Saturday, February 26, 2011

When looking for culprits of the housing crisis, don't forget your local zoning board

I've read dozens of explanations for how the USA got into the massive housing crisis.  These explanations  are typically political in nature.  1)  The GOP deregulated banking leading to the banks writing mortgages for houses people couldn't really afford.  2) The Democrats forced the banks into loosening credit standards to enable mortgages for houses people couldn't really afford.

The fact is that the global economic downturn caused the double whammy of fewer qualified buyers and a flood of mortgages in default which combined to create a huge glut in the real estate market and we all know what happens to prices when there is a glut in supply.  Better described as "falling off the table" than declining.

I would like to add another suspect to the list of co-conspirators who helped steer us into the abyss.  That would be all the local city and township councils and zoning boards across the Country who forced home builders to abandon building neighborhoods of smaller sensible homes (you know, like the ones in all the older neighborhoods around town..) and meet large minimum requirements for lot and home sizes.  So while for generations a 1,000 square foot home on a 60' lot in a neighborhood represented the American Dream, modern America demanded the builders go no lower than 2500 square feet on 1/2 acre lots.

Of course, a cost-conscious home buyer could always buy a new modular home in a modular home park if they couldn't afford the $300,000 or so for the Township minimum standard house and lot, but then again, the same zoning boards that specified the mega-homes have never been very crazy about "trailer parks" and modular home developments either so that option may not even exist in a given community.  One part of the explanation is that schools are typically funded through local property taxes and property taxes are based on how much a home is worth.  To maximize property tax receipts while minimizing the number of children in the district, the basic strategy for the local boards was to force developers to build large, expensive homes that would fetch big property taxes and not bring so many children into the school district.  For the opposite reason they typically oppose the zoning and building of modular home communities;  the ratio of school-aged children to property tax potential is too high.

SO to sum it all up the big evil bankers on Wall Street with their Beltway-mandated loose credit applications conspired unknowingly with the hack politicians in cities and Townships across the USA to fill all those massive homes in sprawling subdivisions with dupes who really couldn't afford to be there long-term.  And as one development after another sold out, the local boards got more and more greedy for revenue and those massive homes just kept getting bigger and bigger.  Until someone sneezed on the house of cards.

So while we all play 52 card pickup for the next few decades, don't forget that the bumpkins on Township board helped build that house of cards.  It wasn't all evil greedy moneychangers far away.          

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