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Housing Crash
Submitted by BradyDale on Wed, 05/10/2006 - 9:50am.
The May Harper's has this "illustrated guide to the coming real estate collapse." They are predicting a great big bubble burst in housing across the country that's going to leave tons of people as "serfs" to the banks.
The writer compares the bubble here to the one Japan went through. I don't exactly buy it, mainly because the difference between the U.S. and Japan is that we have, umm, *slightly* more land. To say the least about the most.
That said, I do believe that prices are going to level off and maybe even drop in some of the crazy, crazy places like D.C., San Francisco and New York. What some of the young visionaries on here ought to think about, though, is how can Philadelphia come out ahead in the coming real estate doldrums?
Center City may be overheated, but I just bought a house in North Philadelphia, and believe me: it was an affordable move and I'm not worried about finding myself shackled to a bad debt:asset ration. This city has plenty of good housing stock that's reasonably priced and not inconveniently located.
If Philadelphia had more nodes of commercial and industrial activity and somehow created incentives both to keep residents in their homes but allow new people to come in when people die or move on for other reasons, we could have a helpful, gradual incline in housing value without any crazy interest-only loans or scrambles for property. It could be very good and healthy.
I'm no genius economist or financier, but it seems like there is some sort of great opportunity for Philadelphia right now.
The Bubble Myth
I am a financier, working in the public sector. All empirical and anecdotal housing data for the Greater Philadelphia area and the nation at large indicates a leveling off of housing prices, followed by a slight decrease as demand decreases and supply adjusts. This is far from the economic Armageddon proposed by some financial stalwarts.
In response to a long term solution, the key to steady growth in our housing prices lies in the revitalization of our neighborhoods.
Agreed, Center City is an inflated market, but developers still see potential. This is a result of the city's effort to retain commercial real estate managers and the 10 year tax abatement, which has been hugely effective in the Central Business District.
For whatever you think of Street, he was on the right track with the Neighborhood Transportation Initiative. Neighborhoods like East Falls are seeing huge inflows of development capital due to the forward stance of the Commerce Department.
Revitalizing neighborhoods like West and North Philly will be the final step. Trends indicate a more economically stable base in these neighborhoods. Pulling in retailers and creating more jobs in these neighborhoods will ensure that this trend continues.
N.T.I.
About N.T.I., I just wish Street would put more cash into saving homes than demolition, though. Are empty lots really attractive? It seems short sighted. The Basic Systems Repair Program budget is dinky.
I totally agree with your ana
I totally agree with your analysis about the Bubble Myth. I don't know that my confidence is as high as yours that it's a myth, but if I had the money to gamble I'd definitely gamble on the side that the worst that could happen is levelling.
That said, while I think your recipe for development is fine as it is - I really believe that there is a stronger, more specific possibility out there. I just think that it's same recipe everyone always talks about and it is a) easier said than done and b) not enough.
The reason I wrote what I wrote was to say that I think a smart, creative group of leaders could come up with some really specific projects that we could do to create some comparative advantage for Philadelphia in some industries and that a smart, creative group of people could come up with ways to help people stay in the neighborhoods they live in even as values go up because of new jobs, and take part in the new Philadelphia economy as it happens.
We need more specific ideas than low taxes and open casting calls for any business that wants to come to town. We need to figure out which kinds of work would work best in Philadelphia and which kinds of hype can make the last remaining east coast city with inexpensive property hot in the minds of the region.
Scale
Saving homes is the ultimate goal. How can you do this without eminent domain in a market economy? The City cannot and should not get into the business of restoring homes itself. The onus of redevelopment and restoration lies with the owners, and the owners will not invest the capital without proof the neighborhood will return their investment. Herein lies the problem of scale.
For the City to make the most effective use of lost tax revenue, while encouraging restoration, it must pick the most efficient incentive. The people willing to invest the capital are businesses: profits are the incentive in our economy. I know no one needs me to justify the NTI, but I do believe that this is the correct way to spur private investment.
Programs do exist to subsidize the restoration of blighted homes, including short term financing and matching grants. No matter how much cash the City throws at the issue of revitalization, however, people will not redevelop on their own unless they see the potential for growth---this is a fundamental rule of real estate finance and investment. For this reason, I disagree with your comment, and I think its a very far sighted strategy, its just slow in developing.
Blighted homes are a hazard, and while you're right that saving homes is job one, if the private sector impetus to revitalize is not there, we must do something.
Basic Systems Repair Program
Do you know about the Basic Systems Repair Program?
It has saved a lot of houses, but it's also bogged down in some bureaucratic challenges and underfunded. They have a huge waiting list of homeowners who see a reason to fix their place up but can't afford it.
That's where I wish more NTI money would go.