I work in an industry -- the housing industry -- with direct exposure to the forces behind the current economic situation.
And I see a brilliant opportunity for those prescient enough to seize it.
Yesterday, both Bill Clinton and Ron Paul pointed to real estate as the fulcrum in the strange financial imbalance of the past several years. In his CNN.com opinion piece, Paul argues that until prices begin to reflect a more close relationship to value, artificially lowered interest rates will only exacerbate credit destabilization; meanwhile, in his Daily Show appearance, Clinton outlined how real estate and construction became the preferred profit vehicle in a market flush with a Clinton-era surplus (oddly enough, he essentially argued that the success of his own economic policies is partly to blame for the mortgage crisis). There was capital to invest, and profit could only be maximized if the market was expanded, leading to the creative and risky mortgage market we have come to be so intimately disgusted with.
Of course, this concept of real estate market expansion matched well with the Bush administration’s "Ownership Society" concept – but not as well as one might think. The only problem ended up being THE central problem of the 21st century economy so far: Our economy would indeed be healthy if more Americans actually owned something – something other than Interest, that is.
Real estate, housing and construction are not intellectual capital industries. Overinvestment in the sector is not only evident in the financial institutions and wallets of the world, but also in the very landscape of the nation; and in addressing the credit crisis, we have barely begun the first chapter in what will prove to be a daunting saga for the American middle class.
Reflexive solutions and blame-shifting will simply not be enough. More conservative voices will loudly decry the irresponsible borrowers, suggesting that, once again, the lower economic classes are to blame. They will foment resentment while ignoring the disparity: When one has to borrow his/her way into a standard of living that was – within very recent memory – rather easily attained with average income, the borrower is no longer the problem.
Liberal analysts will quickly move to demonstrate economic acumen, but will miss a Golden Opportunity to lay out a case for effective reform. The gap bridged by risky mortgages is indeed a gap created by unrealistic real estate pricing – but it is also a gap created by the stagnation of the American wage. Prices cannot rise disproportionately to wages without creating a trend toward credit.
This is not to say that an increase in Wages is the solution – or even a solution. Adjusting wages to meet inflated prices perpetuates the economic virus and could lead to implosions in all industries. Inexorably, inevitably, the market will return to something closer to Real Value. Only then will we be out of the woods.
This process of "coming down" is, in my view, unavoidable; But it also provides unique opportunities. The shift in the credit market will cause a shift in the real estate market. The consumer-base will shrink and adjust. This shift gives us a chance to reform our economic policy – and it also gives Democrats a chance to reform our Environmental Policy.
Without a doubt, the land, housing, and construction industry will seek out equilibrium – a way to maintain profitability. The cheapest solution is to repackage the same products to avoid the prohibitive costs of innovation. In real-world terms, this means that the Industry will hang its hopes on the continued desirability of "Suburban Subdivision 3-bedroom Houses on 50’x100’ Lots – Preferably Near Golf Courses."
In essence, this approach mirrors the failed strategy of the automotive industry: in refusing to anticipate or acknowledge larger paradigms, the American automakers became un-maneuverable behemoths. Government regulation did nothing to prod them out of their dazed SUV regurgitation – in fact, regulation continued to favor such products.
Of course, we have seen this business approach is not exclusively economic in its impact, as we grapple with the effects of Global Warming and carbon emissions. The land, housing, and construction industry is no different in this respect: the development of US real estate has serious environmental impacts and the time to mitigate them is NOW.
The issues I am about to touch on have been more adequately addressed by many more worthy authors and deserve a great deal more analysis and research than I am affording them. The outline that follows is a barebones sketch.
The primary drivers of Environmental Impact in the land, housing, and construction industry are these:
1. Proximity of Housing to Centers of Employment or Commerce: Homebuyers tend to prefer housing locations that necessitate the excessive use of motor vehicles – to transport them to their jobs, their markets, and their schools.
2. The inefficient usage of space: Homebuyers tend to prefer housing communities whose features are the opposite of the square city blocks on which most Baby-Boomers were raised. The urban communities of yesteryear are scions of a model that has been replicated since ancient history – BECAUSE IT WORKS. The large backyards and eye-pleasing, wide, curvilinear avenues of present suburbia are relatively new and unproven – additionally, they are not sustainable designs and require increased expense in earthmoving, utility piping, and vehicle speed management.
3. The irresponsible cultivation and irrigation of landscaping: Water is Gold. The water supply problem is dire and clear, and yet the Standard Lush Lawn remains a centerpiece of American subdivision design.
4. The mismanagement of Storm and waste water: Erosion and pollution are problems which are causing billions of dollars worth of land damage every year.
5. Disproportionate loci of food growth and productive land: While community gardens are on the rise, farming is still a dying trade and the farmable land is shrinking – claimed by the ridiculous greed for space inherent to the New American Dream.
6. The preference of technology industries for rural and/or suburban (cheap) land with sprawling horizontal campuses -- rather than consolidated vertically-constructed space utilization.
All of these Primary Drivers have been exponentially worsened by the overinvestment in the land, housing, and construction industry. Now, there is an excessive supply of these ultimately destructive communities, and there is no sign of the trend losing its momentum, even as home values across the country plummet.
The problem is massive. And yet, never has such a massive problem been so eminently and simply solvable. In fact, the land, housing, and construction industry reform movement is a Grass Roots coalition BEGGING to be spawned.
You see, in the 50 years since Suburbia made its entrance in the US market, local municipal codes all over the Country were rewritten to accommodate the brave new community designs. These codes now ENFORCE the replication of the destructive subdivisions, making them the Front Line issue if we are to seriously confront environmental policy in America.
There is little motivation on the part of constructors/developers to change their product. Our buying habits and market interest must make a shift. But that’s not all we must do.
Fortunately, you don’t have to rely on your congressman or senator to see these municipal codes undergo revision: These codes are within the jurisdiction of county commissions and City Councils. We can shape the overall environmental policy of the US by launching a nation-wide grassroots offensive against the local laws and zoning regulations that perpetuate the destruction of our resources and our economy.
The time to work for change is now – now, while the whole market is in flux. The time for innovation is now – now, while even the experts are admitting that the current system is a bunk. Action guarantees real reform in our nation’s environmental policy, and provides hope for economic vitality in a reformed industry.
I work as a consultant in the land use business and am willing to work with/advise anyone who’s interested in this idea. Please write to me