Urban Housing Markets

1. Urban Housing Markets Drawn from Kaplan, Wheeler & Holloway, Chapter 9

2. What is the importance of housing? • For households & individuals • Largest single expenditure for most people • Means of expressing personal and family identity • Fundamental expression of ethnic and class identity • Refuge from public life • Realm of private life protected by law

3. What is the importance of housing? • For society • Creates labor markets • Creates consumer markets • Creates demand for durable goods • Occupies space • Depends on various kinds of infrastructure • Depends on various kinds of services • Occupies the most carefully protected (restrictively zoned) spaces in the city

4. Housing Market Sectors

5. Housing Market Sectors "third sector housing" "public housing"

6. Private market housing • Like other goods • reflects many individual decisions about quality vs. affordability • varies in type to suit various lifestyles • Unlike other goods • is often rented rather than owned by the poor • a fundamental reason the poor get poorer and the rich get richer • cannot be moved so location is one of various aspects of its value

7. Housing supply • Varies on several dimensions • public vs. private housing • age • size • placement on lot • location and accessibility • architectural style • landscaping style & quality • other on-site improvements (e.g. pool) • adjacent functions--desirable & undesirable

8. Filtering • Homer Hoyt • vacancy chains & filtering • new unit at edge ultimately creates vacancy near center • each household occupies successively nicer housing (at least until children reach college) • each neighborhood slowly declines in terms of income relative to the rest of the urban system • implication: market’s tendency to build new housing for the wealthy ends up providing housing for all groups

9. Vacancy Chains

10. Hoover & Vernon • initial urbanization • transition (density increases) • downgrading (conversion from single family to multifamily use) • thinning (abandonment) • renewal (usu. with public sector (i.e. govt.) involvement)

11. Home buying few people can pay for their home outright--so it’s an unusual market

12. Home buying • before Great Depression banks required down payment greater than 30% of home cost and loan term 10 yrs. or less • few people could afford this • FDR created the HOLC to lend directly to homeowners, then the FHA to guarantee S&L mortgage loans • longer term loans 20+ years • lower down payments • lower interest (since Fed assumed the risk) • led to Post WWII suburbanization

13. Discrimination • may be given different information given to buyers/renters depending on their racial/ethnic background • told about fewer units • shown fewer units • may be directed (steered) toward units other than the advertised unit • may be offered less favorable lease or mortgage terms

14. Lending discrimination • redlining • refusal of lenders to finance mortgages in certain neighborhoods • refusal of federal government to guarantee home loans in certain neighborhoods (FHA) • prohibited in 1975, but it continued after that time • applicant-level discrimination • stills occurs in some cases • 2%-12% depending on how you measure it

15. Predatory lending • Instead of denying loans to the poor the poor are sought out and offered loans • loans may have exploitative lending terms • Home Loan Refinancing can be “sold” aggressively, esp. to older or less educated people, then used to squeeze the equity out of their homes without paying the owners their due

16. Bottom line • “Discrimination tax” (John Yinger) • costs of extra home-search time, worse lending terms, and reduced options • $3000-$4200 more will be paid by black homeowners for similar housing • $3300-$4400 more will be paid by Hispanic homeowners for similar housing • additional costs are imposed on a day-to-day basis by the restricted opportunities for people forced to live in sub-optimal housing

17. Fannie Mae & Freddie Mac • Government sponsored enterprises • Federal National Mortgage Association (Fannie Mae) & Federal Home Loan Mortgage Corporation (Freddie Mac) • Are allowed to purchase home loans from original lenders and bundle them for resale to investors • while people may default on loans, bundles of loans are seen as a secure investment • these enterprises free up loan money, making it easier for people to acquire loans • government regulation requires them to increase lending to “underserved markets” i.e. minorities & the low & lower middle classes

18. Urban Blight causes and attempted solutions

19. Causes of “urban blight” • ageing housing stock • oldest housing stock is in need of repair • suburbanization • economy of older areas suffers from loss of middle and upper classes to suburbs • blight as self-fulfilling prophecy • growth machines (reflecting inner city business interests) lobby for federal redevelopment funds • city designates neighborhoods as “blighted” • maintenance by landlords in these areas has no more utility

20. Public housing • Units built never matched units destroyed • Urban renewal money was spent on: • freeways & roads • hospitals • universities • government offices • sports facilities • middle and upper income housing

21. The new look of the 1960s

22. The new look of the 1960s

23. Public housing • Originally PH seen as temporary place of residence for the “deserving poor” • white families facing temporary misfortune • later, PH was used as essentially permanent housing for the poorest segments of the population • PH demonstrated the failure of the housing market to provide adequate range of housing through filtering • PH became stigmatized, hated, and shunted away to parts of the city least able to defend themselves, and also least able to offer opportunities to the residents • design flaws made PH dangerous & dehumanizing

24. Pruitt Igoe (the most infamous public housing project) 1971 1956

25. Pruitt Igoe (the most infamous public housing project) 1972

26. Gentrification • old houses can be purchased cheaply • white, middle class buyers can take advantage of Fannie Mae & Freddie Mac targeted programs • input “sweat equity” (labor) • flocking (neighborhood “turns around”) • change economic conditions in city • become customers for certain inner city businesses (some old, most new) • drive up property tax assessments • pay higher taxes helping city out of financial woes • drive up rents and create economic incentive for the demolition of rental properties

27. Actual realtor’s listing (from Toronto) • Grand High Park residence. • “Diamond in the rough” with parking. • Awaits your touch. • Exceptionally high basement with separate entrance. • Easy access to High Park & subway. • Stroll to trendy Bloor Street shops & restaurants.