Ktismatics

7 May 2012

White Flight or Movin’ On Up?

Filed under: Culture — ktismatics @ 11:29 am

This post was prompted by reading the comments on another blog, in which the “white flight” from US cities over the past century supposedly represents a fear response to black and latino crime culture…

I remember learning in a college economics course that, in urban areas worldwide, real estate prices increase the closer the property gets to downtown. As a Chicagoland kid I was surprised. Sure, the Gold Coast high-rises were deluxe, but most of the central city residents were poor people living in tenements. Yes, the price gradient holds true in the ghettos too, the professor assured us: it’s the price per square foot that needs to be considered. Most inner-city apartments are very small. To rent an apartment on the near South or North Side might cost half the monthly mortgage payment for a single-family house in the suburbs, but the apartment might be 500 square feet while the house is 2000 square feet, not including the cute little yard and garden area.

This discrepancy in price per square foot was a prime motivator for real estate investors to buy up inner-city apartment buildings and then rent them out: the unit markup is higher, yielding greater return on investment. To get out of the inner city money pit, a renter had to have enough money both to put down a deposit and to pay the mortgage — white-collar workers for the most part. Developers of suburban subdivisions made it harder and harder to get out of the rent trap: they kept building bigger houses with bigger price tags. I don’t have the statistics ready to hand, but I recall that the average single-family home in the US nearly doubled in size from the mid-60s to the mid-00s. The divide between urban and suburban widened: the suburbanites kept buying bigger houses farther away from downtown; the poor were left behind, stuck with paying those exorbitant per-square-foot monthly rents in the inner city or, if they could scrape the money together, buying a little place in the first-ring suburbs that their first-generation owners had flipped for a tidy profit.

No doubt the slumlords realized that their inner-city party was coming to an end. Blue-collar jobs were being exported overseas, so fewer of their working-class tenants had the money to make the exorbitant inner-city rent payments.  The tenement owners started selling off their inner-city rental units one at a time to the people who lived in them. Prices were cheaper than suburban houses, plus the bankers cooked up zero-down balloon payment schemes to lure in even the most precarious potential buyers. The balloons inflated, then they burst. The mortgage banks repossessed the houses, then they got bailed out by the federal government so they could hold onto those “toxic assets.” Gradually they’ve been selling their housing inventory off, mostly to investors who buy these units as rental properties. So the real estate investors sold their inner-city properties to families at inflated prices, then bought them back from the banks at deflated prices — sell high, buy low. And now the investors are renting those same properties back to the families to whom they sold them a few years ago, families who defaulted on their mortgage payments because their jobs got outsourced or robotized.

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3 Comments »

  1. […] the original post: White Flight or Movin' On Up? « Ktismatics Segnala presso: This entry was posted in Uncategorized and tagged apartment, apartment-might, […]

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    Pingback by White Flight or Movin' On Up? « Ktismatics | Mortgage — 7 May 2012 @ 5:24 pm

  2. The Obama administration seems to be signaling to France that it regards Hollande as more sympa than Sarko when it comes to promoting growth over austerity. The question is this: How can US fiscal and monetary policy promote sustainable economic growth if the private sector is bent on minimizing production costs by outsourcing and robotizing American jobs, and if the politicians from both parties are bent on eliminating public-sector jobs? If the Democrats manage to raise taxes on the rich and on corporations — which seems extremely unlikely — what would they do with the increased revenue? Paying down the deficit is austerity, not growth. Cutting back on safety-net transfer payments — Medicaid, food stamps, extended unemployment benefits — is austerity. Suppose the Treasury “borrows” more from the Federal Reserve to finance its operations. Those government operations that haven’t been eliminated have to a significant extent been outsourced to private contractors that are under no obligation to hire American workers to do the work paid for by public money.

    The only two viable options I see are trade protectionism supporting goods and services made by American workers, and increased public-sector hiring. Otherwise pro-growth economic policies would result merely in artificially buoying US demand for high-priced goods and services without sustainable increases in the ability to pay for them via domestic hiring and wage increases.

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    Comment by ktismatics — 8 May 2012 @ 6:51 am

  3. But now I’m remembering Obama’s guest appearance at the EU economic summit, which coincided with Greece’s bailout a few months back. Obama seemed invested primarily in representing American financial institutions’ interests — the second-tier investment banks and money market firms that were lending money at high interest rates to Greece, Spain, Italy et al. EU austerity would severely curtail member countries’ ability to borrow from any sources other than the EU central banks. So when the US administration talks to European politicians, “growth” means — at least in part — keeping the pipeline open for American lenders doing business in Europe.

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    Comment by ktismatics — 8 May 2012 @ 10:04 am


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