Bacon's Rebellion

Democracy Thrives in Sunlight

No Tract Is an Island

—

by

James A. Bacon
in

West Broad Village, the large mixed-use development underway on West Broad Street, rates cover story treatment in the Metro Business of today’s Times-Dispatch. The 115-acre project, which is rising upon one of the few remaining undeveloped tracts in the Short Pump area, will contain about 550 town houses and 340 apartments, 420,000 square feet of retail space and 668,000 of office space.

It’s hard to imagine that western Henrico County needs more retail space – especially so close to the 1.2 million square feet in nearby Short Pump Town Center, not to mention the big boxes lining West Broad and Pump Road — during an economic slowdown that has bit deeply into consumer pocketbooks. But “Village” officials profess optimism.

One of the very things crimping the economy – rising gasoline prices – should help the residential component of project.

With gasoline prices at $4 per gallon, people want to simplify their lives, maintains Patrick Ashley, a sales and marketing manager for Ryan Homes. “People are telling me that the higher gas prices, the more attractive West End Broad gets,” he told Louis Llovio with the Times-Dispatch. “Residents will be able to walk to the grocery store and to work: go to dinner and shop, all without leaving the area.”

Continued Ashley: “For someone who lives in, let’s say, in Goochland and works in Innsbrook or even downtown, this is a great spot because the commutes are shorter. After work and the weekends, they can just park their cars and not have to worry about it.”

Are higher gasoline prices enough to goose sales at West Broad Village? Will households forsake their single-family dwellings with big lots just to shave a few bucks off their weekly gasoline bill? The Villages at West Broad could provide an interesting test of consumer preferences — at least in the Richmond metropolitan region.

“Live, work play” is the new mantra in real estate development as rising gasoline prices prove punishing to Richmond-area road warriors. The project literature calls upon the vocabulary of the New Urbanism school of urban design, which calls for mixed uses, people-friendly streetscapes and a balance between accommodating the interests of pedestrians and automobiles. While West Broad Village makes concessions to the surrounding auto-centric landscape of Henrico County — it surrounds its retail stores with the usual vast parking lots — it provides parking decks for apartment dwellers and homeowners, and it has paid keen attention to creating designing “walkable,” pedestrian-friendly streets. As the website explains:

There are seamless transitions from neighborhoods, to the “main street,” to the public spaces and even to the adjacent school and park. Collectively, these spaces create a dynamic community framework, a community of neighborhoods social interaction can take place. …

Tree lined streets with comfortable sidewalks bring back the small town feeling of a community in West Broad Village. Streets will be designed to a pedestrian scale without compromising the automobile. Intersections will consider the pedestrian, bicycle and vehicular movement. Multiple connections and traffic calming will be integrated into the network design.

The developers are saying all the right things. How well the project will work in practice, wedged as it is into a classic landscape of “suburban sprawl,” is another question. West Broad Village is sealed off from neighboring development by a combination of wetlands, forested areas, upland reserves and parks, a “continuous natural edge.” The project map indicates little connectivity between the “village” and surrounding communities — other than the six-lane highway on West Broad Street. Traffic in and out of West Broad Village will add to the already horrendous congestion along West Broad.

Unlike the genuine urban environments that the project emulates, the Village’s streets and sidewalks do not knit the village into the fabric of surrounding neighborhoods. West Broad Village is a pedestrian oasis in a sea of auto-centric, big boxes, shopping centers and cul-de-sac residential development. The village cannot create an authentic urban experience. Still, with gas prices rising, retailers and homeowners may find even a faux-urban oasis preferable to the auto-dependent, suburban alternative.

(Cross posted with R’Biz.)

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Comments

  1. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    Hip hip hooray! Just what is needed, another elitist enclave passing itself off as New Urbanism. ‘Upscale’, all the way.

    Well how about the average family? You know, the ones who will supposedly work in the retail and offices? And if one can not rid themselves of their existing home, how do these morons expect anyone to buy their overpriced lofts?

    Sorry, had to vent.

  2. Anonymous Avatar
    Anonymous

    “Residents will be able to walk to the grocery store …”

    Wishful thinking to the max.

    However, times might be changing. Recently I actually saw someone walking home from the (overpriced) grocery store captive to one of those “town centre” malls.

    Judging from the looks of the bag, she had one frozen dinner, one can of dog food, and one small box of laundry detergent.

    Even if you think this reduces traffic by 20%, what you wind up with is a 115 acre tract that generates 30,000 mles of vehicle traffic every day.

    Good luck with that.

    RH

  3. Anonymous Avatar
    Anonymous

    the Village’s streets and sidewalks do not knit the village into the fabric of surrounding neighborhoods (Well Duh!), because it is sealed off from neighboring development by a combination of wetlands, forested areas, upland reserves and parks, a “continuous natural edge.”

    And probably part of that is by law, conservation and all that.

    Gee, somebody gives you a clear edge and you complain about connectivity, they give you connectivity and you complain about traffic.

    Why not just say “No Growth” and be done with it?

    RH

  4. Larry Gross Avatar
    Larry Gross

    If not mistaken, the new VDOT rules require connectivity if the roads will be accepted into the state system for maintenance.

    Other new rules for access management require intra-parcel connections so that two or more projects share one curb-cut traffic signal…

    of course.. all of these things are “outrageous” restrictions on property rights.. and all that rot

  5. Michael Ryan Avatar
    Michael Ryan

    So what, exactly would comprise an “authentic urban experience”? And given that most Richmond suburbanites are there to escape the homeless, the crime, the filth, and the poverty of the central city, what impetus do they have to “knit …into the fabric of surrounding neighborhoods”?

  6. Larry Gross Avatar
    Larry Gross

    in line with the title of this thread – … depending on the size of a mixed-use….

    what would be really, really helpful from our optimized settlement pattern folks would be to specify what the MINIMUM would be necessary for a mixed-use to be “balanced”.

    and what I’m getting at is that it’s clear – that smaller than “ideal” (whatever that means) mixed-use are truly not “islands” and WILL need connectivity (whatever that means)…

    because obviously smaller mixed-use will more than likely be – in fact – what Darrell says – upscale “enclaves” rather than a true mix that INCLUDES some percentage of affordable housing – AT LEAST enough of it to provide some percentage of employment for that specific mixed-use – if that mixed-use is to Deliver on it’s premise of “mixed-use” generating LESS Traffic than more traditional development.

    But if the settlement pattern GURUs had a template for “balance”, then it could be a starting point for planners and BOS when evaluating mixed-use…

    AND for them to understand and recognize that smaller mixed-use would really need to join adjacent mixed-use if it was to have “balance”.

    heck.. at this point.. I’d be ecstatic is the settlement pattern GURUs would specify the MINIMUM size water/sewer system for a balanced community.

    I KNOW that Virginia’s DEQ is currently in the process of doing exactly this – in terms of pollution loading… i.e. setting up maximum allocations….which will effectively limit “build-out” populations… on a “per existing jurisdiction” methodology – which … pretty much institutionalizes development patterns as currently established…

    … and of course.. if a locality has …say 10,000 water/sewer allocations.. HOW they are allocated… how dense.. and where… has implications…also

    bonus thought:

    you say you wanna make Tysons more ped/bike friendly but it’s just too big for walking only?

    simple.. outlaw all cars unless they are electric…. and give bike/ped priority and cars – limited ability.

    In other words, REVERSE the preference to have bike/ped first and cars second.

  7. Tyler Craddock Avatar
    Tyler Craddock

    Larry,

    Yes, the new VDOT regs (in development, not adopted yet) would require some level of connectivity, but not in this case as the the development’s streets would not be going into the state system since it is in Henrico County.

  8. Larry Gross Avatar
    Larry Gross

    Tyler – good catch.

    but what that would mean is that Henrico would have the same or superior ability that VDOT had?

    that’s a question.

    is this a catch 22 for Henrico where they don’t have the same ability as VDOT unless they have the GA grant them specifically this ability

  9. Anonymous Avatar
    Anonymous

    “of course.. all of these things are “outrageous” restrictions on property rights.. and all that rot”

    Or they might be willing to pay extra for the additional privacy and avoid VDOT maintenance. I deliver hay to just such a “horsey” community.

    Property rights are a fact of life, not “all that rot”, unless of course you are a communist. Property rights, properly defined could alleviate many of our most vexing problems. But, they would also mean that environmentlists would have to find a fair way to pay for what it is they want. And, like VDOT, they would need to establish priorities over what it is they want, vs what it is they can afford.

    Environmetalists would be well advised to wake up to the realities of the world, if they wish to stop making enemies.

    RH

  10. Anonymous Avatar
    Anonymous

    Rather than a true mix that INCLUDES some percentage of affordable housing, not mention jobs and all of EMR’s other initials.

    RH

  11. Anonymous Avatar
    Anonymous

    if the settlement pattern GURUs “…had a template for “balance”, then it could be a starting point for planners and BOS when evaluating mixed-use…

    AND for them to understand and recognize that smaller mixed-use would really need to join adjacent mixed-use if it was to have “balance”.

    Gee, you think we might have to go out and start measuring some parameters?

    RH

  12. Larry Gross Avatar
    Larry Gross

    re: “environmentlists would have to find a fair way to pay for what it is they want”

    I’m confused.

    I thought you claimed to be one …

    and tell me again what mixed-used development has to do with environmentalism?

    I missed that part… also…

    what would be the appropriate (in your mind) environmental position with respect to mixed-used development?

  13. Groveton Avatar
    Groveton

    This seems like a decent idea. Put retail, residential and commercial together. The key is usually parking. Unless people are really going to live without cars – they need somewhere to put the cars they own. And the retail and commercial owners will want parking for non-residents.

    When I lived in Manhattan I walked to the grocery store. Everybody did. The same is true for the time I lived in Chicago. Now, I didn’t have five kids then either.

    The big question will be the percentage of people who live in this place and have jobs in the commercial space. It sounds good but I’d bet it’s a pretty small number.

    As for affordale housing? I don’t see any connection between mixed use development and affordable housing. Housing becomes affordable when people make enough money to be able to buy or rent a place within a reasonable distance of where they work. Or, when the government decides that housing (like insurance and pension benefits) is a part of social fabric and implements laws to require and maintain affordable housing.

    Also – “Short Pump”? Is this place real or part of a cartoon strip? Time for a new name. How about Grovetonville?

  14. Anonymous Avatar
    Anonymous

    Prince William County has just put forth a proposed change to their Comprehensive Plan to have 19 of these so called “centers of community” in the county. Of course, they are almost all located in the middle of nowhere with clogged roads in and out, but all the county planning staff talks about is “live work play, parks, village atmosphere, schools, walkability, street parking”.

    Does this type of urban “faux village” planning really work in the outer burbs? Cuz it sounds like a big mess to me.

    I’d be interested to hear Mr. Risse’s comments on this type of development in locations such as
    “Grovetonville”

  15. Larry Gross Avatar
    Larry Gross

    re: mixed use and affordable housing

    If the salaries of the commercial in the mixed use do not pay enough for that person to actually live in the mixed use – near his/her job…

    .. then the concept of “live, work and play” without needing a car does not “work”.

    .. If the folks who work in the Commercial mixed-use have to commute to “affordable” housing then how is auto traffic any different with mixed use than more traditional development?

    this is why I was asking – is there an optimal size for a mixed-use development….

    a big enough mixed use – may actually have enough room for some more modest – more affordable housing for folks who do the work that is not highly paid.

    For instance, … a single mom perhaps is a med tech at a dentist office in the mixed-use…

    can BOTH she and the dentist live, work and play in that mixed use?

    Darrell was alluding to this – when he wondered if mixed-use was just another name for what, in fact, was little more than an upscale enclave – that still needed to “import” it’s workers.

    This is where planning and planners play a role – IF the mixed use is too small to support all of the necessary mixed-use – “uses”.

    are there truly mixed-use critters that DO include a “balance” of opportunities for all workers – to live, work and play in that community?

    should there be if the mixed-use claims that it is a place where people … CAN… live, work and play?

  16. Jim Bacon Avatar
    Jim Bacon

    Michael, Have you ever been to the City of Richmond? If so, have you seen nothing but “the homeless, the crime, the filth, and the poverty of the central city”?

    Yes, all of those exist, but crime rates have plummeted, and there are wonderful neighborhoods, parks and institutions where you don’t encounter any homelessness, filth or even poverty. Middle-class and affluent people are moving back into the city. Indeed, they are even moving back downtown. “White flight” is over. Many people are craving the “urban experience.”

    The truly interesting sidelight is how “the homeless, the crime, the filth, and the poverty of the central city” are seeping into neighboring Henrico and Chesterfield counties, especially into the older, worn-out, depreciated “suburbs” built in the 1950s and 1960s. Here’s the difference… Where the old urban neighborhoods were worth preserving, and yuppies would move back into them and gentrify them, no one wants to preserve the old suburbs, which never had much to offer but their newness. And now that they’re new no longer, will be occupied by the poor.

    Groveton: Yes, “Short Pump” is a real place. It used to be a country crossroads with a gas station. The gas station was a landmark for a long time. Someone had taken the rear fuselage of an airplane and embedded into the structure of the gas station to make it look like the plane had just crashed into it. When the shopping centers came, no one thought the landmark worth preserving.

  17. Groveton Avatar
    Groveton

    “Here’s the difference… Where the old urban neighborhoods were worth preserving, and yuppies would move back into them and gentrify them, no one wants to preserve the old suburbs, which never had much to offer but their newness. And now that they’re new no longer, will be occupied by the poor.”.

    You have proven that Reston is failing and occupied by the poor. Yet your “proof” is contradicted by the facts. Reston (founded April 20, 1964) is alive and well. This 44 year old suburb (a census designated place) has a population of 60,000 and a median family income of just a bit over $94,000 per year. Neither new nor poor, Reston is a shining success story in the Fairfax County suburbs.

    Some will say that Reston was a one-time victory of enlightened non-zoning by Fairfax County bureaucrats. Not true. Reston was created by Robert E. Simon (whose initials – RES – are the genesis of Reston). Simon was a rich boy but also a genuine kick-ass guy. His family owned Carnegie Hall and, when it was sold, Simon had a point to prove. He wanted to show that a planned community could redefine how America “worked and lived”. So, Simon bought Reston (approximately 6,700 acres) in 1961 and sought to prove his point. A man after my own heart, Simon decided to leave one small parcel of land out of his planned community plans – the Bowman Distillery, home (until recently) of the gut wrenching Virginia Gentleman bourbon brand. As a youth in Fairfax County I considered it my duty to routinely sample this home grown product. However, since the distillery relocated to Spotsylvania County and became part of a conglomerate I now drink Makers Mark with a clear conscience if not always a clear mind. Anyway, I digress…

    Reston has a population density slightly higher than the City of Richmond which is a bit more than three times the population density of Henrico County. Apparently a haven for the so called Creative Class, Reston is Virginia’s best educated city, proportionately, with 66.7% of adult residents (25 and older) holding an associate degree or higher, and 62.8% of adults possessing a baccalaureate degree or higher.

    Reston is a relatively diverse place with the following demographics – 73.62% White, 9.12% African American, 0.25% Native American, 9.62% Asian, 0.04% Pacific Islander, 4.12% from other races, and 3.23% from two or more races. Hispanic or Latino of any race were 10.10% of the population. As a point of comparison, in 2000 Short Pump, Va had a somewhat different demographic set – 91.76% White, 4.40% from other races, and 3.85% from two or more races. Hispanic or Latino of any race were 8.79% of the population.

    My point is that there are good small towns and bad small towns, good suburbs and bad suburbs, good cities and bad cities. In the last 20 years I have heard about the death of rural America, the death of America’s cities and, now, the death of the suburbs. To paraphrase Elvis, “There’s a whole lotta dyin’ goin’ on”. Everything can’t be dying, now can it?

    On a personal note, I have decided to hedge my bets by making an offer on a farm in Maryland. The seller and I are quite a bit apart so it may not happen. However, I hope it does. If so, I’ll be able to commiserate with RH as to the sad price of hay (“my” farm has cattle and soybeans) and I’ll be able to demand that people like Jim Bacon and Larry Gross adopt “user pays” congestion tolling for their crowded roads. My new motto, “We ain’t payin’ fer no new roads in Henrico”. I still have to work so the farm will be for weekends until I can retire. Since I will still primarily live in NoVA, I retain my rank of Colonel in the Nattering Nabobs of NoVA.

  18. Anonymous Avatar
    Anonymous

    “On a personal note, I have decided to hedge my bets by making an offer on a farm in Maryland. “

    Don’t do it, unless you simply don’t care about your money or your time.

    When I first came to the farm, I asked Margaret’s godfather, an old time farmer and manaager of a now defunctlarge local farm, what would be the best thing to do with the farm. He said, without hesitations, “Sell it.”

    As much as I enjoy the farm, and even though I hae made it a modest success as fams go, I’d have to say he was right.

    I was lucky, because I had a lot of skills that I could transfer to the farm. Even so, I was appalled at how BIG eveything is. Even my tool kit had to be upsized. Start thinking in tons. I feel like that painting of a man in a fishing dory “Oh Lord, thy bounty is so great, and my tractor is so small.”

    Go pick up a book called “The Farming Game” to get an amusing but realistic taste of what you are up against. Drive a hard bargain, because the only money you make may well be the day you buy it.

    RH

  19. Anonymous Avatar
    Anonymous

    Larry,

    Environmentalism is all about property rights at the bottom line. If you beleive you can improve the environment by “preserving” some of it, and developing compact mixed uses that minimise auto use, then what you are proposing is to redistribute the value of people’s property, and that needs to be accounted for in the “plan”.

    RH

  20. Anonymous Avatar
    Anonymous

    If I had five or ten million dollars, I could probably fix this place up and turn it into something, with enough time and energy.

    But if I had that kind of money, why would I WANT to? And when would it pay back?

    RH

  21. Anonymous Avatar
    Anonymous

    Jim,

    Just as a case study exercise

    The same thing you describe at 6:05is happening in Prince Georges County Eastern Montgomery County and Southern Arlington

    Southern Arlington still has fairly high rents so the effect is not as noticable

    Also, its on the other side of the river

    Basically large sections of DC are being yuppified rents go up and the lower class gets priced out moves to the next closest point the inner burbs.

    The only thing I can’t figure out is Northern Arlingon. People still pay 1 million for a 1950s brick 1,000 SF home. Is is the school, the neighborhood, the prestige address, I can’t figure it out.. Or maybe its part of the urban historical mystique you describe for why people are moving back into Downtown Richmond. However, that is more of a description of old town alexandria than Northern Arlington which is basically just a bunch of older subdivisions with pretty small houses.

    P.S.

    ShortPump is an area of Metro Richmond just like we have Shirlington, Kingstown etc.

    NMM

  22. Anonymous Avatar
    Anonymous

    This is off topic, but given the headlines today… would be good to hear JB address the Fannie Mae and Freddie Mac bailouts, given his views re: the proposed legislation for those check-cashing businesses. Let the market decide, he said. Let borrowers make their own choices! The risk is theirs! Does he still believe in the infallibility of market forces? I love the part where kool-aid drinkers have to squirm or drink a second cup.

  23. Accurate Avatar
    Accurate

    Larry asked – “.. If the folks who work in the Commercial mixed-use have to commute to “affordable” housing then how is auto traffic any different with mixed use than more traditional development?”

    As I’ve seen up in my neck of the woods, those brainy, ‘progressive’ planners throw light rail into the mix. Now up here, it’s used by less than 5% of the population and will add at least 45 minutes (each way) to any trip that you can think of – but THAT is the planners answer to your question (a stupid answer, but still …).

    Jim says, “Many people are craving the “urban experience.” And that is so true. I’m sure there are statistics out there that show the segment being high and I’m sure there are studies showing it low. Pretty much everyone knows my take on it so I won’t bloviate (just as we know EMR’s take). My point is that there is also a substantial segment of the population that would feel, almost, imprisoned if they had to live in an urban setting.

    Just my two cents.

  24. Jim Bacon Avatar
    Jim Bacon

    Anonymous 10:13, Fannie Mae and Freddie Mac have been part of the excess investment and speculation in real estate. But the collapse of Fannie and Freddie is anything but a reflection of the free market.

    By way of background, the Wall Street Journal editorial page has called for closer scrutiny of Fannie and Freddie for years. The editorial writers predicted exactly what has come to pass: Government subsidies in the form of credit protection would encourage too much residential mortgage lending, Fannie and Freddie got over-leveraged, and taxpayers would get stuck holding the bag.

    The Fannie/Freddie fiasco is the result of *government intervention* in the marketplace, in which government loan guarantees create what’s known as “moral hazard,” a phenomenon in which the players take on bigger and bigger risks knowing that someone will bail them out if they guess wrong.

    What we have today in the USA is the privatization of profit and socialization of losses.

    I don’t believe in the “infallibility” of markets. Businessmen and investors do stupid stuff all the time. But markets tend to be more accountable than government, and mistakes are corrected quicker. Don’t have any illusions: The residential real estate bubble started in private investment markets, but it was magnified by government intervention in the marketplace.

  25. Groveton Avatar
    Groveton

    RH:

    The most valuable “crop” on the farm is its Cheasapeake Bay shoreline. As far as I can tell, the soybeans and cattle are just to keep the real estate taxes low by classifying the place as “agricultural use”. Anyway, if the seller agrees to my offer, I have 21 days to think about things. I have no intent of trying to make a living by farming.

    Jim:

    The credit markets must stay open. The shareholders in Freddie / Fannie should bear the pain of the mismanagement. Taxpayers will get caught holding the bag whether the government bails out the lenders (on the credit side) or not. If there is no bailout and the credit markets freeze, nobody will be buying real estate. WHen that happens, nobody knows the liquid value of real estate. At that point, the value of even well run banks is suspect since their real estate assets cannot be valued. The economy siezes and everybody suffers (Japan: 1990 – 2003). There is no good way out on this.

    The subprime mortgage crisis is yet another example of the bass ackwards nature of American politics. I believe that much of the crisis can be traced back to the repeal of the Glass-Stengall Act under the Clinton Administration. So, we have a liberal Democratic Aministration (Clinton) repealing a New Deal Era law (Roosevelt) designed to provide government protection to bank depositors (FDIC) after the widespread failure of the banking system during the Great Depression. Now, conservative commentators (J. Bacon et al) cannot admit that the former regulation was beneficial as they blame “government intervention” for today’s problems. In fact, it was the repeal of sensible “government intervention” (Glass-Stengall Act) that was a big cause of the problem. The Republicans are, as usual, a frozen sputtering mass of contradictions. They find themselves unable to answer two crucial questions:

    1. Should the federal government (meaning the US taxpayer) insure people’s bank deposits?

    2. If the answer to 1. is yes, should the federal government (acting on behalf of the underwriters – the US taxpayer) be able to put reasonable limits on the business practices of the insured financial institutions?

    A moral hazard is created through asymetric regulation. In this case, the asymetry was caused when the insurance company (US taxpayers) allowed their representatives (politicians) to bow to special interests and waive sensible banking regulations designed to prevent exactly what has occurred. In the end, the people still had to insure the deposits without being able to control those who managed the money being insured. Now, the ultimate insurer of deposits remains the US taxpayer so the government cannot let the banking system fail unless it will either a) pay off the depositers who have lost their money or b) ignore their legal commitment to insure deposits. Keeping the banking systems afloat involves a “ripple efffect” of actions including (probably) maintaining the liquidity of Fannie Mae and Freddie Mac.

    So, to Mr. Bacon:

    1. Should the government stop insuring deposits?
    2. Did you know that Carter Glass (of Glass-Stengall) is a descendant of Pocohintas?

  26. Groveton Avatar
    Groveton

    I am in Australia today (protesting Transurban and conducting some other business). Therefore, I am reading yesterday’s US news today (it’s Wednesday morning here).

    It seems the fourth headless horseman of the economic aopocolypse has made his long anticipated appearance. For ease of reference, three headless horsemen of the economic apocalypse are already in our midst:

    1. Skyrocketing energy prices.
    2. Finanical crisis caused by housing bubble and subprime mortages.
    3. Widespread economic slowdown.

    And now comes the fourth (and hopefully last) of the beasts:

    4. Widespread general inflation.

    http://biz.yahoo.com/ap/080715/economy.html?.v=11

    I once thought it would be impossible to recreate the environment necessary for stagflation. I reconed that we’d never have a president like Jimmy Carter. But … then along came Georgie!

    If Obama and McCain have any political sense they will each start trying to “throw the election”. The next four years are going to be miserable and whoever becomes the next president will bear the blame.

    If I could just find those especially effective “Whip Inflation Now (WIN)” buttons that I used to have.

  27. Groveton Avatar
    Groveton

    This is the best article I have read regarding the logic for government bail outs of the banking industry in general and the Maes – Fannie and Freddie – in particular. Grim reading.

    http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/16/ccusdebt116.xml

  28. Larry Gross Avatar
    Larry Gross

    good article – thanks for the tip.

    my take-away from this is this is what happens when the government subsidizes something that there is already an economic demand for.

    So we start off with the premise that, in general, home ownership is a “good” thing for our economy..

    but instead of limiting the subsidy to one owner-occupied home per customer – we allowed the subsidy to be used for second, third homes..even RVs… then “spec” properties

    Then..when that wasn’t enough, it was decided that the government should start insuring sub-prime loans – loans that the private capital market deemed too risky to assume – because in doing that – even more homes could be built and sold – and that would be good for the economy.

    Now.. the worst may not be over because a significant amount of our country’s debt is owned by foreign countries in U.S. dollars that in weeks or months could end up being devalued – and if you like the price of oil right now, you’ll love it if the dollar is devalued.

    All of this – because of the original premise that it is good policy for the Government to subsidize home ownership.

  29. Groveton Avatar
    Groveton

    Larry:

    The government never actually insured Fannie MAe or Freddie Mac. There was an implicit belief that those companies were too big for the government to allow them to fail. That implicit belief seems like it’s true (now). So, if they are really to big to fail and the government really will bail them out – the government insurance and tight government regulation should have been explicit. It seems that we taxpayers will end up with the worst of both worlds – the implicit guarantee will become explicit but the implicit regulation will not.

    In return for an explicit guarantee the government should have forbidden Fannie Mae and Freddie Mac from buying the mortgage packages they were putting together. If serious regulation could not be put in place then the governemnt should have explicitly waived any guarantee of these companies.

    I believe the government must keep the banking system up and running. I have no problem with quasi-governmental organizations like Fannie Mae and Freddie Mac. However, I have a big problem with the government taking the risk while the shareholders take the benefits. Fannie and Freddie should have been tightly regulated. They should not have been allowed to buy the mortages they packaged as long term investments. This would have held down their share price in good times. It would also have kept them (and the American taxpayer) out of crisis in bad times.

    I feel exactly the same way about Dominion Resources – Virginia. If they want government guarantees of things like ROI they should accept tight government regulation of things like minimum investments in alternative energy and maximum investments in lobbying.

    Fannie Mae, Freddie Mac and Dominion – Virginia should be treated more like the US Postal Service than Microsoft. In fact, USPS is less protected by the governemnt and has more open competition from the likes of UPS and FedEx than Dominion – Virginia. Maybe we need a JuiceMaster General in charge of our regulated electrical generator. And, of course, he or she would be paid on the GS scale.

  30. Anonymous Avatar
    Anonymous

    “The most valuable “crop” on the farm is its Cheasapeake Bay shoreline.”

    There is a song by Schooner Fare called “My Saltwater Farm”

    ———————————

    “As far as I can tell, the soybeans and cattle are just to keep the real estate taxes low by classifying the place as “agricultural use”.”

    This is probably a fraud since most likely you couldn’t get another use if you wanted it. Usually you pay the same taxes as anyone else on the house and outbuildings, and only the additional unused (and unusable) land is taxed at the lower rate.

    What really happens is that you get to pay additionla tax over and above wha everyone else pays, only so long as you farm it. If you don’t farm it, you get to pay even more tax which would be based on a “use” that you would not be allowed.

    The farm amounts to a boost to the local economy (everybody but yours, that is). In that sense, all of the farms operating costs are pretty similar to a tax. Usually you can break even on the farm operations, or come pretty close.

    The name of the game is to lose less money on the farm than you would have to pay in additional (and unwarrented) taxes if you stop farming.

    With waterfront farming, the danger is that they will eventually increase the riparian buffers so much that you have nothing left to farm.

    RH

  31. Anonymous Avatar
    Anonymous

    Jim says, “Many people are craving the “urban experience.”

    I attended a meeting in Ballston yesterday, and as an experiment I asked the people there what they thought about the “urban experience” and the setting.

    Wrinkled noses were the ususal answer. One fellow said it took him ten minutes to find his way out of the parking garage.

    All of the attendees arived from the office location – in separate cars, because they each had separate destinations after the meeting.

    Groveton has been all over the world, yet he is apparently choosing a rural location on the Bay. In Ballston I observed a number of people eating lunch – under the trees in a little park squeezed between two buildings.

    Life is good, folks, don’t try to pretend it is something that it isn’t, unless you just enjoy disappointments.

    —————————-

    “..the value of even well run banks is suspect since their real estate assets cannot be valued.” that goes for the environment and a lot of other things too. If you can’t put a price on it, and there is no trading, there is now way to establish the value.

    RH

  32. Larry Gross Avatar
    Larry Gross

    an implicit guarantee is a not only a subsidy – it is an open-ended subsidy because it not only condones risky behavior – it condones it.

    When the government insures risky loans for less than the private capital market would charge – or worse – they insure loans that the private capital market would not even make under any condition – then it is essentially the same as a subsidy.

    And we did this – on purpose – the justification being that home ownership is beneficial to the economy – and worth subsidizing.

  33. Anonymous Avatar
    Anonymous

    “…the government should have forbidden Fannie Mae and Freddie Mac from buying the mortgage packages they were putting together.”

    I thought Fannie Mae puts togetehter the mortgage packages and sells them. The investors in the mortgage packages are you and I and pretty near everyone else who owns a mutual fund or has a retirement plan.

    RH

  34. Anonymous Avatar
    Anonymous

    “A moral hazard is created through asymetric regulation.”

    That is truly beautifully said. Concise, succint, and accurate.

    Larry should memeorize that and commit it to heart.

    RH

  35. Anonymous Avatar
    Anonymous

    “4. Widespread general inflation.”

    I think I said here six months ago that the smart thing to do is borrow every cent you can and buy valuable physical things. You will be paying back the loans with dollars worth 80 cents.

    RH

  36. Anonymous Avatar
    Anonymous

    “Juicemaster General”

    Youare on a roll today. Australia must agree with you.

    RH

  37. Anonymous Avatar
    Anonymous

    Rudyard Kipling, Britains Greatest Poet “Afghanistan is where great powers go to die… they dig a hole, bigin to bury themselves, and then are never seen again”.

    Ouch.

    RH

  38. Larry Gross Avatar
    Larry Gross

    Only RH could focus like a laser on an opposite context….

    “A moral hazard is created through asymetric regulation. In this case, the asymetry was caused when the insurance company (US taxpayers) allowed their representatives (politicians) to bow to special interests and waive sensible banking regulations designed to prevent exactly what has occurred.”

    see RH.. he’s talking about what happens when you take away the regulation… not the other way around…

    the “symmetry” was supposed to be regulation commensurate with and appropriate to the amount of “skin” that the government had in the game so that the government did not assume the risk in trying to help provide sub-prime mortgages.

    ..a subsidy is by definition – asymmetric if you do not regulate it so as to prevent abuse.

    and that is what the US did not do.

    they gave a subsidy for sub-prime mortgages – essentially guaranteed them – and took away the regulation designed to keep those mortgages from being given to folks who could not or would not repay them and the result was – such widespread systemic gaming of the system to provide mortgages to anyone regardless of how “sub” prime they were – because Fannie/Freddie guaranteed them.

    the “moral hazard” is when the government gives a subsidy and does not regulate it properly.

  39. Anonymous Avatar
    Anonymous

    The subsidy of deductible interest applies to all mortgages and it is there to provide symmetry for the homeowner with the landlord. There is no assymetry in that.

    The fact that it was allowed to apply to subpirme loans or so many was a failure on the part of regulators.

    The fact that unscrupuluos brokers could make money on bad loans was a failure of the bankers who employed them.

    The fact that Fannie Mae packaged proven and productive mortgages as mortgage backed securties was not a bad idea in itself, but as the holding period was reduced their was less proof of their qualty and the risk expanded exponentially.

    There is plenty of blame to go around on this.

    RH

  40. Larry Gross Avatar
    Larry Gross

    and let’s be crystal clear as to what the meaning of “moral hazard” is by looking at several definitions:

    # The possibility that a person may act dishonestly in an insurance transaction.

    http://www.minnesotalife.com/about/glossary_pages/glossary_m.asp

    # Danger of loss arising from the nature of the insured rather than from the physical nature of the risk. This would encompass those instances where the chance of loss is increased by an insured’s carelessness, incompetence, recklessness, indifference to loss or an insured’s fraudulent nature.

    http://www.broker.ca/index.php/Glossary/M-N.html

    # The tendency of individuals, firms, and governments, once insured against some contingency, to behave so as to make that contingency more likely. …

    www-personal.umich.edu/~alandear/glossary/m.html

    # Arises when people behave recklessly because they know they will be saved if things go wrong.

    enbv.narod.ru/text/Econom/ib/str/261.html

    # The effect of personal reputation, character, associates, personal living habits, financial responsibility, and environment upon an individual’s general insurability.

    http://www.farmers.com/FarmComm/glossary/glossaryM.jsp

    # A risk to an insurance company resulting from uncertainty about the honesty of the insured.

    http://www.case.edu/med/epidbio/mphp439/Dictionary.htm

    The ‘moral hazard’ is what happens if the government insures something without regulating it to prevent the unscrupulous from gaming the system.

    It would be like your insurance company giving you it’s lowest rates without checking your accident history or keeping track of your traffic tickets.

    No insurance company in their right mind would operate this way – for long – unless of course they had a Freddie/Fannie-like big daddy to cover their losses.

    So it turns out that the reason we had the Housing BUST was – Freddie and Fannie – essentially guaranteeing any/all mortgages that were written by anyone who made money off of writing mortgages – even if the mortgages themselves were worthless.

    Freddie/Fannie taken over by those basically opposed to regulation – gutted the regs – and then insured all the worthless paper than anyone could write.

    and guess what the fix is going to be – after the taxpayers take the hit?

    they’ll put the regs back in place -that were in place before -and they’ll stay in place until the next crop of scumbags infiltrate and take them off again.

  41. Anonymous Avatar
    Anonymous

    I concede you know more about moral hazards than I.

    I still think there is plenty of blame to go around. There are people who bought houses they new they couldn’t afford. There are people who bought houses purely on spec. There are people who bought houses and lied on the application. This goes all the way up the chain. Brokers, Bankers, Appraisers, Fannie Mae and Freddi Mac, and the wall street types that marketed the mortgage backed securities, and all the people who were supposed to regulate this and didn’t.

    How can so many people be involved in a moral hazard?

    RH

  42. Michael Ryan Avatar
    Michael Ryan

    Jim,
    Have I ever been to Richmond? Yes indeedy! I’ve worked downtown there for 10 years. And I do my level best to move briskly from my office to my car anytime I have to be there after dark.

    I suppose the difference we have here is semantic. “Central city” and all. Because when I get to my car I then, most unsustainably, drive 65 miles home.

  43. Groveton Avatar
    Groveton

    This is the best article on Fannie Mae’s recent problems that I have read. I believe this is from the free part of the website, so I think anyone can access it. If not, you’ll get an access error. If that happens – post a note and I’ll try to summarize the article.

    http://alwayson.goingon.com/permalink/post/28025

  44. Groveton Avatar
    Groveton

    Moral hazards –

    The question of deducting mortgage interest is a good point (although not directly tied to the Fannie Mae issue).

    1. The government allows mortgage interest to be a deduction on individual tax returns (within limits – $1.1M max loan, for example).

    2. The subsidy of mortgage interest deduction encourages home ownership and increases the demand for various real estate businesses – realators, mortgage lenders, developers, etc.

    3. The mortgage lenders like the fact that the tax laws increase demand for their product – mortgage loans. However, by regulation (I think), mortgage loans are “no recourse” loans. If you default – you lose the underlying asset through foreclosure. Your other assets – car, savings account, pension – are not at risk and cannot be taken as part of foreclosure.

    4. The borrower has a moral hazard when he or she goes “upside down” on their loan. When it costs more to pay off the loan than the house is worth – a lot of people just walk away. This leaves the lender with an asset that is worth less than it is carried on the lender’s books. The lender has to take a loss when the property is sold to someone else.

    Note: Despite the complexities, this seems (to me) to be pretty symmetric. The government is encouraging something it believes is in the public interest (home ownership) through a subsidy (tax deductibility). A competitive industry (mortgage loans) is given an advantage through this subsidy. However, the government balances this subsidy from the taxpayers by insisting that the borrower get a “no recourse” loan.

    5. A combination of regulation and good sense kept lenders from making stupid “no recourse” mortgage loans for many years. Apparently, both the regulations and the good sense disappeared during the run up of the housing market. Gone were the days when a borrower had to put up 20% of the loan in cash, needed references, had to provide copies of bank statements going back a year, etc. It seems that almost anyone could get a mortgage loan – even with little or no money down. The bet was that housing prices would keep going up and nobody would be “upside down” on these no recourse mortgage loans. There still would be credit risk (people lose their jobs and can’t make the mortgage payments) but there would not be asset risk. Of course, this “insurance through bubble” would burst along with any burst of the housing bubble.

    6. The mortgages were packaged into groups (to limit the credit risk of any few mortgages) and sold to investors. The investors wanted the interest payments that were generated by the mortgages. The riskier mortgages (like the sub prime mortgages) generated more interest. As long as you believed in the “insurance of the bubble” they were only slightly more risky (they always had credit risk and foreclosure is not free even when the house can be sold for more than the loan amount).

    7. Fannie Mae and Freddie Mac were essentially unregulated financial institutions (at least, they didn’t have any onerous regulations on top of normal financial institution regulation). However, there was the constant perception that they government would bail them out if they failed because:

    a) they were to big to allow to fail
    b) they are the mortgage lender of last resort
    c) they were once government entities and maintain close ties with government, etc

    8. This created a bizarre situation. Fannie and Freddie enjoyed a competitive advantage over other mortgage companies because of an presumed (unwritten) belief that they were somhow guaranteed by the government. However, they did not get any special government regulation in return for this presumed (unwritten) guarantee. They could compete, more or less, however they chose.

    9. Fannie and Freddie became holders of mortgage bundles instead of just bundlers. They held these bundles for the same reason everyone else did – to make money. In their case, it also created demand for their own core product – bundled mortgages. This is not as strange as it seems. General Motors makes engines purchased by a number of comapanies – including Pontiac (a General Motors company). However, unlike General Motors, Fannie and Freddie had that presumed (unwritten) federal guarantee. As mortgage regulations were relaxed, Fannie and Freddie bundled the riskier mortgages now allowed under the looser regulations. They also bought the bundles of riskier mortgages now available because of the looser regulations. They were betting on “insurance by bubble” for these riskier mortgage bundles. These riskier bundles paid better interest and the shares of these companies increased enriching their shareholders (including their executives). Yet, there is no free lunch at the Risk Cafe. Both companies were taking on more risk in order to obtain better returns. But the government didn’t charge any more for insuring this new risk – becuase the insurance is a presumed (unwritten) guarantee.

    10. Fannie and Freddie are now failing and the government must decide whether to honor the presumed (unwritten) guarantee. Given the size of these companies, the amount of US debt held by foreigeners and Freddie and Fannie’s status as lenders of last resort – the government probably will bail them out. The presumed (unwritten) guarantee will become a real guarantee.

    I can live with the government guaranteeing Fannie Mae and Freddie Mac. However, I struggle with the government failing to effectively regulate those who it guarantees. I also struggle with presumed (unwritten) guarantees. The guarantees should be overt. Finally, I believe that the government should particiapte in the increase in value of those to whom it provides guarantees. Fannie and Freddie should have been paying a portion of their (formerly considerable) profits to the government in return for the guarantee.

  45. Larry Gross Avatar
    Larry Gross

    None of this would have happened if the Government had REQUIRED . ANY mortgage that it would insure – either implicitly or explicitly to meet minimum standards for risk.

    What the government did – was to essentially guarantee any mortgage regardless of the credit worthiness of the mortgagee or the value of the collateral.

    here are some importation words:

    securitization and collateral

    and one simple question:

    what happens when money is lent to someone and the value of what they borrowed money for goes “upside down”?

    what prevents them from walking away?

    Answer – nothing.

    That is why the value of the collateral and the credit history of the borrower are fundamental to loan transactions.

    The Government has no business attempting to “invest” taxpayer dollars – which is essentially what they were doing.

    The Government was… in essence… “investing” in home ownership.

  46. Groveton Avatar
    Groveton

    “The Government has no business attempting to “invest” taxpayer dollars – which is essentially what they were doing.

    The Government was… in essence… “investing” in home ownership.”.

    Kind of like the state of Virginia is investing our money by creating and maintaining a “rainy day fund” with taxes that were paid but not needed for operations?

  47. Larry Gross Avatar
    Larry Gross

    rainy day/contingency funding is not investing… unless you consider it investing in insurance.

    You can.. as an individual or a company:

    1. – insure assets
    2. – self insure through “rainy day”
    3. – go bare

    the government can only do 2 or 3.

    so for instance, if Government is going to provide subsidized flood insurance – how would they insure that in doing that – that they would not actually encourage more people to build in flood-prone areas?

    the way the govt does this now – after years of stupid policies – is that you get one bite at the apple.

    that’s a fair approach for folks who might claim that when they first built they did not understand the risk and consequences – so you give them the opportunity to make a responsible decision without putting the government at risk.

    Why we can do this with flood insurance but not home ownership is beyond me.

    My only explanation is that when a new administration takes office that is opposed to government regulation – the first thing they do is gut the regs that they think are anti-business…. then they unlock the henhouse door and invite their fellow foxes in to feast.

    then we end up with a train-wreck, we promise to reform.. and we do.. until the next administration that doesn’t like regulations gets into office – and we start all over again.

    This has been happening since TeaPot Dome.

    as soon as one scandal dies away in the minds of the populace, another group of thieves arrives to feast…

  48. Groveton Avatar
    Groveton

    1. Michael Milliken and green mail.
    2. The S&L crisis (featuring the Keating Five).
    3. Whitewater.
    4. The dot com bubble and over zealous investment advice from firms managing dot com IPOs.
    5. Enron, Worldcom and the fraud patrol.
    6. Stock option timing.
    7. The burst of the housing bubble and the sub prime mortgage meltdown.

  49. Groveton Avatar
    Groveton

    “rainy day/contingency funding is not investing… unless you consider it investing in insurance.

    You can.. as an individual or a company:

    1. – insure assets
    2. – self insure through “rainy day”
    3. – go bare”.

    Many misconceptions.

    First – rainy day and investing. They took more of my money then they needed. They built a surplus and will not return it. Hopefully, they do not have the money in bags buried in Henrico County. It is invested. It is my money. They have no plan to spend the money. Insurance is the spreading fo risk across a risk class. The rainy day fund is not insurance. It is savings. WHich they are investing.

    Companies cannot really invest for a rainy day. They can carry cash and liquid securities on their balance sheet. If their sales fall off they cannot convert the cash into sales or revenue. They can use the cash to pay employees while they are taking losses. A company with cash on the balance sheet can stave off a Chapter 11 or Chapter 7 filing for as long as the cash lasts.

  50. Anonymous Avatar
    Anonymous

    EMR took me to task when I suggested Houston as a city that has slved may urban problems. Here is an article that exposes how to succeed withot Richard Florida’s special classes, new urbanism or a lot of other claptrap.

    “After housing, taxes, and transportation, the New Yorkers have $26,000 left. The Houston family has $30,500, and those dollars go a lot further than they would in New York.”

    If we exclude the areas that our two families have already paid for (housing and transportation) and average the remaining categories in the index (food, utilities, health, and miscellaneous), Queens is 24% more expensive than the average American area and Houston is 6% less expensive. Thus — again, after housing, taxes, and transportation — the Queens residents’ real remainder is a little less than $21,000; the Houston family’s is $32,200. The Houston family is effectively 53% richer and solidly in the middle class, with plenty of money for going out to dinner at Applebee’s or taking vacations to San Antonio. The family on Staten Island or in Queens is straining constantly to make ends meet.

    Houston families also spend much less time in transit and only a little more money doing it than New Yorkers.

    Darn those pesky facts.

    “Houston, New York Has a Problem”

    http://www.nysun.com/opinion/houston-new-york-has-a-problem/81989/

    RH

  51. Groveton Avatar
    Groveton

    RH:

    Your logic is great. For the average person, disposable income is a big factor in happiness. Polls routinely show that the happiest people in Virginia (most who think living in Virginia is Very Good or Good) live in NoVA. Happiness drops quickly with disposable income – especially once housing costs are deducted.

    Unfortunately, your example is a bit of a challenge. Houston is an absurdly big city – geographically speaking. The city is about 580 sq mi of land and about 22 sq mi of water. The borough of Queens is 109 sq mi of land and 69 sq mi of water.

    I wonder sometimes if the city of Houston isn’t more like an MSA than a typical city. The city of Houston is 50% bigger than Spotsylvania County for example. That’s a pretty darn big city! Do the demographics of Houston fairly compare with a more traditional American city?

  52. Anonymous Avatar
    Anonymous

    I don’t like Houston either, and I claim no credit for the logic.

    I just throw it out there to suggest that there might be other workable solutions than just pedestrian friendly new urban nirvana. it is only that what is workable is pretty value laden. Still, 53% richer is pretty sustantial.

    My brother lived for years a stones throw from Ballston. I thought he liked being a short walk and a transit stop from work.

    But I just learned that after a massive attack of Norwegian rats burrowed under his home from a nearby business, he took advantage of low housing prices and bought a larger house in Centreville. His Ballston place is now a rental.

    I guess tastes change over time. Plus you accumulate more stuff from massive overconsumption.

    RH

  53. Larry Gross Avatar
    Larry Gross

    disposable income is an interesting metric but wouldn’t it have to be normalized with respect to cost of living?

    For instance, a NoVa retiree can dramatically increase the buying power of his/her disposable income by moving to an area with much lower costs of living.

    another observation is that there are hundreds of small towns throughout middle-America that have much, much lower costs of living than Houston, New York or NoVaized Spotsylvania.

    Those folks have less gross disposable income but since the cost of living is so much lower – comparing their disposal income with disposable income in Houston would be misleading.

  54. Anonymous Avatar
    Anonymous

    “…disposable income is an interesting metric but wouldn’t it have to be normalized with respect to cost of living?”

    That is what the article did, but only with respect to Queens and Houston, and it was oriented to those who wish to make a living, not just retire.

    Otherwise, you are right,there are lots of places with low costs of living. Many of them also have a low standard of living. Still, thee are lots of pleasant little Mayberries where you could move in, join the church and be pretty welcome in short order.

    RH

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