Housing market cooling provides time to reflect
Housing market cooling provides time to reflect
By: Tony Pauker and Mary Lydon
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The economics of housing are a foundation of urban planning as it is a foundation of the domestic economy. Massive amounts of American’s net worth are tied up in their houses. But housing is also connected to our money supply, education, job growth, competitiveness, retirement, city budgets, library hours and much more; it is a lynch pin of the US economy. In California, the housing fallout will be severe as we grapple with an estimated $14.5 billion gap in our state budget. Governor Arnold Schwarzenegger has ordered agencies to immediately trim spending by 10 percent — and what a difference a year makes. This could mean cuts to nursing homes, indigent care and increases in state college tuitions and more. All of this due to one market segment: housing. There is clearly an interdependence that we are more and more beginning to realize between all of the systems within an economy and the well-being and sheltering of its people. Now, during this market cooling, is a perfect time for San Diego to pull together a holistic optimal vision for our region that plans for a great city, which holds up to the future requirements of a healthy and sustainable community and economy.
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The last housing cycle started in 1998. What began as a gradual recovery from the eight-year slump of 1990-98 turned into an overheated frenzy by 2002. This was largely fueled by interest rates at unprecedented lows coupled with relaxed mortgage underwriting. Despite the current subprime fallout, there was actually a great deal of good that did occur. Many more Americans were able to become homeowners because of this fundamental shift in mortgage underwriting. The negatives however are clear. For every 10 new homeowners we will lose one or two to foreclosure. We will lose many lenders and builders and in turn we will see job loss. From a land use perspective we also entered a time when we built just because we could, not because we should. The result? We built subdivisions way too far out from urban centers. We built projects out of scale with neighborhoods and we built housing with less than great architecture. With the pending General Plan and many community plans being updated, now is a good time to consider planning (not reacting) in a thoughtful way.
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Global issues will become a big driver for the foreseeable future. When this cycle began, little thought was given to global demands for raw materials, energy and capital from China and India. Clearly that has changed. Global demand, and the issues of greenhouse gas emissions are affecting us. How and where we build does have global consequences. Eighty percent of global warming occurs in the cities of the world. Currently, 50 percent of the world’s population lives in cities and by 2030 it will rise to 60 percent. What’s remarkable is that in the last cycle being “green” was not part of the vocabulary of most developers. Now as we move into the next cycle many private developers are taking it upon themselves to create energy efficient buildings using green building materials and systems for both ethical and profitable reasons. In addition to leadership from the private sector, a well-thought out, balanced, integrated plan needs to be developed on the public side which creates a system that improves energy efficiency in our cities.
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From a leadership perspective, leaders — both public and private — must begin working into their plans and policies the ups and downs of the natural rhythm of the cycle. This is expected of private-sector leaders, but elected officials need to understand this as well. What will be needed are leaders who make decisions based on the good all for which is a very tall order — especially in four-year election cycles. As physicist and 1994 Nobel Prize for Economics winner, John Forbes Nash scientifically proved with his Games Theory, when we make decisions based on the good of all, we all win. If you’ve ever experienced this dynamic at a team building workshop it’s remarkable to experience the great sense of accomplishment when the group discovers the key to everyone winning and it’s heart breaking when there are those in the group who disregard the good of all for the chance that they might be able to push ahead a little further if they go it alone — greed at its finest. We need to make sure that our regional team, which is comprised of people, the built environment, the economy, the natural environment, leaders and governments, work toward solutions where we all win.
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ULI San Diego/Tijuana has plans to work on many of these areas by creating dialog to look for creative ideas, best practices and systems that can be realistically implemented. Our Bi-National Mayor’s Forum will be the centerpiece of our work in 2008 where we will bring all the Mayors from the county of San Diego and Baja to talk about the top 10 issues that we will need to work on together as it relates to sustainability, viability, competition and quality of life. ULI, in partnership with a broad range of leaders in our region, will help set the tone for San Diego to become one of the key enlightened regions of the 21st century.
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