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Sub-Prime Lending and the Slums of Tomorrow

American citizens have long associated the word “slum” with inner cities — and for good reason. That’s where the slums were. But Christopher B. Leinberger, a Brookings Institution fellow writing for The Atlantic, thinks the United States is on the cusp of a change: Tomorrow’s slums will be in what we commonly refer to as the “suburbs.”

The recent, deceased housing boom may represent the crest of “suburban” development. Leinberger sees changing market preferences pushing growth and re-development back into the urban core of America’s metropolitan areas. And he sees poverty leaking out of the inner city slums into the subdivisions of the aging “suburbs” outside the core. Where traditional cities once experienced fiscal stress and suburban counties prospered, he now sees the opposite:

Many of the fringe counties in the Washington, D.C., metropolitan area, for instance, are projecting big budget deficits in 2008. Only Washington itself is expecting a large surplus. Fifteen years ago, this budget situation was reversed.

A number of factors are driving this change (reader warning: This is Leinberger’s analysis as viewed through Jim Bacon’s lens.):

Consumer preferences. Surveys have shown that roughly one third of the population would prefer to live in traditional urban environments with mixed uses and grid streets designed around walkability. Another third are torn between traditional urbanism and low-density communities with segregated land uses. But only 5 to 10 percent of the housing stock in most urban areas is in walkable places. Combine that imbalance with the rising cost of gasoline, which discourages long-distance community, and the fact that families are getting smaller — hence their need for large, suburban-style dwellings is decreasing — and market demand will shift capital and developers’ energy into urban re-development at the expense of single-family dwellings on the metro fringe.

Political barriers to suburban redevelopment. In theory, developers could re-develop aging subdivisions and shopping centers into walkable communities. In practice, that’s very difficult. Two problems. First, suburban utility systems and road networks are designed to support lower density populations. Re-development would require tearing much of the infrastructure and rebuilding it from scratch — very, very expensive. Second, NIMBYs and other obstructionists fight re-development that might increase density and, in their perception, congestion. While a market may exist in “suburban” counties for redevelopment, the economic and political obstacles are formidable.

Durability and livability. The quality of stick-built housing in jursdictions outside the urban core is lower than the quality of housing built four or five decades ago. (There are exceptions, of course, but as a rule this is true.) Houses will depreciate faster. Furthermore, I would add, communities of cul de sac subdivisions and shopping centers do not generate the pride of place that older communities do. People are less inspired to reinvest in maintaining and upgrading their properties. These areas will rapidly lose value compared to areas elsewhere.

The sub-prime mortgage mess. Suburban housing is way overbuilt. With foreclosures mounting, vacancies are mounting. And that creates social problems. Leinberger cites the case of Windy Ridge outside Charlotte, N.C., where 81 of the subdivision’s 132 small, vinyl-clad houses were in foreclosure late last year.

Vandals have kicked in doors and stripped the copper wire from vacant houses; drug users and homeless people have furtively moved in. In December, after a stray bullet blasted through her son’s bedroom and into her own, Laurie Talbot, who’d moved to Windy Ridge from New York in 2005, told The Charlotte Observer, “I thought I’d bought a home in Pleasantville. I never imagined in my wildest dreams that stuff like this would happen.”

Outmigration of the poor. When affluent households move back into the city and gentrify the neighborhoods, where do the displaced poor people go? Many move into decaying, inexpensive property outside the urban core — into the “suburbs.” We can see this happening in the Richmond region, as urban slum dwellers from the City of Richmond move into neighboring Henrico and Chesterfield counties, accelerating the decline of ’50s and ’60s-era neighborhoods through crime, vandalism and insufficient financial means to maintain properties.

This thesis is not entirely new. University of Virginia professor William Lucy has tracked the demographic changes I write of from census to census, and I have been making this argument myself for more than a decade now. What’s new in 2008? We’re hitting the trough of another housing cycle and the glaring deficiencies of the past are becoming more visible to all. If we look hard enough, I’m confident that we could find more than a few Windy Ridge-like subdivisions here in Virginia.

The slummification of Virginia suburbs will not be uniform. Some neighborhoods, where houses are newer and better constructed, and where neighborhood amenities are superior, will hold back the tide. In some instances, county governments will encourage re-development of mixed-use, walkable neighborhoods. But overall, the migration of the “urban” poor into suburbia is not a process easily reversed.

(Hat tip to Deena Fulchum for pointing me to The Atlantic article.)

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