Nearly nine years ago when I was moving back to Virginia, I had to pick a place to live. Somehow, we ended up in southwestern Chesterfield with a house on a lot with huge loblolly pine trees — an attraction that I guess involved me somehow channeling Eastern North Carolina where I had lived off an on since I was 18 months old.
It is the outer edge of fast-growing suburbia, exurbia, I guess, but I am sure EMR will set me straight. Traffic wasn’t too bad and here and there were old farms with giant oak trees still flanking U.S.360, better known as Hull Street.
How things have changed. First, there was a mad rush of strip malls and new subdivisions. The old farm is now a Super Wal-Mart in the making. New restaurants of all types popped up, generally enriching the choices if you can get past the dearth of decent service. The labor pool out here in exurbia is truly thin. Last week, when a relative was visiting and we tried out a new seafood joint, it took three waiters and 45 minutes just to get our drink order straight.
Now comes the news that one of the largest planned subdivisions — Lower Magnolia Green — has defaulted on a $96.9 million loan and the land is up for auction. The plan had been for 3,550 new homes although not that many have been built and even fewer occupied, leaving owners in the lurch because it seems that some promised amenities won’t be coming anytime soon. I wondered what was going on since every time I drove past, I saw some bulldozers, but they hadn’t been moved in weeks.
This is the second time since the recession began that Chesterfield has seen a major subdivision tank. Last fall, as economic storm wailed, an even bigger project called Branner Station with 4,988 homes was put on indefinite hold. I know that plenty of projects in even faster-growing Loudoun and Prince William Counties have suffered similar fates.
Not a bad thing, actually. Chesterfield needs a breather. The Magnolia Green project dates back to the early 1990s when Chesterfield’s Republican board was packed with pro-growth types. It wasn’t so much that they were bankrolled by developers, although they were, it was that growth became a kind of religious mantra for them. And we’ve been paying for the consequences ever since with overstuffed schools, roads, bad waiters, etc.
The popping of the real estate balloon did Magnolia Green in. And that brings up another point. One of my favorite economic columnists is James Surowiecki of The New Yorker. His most recent work looks at the financial services industry and there is a tie to Chesterfield’s woes with overbuilding.
To understand what has been happening in finance in the past few years, Surowiecki says we have to deconstruct the various phases of financing. Banking used to be considered a boring, plodding career path. Rather than being an end unto themselves, banks merely worked to serve more creative endeavors, such as setting up U.S. Steel and International Harvester in the late 19th Century or helping electrify cities and the countryside in the 1920s. My grandfather was part of that. We was a bank president in Western Massachusetts, among his other businesses, and helped wire his town with light bulbs. The next wave came with financing info tech in the 1980s and 1990s.
But this latest banking boom is very much a different animal. As Surowiecki writes: “The housing bubble was unique, and uniquely awful. Each of the previous waves had come in response to a profound shift in the real economy. With the housing bubble, by contrast, there was no meaningful development in the real economy that could explain why homes were suddenly such much attractive or valuable. The only thing that had changed, really, was that banks were flinging cheap money at would-be homeowners, essentially conjuring up profits out of nowhere.”
As banks joined in the party and raked in profits, at least for a while, we ended up with “acres of empty houses in Phoenix,” Surowiecki writes.” Or, for that matter, lots of ripped up red clay and idle bulldozers in Chesterfield.
What’s next? Perhaps a rethink of how Virginia’s county boards and their planning staffs consider such mega-projects in the future. They may be distracted with budget shortfalls, but the chance is right now to make a major shift in philosophy. Will they seize it? I hope so.
Peter Galuszka
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