RSS
Follow Us on Twitter
Follow Us on Facebook
Christopher B. Leinberger: Sprawl is the Root Cause of the Financial Crisis
September 22nd, 2008 by Christopher B. Leinberger
Ask most people about the causes of the current financial meltdown and the proposed massive Federal bailout and it comes down to two factors. First, sub-prime mortgages were made to households unable to pay for them when rates readjusted upward. Second, these mortgages were subdivided, given dubious credit ratings, and dumped on unsuspecting investors.
The beauty of this explanation is there is a beginning, middle (where we supposedly are now) and end-when the sub-primes have all readjusted. It portrays the crisis as a cyclical downturn; more brutal than most but ending in 2-3 years.
Unfortunately, no end is in sight.
Sub-primes are just the beginning. The financial crisis actually represents the need for a structural shift in investment in the built environment, which is comprised of real estate and the infrastructure that connects it.
The real estate industry and the financial system supporting it have built too much of the wrong product in the wrong location.
This pain has spread from Main Street to Wall Street, not the other way around. Fannie and Freddie did not engage in sub-prime mortgages, but have been taken over for financing development on the fringe. AIG have insured too many sub-prime mortgages, but that does not completely explain its meltdown. Sub-prime mortgages have resulted in $500-$600 billion in write downs-just 5% of the $12 trillion mortgage market.
How much more damage would 10-20% write down in the mortgage market mean to the US financial system? Many of the mortgages the Bush administration is proposing to take over are worth more than the houses they are financing. Time will not cure that problem.
There are ways to reverse this decline and give Americans what we want. As Congress considers a Stimulus II package and the 2009 reauthorization of the transportation bill, it should fund rail transit and bike and walking paths that provide alternatives to the transportation monoculture. This is not to dismiss highways; they need crucial maintenance. But we must add choice to our transportation system.
Such investment will spark real estate development around rail transit stations, like metro DC has seen around Ballston, King Street, Columbia Heights, the Stadium and Hyattsville. This means jobs and a way out of our financial crisis.
This country has a low-density development hangover. America needs to put in place the infrastructure for multiple transportation options and build walkable communities, which use a fraction of the energy and emit far fewer green house gases while giving households of all income levels what they want.
What do you think? Leave us a comment.
———-
Christopher B. Leinberger is a land use strategist, developer, teacher, consultant and author, helping to make progressive development profitable. He is currently a Visiting Fellow at the Brookings Institution in Washington, D.C. He is the author of The Option of Urbanism: Investing in a New American Dream from Island Press.
September 22nd, 2008 at 9:39 pm
Cities should plow over most of these vacant tract home developments, reduce inventory & reduce blight.
Germany is doing this in some of their shrinking cities. Reverting swaths apartment blocks back to nature.
September 23rd, 2008 at 12:40 pm
There is nothing wrong with (suburban) sprawl.
Americans do not generally like to live on top of each other in tenement slums, as some urban planners would force us.
High density housing structures may decrease auto commutes, but they are more costly to build and own, and cramming people in like rats in a maze leads to all sorts of social ills.
Better to look at how we can bring more jobs an industry to the suburbs, than trying to condemn those who try to escape the ills that city government creates.
We may need to discuss how transit funding is allocated, in order to assure a “fair share” for urban needs. But that can go both ways: suburban dwellers may well choose to pay tolls for their roadways and opt-out of inner-city mass transit they don’t use.
September 23rd, 2008 at 1:28 pm
Finally, someone sees the problem here.
It has been proven over and over again that Suburban Sprawl contributes to obesity, poor management of resources, traffic, and now, the worst Housing and Financial crisis since the Great Depression.
January 9th, 2009 at 2:45 am
At the time of financial crises we need to come together united and try to resove the prroblems which are responsible to such a hazard. We need to overcome it. IT is meant to bring calm to the population and markets and display government strength and stability.
March 14th, 2009 at 8:01 am
We need a culture shift before there can be a true housing/built environment shift. Our culture continues to set the american dream on a pedestal, as if everyone is suppose to have huge amounts of money, enormous suburban houses and three cars. When we stop worshiping this as the end goal in life, people will be more open to living in dense, walkable, bike friendly and mixed zoning communities.