More on Shrinking Cities

Both Ryan Avent and Matt Yglesias had posts this weekend on how to manage the decline of cities like Flint, Michigan, noting the difference between the situation of a place like Flint, where the entire region is shrinking, and places like Baltimore, which is an island of poverty amid a sea of relative prosperity. In short, whereas Baltimore could and ought to become a more integrated part of the regional economy, Flint has no recourse but to shrink to a more sustainable size. It's a good point to make; obviously, just as a growth policy has to be well suited to a particular region, so a shrink policy, as it were, has to have some flexibility with respect to local differences. That's why I think the idea of a federal land bank would be useful in this regard, as it would give cities in decline the resources to pull back development, while still having the decision-making in the hands of the communities affected.

Dealing with Shrinking Cities

The Washington Independent had an interesting series of posts this week on how the city of Flint, Michigan has been grappling with a shrinking population and the blight that that has been leaving in its wake. To some controversy, the city has been cordoning off abandoned areas and even actively tearing down decaying properties, letting nature come back in. It's a good example, I suppose, of making a virtue of necessity: Amid the devastation brought about the decline of manufacturing in Michigan -- exacerbated by the current recession -- the city is reconciling itself to its fate, and trying to do so in a controlled manner.

What interested me about this was the way it's being done, through the use of a land bank, or "a community development corporation on steroids," as Dan Kildee, chair of the Gensee County Land Bank in Flint, put it. Basically, a land bank is able to quickly acquire foreclosed or abandoned properties so that they can either be refurbished or razed, while avoiding legal hassles. This is the kind of innovation that I think will be useful when the economy recovers and oil demand comes roaring back: the viability of suburban and exurban housing took a major, and possibly fatal, hit from the combined force of the oil price boom and the collapse of the housing bubble. If we want to avoid the specter of suburban slums, then, state and local authorities will need some way to efficiently pull back development to sustainable levels. It seems the main obstacle to expanding the use of land banks, besides the process of setting them up, is financing: The municipalities most likely to need a land bank are the least likely to have the money to establish one. A federal land bank will probably be the best way to reach the communities most in need.

Oil Price Spikes and the Recession

In the last two years we had two major economic shocks: The bursting of the American housing bubble and the resulting breakdown of the global financial system, and a historic spike in commodity prices, particularly for oil. For some reason, though, I've seen no one make the argument that the two may have been in some way connected. That's why I was so interested in a recent paper by James Hamilton (summarized here and here) that attributes almost all of the economic downturn in the last year or so to the run-up in oil prices. That seems rather odd, as even Hamilton acknowledges, but it leads naturally to a discussion of the link between the oil price boom and the credit crunch, as Justin Lahart does in a commentary on the Hamilton paper:

But then again, maybe what happened to oil prices had something to do with credit markets seizing up. The housing bubble saw people of lesser means traveling further afield to buy homes. That gave them long commutes that they were able to afford when gas was $2 a gallon, but maybe they couldn’t at $3. Housing in the exurbs got hit hardest, and one reason why is that high gasoline prices made it hard for people to lived in them [sic] to keep up with their mortgage payments, and hard for them to sell their homes without taking a steep loss. In some meaningful way, that has to have contributed to mortgage problems.

That's a very interesting theory, one that cries out for regression analysis. My sense, though, is that it wouldn't hold up to examination. Certainly higher gasoline prices make exurban housing less viable, but it's hard to see how the two spikes in 2005 and 2006 would have been enough to drive a critical number of homeowners into foreclosure, thus turning countless numbers of mortgage-backed securities and related assets into garbage. The sustained high prices in 2007 and 2008 no doubt hit particularly hard those having trouble making their mortgage payments, as well as those in exurban areas; but as a causal factor in the financial crisis broadly understood, I suspect high gas prices played, at best, a minor role. Remember, for one thing, that the housing bubble wasn't confined to exurban areas; even dense environments like Chicago and Baltimore got caught up in it as well. Besides, the nature of a bubble is that it is unsustainable: Gas going from $2 to $3 may have been enough to push a significant number of homeowners into foreclosure, but what really got this crisis going were the banks and hedge funds who made 20-to-1 or 30-to-1 leveraged bets on those mortgages and lost their shirts. In such an environment, any shock to the system, no matter how small, could bring everything crashing down. So if it had not been the oil price boom, it would have been something else.

Having said that, it's entirely fair to say that both the housing bubble collapse and the oil price boom have, rightly, called into question the bias in US housing policy toward sprawling, automobile-centric development. The days of cheap gasoline are no longer as assured as they once were, and we have seen that homeownership can be as much a curse as a blessing. We need to carry both insights with us going forward; but I am not sure of their applicability to resolving the current crisis.

Current Reading

In a bid to improve my urban policy cred, I've picked up How Cities Work by Alex Marshall. Thus far, it's really good: Rather than writing a brief for urbanism, Marshall tries to explain how all types of developments -- urban and suburban -- come into being around certain types of economic activity, political priorities, and transportation options. The upshot seems to be that incorporating more density and mass transit into regional planning takes a lot more thought and effort than most people are willing to admit. I look forward to reading the case studies, which include Portland, Oregon, Silicon Valley, and a planned community created by the Disney corporation (!).

More Fire

This time around, it's apparently the result of a boy playing with matches. (The last one was the result of a Christmas tree catching fire.) I would hope that Springhill Lake would take this opportunity, after so many fires in the last year, to do some outreach to the community about fire safety, or something. I'm not optimistic.

Fire

Jesus Christ. I live in that apartment complex (my building was nowhere near the fire, thank God). Given that there were 15 (!) arson-related fires in the complex this past summer, I think this is cause for alarm. Springhill Lake needs to start giving answers about what it's doing to prevent future fires, and soon. I mean, would it kill them to say something on their website about the fire? Even something as perfunctory as "No one could have foreseen this tragedy, etc." would suffice at this point.

The Subprime Mortgage Crisis Explained

Via Greg Mankiw:

Things I Didn't Know

Having gone to a small college with a small student government, I appear to have missed out on the phenomenon of political parties for student government elections. This is possibly a more instructive way of introducing students to the political process, rather than the popularity contest mindset of individual candidates running for office. After all, most independent runs for the presidency tend to be vanity campaigns, rather than expressions of a larger movement (e.g., Mike Bloomberg, if he runs).

Also worth checking out is the recent protest at the University of Maryland over the lack of housing. It's a real issue, I can tell you that.