Dumb Question Dept : "Why is New Housing so Big and Lousy?"
When we asked for dumb questions, we got some very smart ones, including dwightstreetrenter's very long "Why don't housing architects design more energy-efficient homes in large subdivisions? When they cut down all those trees, they're basically building huge homes in a desert of dirt...and encouraging people to consume massive amounts of electricity for air conditioning.... and suburban sprawl is promoted in such developments."
Why do builders build these homes? Because they could, and it was more profitable to do so. There were a number of reasons:
1) The building industry in America is surprisingly efficient at building inexpensively; pumping up the volume and adding a bit more drywall and cheap plastic carpeting costs very little once the fixed costs of sewers, roads, kitchens and baths are in, so the best way to get more money from a customer is to make it bigger. Incremental square feet are cheap to build, and as long as energy is cheap, purchasers don't think about operating costs.
2) Housebuilding used to be a local industry with local banks giving mortgages; in the last five years banks were happy to lend to iffy customers and the homebuilders themselves became lenders, since they could all bundle the mortgages and peddle them on Wall Street and hawk them to hedge funds. The bigger the house, the bigger the loan, money is cheap and controls are lax. In the last year as sales started to slow, "homebuilders really started to push more aggressive mortgages down the throats of potential buyers to boost sales."
3) Develoment is sloooow. By the time you rezone, service and build, everything you assumed at the beginning can change but you cannot, the approvals are in place, the purchasers have made deposits, it is a train going in one direction. Peak oil and global warming are barely on the radar now in suburban America; imagine five years ago when most of these monster house subdivisions were conceived.
4) People stopped buying houses and instead purchased investments, after all real estate can only go up in value, and for some insane reason, in America mortgages are tax deductable. Why not pile on some more? How can we lose?
The good news for anyone interested in sustainability and urban design, but the bad news for everybody else, is that it is over. Just like in the last real estate depression of the 90's caused by the S&L; easy money crisis, when the banks turn off the taps the building stops dead, and last week the taps were slammed shut. Some, like James Howard Kunstler (and if I may modestly say so, this writer) have been predicting this for years and were laughed at as the market kept spinning out houses and condos; Kunstler goes so far as to say
" The bottom is falling out under not only the housing market (as in houses up for sale) but on the whole apparatus for delivering future houses, and the car-oriented crap associated with it. The production home-builders, such as Toll Brothers, Hovanian, Pulte, et cetera are going down and they will not be coming back. There will be a great deal of wishing that they might come back, but they won't. Likewise, the commercial builders of all the various forms of suburban retail will be waiting to "turn the corner." But they will discover that the wall they have hit has no corner. It's just a wall."
Developers don't borrow money to build, they build to borrow money. All a house is to them is a way to use leverage to turn a cornfield into a more valuable crop, turning dirt into gold. It takes a huge amount of cash and without lenders it doesn't happen. Now the mortgage lenders are going broke, the hedge funds are shaking, and the quants, the rocket scientists, are proving to be like every other genius who makes money in a rising market but folds in the turn.
As families see their houses sink in value and their subdivisions unfinished they will toss their keys to the lender and walk away; this is 1992 all over again, a speculative bubble has just burst and a lot of people who got caught in it are going to get hurt.
However, perhaps a few good things can come out of it:
1) Municipalities that are stuck with unfinished subdivisions and no tax income to pay for the operation of the services that they now own will start to think twice about approving low density development where they cannot afford to pick up the garbage or run the schools. The politicians that approved these developments got elected with developer money, and there will be a big reaction to the inevitable tax increases as existing taxpayers have to support this new infrastructure. Expect a lot of throwing the bums out and new anti-development candidates in the next election cycle. Better planning may come of this.
2) Anyone who wants to buy a house should expect to have a big down payment, perhaps back to the 25% down days, and severe scrutiny of the percentage of income going to the mortgage. This will immediately result in any developers still standing offering smaller lots, smaller houses, townhouses and quads as the monster house becomes a dream again. Sprawl is dead.
3) Any big builder, prefabber or manufactured housing company that depends on volume is dead and gone, and your new house will be built by local trades and financed by a banker who can look you in the eye.
So, to dwightstreetrenter, the simple answer is that your question is that it is all about the money. When the money is gone then the development of the monster houses stops, and it just did.
This writer thinks that a bit of a time-out is a good thing, that we can use it to rethink how we build our cities and plan a more sensible future. Kunstler, who suggests that the entire economy was running on empty but kept going by the monmentum of development, is more dire:
"Those who keep wringing their hands over the bulldozers leveling the plots of prairie, or cornfield, or desert -- those distressed folks can direct their anxiety elsewhere. Worry less whether one final strip mall will tilt up out in gloaming, and think harder about how you are going to feed yourself and your family in a couple of years when the stupendous motorized moloch of American life begins to sputter, and the Cheez Doodle shipments can no longer make it to your supermarket shelves, and all that is "normal" melts into air."
::Jim Kunstler; read also ::Business Week