This passage from Jane Jacobs' Dark Age Ahead looks very astute right now:
In 2015, those born in 1950, the crest of the baby boom, will become a flood of aspirants to retirement... Many, perhaps most, are counting on their largest significant assets, their houses and lots, for retirement nest eggs, or perhaps to provide education funds-- or, more realistically, credentialing funds-- for grandchildren.
Perhaps money will keep growing on houses, indefinitely. That will take some contriving. In March 2003, a former Federal Reserve governor, Lyle Gramley, was quoted by The New York Times as saying that Alan Greenspan... had means for pushing thirty-year mortgage rates as low as 2.5 percent and keeping them there, and the Times pointed out, accurately, that this policy would continue to stoke "a storm of home buying and refinancing, promoting consumers to convert the rising equity in value of their homes to cash... But this easy easy money has done nothing to rejuvenate business spending, and a growing number of economists suspect that war jitters are not the only reason."
In other words, the house price bubble can possibly be deliberately maintained for years to come. But even as Gramley was being quoted, in both the United States and Canada vacancy rates were rising in condominiums, and apartment and house prices and rents were falling in London-- not enough to solve the shortage of affordable housing for the poor, but signaling that supply and demand are slowly converging. In any case, sooner or later the bubble must burst, as inevitably all speculative bubbles do when their surfaces are not supported by commensurate increases in economic production. (Dark Age Ahead, Jane Jacobs, 147-9)
Having predicted the housing bubble bursting, Jacobs goes on to suggest a market reaction and a solution:
When the housing bubble bursts, whether before or during the coming demographic bulge in retirements, the force driving densification of suburbs could become irresistible in some places, overriding zoning and other regulations as owners of suburban houses and land discover that these can no longer supply cash passively but must somehow earn it instead...
Some resourceful owners will convert their rec rooms to low-cost rental suites, and others may notice that their lots can accommodate one or two small buildings at their rear, which they can either rent or move into themselves, reducing their chores and other upkeep. This will free up their former home and its garages for another family, a bed-and-breakfast, a hair salon, a funeral home, or offices for voluntary institutions or for some of the lawyers who will be needed to handle all the new contracts people are signing...
From the viewpoint of society, it will be preferable for owners themselves to put their lots to more intensive use because their ingenuities will not necessarily require demolition of still serviceable buildings, as developers' ambitions are prone to do, and will almost certainly introduce wider ranges of uses, as well as charm.
This is exactly what I think needs to happen to suburbia. In the last couple of decades our society has taken a somewhat wrong turn, in the direction of increasing sprawl. This was partly a result of a monetary policy error-- the Fed focused on consumer prices and ignored house price inflation-- and partly a result of political subsidies to sprawl such as the mortgage-interest tax deduction and the formerly implicit government guarantees and Fannie Mae and Freddie Mac. The result of all this is space being used in inefficient ways, people living in bigger houses than they need, and traffic jams, as sprawl involves too thin a population density to be accessible to public transport. Actually, public roads are another form of subsidy to sprawl. If roads had to be self-financing through congestion charges and higher gas taxes-- that is to say, if not only the cost of building and maintaining and policing roads, but also the rental value of the underlying land, were not publicly subsidized-- it would be costlier to live outside of public transit accessibility of one's workplace and there would be less sprawl.
The government-subsidized housing glut in suburbia is not inherently wasteful, however. It could easily be made useful by (a) modest rebuilding efforts such as Jacobs describes to facilitate densification, and (b) letting in a lot more immigrants to live in all our extra houses and apartments. This would do much to solve the problem of financing the retirement of the baby boomers, because it would restore real estate values, not through another bubble, but by repurposing buildings so that they could create sufficient economic value to justify the high prices. This would require something of a social as well as a policy revolution, however, one for which the American people seem not to be prepared. Recently, for example, they rejected the tough, honest talk of George W. Bush and opted for Obama's escapism.
I guess I should post the links here, too:
Densification is the top source of energy efficiency:
http://natooo.livejournal.com/137390.html
Some calculations of subsidies in transportation that implies that suburban sprawl exists partly because it's heavily subsidized:
http://natooo.livejournal.com/137735.html
Posted by: nato | July 07, 2010 at 02:01 PM