Geography/Planning 379: “Urban Growth & Development” Lecture 19: Urban Housing Markets & Policy

1. Geography/Planning 379: “Urban Growth & Development”Lecture 19: Urban Housing Markets & Policy • Actors in Housing Markets: Roles & Motivations • Government’s Role: Federal Housing Policy • Loan Guarantee Programs • Urban Renewal & Low-Rent Public Housing • Demand-Side Subsidies • The Process of Residential Decline • Negative Externalities • Diffusion & Contagion • The Prisoner’s Dilemma • Neighborhood Renewal Reading • Required: Textbook, Ch 9, 204-220; 229-235; and 246-257 (“Race and the N. American Ghetto’) • Optional: Harvey “Laws change; people die; the land remains.” –Abraham Lincoln

2. Actors in Housing Markets: Roles & Motivations Let’s look at main actors and what motivates them: • Occupiers: renters “Use Value” homeowners “Use Value” and “Exchange Value” • Landlords Rents: “Exchange Value” • Realtors Commissions: “Exchange Value” • Developers Sales Price: “Exchange Value” • Bankers Mortgage Interest: “Exchange Value” and Risk • Government Officials “Redistributional Value” “Use Value” = Social evaluation of a home; its “niceness” “Exchange Value” = monetary worth of the property if put on the market

3. Actors in Housing Markets: Roles & Motivations…More about realtors and bankers: Realtors: • Not “passive coordinators of the housing market” • Turnover is key! (More commissions) • “Blockbusting” – Most cities had (maybe still have?) dual housing markets: one for whites, one for blacks:

4. 1. Actors in Housing Markets: Roles & Motivations…More about realtors and bankers: Bankers: • Complicated role; have markets other than housing to invest funds • Looking for most profitable, but also least risky investment • Redlining: No loans made in certain parts of town instead of basing decisions on qualifications of individual potential home buyers

5. Speculative aspects of housing investments… • www.speculativebubble.com • http://video.google.com/videoplay?docid=-2757699799528285056

6. Government’s Role: Federal Housing Policy • Main goal of U.S. government has been to expand & broaden access to the housing market • Preference for owner-occupied over rental housing • Three main waves of federal policy: • Loan Guarantee Programs FHA – Federal Housing Administration (1934) VA – Veterans Administration • These are insurance for the lenders against default by borrowers on mortgages • Have had huge impact, gives federal government some control over mortgage rates • Criticisms: • Concentrated power in private lending institutions • Have promoted new single-family housing in suburbs over renewal of central city housing stock

7. Government’s Role: Federal Housing Policy • Urban Renewal & Low Rent Public Housing • These were main direct, supply-side programs through ‘60s • 1949 – National Housing Act, Title 1 • 1965 – HUD: Dept of Housing & Urban Development created as part of Johnson admin. ‘Great Society’ legislation • Subsidized construction of housing, not the consumers • Urban renewal actual decreased inner-city housing: 1949-1968: 439,000 housing units demolished 124,000 constructed • High-rise public housing projects now considered to have been a mistake: unsafe, concentrated poor, anonimity • Best known failure: Pruit-Igoe Project in St. Louis

8. Government’s Role: Federal Housing Policy • Demand-side subsidies • Housing problem not the ability of American home-building industry to provide housing, but that we have a poverty problem • Idea of demand-side policies is to raise poor people’s effective incomes by giving out housing vouchers • First program: 1974 Housing & Community Dev. Act, Sect. 8 • Housing Allowance Program • No more than 25% of earned income paid for housing, Uncle Sam pays the rest • Other big change was scrapping categorical aid programs, consolidating into one big block grant program: CDBG • Community Development Block Grants given based on population and “community need & distress”

9. The Process of Residential Decline • Central City housing in many metros has declined • Changing destinations of immigrants • Filter-down process • Vacancy Chains

10. The Process of Residential Decline • High vacancy rates and abandonment of inner-city housing • Example of cumulative causation • Once process starts, hard to reverse • Negative externalities (“bad spillover effects”) are to blame • Crime • Declining quality of schools • Cut backs in public services • Trash in the streets, graffiti • Encroachment of non-residential land uses • Let’s look at stages of abandonment process…

11. The Process of Residential Decline • Stages of abandonment process… • Example of Diffusion (spreading through space) process • Block-face (rather than block) is relevant unit • Neighborhood deterioration • Scattered Abandonment • Contagious Abandonment • Wholesale Abandonment • Pathological Abandonment (change use) or Clearance & Renewal or Rehabilitation Not just abandonment, but foreclosures also important! 1. 2. 3. 4. 5. X X ? X X X X X X X X

12. The Process of Residential Decline The Prisoner’s Dilemma In Game Theory: A “Catch-22” Situation JonesOwner 2’s Decision: JonesOwner 2 % Rates of Return on Investment Smith’s Expected Rateof Return: DON’TRENEW RENEW Smith Owner 1 SmithOwner 1’s Decision: 7, 7 3, 9 5 RENEW DON’TRENEW 9, 3 5, 5 7 Jones’ Expected Rate of Return: 5 7

13. POP QUIZName • Which of the terms means: “a process of spreading through space”? • Abandonment • Block-busting • Cumulative causation • Diffusion