Still building, still foreclosing

Imbalance of housing output and demand suggests hard times ahead for Baltimore region

November 21, 2010|By Antero Pietila

Homeownership became an achievable American dream thanks to government-insured 30-year mortgages, part of the federal government's bold intervention in the housing market since the Great Depression. The ideology of the dream had germinated for decades, though.

Political Progressives, a bipartisan reform movement between the 1890s and the 1930s, saw homeownership as good for America. Lawrence Veiller, of the influential Russell Sage Foundation, wrote in 1910: "Where a man has a home of his own he has every incentive to be economical and thrifty, to take his part in the duties of citizenship, to be real sharer in government. Democracy was not predicated upon a country made of tenement dwellers, nor can it so survive."

This world of "Ozzie and Harriet" and "Leave it to Beaver" — two radio and television sit-coms that reshaped America — is now threatened. The residential real estate market is likely to remain sluggish, even after an eventual recovery. Among the reasons:

•Homeownership is unlikely to soon again become the kind of wildly lucrative, reliable money machine it was over generations, particularly during the housing and banking bubbles.

•Substantial numbers of homeowners are trapped. They cannot sell their properties for anything close to what they owe.

•Among the most likely to succeed in today's job-starved America are exceptionally qualified people who are free to chase opportunities without having to worry about selling a house.

This attack on homeownership is taking place in the midst of a mind-boggling behavioral revolution enabled by digital technology. Our behavior is changing every day, largely without our realizing it. The confluence of technological and behavioral revolutions makes neighborhoods vulnerable and their future unpredictable.

Today's foreclosures far surpass those during the Great Depression. Much of this is thanks to far greater rates of homeownership now, facilitated by government-insured 30-year mortgages. Before such loans, even the best customers could only obtain loans for up to seven years, requiring frequent refinancing that was hard or impossible in times of economic adversity.

Indeed, during the Depression, homebuilding ground to a halt. In 1934, only 119 housing starts were recorded in Baltimore, a far cry from 4,871 in 1926.

This time, the situation is different. Despite more than 2.1 million homes in foreclosure nationwide in September, further homebuilding is being encouraged as a salutary economic activity. The expectation seems to be that if you build them, buyers will come. Maybe they will, maybe not.

The serious imbalance between output and demand suggests hard times ahead for the Baltimore region's neighborhoods. Vacant and abandoned houses, long seen as a unique city problem, may soon spread into neighborhoods in nearby counties as well.

Forests of "for sale" and auction signs underline how different today's market glut is from the Depression. Because Baltimore was growing rapidly, the city in 1929 had no housing vacancies for either whites or blacks, according to the Home Owners' Loan Corporation (HOLC), the New Deal bailout agency.

There were repossessions, for sure. From 1929 through 1936, when the worst was over, local financial institutions took back 7,375 properties. The HOLC's intervention saved more than 10,300 other homes from foreclosure. But instead of conducting fire sales, lenders sat on the repossessed homes. Only 456 were resold in 1935 and in 1936. Instead, lenders rented them out.

Another difference: There are no shantytowns today.

During the Great Depression, camps of makeshift shacks existed on the fringes of several rowhouse areas. One such "Hooverville" — named after President Herbert Hoover, who was blamed for the misery — adjoined a dump off Winchester Avenue in what then was a white, working-class neighborhood, near where the Maryland Army National Guard later constructed the Lt. Col. Melvin H. Cade Armory.

However, in researching my real estate history, I came to realize that today's Baltimore has plenty of shantytown equivalents. Thanks to stepped-up public health enforcement and an overall increase in living standards, even at the rock-bottom level, they no longer consist of cardboard shacks rattling in the wind. Instead, many of today's shantytowns are either contained within the walls of vacant and abandoned homes or exist inside still-occupied rowhouses that accommodate huge numbers of related or unrelated transients on the margins of society.

If you enter such an abode in the morning looking for Charlie, you usually encounter a number of sleeping bodies. You don't ask whether Charlie lives there. Instead, you ask, "Where does Charlie sleep at?" because the living arrangements are so improvised that a living room couch where he bedded down two days earlier may have changed to a different address.

The social costs of such lifestyles affect us all. Transiency is a key reason for Baltimore's troubled public schools, where 75 percent or more of the student body changes within one academic year in several elementary schools. It is a problem that all Baltimoreans should care about — and that all candidates must address in next year's city elections.

Antero Pietila, a retired Baltimore Sun journalist, is the author of "Not in My Neighborhood: How Bigotry Shaped a Great American City," now available for Kindle. His e-mail is hap5905@hotmail.com.

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