Way back in 2006 longtime correspondent UKC and I began a dialog about the Pareto Principle and the way the popping of the housing bubble would hollow out exurbs and suburbs. At the risk of parading about our prescience, please read this entry from August 1, 2006: Twilight for Exurbia?

Here are UKC's comments in that entry:

"If there is a crash in the housing market many people will be forced to sell or will have it done for them by the lenders. One can then expect the price to drop and the demand then to pick up. However home ownership is not without costs - property taxes and maintenance being the most obvious. Will demand pick up to meet the supply? - maybe not. It is a reasonable assumption that if there is massive oversupply then there may well not be buyers for some homes at any price. The source of the oversupply could be in the many empty properties held by speculators, but also in hard economic times people move in with family members to save on costs - all of which conspires to reduce demand.

Empty properties soon deteriorate and a reasonable assumption is that many properties will be abandoned. But, here's the kicker, is the number of abandoned properties likely to be evenly distributed across every neighbourhood with every street taking its ration of a couple of empty houses. I think not - these effects tend to concentrate. There will be always some purchases if the price is right and some neighbourhoods will remain vibrant and others will become sinks in a classic feedback cycle inhibits or promotes purchases in the area.

Sooo... assuming the thesis of asymetrical desolation distribution is correct - what will be the determining factors in whether a suburb will survive or die?

It is possible that the future viability of a location will not be predictable a priori - a bit like chaos theory where small changes can effect improbably large outcomes. For some years in the future it may be that the value of a property could be almost entirely dependent on the maintenance level of the surrounding area. This was always the case, but now the effect may be greatly amplified. In conditions of massive oversupply, it is possible that once an area gets perceived as being on the downhill slide then the surrounding houses will rapidly become unsaleable at any price. In physics this is known as a phase transition (more recently popularized as the Tipping Point) and it happens rapidly. After a housing price crash, until things settle down, this effect could introduce extreme price volatility as the market determines which suburbs flip from being viable to being sinks."

1. exurban areas (far from urban job centers) which lack nearby employment
2. new suburbs in areas of declining demographics
3. hastily constructed homes in hurricane-prone, high-insurance locales.

As an example of scenario #1, we might speculate that new tracts of homes in exurban areas like Modesto, calif., a long (or even extreme) commute away from job centers, might remain empty regardless of price. The reason is that massive overbuilding in such areas far exceeds native population growth; once all the speculators have exited, the thousands of available homes may well exceed the demand created by new residents supported by local jobs.

Exurban wages tend to be far lower than in urban centers or suburban business parks, which means that prices for new homes would have to drop appreciably before local wage earners could afford the new homes.

Additionally, employment typically drops in recessions, which may well translate into a smaller pool of people willing to endure extreme commutes required to live in exurbia.

UKC's comments from that entry:

Remember how (many months ago) we were discussing how the some of the suburbs and exurbs might be hit harder by the housing downturn than others? The idea was that the empty houses would not be evenly distributed but would tend to accumulate in sink neighbourhoods. This means you could have a fully paid for house and still see its value reduced to zero as the area becomes unliveable. (emphasis added) You did a post on this. Well, its happening.

I added these conclusions:

Given the forces at work and the evidence trickling in from the real world, I wonder if the Pareto Principle isn't at work here. If so, perhaps we can posit a quantitative model of de-gentrification:

1. When 20% of the homes in a neighborhood have negative equity, then prices begin falling rapidly.

2. When 20% of the mortgages in a neighborhood of rising negative equity re-set higher, then foreclosures rise rapidly.

3. Once 20% of the homes in a neighborhood are distressed, abandoned or foreclosed, then de-gentrification accelerates rapidly.

4. Should a critical inflection point (tipping point) be reached, the remaining responsible homeowners abandon the neighborhood to the forces of de-gentrification.

This process can be illustrated by a chart such as this:

I have previously invoked the Pareto Principle to explain how a seemingly modest percentage of defaulting mortgages could (and did) bring down the entire $21 trillion U.S. housing market:

Can 4% of Homeowners Sink the Entire Market? (February 21, 2007)

How 4% of Mortgages Have Brought Down the Entire Market (August 21, 2007)

Correspondent Richard Metzger recently submitted this story from the Los Angeles Times on precisely the topic of how depopulating suburbs become attractors for crime:

California's Inland Empire: Hard times hit, and we slowly disappear.

This story describes all too chillingly how depopulating suburbs become havens for criminal activity: petty thefts, carjackings, arson, etc.

What many seem to have forgotten is the biggest deterrent to crime is "eyes on the street": precisely what you have in densely populated cities and precisely what you don't have in partially abandoned suburbs in which most of the remaining residents are away at work.

Lively urban neighborhoods, even poor ones, are inherently much safer than demographically degentrifying exurbs. The classic text on this complex phenomenon is The Death and Life of Great American Cities by Jane Jacobs; another excellent if largely overlooked book is Streets for People: A Primer for Americans by Bernard Rudofsky.

Think about it from the point of view of the criminal: which neighborhood enables you maximum time to case the place and maximum opportunity to work undetected? Not a busy neighbhorhood with pedestrians, kids playing, retirees looking out their windows, etc. The ideal setting for crime is a sparsely inhabited exurb, far from police, essentially empty all day long, a place with no street life whatsoever.

In my gritty neighborhood, hundreds of people walk by each and every day. As the recession drives people out of their suburban homes, they move into neighborhoods like this. Fine with me; what's a few more thousand people in one of the most densely populated urban areas of the U.S.?

As city budgets are slashed as tax revenues plummet, there will be a fight to the finish for those declining budget dollars; but you can bet the police force will receive the lightest cuts because middle-class people who pay the property taxes and run the businesses will demand some police presence.

Guess where you'll be most likely to receive some police support: a mile from the station or 20 miles out in the middle of a low-tax, low activity exurban zone? It's no contest, folks; the police dispatcher has to perform triage all day and night, and she/he can't afford to send a valuable patrol car out to the boonies.

If you want a preview of living in a city of poor people, then simply visit any large developing-world metropolis. (For more on this topic, please read Planet of Slums by Mike Davis.)

Densely populated cities like Bangkok are tough on street criminals; people are everywhere at all hours of the day and night. The vast majority of buildings, be they schools, highrise apartments or commercial complexes have watchful eyes: either formal uniformed guards or informal night watchmen/women.

Let's also consider the entire "raging mob" scenario a bit more. If we look at mobs and looters from the point of view of The Art Of War by Sun Tzu, then we might observe that mobs have all sorts of inherent disadvantages. Just off the top of my head:

1. Mobs lack leadership, discipline and unit cohesion. If you're in a conflict, which group would you rather be in? The disorganized, undisciplined riot or the well-disciplined group with strong unit cohesion and leadership?

As Napoleon showed back in the 1790s, a "whiff of grapeshot" is remarkably effective in scattering an unruly mob.

2. Mobs lack sustainable purpose. Looting seems like a fine idea until bad things start happening to those around you. Then the cost-benefit analysis shifts from "opportunity" to "high risk" and the mob disperses.

3. Mobs are gatherings which enable concentration of force. If 100 burglars knock off 100 scattered houses, they are hard to locate and hard to stop. But if a mob of 500 is storming down the street, they are concentrated and thus easier to control/disperse.

I would also add that as the Iraq War winds down and Regular Army recruitments pick up as the recession reduces other opportunities, many National Guard units will be returning stateside. Urban riots are precisely the sort of situation where the National Guard can be mobilized and where a strict curfew works wonders.

Most "urban breakdown" scenarios seem to ignore various contexts and feedback loops which would act against uncontrolled urban rioting. For instance, the U.S. still pumps about 5 million barrels of oil a day, plus large quantities of natural gas. The U.S. also retains about 600 million barrels of oil in its strategic reserves. If shortages develop, you can bet the police and the National Guard will be more mobile than the mobs.

Each culture is different, but it seems to me the American public has little tolerance for urban mobs and looting. We might recall that the San Francisco earthquake and the subsequent fire in 1906 offered various opportunities for urban looting of what hadn't burned, and the Navy (followed by the Army) was quickly called in with "shoot to kill" orders to restore order. A number of people were indeed shot and killed, and perhaps not all were guilty of looting. But order was restored and in the circumstances, few complained about the rough-and-ready restoration of order.

Nowadays there are non-lethal means of crowd control and curfew enforcement, but the point is that cultural tolerance of mobs remains low. Mobs melt at the first show of organized resistance, and looting a smashed storefront is quite a bit different from looting an inhabited street. Trying to do the latter is a very good way to get shot.

In this context we note that the U.S. citizenry is almost as heavily armed as the residents of Sadr City, Iraq, and a mob that proved tiresomely destructive might just find itself under heavy civilian fire (which could not be identifed after the fact) if civilian authorities let it get out of hand.

There is an unspoken ethnic subtext to the "urban mob" scenario which is not supported by history. Urban riots have been basically confined to the neighborhoods in which they started; once they move beyond the political boundaries of their area, official and informal resistance increases proportionately. Poor people don't have any great affection for looting and mobs, either; for all the blogosphere chatter about U.S. troops on U.S. soil, we might want to recall that the National Guard are U.S. troops on U.S. soil tasked to protect civilians and maintain order.

Anthropologist Desmond Morris once remarked that he'd predicted the U.S. would lose the war in Vietnam for the simple reason that the Vietnamese were defending their homeland from what they perceived as an invading force. Well-organized, densely populated neighborhoods might well respond to a mob with just the sort of ferocity other defenders use against invading forces.

Our genetic relatives the chimps eradicate enemy troops not by frontal assault but by picking off one member at a time in isolated circumstances. If we take this insight to a comparison of depopulating suburbia and a densely populated urban neighborhood, where are you going to feel safer? A sparsely populated exurb/suburb or a densely populated city?

Give me a Third-World city any time, as long as it has a active, open street life and I can blend in with the rest of the residents--or better yet, a densely populated small town. In a way, a city can be an amalgamation of small towns which simply border other small towns. Not all cities fit this description, but many do.

Lagniappe thought: where do most voters live in the U.S.? Cities. Where are politicians going to need votes to stay in power? Cities. Who will lose their precious power if they let services to cities vanish? Politicians.


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