November 12, 2015

Gentriphobia and other housing bugaboos

Time for some straight talk on housing policy.

Gentrification is just the concentration of "yuppies" in a few small areas instead of spreading them throughout the city. As such, gentrification is as much of a ghetto-ization as any other kind of discrimination. In the end, it doesn't even matter whether the yuppies are ghetto-izing themselves or are somehow being manipulated into just a few areas like Federal Hill, Hampden and Canton. It's up to them.

Most obviously, gentrification has been an overwhelmingly white phenomenon. If gentrification was somehow bad, then black neighborhoods where people have somehow felt threatened by gentrification would be better off for it. Is Upton better off because whites seldom stray west of Eutaw Place and Bolton Hill? Is Franklin Square better off because not many whites stray north of Baltimore Street from Union Square?

These neighborhoods need to be brought as much into the mainstream as possible. Upton in particular has an extremely important history that needs to be disseminated to everyone - black, white or racially ambiguous. Yuppies, buppies, hipsters, bo-hos, bo-bos, or some other kind of people.

Let's invent some new typecasts, based on identity and pride in other neighborhoods - Uptonites, Franklin Squares, Mount Clarities, Irvingtonians, etc. They might already exist. They just need to be brought out.

Property Values

High property value is another major housing bugaboo. The catchphrase "affordable housing" has been tossed around so much that it has become meaningless. What's affordable to one person is unaffordable to another.

All housing has a threshold value which it must attain so that it is economically worth maintaining. Affordability is too often achieved by deferring maintenance, often indefinitely or even forever. Low property values are the cause of Baltimore's rampant vacancy and abandonment problem. If values are too low to make it worthwhile to maintain a house, it will ultimately be abandoned.

The city's high tax rate is part of this equation. High taxes drive down property values. When taxes are high, the price of houses must be reduced to attract buyers. High tax rates are even an incentive to make houses look shabby in order to thus lower the assessments.

Subsidies just make it worse, enabling housing values which are too low to support sustainable maintenance.

People talk out of both sides of their mouths about this. Both high values and low values are spoken of in negative terms, often to the extent that the allegedly "ideal" property value is too high to be "affordable" but simultaneously too low to be maintainable - an untenable situation.

To make matters even worse, subsidies often have stipulations which cripple homeowners. For example, subsidies might be forfeited if they sell or if their income increases. These are prescriptions for a permanent underclass living in ghetto-ized neighborhoods.

The most widespread subsidy is the "Homestead Tax Credit" which subsidizes people who cling to houses they would otherwise be better off selling. Old homeowners' property taxes are "capped" while new lifeblood homeowners would have to pay through the nose for the same property.

All housing needs to have a goal property value level at which it is maintainable. Policies should then be defined to achieve this value.

A mansion facing Lafayette Square - This is an old photo but the weather is too bad today to go out and take a new one.
I'll check it out and replace this photo if it's in even worse shape now.

And let's stop beating around the bush: Neighborhoods with particularly grandiose architecture like Lafayette Square, Auchentoroly and Walbrook need high property values in order to be maintained. Basically attractive but more architecturally modest neighborhoods like Belair-Edison and Poppleton can be maintained at somewhat lower values.

The racial problem

Much has been said about how housing is no longer the great investment it once was. Statistically this is true in the aggregate, but it's not inherent.

In particular, the lack of capital appreciation for housing in black neighborhoods has recently been publicized. The problem with some neighborhoods is that they've been treated like risky sociology experiments. Sandtown-Winchester comes to mind, where money poured in without a sound economic basis. Then it produced the Freddie Gray tragedy.

In the 1960s, blacks lost out on the housing boom because they were discriminated against by being given too few loans. By the 2000s, it was just the opposite: Many blacks lost out because they were indiscriminately given too many economically reckless loans that resulted in foreclosures. Of course, the same thing happened to some whites before the housing bubble burst, but not in as geographically concentrated a way.

When the low income "projects" were finally blown up in the 1990s, pundits claimed it was their high-rise design that was the big problem. Yes, it was a problem, but the bigger problem is simply forcing people into somebody else's idea of what they ought to be.

The lesson is clear: Respect the laws of economics and support people as people, not as occupants of social housing experiments.

"Inclusive Zoning"

Another counterproductive type of subsidy is to force developers to include low income housing in high income developments - so called "inclusive zoning".

Baltimore has blocks and blocks of abandoned neighborhoods which we need to repopulate. Why would we want to attract even more people to live in the city's small high income veneer?

The rationale is generally expressed as a desire to allow more "disadvantaged" people to enjoy the advantages of high income areas. But these advantages, though nice, are really rather insubstantial - things like waterfront views, nearby overpriced cafes and boutiques and being able to get away from that "Other Baltimore".

The problems of subsidizing lower income people in high income areas are the same as any other subsidy for high income areas - it diverts attention away from Baltimore's real problems. If the city's most valuable real estate like Harbor Point gets maximum subsidies, it simply increases the handicap imposed on all the other less desirable neighborhoods.

City leaders recognize the futility of "Inclusive Zoning", which is why they've rendered Baltimore's law as toothless as possible, using it only for its hype and grandstanding value. The argument that rich counties like Montgomery have had a modicum of success with this only reinforces the point.

The basic answer is to avoid all housing subsidies as much as possible. Subsidies to landlords are even worse than to developers. Instead, subsidize deserving people directly, particularly to encourage them to engage in productive activities.

Housing speculation

Another "BS" topic is speculation. Speculators are chastised when they "flip" a property to make a quick profit, but they're also chastised when they sit on a property for the long run without cashing out.

Time is of the essence. Quick flipping means quick progress and resolution. That's good if it gets houses into the hands of residents who will carefully nurture them! OK, some speculators do only superficial cosmetic improvements which hide bigger problems in order to make easy money. Buyers need to beware.

But any kind of improvement is good. All responsible property owners try to do small fixes to keep the plumbing working rather than expensive cataclysmic renovations. And even substantial renovations can go down the tubes if property values are not sufficient to warrant subsequent long term maintenance, as discussed above.

One of the surest signs of a healthy city is when basically run-down buildings have been lovingly made to look nice and functional with paint, flower boxes and other small but largely superficial niceties. On the other hand, distressed cities often have perfectly restored or brand new buildings lavished with somebody's money in proximity to total wrecks.

Most problems can be traced to the overall causes of distorted economics and sociology. Hate the game of high tax rates, polarization, bad economic climate and bad regulations, but don't hate the "playas".

Housing policy

The city's housing policy must be grounded in reality. The city can't just pour unlimited dollars into neighborhoods without commensurate increases in inherent property values. That's called a "money pit".

The city's policy catchphrase, "Vacants to Value" is pretty good, but it gives too much emphasis on the city's engagement in the painful and painstaking process of rescuing particular problem plagued properties (oooops, too many p's). They even "celebrate" demolition, which is nothing to celebrate.

Here are the basics: Strive for sufficiently high and sustainable property values. Keep tax rates low. Subsidize people, not buildings, and especially not rents. If this encourages displacement, learn from it to cushion the impact.

Promote neighborhoods of value and choice throughout the city, not just near the waterfront. If the waterfront gets overpriced so only the rich can afford it, fine! Other neighborhoods will then look like bargains by comparison.

Housing drives commercial development. Having people with disposable income nearby is what creates a market and image for the promotion of retail and jobs and a perception that the schools are good (whether they are or not).

And cut out the gentriphobia...

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