Eliminating Housing Subsidies Will Improve the Economy

Excellent article at Irvine Housing Blog

Eliminating housing subsidies may cause house prices to drop, says Irvine Renter, but it will free up capital for more productive uses.

How many  "more productive uses" can you think of for the $3.4 Trillion that we've committed to mortgage assistance, tax credits for new buyers, backstopping the GSEs like FMAC and FNMA against their hundreds of billions of dollars in losses on bad mortgages, and other assistance and subsidies for the sinking housing market? How much do FHA loans with their average 20% delinquency and default rates cost the taxpayers? How much do we lose to the mortgage interest deduction?

And how many poor people are living any better with Section 8 subsidies than they would be without this welfare program for slumlords?

$3. 4 Trillion would repair every dangerously deficient dam and bridge in this country. It could rebuild St. Louis' collapsing sewers, and rebuild Chicago's lakefront and rail system.

It could rebuild the aging water treatment infrastructure in all the older cities.

We could build a completely electrified rapid-rail (not High Speed) to every city and town in this country with a population of more than 5,000.

It could be put against our towering public debt load, most of all.

We might once again have productive industries making the things we badly need, to the benefit of every socio-economic group in this society, while housing costs would drop steeply. Poor people could find more "first-rung-on-the-ladder" jobs, and our middle classes could have more opportunities for advancement and more job niches utilizing a greater variety of skill sets and talents, while the rich would have more profitable investment opportunities where their capital would be utilized building new industries providing the technologies and systems we will need to maintain our technological amenity while transitioning to a low-energy regime.

Skewed Priorities

SEND MONEY!!!

That's the overriding message from the northwest corner of Iowa, where the Lake Dehli Dam breached and drained the recreational lake behind it this weekend. There was no loss of life and no one was seriously injured, thankfully, but the resulting deluge pretty well gutted the value of the area to the vacationers who own the 900 or so homes that fronted the lake...  which was all most of the folks there could think about.

Nobody, not one person, said, Thank God there were no fatalities or injuries, which is the first thought you have when something like this happens.  There didn't seem to be a lot of sympathy or concern for the people downriver whose businesses and permanent homes were wrecked by the torrent, and a local official said in passing that his town would of course apply for funds for cleanup, which is going to be a big job. But that seemed to be a peripheral concern to most of the people interviewed.

What most people talked about first and the most was how they hoped the Feds would step in with the money to rebuild the dam, because otherwise their vacation homes-  mostly second homes worth from $50,000 to $500,000- will be almost worthless without the lake it created.

Like the rest of the taxpayers in this country have nothing better to do with $200 million or so than to rebuild a  small dam solely to restore a recreational lake,  to rectify the economic losses of a handful of second-home owners.

Our pols and economists are sending the public a lot of mixed messages mixed with hope fastened to very doubtful metrics, but the message we most need to be trumpeted from the rooftops is already printed on our increasingly decrepit and dangerous infrastructure, our $13 Trillion in public and private debt, our gutted manufacturing sector, and our failing war efforts in the part of the world on which we depend for most of our liquid fuels; is that the party is over.  We can't even afford to repair the things whose catastrophic failure would cause thousands of deaths; at this time there are over 3500 large dams and 8000 bridges classified as dangerously deficient, and whose catastrophic failure would easily kill thousands of people, that we are dragging our feet on because we already spent the $16 Billion required for minimal remediation on things like highways to nowhere and mega-sports arenas, supporting the government-financed mortgage market, paying subsidies to farm owners to not grow food, and paying people to buy new cars and build ever more houses that nobody can afford to buy, among many other wasteful expenditures too numerous to list here. 

We have extended ourselves financially into the next century, well beyond our childrens' probable lifetimes, since the post WW2 era in order to finance things that not only are too big and too complex to maintain as we start down the other side of the fuel supply curve, but continue to squander massive amounts of our remaining wealth, or rather, our remaining borrowing power, on things that cannot be considered public purpose and are flatly extravagances that we never really could afford and that are now crowding out urgent public needs that we don't have much time to meet before energy costs place them beyond our reach forever.

The figure in the foregoing paragraph does not include private debt, which maybe doesn't mean anything anyway since so much of the public debt was incurred in backstopping the financial institutions against the losses they incurred from this private debt. Municipal shortfalls and state deficits are also not included, nor are future pension and entitlement program obligations.

Suffice it to say that recreational lakes in Iowa and 850-unit luxury condo towers in Chicago's laughably glutted north lake front condo market, among thousands of other costly private indulgences that come at public expense, are costly frills that benefit few, and that neither the country at large nor this city can accommodate any longer without making steep sacrifices in the things we need to live decently and safely. But the American middle classes, steeped in delusion and fantasy, and possessed of a swollen sense of entitlement, are the people least apt to get the message broadcast by the ever-increasing numbers of boil-water days, extended power outages, critical infrastructure failures, and the general decrepit and brittle condition of the country's systems, which is that we're at the end of our ability to pretend that we're still a wealthy country with unlimited resources and the competence to manage either our physical resources or finances so that we'll be able to keep the lights on and the trains running when energy supplies become critical.

Loyola-Morgan Retail District: Gains and Losses

We can't fail to be impressed by the recent transformation of the formerly forlorn stretch of Sheridan between Devon and Albion. The strip of disused buildings and vacant lots has blossomed  into a lively and attractive retail district with the addition of the Morgan at Loyola Station rental apartment building, a good-looking and appropriately scaled mid-rise building with small ground-floor retail shops; and a pocket that used to be ugly and a little forbidding is now cozy and inviting. This pocket of Rogers Park is now the most successful and attractive retail district in the neighborhood, and it is helped a lot by the proximity of two major grocery stores and other retail in Edgewater a few blocks south.

Yet, as you travel south on Sheridan into Broadway and consider the moribund two-block stretch of Broadway just south of Sheridan, and spotty Devon Ave, you're reminded of how much easier it is to destroy a neighborhood than it is to build it, and how important is appropriate development, for Broadway Blvd is an essay in the destruction wrought by ugly, auto-oriented, anti-urban development; a wilderness of strip mall slums and drive-through food outlets and self-storage facilities. Actually, the street contains a number of interesting small businesses, including a couple of antique stores and a wonderful day spa as well as several interesting small restaurants, but they're a little lost among the seas of parking, fast food outlets and other auto-oriented garbage. Just a couple of blocks south, Broadway between Granville and Sheridan is still a cold, lackluster corridor of drive-through food outlets and parking lots, and Devon is pocked with disused parking lots fronting the street and vacant storefronts. But attractive, interesting, lively urban neighborhoods don't develop in a day, and it will take quite a few more years and an improved economic climate for this area to develop fully, and to reverse 75 years of  atrocious urban planning and deterioration.

And that's just as well. Maybe we need to move a little more slowly, and build more carefully, with every building built with care and love. We Americans tend to go way too fast at way too big a scale, with no consideration for unintended consequences and no regard for feedback along the way that is signaling that things aren't working out according to plan. And now that nobody has the money to go forward with big plans except for Loyola University, the people involved in developing this area need to take a breather and consider the progress made so far.

Some of things we hope they think about before they do too much more demolition include the block of Sheridan just north of the Loyola el station. This block still contains a couple of really interesting buildings and a number of businesses that have been in the neighborhood for many decades, like Carmen's Restaurant and Affordable Optical. However, in the past fifteen years, this block has lost a lot of its charm and cohesion, having been decimated by fires that destroyed a couple of charming old buildings, and Loyola University's demolition of a decrepit but lovely two story building and corner building. The University has rights of eminent domain in this area, which is part of the Sheridan/Devon TIF district, and the buildings that remain are in increasingly decrepit conditions, and according to one commercial tenant, are renting their commercial spaces out on a month-to-month basis, while Beck's Bookstore vacated its old building and moved to a space in the Morgan apartment building.

This would all seem to indicate that the university has plans for this block that very likely don't include the restoration of the remaining buildings on this block, including the incredible little beauty pictured below, which contains Affordable Optical and Carmen's. Chicago is fairly stuffed with buildings covered with wonderful embellishment, but I've never seen anything quite like the decorative terracotta ornamentation on this quirky little charmer, and the destruction of this building would be a tragic loss to the neighborhood. Buildings like this are what lend a neighborhood charm and character, and another bland new building, no matter how luxurious and loaded with amenities, would not replace a structure like this.

             
From here forward, the developers here need to take small, careful steps. There's no crying need for more retail space at just this point in time, given the number of empty spaces available in the area already and the extremely unfavorable business climate. Therefore, the developers might want to consider "infill" buildings for this block, small one-to-three story buildings with commercial space on the ground and perhaps second floor, and apartments above, and more important, some attention to architecture and decorative detail. The recent renovation of a row of one-story storefronts in the 1100 block of Granville in Edgewater is encouraging. These ugly, run-down spaces were recently re-fronted with attractively styled facades capped off by the attractive deco corner store, shown below.
     

   

These stylish renovations, and recently constructed mixed-use buildings allover town, while not architectural masterpieces, are major improvements on the hideous, utilitarian,suburban-style commercial development that blighted so much of the city during the 30-year period of urban destruction following WW2. Let's hope we can do even better with whatever gets built in the 6500 block of Sheridan, where the builders will be starting from scratch. Not every building, or even most buildings, has to be a  masterpiece, or terribly "original", just reasonably attractive and well-designed, and perhaps possess some charming decorative details. We might still have a long way to travel before we build with the same spirit and love of beauty that inspired the magnificent buildings of the early twentieth century, but we've at least turned the corner and left the dreadful post-war period behind us.

Whatever gets done, let's hope it gets done slowly. And most of all, lets work to preserve the beauty and charm our neighborhoods still possess after 65 years of maliciously anti-urban modernist destruction.

They Just Don't Get It

Our ruling elites and their mainstream media shills never really have cared what was good for the population, or even what we want or believe, but they used to listen to us well enough to at least feed back the lies we most wanted to hear. However, in their response to the financial debacle, they've shown that not only do they not give a damn what we think, but that they have no idea what it is we really do want or believe or expect. 

Never have they read us so wrong as in the government response to the financial debacle and the cures proposed. Now, after committing over a trillion dollars to goosing the house market in an attempt to rewrite the laws of supply and demand by floating more bad loans that will result in more defaults, and pouring hundreds of billions into FHA and the GSEs such as FNMA and FMAC, a few people up there perceive the threat to what remains of our credit system, and realize that the bleeding has to be stopped. Lawmakers have proposed not only tightening the lending rules and underwriting standards for loans purchased by the GSEs, but punishing people who strategically default by locking them out of the government-backed loan market for 7 years, during what time they would not be able to qualify for a loan backed by a government agency. That means they would not be able to get financed for a house, period, because 95% of all home loans written these days are either purchased by Fannie, Freddie, or Ginnie, or are written by the FHA, which has combined delinquency and default rates for its 2007 and 2008 vintage mortgages of over 20%.

Yet there remains the fear that Fannie's punitive new policy might not make it with the public. Writes David Streitfeld in the New York Times, "Fannie Mae’s decision to begin punishing people who walk away from their unpaid mortgages could prove difficult to sell to the public and might be impossible to execute, housing and lending experts said Thursday."

Uh, just what sector of the "public" would be unhappy with policies that punish people who walk away from mortgages that they can pay for? Most of us out here feel that the only foreclosure victims who rate sympathy are those who are unemployed or whose businesses have gone down the tubes in this dismal economy, yet these are the very people who are ineligible for assistance and get the least help, and we're furious at the lawmakers who are continuing to subsidize more home building and more bad borrowing under the auspices of the FHA and government-backed GSEs while cutting off the lifelines of millions of unemployed who will be left stranded with no income whatsoever at the end of this week.

A "strategic defaulter' is a borrower who has the ability to pay but is defaulting only because his house is worth less than what he paid for it. These people tend to be much more affluent than the average foreclosure casualty and they are defaulting as part of a larger financial plan. They usually have absolutely no remorse, and plan to buy within a few years when they feel that prices have reached levels justified by rents on comparable housing. And so far, there has been nothing to prevent them from buying within a couple of years of foreclosure if they have something for a down payment, even though mortgages are considerably more difficult to get than they were a few years ago.

If there's any group of defaulting homeowners the public has no sympathy for, it's these well-heeled borrowers who can pay their mortgages but are walking away because they just don't want to pay. After all, not only do renters, who derive no benefit at all from efforts to support housing prices and help buried homeowners, make up 40% of the general public, but most homeowners are not delinquent on their mortgages and tend not to sympathize with people who deliberately default. The only part of the "public" that will be unhappy are scamming borrowers, and the housing and lending hustlers, who were the only people who benefited from the Great Rampage of the 00s, and who have shoveled billions into lobbying for the HOPE NOW and other mortgage assistance programs, as well as ever more subsidies for housing "affordability" programs.

Strategic default is now becoming a fad among affluent homeowners whose expensive homes have dropped catastrophically in value, and threatens to topple what remains of our credit system.Tighter lending policies and steep penalties for defaulting borrowers who have the capacity to pay their loans are way overdue. The Republicans additionally have introduced a measure to the FHA financing bill that would forbid strategic defaulters from getting a loan from FHA. This is a completely justifiable measure and is only one of many reforms necessary to prevent another massive credit bubble from forming as this one deflates.

However, there's one question that has to be on everyone's lips, which is, how will we punish major corporations who default on mortgages worth tens of millions, for the same reason- that the properties involved have dropped steeply in value since purchase? These entities have set a example for the rest of the population, and there's nothing that angers people so much as the vicious double standard that exempts major corporations, especially financial concerns, from major wrongdoing while punishing hapless individuals lacking wealth and influence. Will J P Morgan's strategic default on a portfolio of commercial properties in San Francisco impair their ability to obtain credit down the road? Will corporate defaulters incur penalties proportionate to those imposed on individual homeowners?

We'll believe that our rulers are truly committed to reform when the financial concerns who benefited the most are subjected to the same penalties for irresponsibility and malfeasance as the rest of us.

Rogers Park Men CAN Cook!

Yes, Rogers Park guys can cook! Above, Michael Harrington and Eva McCann present the Grand Prize to winner Michael Cain at the fundraiser for the Willye B. White Park's summer day camp program.

The gods gave us a perfect, sunny, cloudless day for the event, the food was great, and many neighbors were in attendance.

We're eagerly anticipating the next event! Thanks to Michael Harrington, Toni Duncan, Sister Cecilia Fandel, Eva McCann, and all the other organizers and volunteers who made it happen.

Shameless

Pictured above is a condominium at 6212 N North Winthrop I wrote about back in 2008, and it looks like the property has only gone downhill since. This building is a newly-constructed condo with 8 units originally offered at $550,000-$600,000 each, and which has gone through many ownerships. See current snapshot of ownership, above.

This is the worst-looking property for many blocks on N. Winthrop in Edgewater, a street that has undergone a 180-degree transformation over the past 15 years. Many years ago, Winthrop and Kenmore together formed the notorious Winthrop Corridor of drugs, crime, and blight, but since that time, these two streets have become beautiful, placid, tree-lined streets with well-groomed, beautiful houses and buildings in a wide variety of architectural styles.

In this block are many charming old corridor buildings and a number of "four-plus-one" buildings, all offering cheap rentals, yet these places are beautifully landscaped and well-maintained. 6212, on the other hand,, is gleaming new construction with  large, new high-rent apartments, yet it looks seedier every time I walk past it. The weeds are nearly a foot high in the pocket front lawn and on the parkway, where there is also a hole about a foot across and a foot deep, covered only by a barricade lying on its side. There is trash everywhere- on the little lawn, the walk, the parkway, and stuffed, along with piles of last fall's fallen leaves, between the pickets of the wrought-iron perimeter fence.

I was strolling down Winthrop late this afternoon, and was freshly shocked at the appearance of the place. In the course of snapping pictures to document the wretched appearance of the property, I was intercepted by a white male who appeared to be about in his forties, who double-parked his SUV in front of the place, jumped out, and demanded to know what I was doing.

"Are you the owner of this place?" I asked, indicating the building with my hand.

"Yes! I'm the owner!" he exclaimed, puffing his chest out and staring me intently in his "aggressive display" stance.

"Do you realize you have the trashiest-looking property on the street? This property looks horrible, " I said, "what with trash allover it and weeds a foot high. Look at all these cheap little corridor buildings that look so lovely and have such beautiful flowers and plantings, and your place looks like a slum. You're blighting the street."

I suppose he realized that he could not stop me from taking photos. "A good day to you, madam! Have a good day!" he barked.

The guy was utterly shameless. 

This guy clearly isn't troubled by the neighbors' opinions.  We seem to have a larger number of such owners since the Great Housing Rampage and the ensuing glut of newly constructed and converted condos. Either the owners are not paying for the place and are de facto squatters, and aren't going to lift a finger to maintain the place while they wait for their NODs to arrive in the mail (or for the Sheriff to arrive with the movers), or they are slumlords who picked these places up in foreclosure and just want to sit on them till they can flip them. They don't care how their places look or who they rent them to. Twenty years of dramatic neighborhood improvement in Edgewater and Rogers Park is in danger of being reversed by these predatory new owners.

Shame is usually a good method of enforcing local standards of property maintenance on slob owners, but you can't shame the arrogantly shameless. Some owners just have to be coerced, and it's no violation of their property rights to compel conformity with community expectations. Every owner in the area is negatively affected by the neglect and visible deterioration of property in the area. This property is in the 49th Ward, whose alderman is Joe Moore, and a few dozen calls and letters to Moore from irate neighbors disturbed by the litter and weeds might be helpful.

Republicans Block Bill To Raise Oil Spill Liability Cap