News Summary: Cities and the Financial Crisis

How is the financial crisis impacting urban planning and land use policy? Managing Editor Tim Halbur takes a look at some early indicators drawn from recent news headlines and conversations with planning professionals.

On a daily basis, we're hit with major news headlines about impending economic disaster, reeling markets, and aggressive fiscal policy designed to slow the bleeding. It's difficult to summarize what all of this means for our public and private lives – the facts aren't all in yet. But we can start to examine what is going on at the local level and how land use and development are likely to be impacted in the near-term. In the coming weeks, we will continue to bring you an occasional summary of headlines related to the economy and its impact on our cities, and we'll talk to planners around the country to get their perspective.

A halted development in Texas. (photo courtesy Iceland...

Slowing development

"We are just beginning to feel the effects of the financing crisis," says Dan Marks, planning and development director of Berkeley, California. "Our major entitlement permits are down 10 percent, and we are just beginning to see a reduction in the number of people applying for building permits It's way too early to predict how much impact this will have, but I'm expecting a deep and long recession in the development business, as the financing crisis and drop in people's overall sense of security plays itself out in a negative feedback loop, further deepening what is likely to be a difficult time."

Planetizen has followed several stories of housing developments stopped in their tracks by the new financial landscape. Early buyers, like Robert Waltenspiel of Auburn Hills, Michigan, are finding themselves surrounded by empty lots. When interviewed by The Register-Mail, Mr. Waltenspiel said that there are no other kids for his children to play with, so he has to take them to a local playground to find playmates. His 4-year-old "will walk up to strange girls in the park and say, 'Hey, will you be my friend?'...A, it's adorable. B, it's sad."

New Daleville, an exurban development written about by author Witold Rybczynski in his book The Last Harvest, is another such project. NPR reported that the project is only half built out, and dotted with empty lots. Envisioned as an upscale, semi-rural development, residents are now skimping on external elements like siding so they can hold on to their mortgages.

What happens to these half-built developments now? Will exurbs become ghost towns, populated by a few lonely residents wandering deserted streets, fending for themselves in terms of basic services? Or will the eventual revival of the housing market allow developers to pick up where they left off? Or will these far-flung developments return to nature?

Restaurants and cafes, like this one in Victoria Gardens, are superceding retail.

Restaurant Revitalization?

And what about commercial real estate? Retail is taking a big hit as people hunker down and try to save money. But somewhat counter-intuitively, restaurants may be enjoying a different fate. Some sources report that restaurants are taking over the traditional role of anchoring downtowns and shopping centers. Developers in Dallas report in the Dallas Morning news that they are increasing the percentage of eating places in their centers to meet the rising demand. The National Restaurant Association also projected restaurant sales to increase 4.4 percent this year. And a study by Oregon Metro reported by CoolTown Studios says that wine bars, specialty grocery stores and movie theaters can raise home values within a block and a half by as much as 30%.

Other developers are looking to institutional projects like hospitals and schools to keep afloat. In an article in the Ann Arbor Business Review, Curt Peterson, group vice president at CSM Group, a construction management firm based in Kalamazoo, said, "I think that the retail and hotel side are the most difficult to get lending for; medical and life sciences are strong...The major challenge will be for municipal projects where the variable-rate bond funding is very high compared to the norm."

A Regional Problem?

In other parts of the country, the effects of the financial crisis have been less extreme or non-existent. I spoke with Donald R. Sampson, Director of the Department of Community Development in the City of Pine Bluff, Arkansas, who reports, "We still need housing, despite the situation, because housing is a need, not a luxury item." Sampson says that although he thinks credit scores might become more significant in procuring loans for individuals, their lending institutions are regional and weren't involved in the types of investments that are sinking national financial groups. "We're still closing loans, and helping people to purchase loans." Sampson says.

But over in Berwick, Maine, the outlook doesn't look as rosy. "We saw a dramatic slowdown in permits," says Judy Burgess, planning coordinator for the town of 6,353 residents. "I've had no applications for projects in the last- wow- I'd say six months. It didn't just happen with this drop, but it is happening. There's a big drop in revenue from building applications, and subdivision applications. So the only other alternative is to cut services."

Uncertain Times

As I write this, the Bush Administration is moving forward with a $250 billion plan to prop up some of the nation's largest banks in the highly unusual step of taking equity positions in these private businesses, and the presidential candidates are preparing for their final debate. Change is in the air, and there's no denying that financial trends and national policy are going to continue to have an unfolding impact on what happens at the state and local level. The coming months are sure to bring more headline-worthy developments that impact every aspect of the urban environment.

At least we're not in Iceland...



How to prevent economic collapse

It's interesting that a lot of hand wringing takes place after a financial crisis and potential collapse. It's too bad that urban planners do not study their economic history and collectively work toward preventing the next big collapse.
One economist, Dr. Fred Foldvary, is one of many Geo-libertarian (or Georgist) economists who not only predicted the current 2008 fiasco (see which predicts this crisis in 2004) but also offers a remedy that would prevent the whole thing AND give us better cities to boot.
The remedy is very simple. Quit taxing our buildings and, instead, tax the site locations beneath the buildings according to their value. This tax-shift nips the real-estate bubble in the bud before it becomes a monster.
Wherever cities have applied this remedy as offered by Henry George back in 1879 in his book Progress and Poverty cities have prospered.

Tax Waste, Not Work: Save your Job, Save your Business, Save your Planet.

Thirty years ago, that great

Thirty years ago, that great Labour MP Ian Mikardo moved a successful motion at Labour Party Conference calling for public ownership of the banks and financial institutions. It would indeed be ironic if the most right wing free market neo-liberal government in Britain’s history were forced in effect to nationalise a bank, and possibly others in future. It would pile irony upon irony if the government were also to accept what may in any case be inevitable and establish a fully publicly owned pensions and savings institution as occupational and private savings institutions decline.

And finally, we come to fiscal policy, taxation and public spending. The October Pre-Budget Report was an exercise in whistling in the dark with no serious attempt to address the looming crisis. The Prime Minister grinned while the Chancellor gave a tax break to the richest six per cent of the population, a proportion which will reduce to an even smaller number with a serious fall in house prices. Such sops to the rich may soon have to be reversed if and when recession takes hold.

Fiscal policy can and must be used to revive the economy, with higher public spending directed to the pockets of the less well off and not to the rich. This is because ordinary families and the least affluent spend most or all of any extra income on day-to-day living, so pumping demand into the economy. The rich, by contrast, who have more money than they know what to do with, tend to save their millions rather than spend them. If a government simply raises a sum of taxation from the rich and hands exactly the same amount of money to the poor, net consumer spending rises, helping to drive the economy out of recession. If at the same time interest rates have been cut, mortgagors and other borrowers have more to spend. And with a depreciated currency the extra demand being worked into the economy will be directed towards domestic produce rather than imports, again helping economic recovery. If proof were needed that sterling is seriously over-valued one has only to observe the gigantic structural trade deficits being recorded month after month.

Hakan Selvi
Istanbul Turkey
Finance Blog

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