Thursday, June 19, 2014

That Post-Housing Bubble Kinda Feelin'

No, I'm not writing an economics blues song... I just took a walk around Durham, NC.

I'm at Duke University right now to present at the ISNIE conference. It's a lovely campus and my hotel is just a mile away. To get a better feel for the neighborhood (and burn off some hor d'oeuvre calories) I went for a little jaunt around my hotel area.

Here's what I saw in the span of two miles:

  • Five luruxy housing developments with many dark windows
  • Past those and across the railroad tracks, a long string of auto parts stores and a lonely XXX-Entertainment shop
  • Two recently closed gas stations
  • A social gathering of young men parked by an unmarked food truck, who were the only people I saw having a good time
  • No restaurants or fast food anywhere.
The neighborhood didn't feel dangerous, just empty and underutilized.

I know nothing at all about the Durham, NC housing market but if you'll indulge me while I put on my Sherlock Holmes hat, here's what I think the chain of events was:
  1. The Auto Parts and XXX stores have been there forever because land is cheap near the railroad.
  2. In the mid-2000s, land developers get a good feeling. "Hey, there's lots of college kids nearby. They have to rent somewhere, right? Plus all those professors and administrative staff. We'll make a killing!"
  3. Luxury housing is built. Some other clever soul thinks "Hey, with all these people driving cars to school and work (there aren't many sidewalks, by the way) they'll love it if they can buy gas close to home. We can set up some pumps and make a killing!"
  4. The housing market collapses, and suddenly much of the local housing is vacant. A few years later, the gas stations go out of business. The Auto Parts stores remain happy with their cheap rent and occasional customers.
I'm familiar with the strip mall landscape from walking around Fairfax, VA and I'm familiar with rundown neighborhoods from living in Spokane, WA (both college towns, like Durham). It's odd and almost disconcerting to run into a combination of the two.

Also sad because there are so many frustrated plans to be seen. Gas stations and luxury housing are both a Good Thing but they happened to be built in a place and time where they just weren't needed. Austrian economists would describe it as "mal-investment"; others might just call it poor planning.  The problem is not that developers were short-sighted, it's that events beyond the scope of their imaginations arrived to flout the vision they had constructed.

This isn't meant to be a dig at Durham in particular, by the way. I'm sure that similar scenes are found across much of America. If there's a moral to the story it's that the burst housing bubble had, and continues to have, effects a bit more subtle than the unfinished subdivisions in Las Vegas, NV. In some ways, the under-use of a "completed" neighborhood is just as tragic.