Is increasing poverty going to become the new normal?

The economy is technically growing relative to its nadir a few years ago, but no one in their right mind would call it “good”. Not surprisingly, poverty figures have increased.

“The ranks of America’s poor are on track to climb to levels unseen in nearly half a century, erasing gains from the war on poverty in the 1960s amid a weak economy and fraying government safety net.{…}

Poverty is spreading at record levels across many groups, from underemployed workers and suburban families to the poorest poor. More discouraged workers are giving up on the job market, leaving them vulnerable as unemployment aid begins to run out. Suburbs are seeing increases in poverty, including in such political battlegrounds as Colorado, Florida and Nevada, where voters are coping with a new norm of living hand to mouth.”

States like Colorado, Florida and Nevada have a challenge which makes dealing with poverty difficult, as they typically have limited public transit throughout most of their states, which forces the unemployed to rely on a mode of transit that tends to be a money pit – cars.  In particular, Nevada overproduction of exurban housing situated people in houses they couldn’t afford in places where they can’t walk.

Some of the other major findings:

“—Poverty will remain above the pre-recession level of 12.5 percent for many more years. Several predicted that peak poverty levels — 15 percent to 16 percent — will last at least until 2014, due to expiring unemployment benefits, a jobless rate persistently above 6 percent and weak wage growth.

—Suburban poverty, already at a record level of 11.8 percent, will increase again in 2011.

—Part-time or underemployed workers, who saw a record 15 percent poverty in 2010, will rise to a new high.

—Poverty among people 65 and older will remain at historically low levels, buoyed by Social Security cash payments.

—Child poverty will increase from its 22 percent level in 2010.”

It’s clear that the economy is going to remain weak for several for years and while people at the lower end of the income scale will take the hardest hit (as always), no one is immune. It’s inevitable that more people are going to share housing with family and friends and drive their cars less out of sheer financial necessity. What’s less certain is how places like Nevada and most post WWII suburbia are going to make these transitions. They’re not nearly as equipped as the older suburbs and urban cores. Which doesn’t mean the death knell for suburbia, not even close, but “sustainability” is a concept that goes far beyond hybrid cars and high-efficiency lightbulbs. We’re going to find out which cities and regions can adapt to an era where poverty may become the new normal.

A Different Housing Market

Streetcar Suburbs, Somerville Alex MacLean. Somerville, MA, ca. 1910

Yale economist and housing market guru Robert Shiller is sounding gloomy about current state of the market , recently claiming in an interview that “Dispersed suburban housing may not do well in decades to come. It could be we will never in our lifetime see a rebound in home prices in the suburbs.” Other analysts are making a similar argument:

“For some analysts, the scariest outcome of the collapsed home-price bubble is that it could turn an entire generation of would-be homeowners into perma-renters. {…}

Other economists and real estate experts say young would-be home buyers haven’t given up on real estate as an investment. It’s just that stifling student loan debt and the unstable job market have made it all but impossible—and it may be years before that changes. A study by the John Burns Real Estate Consulting firm predicts the homeownership rate for 25- to 34-year-olds will continue falling through 2015. It says the number of first-time home buyers has dropped 20 percent since 2009.”

The reasons are fairly obvious for those inclined to look. Student loan debt, underemployment and stagnant wages are going to be a drag on the housing market for the foreseeable future. I’d also argue that there has been a change in the psychology of would-be home buyers since the onset of the Great Recession – it’s painfully obvious that home price can in fact decline and that employment is far more precarious that we like to admit. People are reluctant to potentially anchor themselves to an underwater asset when the reality of the labor market might involve moving across the country.

People are still going to want to buy homes, but in my view the demand for certain suburban typologies are going to severely decline. A recent report from the Demand Institute makes a similar point:

“Downsizing, Polarization, and Accessibility
Although demand for new and existing homes will rise, consumer demographics as well as altered preferences will change the nature of that demand. Consumers will reduce their expectations and houses will be smaller, neighborhoods will be increasingly segregated economically, resulting in polarization, and demand will be high in areas well served with amenities that are within walking distance and that have a sense of community. Sprawling, featureless suburbs will be less attractive.

Downsizing
Demand for smaller homes will be driven partly by the many baby boomers who delayed retirement because of financial concerns during the recession.  When they do eventually retire, many will not move. But those who do are likely to downsize.”

These points seem obviously true. The desire for a home is highly ingrained in American culture, and it’s merely going to be modified, not abandoned. Smaller homes on small lots close to walkable urban areas and various amenities were the norm before World War II, so it’s not as if that urban typology is utterly alien to consumers. There’s a reason why home values in historic districts are generally so robust – people like those neighborhoods. We should build more of them.