There
are many reasons why the Affordable and
Accessible Housing Crisis deserves to be on the
front hook. Shelter is one of the fundamental
requirements of life. For humans that means
housing.
Unfortunately,
the current media frenzy over “housing” is
focused on the flawed and fraud-tainted housing
finance system that has evolved over the past
two-plus decades. In the most recent real
estate speculation driven financial crisis, the
housing finance system has out done itself. It
has infected the entire financial sector across
the globe.
Speculators
are losing their shirts. That is not a bad
thing. However, citizens are losing their
shelter and their livelihoods. That is
a bad thing.
At
S/P we have come to the conclusion that there
are two Spheres of Housing Fraud contributing to
the Affordable and Accessible Housing Crisis:
The
First Sphere of Housing Fraud
The
First Sphere of Housing Fraud is easy to
identify and document. Brigid Schulte does a
fine job in “‘My House. My Dream. It
Was All an Illusion:’ Home Crisis Epitomized
in Latino Woman’s Loss” a page A-1 story on
Sunday, 22 March in WaPo.
The
First Sphere Fraud is perpetrated by
professional crooks, cheats and bottom fishers.
It is also the venue of gamblers – intentional
and unintentional. The sad stories are populated
by greedy, gullible and vulnerable individuals
and Households. Especially vulnerable are those
lured to the US of A by the illusion of getting
rich easily and quickly. Many never understood
the need for, nor were they given a chance to
acquire, the tools and knowledge needed navigate
the shark-infested housing sector.
The
First Sphere Housing Fraud is not just made up
of unethical loan officers, appraisers, agents,
lawyers and other low lifes who have been
praying on the weak and taking advantage of
speculators’ greed. An entire white- collar
industry evolved in the regulatory vacuum
created by that magic elixir of “economic
growth” that goes by the name of
“deregulation.” First Sphere Housing Fraud
is an intentional, Enterprise (Second Estate)
fraud with a name: The subprime Mortgage
Industry.
The
list of defrauders in the First Sphere does
not end with the subprime Industry and its
victims.
The
false prosperity and the fleeting illusion of
home “ownership” was enabled and abetted by
Agencies and governance practitioners –
elected and appointed. The subprime house of
cards is based on flawed programs and policies
intended to expand home ownership and increase
Mass OverConsumption without regard to
settlement pattern or other long-term
consequences.
First
Sphere Housing Fraud was financed by
“securities” based on location-blind
mortgages. It turns out many of these mortgages
were just what they were called: “subprime.”
A high percentage of the mortgages also turn out
to be “sub”urban as documented by the Radial
Analysis noted below.
Is
this the end of the list of First Sphere Fraud
enablers? No, add to the roster all the
negligent Agencies who are chartered and paid to
prevent this sort of fraud and meltdown. The
defrauders in this cohort range from the former
Fed Chairman who says he “may have missed
that” to thousands of Agency employees who
should have blown the whistle.
The
entire financial regulatory apparatus including
the federal Departments of Treasury and Housing
and Urban Development and “independent
regulatory agencies” are to blame. Any list of
Agency culprits must also include Congress, the
White House and all the others who are now
tut-tutting and looking for election year
patches.
One
has to wonder how this Meltdown could happen
so soon after billions of citizens' dollars
were spent to bail out the Savings and Loan
industry, and before that the REIT bloodbath.
Think
of how much of the infrastructure needed to
achieve a sustainable future could have been
financed by what it cost to bail out these two
recent real estate fraud driven catastrophes!
The
First Sphere Fraud impacts all sectors of
society and all parts of every New Urban Region
and most Urban Support Regions. The only
consolation is that, for the most part, First
Sphere Fraud is just plain, everyday fraud and
negligence. There are signatures on documents.
There are laws, regulations and professional
ethics codes that must have been violated.
Prosecutors
and lawyers should have a field day, or rather a
field decade. If not, democracies with market
economies are in worse shape than Robert Reich
portrays in "Supercapitalism: The
Transformation of Business, Democracy, and
Everyday Life." Reich has been quoted
recently as calling the current condition “dog
eat dog capitalism” and that describes the
subprime Meltdown very well.
Cures
Are Worse Than the Illness
There
are now "solutions" pouring out of the
Agency (Second) Estate. They are being generated
by federal Departments, Congress, the White
House, those who hope to occupy the White House
and by state executives and legislatures. Even
municipal governance practitioners are looking
at ways to address the rising concern among
voters. Looking for solutions is fine but no one
is yet talking about any program that matches
the scope needed to make whole those who have
been damaged.
To
make matters worse, the biggest losers with
the current “solutions” are the vast
majority who did not participate in the
subprime orgy. They have lost value, equity
and interest on their savings but played no
role in creating the fraud-ridden subprime
process. (See End
Note One.)
Just
how bad the subprime Meltdown bailouts have
gotten is made clear by the front page headlines
of 3 April 2008 in WaPo: “Housing
Accord Puts Builders First: Strapped Homeowners
Offered Little Aid; Bipartisan Senate Package
offers Billions in Aid to Home Builders.” Even
the editorial page cannot stomach the give away:
“Wrong Relief: A Senate housing package would
be better without an unjustified tax break for
businesses.” State legislation is apparently
not much better: “Md. Passes Broad Bills To
Stem Foreclosures.” (See End
Note Two.)
It
is very clear to Wall Street what the bailout is
all about. Note the 6 April 2008 WaPo
story, "Housing's Bright Spot: Stocks;
Despite the Sector's Spiraling Crisis, Builders'
Shares Are Gaining Fast." The gross
obscenity of this "investment" reality
should sour even the most staunch supporters of
the current winner-take-all gambling venue
called the stock market. It also highlights the
need to address the Second Sphere of Housing
Fraud explored below.
Even
if the rescue programs dramatically morph for
the better, they will not address the core cause
of the Affordable and Accessible Housing Crisis.
That is because, as bad as the First Sphere
Fraud “solutions” are for the vast majority,
by far the most important impact of pandering
political “solutions” is that all the
attempts to “rescue” those directly impacted
by the First Sphere will cover up and put off
dealing with the much more important Second
Sphere of Housing Fraud.
It
is critical for citizens to understand that
the First Sphere of Housing Fraud illuminates
the more profound Second Sphere of Housing
Fraud. Unless they come to understand and act,
the Second Sphere will continue to thwart all
attempts to evolve Affordable and Accessible
Housing.
The
Second Sphere of Housing Fraud
What
is the Second Sphere of Housing Fraud? To ferret
out the scope of the Second Sphere, one first
needs to look at the spacial footprint of the
foreclosure crisis. A good place to look for the
roots of the Second Sphere of Housing Fraud is
to consider a Radial Analysis of home
forecloses. (See End
Note Three.)
The
foreclosure data is maddeningly incomplete. It
is confusingly aggregated by municipal
jurisdiction boundary and zip code, which do not
relate to one another. Much of this obfuscation
is intentional. (See End
Note Four.)
In
spite of these flaws, one can discern that:
For
Virginia inside Radius R = 20-Miles from the
Centroid of the National Capital Subregion
home foreclosures over the past five months
have been around five dwellings per 1,000.
As
the story cited above, ‘My House. My Dream. It
Was All an Illusion,’” documents, any
foreclosure has dramatic personal consequences.
But five per 1,000 is not a high rate given the
pervasive scope of First Sphere Housing Fraud.
In
Radius Band R = 20 Miles to R=30 Miles the
foreclosure rate is around 20 dwellings per
1,000. That is four times the rate for homes
closer to the Centroid of the National Capital
Subregion. (See End
Note Five.)
This
Radius Band in Virginia includes Prince William
County and the eastern one third of Loudoun
County including “sub-markets” such as
Sterling. The Radius Band includes the logical
location of the Clear Edge. It covers about
330,000 acres -- room for 3.3 million residents
at minimum sustainable densities -- and is where
most of the new "affordable" housing
was built in the last two decades.
The
foreclosure patterns within the R = 20-Miles to
R = 30-Miles Radius Band are not uniform.
Eastern Loudoun County has areas with lower
rates due to the location of Dulles Airport and
higher paying jobs in Greater Reston. On
the other hand, areas in Prince William County
are hurt by lower paying jobs, especially those
accessible from the I-95 corridor, and by the
municipal government targeting immigrants as
noted in the “Ring of Fire” story cited in
End Note Five.
Farther
from the Centroid of the Subregion in Radius
Band R = 30-Miles to R = 50-Miles the
foreclosure rate varies from around 5 per 1,000
(similar to that inside R = 20-Miles) to twice
that rate depending on the land use control
policies of municipalities and the existence of
dysfunctional settlement pattern inducing
infrastructure. (See End
Note Six.)
There
is no end of foreclosures in sight and most
agree it will get worse before it gets better.
The
more important question is: What causes the much
higher R = 20 to R = 30 Radius Band foreclosure
rates? Getting to the bottom of the spacial
distribution of foreclosures allows one to come
to grips with the Second Sphere of Housing
Fraud.
Before
taking the next step, it needs to be clear that
outside Radius R = 20 there are impacts from
“global” (aka, not location-specific)
shelter dysfunctions:
-
Enterprises
(and Agencies due to the monetization of
politics) have created a economic context
where it is more attractive for a Household
to borrow and spend rather that to save and
invest in non-leveraged, non-securitized
gambling venues. This leads to
speculative move-ups, cashing out equity and
other behaviors that invite First Sphere
Fraud.
It
also needs to be noted that the opportunity to
perpetuate the Second Sphere of Housing Fraud on
citizens and investors exists because citizens
do not receive the information they need to make
intelligent decisions in the voting booth and in
the market place.
For
what do citizens need information upon which to
make better informed decisions? They need this
information to wipe out the Myths that blind
them to spacial reality. They need this
information to develop a comprehensive
Conceptual Framework with which to consider
Community and Regional settlement pattern
issues.
As
readers of these columns know citizens lack the
needed information due to the demise of media in
the Fourth Estate as documented in THE
ESTATES MATRIX.
Beyond
these “global” factors is the nub of the
Second Sphere of Housing Fraud and tits
pervasive impact on the Affordable and
Accessible Housing Crisis.
The
bottom line is this:
It
is a pervasive Myth that it is now possible to
provide Affordable and Accessible Housing for
the lower two-thirds of the economic food chain
in locations and in configurations that have
been offered for this purpose for the last 20
years. The subprime industry exacerbated the
myth by appearing to make these settlement
patterns “affordable.”
Stated
in terms of building type:
It
is a Myth that monocultures of scattered
Single Household Detached (SHD) housing can
provide “work force” housing.
It
is a matter of physics that SHD dwellings are
more costly to construct than other housing
types. Between 1945 and 1973 there were ways to
make SHD affordable for those in the lower half
of the economic food chain. Since 1973 three
things have happened:
-
New
Urban Regions have evolved and in their Beta
state have expanded so that there is a far
greater distance between places where lower
cost SHD units can be built and the jobs
needed to pay for the dwellings. This is a
cause of, and the result of, the Mobility
and Access Crisis.
For
over a decade S/P has called the assertion that
SHD housing was a sound investment for those in
the bottom two-thirds of the economic food chain
a Myth. (See any of the eight Shape
of the Future columns on this topic over the
past five years.)
Only
when considering this position in the context of
the current foreclosure Meltdown did it become
clear to us that perpetuatation of this Myth creates
what we now term the Second Sphere of Housing
Fraud. For this reason, the most important
aspect of the current financial crisis is that
it converts from mere Myth to outright Fraud the
perception that large, remote tracks of SHD can
provide Affordable and Accessible housing to
meet this (or any) New Urban Region’s housing
needs.
Under
the Hood
It
is a physical and economic impossibility to
build and deliver SHD dwellings as inexpensively
other dwelling types. SHDs consume far more
material and waste far more energy per Unit than
do other building forms. As noted above, this is
a matter of physics, not an issue of preference
or policy.
Further,
SHDs take up far more land per unit and thus
raise the cost of all infrastructure. This
reality is magnified by the collective
footprints at the Dooryard, Cluster and
Neighborhood scales. There is no way for these
patterns to yield settlements that meet citizens
economic, social or physical needs.
Even
using the skewed and flawed housing data that is
now available, it has been clear for more than a
decade that “over half” of the potential
home buyers – specifically those seeking what
is now called “workforce housing” – do not
qualify for the “median priced” housing. It
turns out that this is just the tip of the
iceberg. These working Households do not qualify
for any housing. The demise of the subprime
lending spree documents this fact.
The
underlying reality of the Affordable and
Accessible Housing Crisis is:
It
is no longer possible to build Single
Household Detached dwelling Units that the
bottom 60 to 70 percent of the economic food
chain can afford.
There
are two alternatives:
The
rising cost of energy and the economic reality
illuminated by the demise of subprime loans make
clear that the first option is not a viable
economic alternative.
S/P
and others have documented that scattered Units,
Dooryards and Clusters of SHD dwellings outside
the Clear Edge are a core contributor to
dysfunctional human settlement patterns and to
the Mobility and Access Crisis. Now this reality
is starkly clear.
Immediately
after World War II it was possible to deliver
“cheaper” housing in remote locations. There
were, for example, ways to overcome the capital
cost of SHDs via sweat equity. Building “hope
houses” (dig a basement, move into the
basement and hope you can build a house to
shelter the Household as it grew) was a good
example.
However
as Beta New Urban Regions expanded and became
more unbalanced, location became an ever more
serious obstacle. Remote locations shifted costs
to the buyer since they have to spend more and
more time and resources to overcome locational
dysfunction. For example, owners could not “be
home at 5:00 p.m. to work on the house.”
There
were many other factors at play. Citizens
believed the advertising suggesting that they
“deserve” to consume more and have more
leisure time. Rising costs and expectations put
both adults in most Households to work. New
regulations and inspection requirements
“professionalized” the building process. (Some
parameters of “cheaper” housing are briefly
summarized in End
Note Seven.)
Getting
to the Bottom Line
Many
understand that one root cause of the Affordable
and Accessible Housing Crisis is the
“Accessible” aspect of workforce housing.
The location of jobs that will pay the cost of
the housing are remote from the locations where
affordable housing Units exist.
The
“Accessible” disconnect is the result of the
Mobility and Access Crisis and is exacerbated by
auto dependency. Some blame the rise in gasoline
prices. However, the cost of fuel is only 20
percent of the total monthly cost of
Autonomobile dependency. Some other costs are
going up faster.
As we have seen, when there is
not enough left to pay the mortgage, shelter
disappears. (See THE
PROBLEM WITH CARS.)
There
are two overarching causes of the demise of SHD
as a housing option for most citizens:
-
Over
the last 35 years the cost of living,
especially living the "as seen and
advertised on TV” lifestyle of Mass OverConsumption, has gone up
far faster than wages for all but the top
ten percent of the economic food chain.
No
one suggests that wages have “kept up”
especially for the lower two thirds of the
economic food chain. These “workforce”
Households are falling farther and farther
behind as documented by Robert Reich in "Supercapitalism."
There
are many ways to create Affordable and
Accessible Housing. Chapter 28 of The
Shape of the Future contains several
specific suggestions. However, building SHD
housing in remote locations that require an
Autonomobile to reach a Job, acquire Services,
Recreation or enjoy Amenity is not one of them.
Enterprises,
Agencies and Institutions have conspired to
build the wrong size houses in the wrong
locations. This Second Sphere of Housing Fraud
keeps information on this reality from citizens.
It is fraud perpetrated by Agencies, Enterprises
and Institutions.
--
April 7, 2008
End
Notes
(1).
Robert J. Samuelson does a nice job of
articulating why the current round of
“solutions” is flawed on both moral
(rewarding the wrong parties) and economic
(slowing down real economic recovery) grounds.
“How Not To Save Housing” in 2 April 2008 WaPo.
Alan Sloan puts the whole financial crisis
bailout in clear perspective in “Dreams End
With Collapse of Tinker Bell Market” on 1
April 2008 also in WaPo.
(2).
Front page and lead editorial in 3 April
2008 Virginia Edition of WaPo. These
proposals are based on the terrible assumption
that it would be a good idea to “jump
restart” the flawed housing industry that
created the problem in the first place. Also see
"New Housing Bill Criticized as Scant Help
for Distressed," on 4 April 2008, and
"Senate to Widen Housing Proposal" on
5 April 2008.
(3).
The Bacons Rebellion post “AFFORDABLE
AND ACCESSIBLE HOUSING – FROM BAD TO WORSE,”
9 March 2008, offers observations from the dawn
of the foreclosure crisis. In the comments
following that blog post, the blogger using the
name of "Groveton" asked if there were
data to support the assertion that the
foreclosure epidemic was caused in large part by
“building the wrong size house in the wrong
location.” EMR suggested a Radial Analysis of
the location of the foreclosures would provide
strong evidence. That turns out to be
correct.
(4).
The “median” house price has been
distorting the real shelter condition for those
in the bottom two-thirds of the economic food
chain for years. More and more big, expensive
houses, subsidized by tax deductions and
artificially low mortgage rates and built in
scattered locations, skew the “regional”
housing perspective. House value trends
are up if one looks at the median price but down
if one looks at indexes such as Standard &
Poor’s / Case-Shiller or the even more
accurate, “same house, same builder, different
location” analysis. To understand the dynamics
of this reality one needs to understand the
small-area analysis pioneered by Lucy and
Phillips in Confronting “Suburban”
Decline” and applied in more recent
publications by these authors.
The
root problem is that most published and
accessible housing data is generated by and
controlled by those who benefit from the
illusion of real estate speculation as a gold
mine. These Enterprises feed off of housing
churn and the Holy Grail of housing churn,
“the move up market.”
Perhaps
the most profound indicator of shelter data
corruption is the recent release from the Census
Bureau – relegated to page 4 of the Metro
section in the 27 March 2008 WaPo: In
spite of remarkable job growth over the past
decade in the National Capital Subregion, the
Census Bureau reports that the population growth
“in the region” has been “anemic.” That
data documents only one thing: The Census Bureau
is looking at the wrong “region” boundaries.
(5).
See Nick Miroff, “N. Va’s Foreclosures Form
a ‘Ring of Fire,’ 23 March 2008. WaPo.
These concentrations have a ripple effect on
home values in the Dooryards, Clusters and
Neighborhoods where they occur, as documented in
Lee, Mara “Foreclosure Fallout: A Struggle for
Stability; In One Md. Subdivision, a Cloud Over
Some Homes Affects Many,” 29 March 2008 WaPo.
(6).
Radial
limited access highway corridors that facilitate
long-distance “commuting” are prime
predictors of pockets of foreclosures in
jurisdictions beyond R = 30.
(
7). Research done in connection with “The
Shape of Loudoun County’s Future” profiled
why remote SHD dwellings might be “cheaper”
per square foot to buy but not less expensive
for the occupants in the long run. This is
especially true when location-variable costs are
considered. In some cases there are
lower land costs due excess nonurban land being
speculatively held for urban land uses.
Often there are lower labor and subcontractor
costs in remote locations because construction
workers already live in these locations because
that is all they can afford and they will work
for less pay if they do not have to go to travel
inside the Clear Edge. When construction jobs
dry up, workers who build the houses lose their
house too.
For
a time, especially just after World War II,
subdivision regulations were weaker and
processing times shorter in remote locations
because “growth” was considered “good”
and because municipal Agencies saw themselves as
“helping to meet the need for housing.” (See
“Burned
Out,” 10 July 2006.)
Contractors
will accept lower profit margins, and in the
early stages of scattered development there are
lower costs. These lower costs are later wiped
out by the congestion and dysfunction that the
scatteration creates.
The
reality of “cheaper” SHDs emerged from
“same house, same builder, different
location" analysis. These comparisons
indicated that the factors noted above, plus a
shift of amenity, standard features
into extra options, and other minor factors
impacted price. However, the primary reason for
the lower cost is because a large part of the
location-variable costs were shifted to others.
In
other words the big cause of “cheaper”
housing was the failure to fairly allocate
location-variable costs.
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