Friday, June 26, 2009

Is Gentrification Over: Why the City Will Continue to Gentrify and the Outer Burbs Will Fail

"Gentrification is over," announced one commentator, I forget exactly who. At first flush, this would seem to be the case, for the impetus that drove the movement of middle-class buyers into "marginal" neighborhoods is no longer there since the bursting of the housing bubble. During the housing rampage, many middle-income buyers found themselves priced out of prime and 2nd-tier neighborhoods as the prices ratcheted up rapidly, and neighborhoods like Edgewater and Rogers Park experienced an influx of such buyers.

The process now seems to have reversed itself as prices drop steeply all over Chicago, and Rogers Park, to name one "up and coming" neighborhood, has become the epicenter of foreclosures here in Chicago. This would seem to be bad news for many middle-income people who are now pretty much buried in homes and condos that are now worth substantially less than they paid for them. The Edgewater-Rogers Park area has a huge surplus of newly developed condominiums, in addition to two new residential high rise buildings, both of which are mostly empty and are having a hard time attracting tenants willing and able to spring for premium rentals as the economy deflates.

It's always difficult to see beyond the current situation, and divine from it clues as to how different the future may be. Just as it was difficult to imagine a 30% drop in real estate prices back in 2005, it is now difficult to visualize a wholesale rush back to the city and a mass disinvestment in the suburbs comparable to the disinvestment in the cities that occurred in the 50s and 60s, leaving our older cites depopulated, hollowed-out slums.

Yet the process has already begun, and there are many fundamental reasons for it. Outer suburbs and exurbs such as Schaumburg, Rolling Meadows, Plainfield, Bolingbroke, Zion, and other sprawling cul-de-sac wastelands are losing value much more rapidly than either Chicago or inner suburbs such as Des Plaines, Evanston, or Oak Park, and this trend is apt to accelerate as we descend the slope of fossil fuel depletion, and transportation and utilities become progressively more expensive.

Oil hit $70 a barrel a week ago, as I predicted, and is trading in the $68-72 a barrel range at this time. In the meantime, the low price of oil for the past 6 months has created a future supply problem as many rigs were pulled out of service- we have less than half as many rigs pumping world wide as we did last summer-and many development projects have been deferred or cancelled. The bald fact is that the cheap and easy oil is gone, and what remains is much more expensive to pump and refine; and $70 is the lowest price at which it is economically feasible to recover and refine such low grade sources as the Canadian tar sands, on which the United States is currently extremely dependent for its oil supply, or the expensive and risky deep-water drills. Current weak demand for oil, resulting from the economic downturn, is an extremely temporary situation, while demand for liquid fuels is growing rapidly in the world's most populous nations, India and China.

In short, we will have to pay steeply more for liquid fuels than we have been in order to produce the stuff at all. In the meantime, it has become increasingly obvious that "renewable" resources such as biomass, wind, and solar will only be able to provide a tiny fraction of our energy needs, and only at a cost that will render electrical power and motorized transportation unaffordable to about 70% of the population. We can also expect drastic price increases and more rapid depletion of other fossil fuels such as gas and coal, as we ramp up our use of them.

What this means is that the sprawl lifestyle will become utterly unaffordable for most of the people who live it now. As it is, most people have kept themselves afloat in their houses and multiple automobiles only by the reckless use of credit, and that is going to be much harder to obtain going forward. Since 1980, the economy has been driven by the extension of credit to an extent completely unprecedented in any other economy at any other time in history. That's over now, and it's not likely to resume in our lifetimes, even though our political leaders are giving it their best shot. That means that many things that lower-middle and middle-income people in the sprawl-burbs have come to consider as God-given entitlements, will no longer be within their reach. These things include 2500- square- foot houses 40 miles from work, cars for teen children, and gasoline plentiful and cheap enough for it to seem OK to jump into a car that gets 12MPG just to pick up a gallon of milk and case of beer.

This does not mean that the country has to collapse. It surely does not mean that we have to become a 3rd-world slum, even though we could if we mismanage the transition. What it does mean is that we will revert to Normalcy as it was understood before the easy lending rampage began 30 years ago. It will mean living closer to where you work, with one car per family, and much less car ownership in general. It will mean larger utility bills and living in smaller dwellings. It will mean preserving old buildings and that building something new will be taken very seriously. And it will mean a mass exodus of middle-income people from suddenly unlivable outer suburbs to places where they can live and work close to the urban amenities, such as public transit, shopping and entertainment within an easy walk or bus ride, schools the kids can walk to, and the cultural amenities that only a large city can offer.

And that really would only mean a return to things something like the way they were before our cities were destroyed by FHA and HUD-sponsored home ownership programs that redlined our city neighborhoods in the 50s, and before the interstates sliced our cities apart and made it easy and cheap to empty the cities into new auto suburbs.

I remember how life in neighborhoods like Rogers Park and Edgewater was before our cities were destroyed, for I spent my adolescence in such a neighborhood, in another city. And I remember how it, and other city neighborhoods, were quite deliberately destroyed during the 60s, and finished off completely in the 70s as our streets were taken over by thugs, and services decimated. Even in the 60s, our neighborhoods were still closely-knit places where you could obtain almost everything you needed within 4 blocks of your house, and could easily take public transit to everything else.

I never appreciated how life-giving and comfortable these neighborhoods were, and how rich was the life a teen growing up in them could live, until they were destroyed, and the people who grew up in them moved to places like Fenton, MO or Plainfield, IL, or some such a wasteland, to raise their own children. For example, most outer suburban children visit the zoo or art museum only when their parents or teachers organize an excursion that takes weeks of planning and involves considerable expense and trouble. That's sad, for I spent most of my Saturdays at the art museum or zoo in St. Louis' immense and beautiful Forest Park, because I could easily hop on a bus to go there, or to go shopping downtown after school. I could loiter along the commercial streets in my own area, with their dozens of quirky little shops, and stop at the local Bailey Farm for a milkshake. And I could do all of this in perfect safety, a safety that disappeared very quickly when the flow of the population outward to the new auto suburbs turned into a flood in the late sixties and early seventies.

We can expect this process to reverse drastically, and that the current trickle of suburban refugees will become a flood as car ownership and long commutes become unaffordable for larger percentages of the middle-income population, and as the services and conditions in outer suburbs deteriorate. And, unlike the city, which still retained its cultural amenities, its public transportation, and its dense retail and closely-knit neighborhoods, the suburbs will have nothing as they toboggan down the slope of disinvestment. The houses were built to last perhaps thirty years and cannot be recycled. The streets and roads were designed to move cars along as efficiently as possible, not to foster the close interaction of commerce and residents that make city neighborhoods so vibrant, and it is impossible to provide efficient, economical public transportation to these areas.

Neighborhoods like Rogers Park, with its large inventory of beautiful vintage housing stock, its access to the lake and to public transit and nearby retail, will benefit hugely from the coming flood of returning suburbanites. There will be a rough transition as former suburbanites relearn the habits and necessities of civil life, such as that the 155 bus isn't going to be rerouted off the street it's run on for 90 years just because one resident doesn't want it going down her street, or that your neighbors in your condominium have a right to demand you take your baby stroller up to your own unit and not store it in the lobby. But people will adjust as they rediscover the comfort and amenity and beauty of streets lined with trees that meet each other over the street, and retail 5 steps from their front doors where they can obtain every daily need without
spending a gallon of gasoline, and the peace of mind that comes from your teen being on the bus and not at the wheel of an overpowered car.

So rest easy, owners. If you can hang on for another ten years, this period will pass into distant memory as the fuel prices ratchet up and one by one, all the condos and houses now languishing on the market are snapped up. The new rental high rise buildings in Rogers Park will suddenly fill up, and rents will start to rise; and the local public schools will gain many new students who are motivated youngsters with parents who want them to succeed and will do whatever is necessary to make sure they do. There will be a demand for types of businesses that are right now having a hard time getting a solid foothold. The only thing we really have to worry about around here is making sure we plan for the coming flood, and make sure our neighborhood is appropriately planned and zoned to allow for many more multi-use buildings close to retail and transit hubs.

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