This reminded me of another questioned posed by Streetsblog San Francisco — "Has the government been bailing out sprawl?" (h/t Jon Commers)
Unintended consequences from good intentions abound in the bailout biz, but once things start to go south, there are also perils in failing to act.
Smart growth advocates have long pointed out the costs of continuing to encourage and even subsidize urban sprawl. The post cogently presents some of the other bad consequences of the housing bubble that only became apparent after it burst. And it has suggestions for smarter policy.
I found myself copying too many sections of the piece to include here, so this is just a taste:
[R]ising housing demand led to construction on the urban fringe. It also led to higher prices in center cities, which pushed many low- and middle-income families to move to places with cheaper housing markets, which increased demand for homes on the fringe and led to even more construction. Rising demand for exurban living led to construction of exurban housing, and rising demand for urban living led to construction of exurban housing.
Another way to say this is that center-city housing markets experienced a correction, while exurban housing markets entered a vicious cycle leading to wrenching housing price declines that will likely push prices below replacement costs in some areas.
This is a dangerous place for neighborhoods to be. Vacant homes will begin to deteriorate, and occupied homes unlikely to sell for more than replacement costs (or more than the value of the owner's mortgage) will suffer from disinvestment. The housing stock will become second-rate.
As neighborhoods fall apart, wealthier and more mobile homeowners will move away, while excess inventory and rock bottom prices will attract low-income households. The tax base will fall and so services will decline, and the general desirability of such areas will drop. Some, and perhaps many, of these neighborhoods will become slums.
In short, the government isn't just subsidizing sprawl. It's subsidizing the deterioration of sprawling areas.
Once government acts, it's impossible to measure the price of inaction. We can't know if the economy would've gone into a death spiral if lawmakers had stood on the sidelines rooting for the free market to perform the rescue operation.
Critics of government intervention won't have to directly face the question: "what if we'd done nothing?" Instead, they can gather political ammunition without ever having stood in the line of fire.
Meanwhile, those who believe intervention averted disaster should consider the sort of consequences now manifest in the housing market.