ordered is not just out of stock, the supplier closed down.

(Charles Huge Smith) If there is any trend that’s viewed as permanent, it’s the enduring attraction of coastal urban meccas: despite the insane rents and housing costs, that’s where the jobs, the opportunities and the desirable urban culture are.

Nice, but like many other things the status quo considers permanent, this could reverse very quickly, and all those pricey urban meccas could become crime-ridden ghost towns. How could such a reversal occur?

1. Those in the top 10% who can leave reach an inflection point and decide to leave. The top 1% who live in enclaves filled with politicians, celebrities and the uber-wealthy see no reason to leave, as the police make sure no human feces land on their doorstep.

It’s everyone who lives outside these protected enclaves, in neighborhoods exposed to exasperating (and increasingly dangerous) decay who will reach a point where the “urban lifestyle” is no longer worth the sacrifices and costs.

It might be needles and human feces on the sidewalk, it might be petty crime such as your mail being stolen for the umpteenth time, it might be soul-crushing commutes that finally do crush your soul, or in Berkeley, California, it might be getting a $300 ticket for not bringing your bicycle to a complete stop at every empty intersection on a city bikeway. (I’ve personally witnessed motorcycle officers nailing dozens of bicyclists with these $300 tickets.)

It might be something that shreds the flimsy facade of safety and security complacent urban dwellers have taken for granted, something that acts as the last grain of sand on the growing pile of reasons to get the heck out that triggers the decision.

Not everyone can move, but many in the top tier can, and will. Living in a decaying situation is not a necessity for these lucky few, it’s an option.

2. Those who have to leave when they lose their job. A funny thing happens in all economies, even those with central banks: credit-cycle / business-cycle recessions are inevitable, regardless of how many times financial pundits say, “the Fed has our back” and “don’t fight the Fed.”

As I’ve noted here numerous times, a great many small businesses in these pricey urban meccas are one tiny step from closing: one more rent increase, one more bad month, one more regulatory burden, one more health issue and they’re gone. They will move to greener pastures for the same reason as everyone else–they can’t afford to live in urban meccas.

Once enough of the top 10% leave (by choice or because they can no longer afford it), the food/beverage service industry implodes. Wait staff and bartending have been a major source of jobs in these urban meccas, and when hundreds of struggling establishments fold due to a 10% decline in their sales, thousands of these employees will lose their jobs and the prospects of getting hired elsewhere decline with every new closure.

The vast majority of these service employees are renters, paying sky-high rents that unemployment can’t cover. They will hang on for a few months and then cash in their chips and move to more affordable climes.

3. Once the stock market returns to historic norms, the gargantuan capital gains that supported local tax revenues and spending dry up. WeWork is the canary in the coal mine; from a $50 billion IPO to insolvency in six weeks.

Once tax revenues plummet (no more IPOs, hundreds of restaurants closing, etc.), cities and counties will have to trim their work forces to maintain their ballooning pension payments for retirees. This will leave fewer police and social workers available to deal with everyone with little motivation (or option) to leave: thieves, those getting public services and the homeless.

4. Housing prices and rents are sticky: sellers and landlords won’t believe the good times have ended, and so they will keep home prices and rents at nosebleed valuations even as vacancies soar and the market is flooded with listings.

Neighborhoods that had fewer than 100 homes for sale will suddenly have 500 and then 1,000, as sellers realize the boom has ended and they want out–but only at top-of-the-bubble prices.

Ironically, this stubborn attachment to boom-era prices for homes and rents accelerates the exodus. As incomes decline, costs remain sky-high, so the only option left is to move away, the sooner the better.

By the time sellers grudgingly reduce prices, it’s too late: the market has soured. The Kubler-Ross dynamic is in full display, as sellers go through the stages of denial, anger, bargaining and acceptance: they grudgingly drop the price of the $1.2 million bungalow or flat to $1.15 million, then after much anger and anguish, to $1.1 million, but the market has imploded while they processed a reversal they didn’t think possible: now sales have dried up, and prices are sub-$800,000 while they ponder dropping their asking price to $995,000.

Vacant apartments pile up, as the number of laid-off and downsized employees who can still afford high rents collapses. (Recall that tens of thousands of recent arrivals in urban meccas rely heavily on tips for their income, and as service and gig-economy business dries up, so do their tips.)

5. As the exodus gathers momentum, all the reasons people clung so rabidly to urban meccas decay: venues and cafes close, street life fades, job opportunities dry up, and yet prices for everything remain high: transport, rent, taxes, employees, etc.

Friends move away, favorite places close suddenly, streets that were safe now seem foreboding, and all the friction, crime, grime and dysfunction that was once tolerable becomes intolerable.

6. In response to deteriorating city and county finances, local government jacks up fees, tickets, permits and taxes, accelerating the exodus. How many $300 tickets, fees and penalties does it take to break the resolve to stick it out?

7. Those on the cusp cave in and abandon the mecca. Once those who had the option to leave have left, and those who can no longer afford to stay leave, the decay causes those on the cusp of bailing out to abandon ship.

Renters move out in the middle of the night, homeowners who have watched their equity vanish as prices went into free fall jingle-mail the keys to the house to the lender and small businesses that had clung on, hoping for a turn-around close their doors.

8. Each of these dynamics reinforce the others. Soaring taxes, decaying services, declining business, rising insecurity and stubbornly high costs all feed on each other.

And that’s how pricey urban meccas turn into ghost towns inhabited by those who can’t leave and those living on public services, i.e. those too poor to support the enormously costly infrastructure of public spending in the urban mecca.

Source: by Charles Hugh Smith | ZeroHedge

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The Rise of the New Left Urbanists

(City Journal) America’s big cities are, without exception, politically blue cities, with a new class of progressive politicians doing real damage to public order. When it comes to urban development, however, the blue monolith breaks down: socialists, city planners, cyclists, environmentalists, pragmatists, and social-justice activists are often at odds with one another. They might all support more housing, more density, and more public transportation, but they disagree sharply on the means for getting there.

In recent years, a new faction has emerged in city politics: what one might call the new Left urbanists. These activists believe that local governments must rebuild the urban environment—housing, transit, roads, and tolls—to produce a new era of city flourishing, characterized by social and racial justice and a net-zero carbon footprint. The urbanists rally around provocative slogans like “ban all cars,” “raze the suburbs,” and “single-family housing is white supremacy”—ironically, since they’re generally white, affluent, and educated themselves. They’re often employed in public or semipublic roles in urban planning, housing development, and social advocacy. They treat public housing, mass transit, and bicycle lanes as a kind of holy trinity—and they want to impose their religion on you.

Housing is the central political battleground for these progressive activists. As David Madden and Peter Marcuse write in their book, In Defense of Housing: “The residential is political—which is to say that the shape of the housing system is always the outcome of struggles between different groups and classes.” Their goal is not simply to get new housing built but to build new housing owned, operated, and controlled by the state. If they can dictate how cities construct new housing, their logic goes, they can dictate how people live—and set right society’s economic, social, and moral deficiencies.

The urbanists laid out their plans in a widely circulated report from the People’s Policy Project, a crowd-funded organization founded in 2017 that seeks to “fill the holes left by the current think tank landscape with a special focus on socialist and social democratic economic ideas.” They envision the construction of 10 million “municipal homes” over the next ten years. Under this proposal, government would become the nation’s largest landlord and residential construction firm, building more housing units than the entire private construction industry. The abysmal record of public housing in the United States, from the Cabrini-Green Homes in Chicago to the Foote Homes in Memphis, where crime and blight prevailed, makes no difference to these urbanists. They have simply rebranded “housing projects” to “municipal homes,” arguing that public housing has been “unjustly stigmatized” and that these new units will somehow avoid the fate of American public-housing ventures over the past half-century. They believe that the new “municipal homes” will resemble neighborhoods in Stockholm, Vienna, or Helsinki rather than in Detroit, Newark, or Oakland.

The question for the activists is not just how much new housing gets built but who builds it and who will live in it. That is, new developments must also tick off the boxes of identity politics. In cities like San Francisco, some activists have taken the hardline position of opposing all private housing construction, regardless of how it might reduce the cost of housing for middle-class residents. In an essay in the San Francisco Examiner, public-housing activists Andrew Szeto and Toshio Meronek called advocates for more private-market housing part of a “libertarian, anti-poor campaign to turn longtime sites of progressive organizing into rich-people-only zones” and compared them with alt-right white nationalists.

One might dismiss this as radical posturing in a local alt-weekly, but public-housing advocates have seized real power in city hall. They have learned how to use the zoning and permitting bureaucracy to achieve their goals of no new private development. In San Francisco’s Mission District, activists forced Laundromat owner Bob Tillman to spend $1.4 million and nearly five years to gain permission to convert his business into an apartment building. Activists and their enablers in city hall claimed that Tillman’s project would cause gentrification and displace minority residents, and forced him through a gauntlet of Kafkaesque legal proceedings. At one point, the planning commission even hired a “shadow consultant” to offer an expert opinion on whether the shadows cast by the proposed building would create social and racial inequities. To the new Left urbanists, housing isn’t just housing; it must be evaluated on social-justice standards. If it fails to measure up, it must go.

In New York City, progressive urbanists have seized on public transportation as a primary instrument of “social, environmental, immigrant, and economic justice.” New York’s subway system was designed in the early twentieth century to serve the practical needs of city residents, but today’s activists have come to see its tunnels and trains as grand mechanisms for cosmic justice. In its annual “Transportation and Equity” report, for example, the Straphangers Campaign argues that “the most vulnerable New Yorkers suffer disproportionately from high fares, long commutes, polluted air, and dangerous streets,” and therefore, “equity demands that state leaders prioritize transit in the public budget and policymaking process.”

The Straphangers estimate that an additional $30 billion in tax revenues would be needed to complete its desired overhaul of the mass-transit system, with a ten-year goal of upgrading 11 subway lines, building 130 new accessible subway stations, and purchasing 3,000 new subway cars and 5,000 new buses. While state and local leaders haven’t signed up for such an ambitious plan, they do support some of the Straphangers’ funding proposals to expand the transit system—including congestion pricing, a “millionaire’s tax,” marijuana tax, stock-transfer tax, and even a $3-per-package tax on Amazon deliveries.

Most New Yorkers would agree that investment in mass transit is a necessity, and there is a reasonable argument for congestion pricing in traffic-glutted Manhattan—but the activists don’t formulate their arguments on these practical grounds. A close reading of their reports reveals that the long-term vision involves elimination of the automobile, which remains a staple for middle-class residents in New York’s outer boroughs. In the Straphangers’ plan, activists want to restrict curbside space for cars dramatically by building “protected bike lanes on all major arterial streets across the five boroughs,” “giving developers incentives to contribute toward sustainable transportation over private vehicle usage,” and eliminating parking requirements for new housing projects. Activists deploy euphemisms like “transportation alternatives” and “transportation choices”; but at heart, their vision for mass transportation is not about choice but control. They want to remake the urban infrastructure in their own image: green, moral, healthy, just, and in solidarity with the masses—at least as those masses exist in their imagination.

The new Left urbanists’ fatal mistake is their failure to absorb the reality that cities are not just buildings, roads, tunnels, and bike lanes, but living entities. The urbanists can demolish and rebuild the physical environment, but they cannot pave over the people who make up our cities. Life in a metropolis is simply too complex, too variable, and too ephemeral—it will evade even the most careful planning. If we want better, more beautiful, cities, we must bring neighbors, developers, employers, and governments into the conversation. Our cities must be built through cooperation, not compulsion.

Source: by Christopher F. Rufo | City Journal

Who Will Live in the Suburbs if Millennials Favor Cities?

Longtime readers know I follow the work of urbanist Richard Florida, whose recent book was the topic of Are Cities the Incubators of Decentralized Solutions? (March 14, 2017).

Florida’s thesis–that urban zones are the primary incubators of technological and economic growth–is well-supported by data that shows that the large urban regions (NYC, L.A., S.F. Bay Area, Seattle, Minneapolis,etc.) generate the majority of GDP and wage gains.

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Cities have always attracted capital, talent and people rich and poor alike. Indeed, “city” is the root of our word “civilization.” So in this sense, Florida is simply confirming the central role cities have played for millennia.

More recently, Florida has addressed the rising wealth/income inequality that is making desirable urban areas un-affordable to all but the top 10% or even 5% wage earners. This is a critical concern, because vitality is a function of diversity: a city of wealthy elites paying low wages to masses of service workers is not an economic powerhouse.

What happens as buying a home in a desirable city becomes out of reach of all but the most highly paid tranche of workers?

The larger question is: what happens to home ownership as housing prices continue higher while the next generation’s wages remain significantly lower than previous generations’ incomes?

Millennials are typically earning less than Baby Boomers and Gen-X did in their 20s and 30s, and if this continues–and history suggests it will–then how many Millennials will be able to buy a pricey house?

One consequence of stagnating wages and rising home valuations is a “nation of homeowners” morphs into a “nation of renters.”

The other big question is: if Millennials aren’t earning enough to buy pricey homes, who is going to buy the tens of millions of houses Baby Boomers will be selling as they downsize/move to assisted living? As for inheriting Mom and Dad’s house–that’s not likely if Mom or Dad need the cash to fund their retirement/assisted living.

This question is especially relevant to suburban homes, especially those far from employment centers. Though data on this trend is sketchy, it seems Millennials strongly favor city living over exurban/suburban living.

Anecdotally, I can’t think of a single individual in their 20s or 30s that I know personally who has bought a house in a distant suburb. Everyone in this age group has bought a house in an urban zone. Not a highrise condo in the city center, but a house in a ring city near public transport.

Though data on this is hard to find (if it exists at all), Millennials seem more willing to make the sacrifices necessary to live in the urban core, either by renting rather than buying a cheaper suburban home, or by purchasing a modest bungalow on a small lot rather than an expansive suburban home on a big lot.

(This could change if Millennials start having lots of children, but to date small bungalows in urban regions appear big enough for families with two children.)

In a turn-around from the postwar era, which saw a mass exodus of the middle class from city centers to suburbia, the upper middle class is moving back to urban centers and the lower-income populace–once the urban poor–are being pushed out to the suburbs. We can now speak of the suburban poor.

To some degree, the suburbs have become victims of their own success. Long commutes in heavy traffic are the inevitable result of the vast expansion of suburban subdivisions, shopping malls and business parks. These killer commutes detract from the desirability of suburbs, especially to auto-agnostics of the Millennial generation, who exhibit low enthusiasm for auto ownership.

Rather than symbolizing freedom, auto ownership is viewed as a burdensome necessity at best.

If we overlay these trends (assuming they continue into the future), we discern the possibility that marginal suburban housing could crash in price and morph into suburban ghettos of isolated low-income residents.

The Pareto Distribution may play a role in this transformation. Should 20% of the suburban housing stock fall into disrepair, that could trigger the collapse of valuation in the remaining 80%.

Not all suburbs are equal. Those with diverse job growth may well act as magnets much like small cities. Those with few jobs and long commutes are less desirable and have smaller tax bases to support services.

The asymmetry between modest/stagnant Millennial wages and the soaring cost of housing cannot be bridged. If these trends continue, only the top tranche of highly paid young workers will be able to afford housing in desirable areas. Given a choice between affordable ownership in a small city or in a distant suburb, Millennials may well choose the affordable small city rather than the distant exurb or low-services suburb.

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Note that most incomes have gone nowhere since about 1998. Even the top 5% has made modest gains in real (inflation-adjusted) income.

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Meanwhile, home prices are back in bubble territory. “Hot” urban areas such as Seattle, Portland, the San Francisco Bay Area, Los Angeles, Brooklyn NYC, etc. have logged double-digit gains in recent years.

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So who’s going to pay bubble-valuation prices for the millions of suburban homes Baby Boomers will be off-loading in the coming decade as they retire/ downsize? We know one part of the answer: it won’t be Millennials, as they don’t have the income or savings to afford homes at these prices.

These trends promise to remake the financial geography of cities (large and small) and suburbia–and in the process, radically shift the financial assets of households, renters and owners alike.

By Max Keiser | Financial War Reports