The Newest Real Estate Bubble and Induced Demand

Image by TheTruthAbout... via Flickr
For anyone who watch the news yesterday you will know that the world has come to an end as housing sales plummeted 27% in the last reporting period. Doom and gloom seem to be everywhere you look when it comes to this issue.

However, what did people expect when the government induced demand for housing over the last 15 months? Of course the federal government has been inducing demand in housing since FDR was in office in the mid-1930's but the most recent inducing caused a housing bubble that suddenly burst when the inducing went away.

To give a little history lesson, before the times of FDR, less than 2% of the population would finance a home purchase (the irony being is people today have a higher percentage of income to housing prices than back then). At the time to qualify for a mortgage you need to put 50% percent down and pay it off in less than 7 years.

With the advent of the FDR programs we started to see the 30 year mortgages come along and the induce demand created by opening home buying to people who could not previously buy a home (I will not get into the social-economic problems that this created as it was the beginning of our decline into a debt slaved society).

Then came the FHA guaranteed mortgages for people who could not qualify for a mortgage otherwise. The latest numbers I have seen showed that 50% of the mortgages now being created were FHA or VA guaranteed loans. In other words, 50% of the people buying homes really could not afford them without the government helping them and thus inducing demand.

The tax incentives over the last 15 months induced even more demand over what would have been normal.

So what does this have to do with transit?

It was this induced demand that is one of the many reasons that development occurred as it has over the last 75 years. If the government had not induced demand, how different would our cities look today?

Layton is in the news...

Image by Daniel Greene via FlickrHere is some articles from today's Deseret News that deals with development and shopping centers in Layton.

Layton OKs housing units

First of all, let me call your attention to one of the last sentences of the article:

Councilman Renny Knowlton said he's noticed that single home development has slowed down a lot recently.

No kidding? This guy is a smart one.

The town homes approved on Gentile are within walking distance of the Front Runner station, and although not true transit oriented development it can be considered part of the Front Runner station area as the picture shows.


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This next article:

Layton hoping to lure businesses

Shows that Layton is having some Sandy envy. It has to have all the coolest stores and restaurants despite the infrastructure nightmare they create. Hill Field Road is already a traffic nightmare and more stores along the corridor will only worsen the problem. Will these new chain stores bring in enough sales tax revenue to overcome the infrastructure problems that already exist much less would be created? Of course not.

Instead of worrying about having every chain store on the list, how about promoting Layton's unique character. Layton has a nice downtown area that is very close to the Front Runner station. How about promoting some of those small businesses and showing that Layton has something special? After all, chain stores are everywhere but that small business...

Finally there is this article about the shopping center at Fort Lane and Gentile Streets:

Developers are excited about Layton shopping center

Once again, we have developers looking to develop a property that they can depreciate over 7 years and show losses on making big bucks but could care less what happens to the area around the shopping center once they make their money.

Both of the streets are two lane roads. Once again you have to ask, will this center produce enough sales tax dollars to cover the infrastructure cost it creates, not to mention the additional police and fire protection and other city services? Of course the answer to those question is no.

It's time for city governments to start looking beyond just the sales tax revenue brought in and look at the actual long term cost of a project including additional services. Cities should be looking for create unique shopping experiences not worrying if they have every chain store on the list.