Monday, January 07, 2008

The Housing Bubble and New Urbanism

There has been a lot of ink spilled (and bits, er, sent) over the housing bubble in the past few years. Paul Krugman famously pointed out that this bubble had two dimensions: 1) The Zoned Zone -- Coastal America, consisting of places like Los Angeles, Seattle, New York and Boston, and 2) Flatland -- the rest of America. The bubble largely is a phenomenon of The Zoned Zone dragging up the averages of the rest of the country, supposedly.

However, as the "Hissing Sound" gets louder, as the bubble deflates/pops/continues in time, it is becoming apparent that there is also a second dichotomy at work, within The Zoned Zone: Urban Centers/Urban Places vs. non-transit-served suburbs & exurbs. One recent opinion pieces asks if this is the End of Sprawl?

So, this is a question, for Professor Krugman and others who study this issue: What does this mean on a macroeconomic level for the national economy, the housing bubble and the building industry? Do proposals for "fixing" the bubble problem need to take into account such an urban/suburban dichotomy?

Specifically, if the central cities of San Francisco, Portland, New York, etc. can weather a burst in the housing bubble without sustaining too much damage, but if their non-transit-served suburbs will take the hardest hits, what does this mean for policy fixes? That is, there seem to be portions of the Zoned Zone that actually have characteristics of the Flatlands, i.e. plenty of housing was built and built and built, sprawling further and further away from the central cities, but the market characteristics of these places, influenced by their proximity to the Zoned Zone, experienced the same bubble-esque excesses.

Krugman points out that metropolitan areas like Los Angeles are experiencing housing bubbles larger than anything we've previously seen. Yet, within the San Francisco Bay Area at least, there is a wide disparity between places like Fairfield, where prices have fallen more than 20% already, and San Francisco, where prices are holding steadier (only falling 6% to 7% thus far). But even within the City of San Francisco, there are actually two housing markets -- one which consists of walkable urban neighborhoods served by high-quality transit (er, I mean, MUNI and BART), and the other, more suburban neighborhoods. And the more suburban part of San Francisco is also seeing 15%+ drops in home prices.

According to the NY Times, there are now more than 2.1 million vacant, unsold homes in the United States, representing 2.6% of the national housing stock -- apparently, a higher number than was ever seen during the housing crunches of the early 1980s or 1990s. But how much of this vacant housing stock is suburban in nature, and how much is located in more walkable urban areas served by high quality transit?

Do the suburbs themselves need to be re-tooled and rebuilt to allow their residents to live in homes that can be competitive on the housing market again? Is there a way to save the suburbs and exurbs?

If so, does this mean that, as a nation, we need to look at rebuilding our suburbs more along the lines of New Urbanism principles, specifically ensuring that, say, 90% of all residences are within walking distance of a neighborhood retail center (and thus can pass the "quart of milk" test, i.e. their residents can wake up in the morning and walk to a nearby store for a quart of milk without too much hardship before breakfast), and are served by high-quality transit that provides a true alternative to driving for some trips?

Should we look into re-building our country to be more like the image of post-war Britain, circa 1955, depicted in this video about bicycle excursions by train? With communities that do not intrude too much on the countryside, that are within bicycling distance of rail service connecting to the major cities, that offer economies sufficiently self-contained that they are not completely reliant on cheap fuel for their automobiles to keep their housing prices competitive?

I'm not arguing that there is no housing bubble for the central cities, the walkable places with good transit. However, currently Seattle and Portland are the only cities in the United States to not yet experience a fall in their housing prices over the past 1-year period. And even these cities are now seeing month-to-month housing price declines, though still of less than 1%. What I am saying, however, is that it is likely that central Portland will retain more value than, say, suburban Wilsonville or Salem; that central Seattle will retain more value than, say, Bellingham; and that central San Francisco will retain more value than, say, Fairfield. And this is because, as fuel prices rise, the Baby Boomers age and retire, and people have fewer children, more folks will want to live in walkable places where they don't have to drive for every trip, and fewer are going to want to be isolated in suburbs where the automobile is their only mode choice for just about every journey.

And I'm asking, what does this mean for the future? How should we plan to deal with this? What policy implications might it have?