The Housing Chronicles Blog: Does a housing bust make a declining city?

Thursday, January 6, 2011

Does a housing bust make a declining city?

The L.A. Times has a story about a report issued by the Research Institute for Housing America, a division of the Mortgage Bankers Assn. According to the report, neighborhoods in those inland areas hit hardest by the housing bust -- such as the Central Valley and the Inland Empire -- may "never" rebound.

Really? NEVER? That's a awfully long time for some pretty large geographic areas. I can just see the headline now in the year 9011: "Prices in Riverside still at 2003 levels." Whenever anyone says either "always" or "never" I've learned to pretty much disregard what comes after that.

For one thing, the Inland Empire of today is much different than it was even 10 years or 15 years ago (I lived in Upland in the early 90s when working for a home builder). People no longer have to drive into L.A. or Orange County to get their basic shopping, culinary or entertainment fix. For another, since the 1980s, the area's economy and population grew significantly faster than those of surrounding counties and has already achieved a critical mass of eventually sustaining itself once an economic rebound resumes.

Will there be some areas of the IE which will take longer to rebound than others? Of course, just like other cities. Those submarkets further away from existing employment centers such as Hemet, San Jacinto or the High Desert simply won't have the demand seen in Temecula, Ontario or Chino. But as the local economy diversifies and grows, so will those now-moribund areas. Will there be pockets of neighborhoods which don't join the rebound? Of course -- just like we see many parts of Central Los Angeles.

Another separate issue is that of the Coachella Valley, which really doesn't consider itself part of the Inland Empire. In the north, cities such as Palm Springs, Rancho Mirage and Palm Desert cater largely to the retired and second home owner, which should benefit from the valley's enviable winter weather and Boomers across the country looking to downsize. To the south, however, it's a different story, with over-building in Indio, Coachella and La Quinta taking longer to absorb inventory.

Finally, even leaders in the Inland Empire are trying to get away from the long-used moniker, preferring instead to use the 'Riverside-San Bernardino region.' With reports like this from the Research Institute for Housing America, can you blame them?

From the article:

A traditional city in decline is one that has suffered a sustained population drop, leaving behind empty houses, apartment buildings, offices and storefronts. Cleveland and Detroit, for instance, suffered from the erosion of manufacturing and the loss of residents, who left in search of jobs.

Instead of eroding a particular industry, however, the housing bust left a glut of homes because of overbuilding and the foreclosure crisis. Follain argues that the future of these cities is threatened in similar ways to that of Rust Belt cities.

"Long-vacant neighborhoods are going to develop, and we can imagine what can happen," he said, including potentially higher crime and lower property taxes.

In California, some coastal cities already are seeing a housing market recovery. But inland areas that were built on optimistic assumptions of continued population growth and ever-climbing home values are facing a much more difficult recovery.

Celia Chen, a housing economist with Moody's, predicts that a full recovery in parts of California, Nevada, Arizona and Florida won't occur until 2030...

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