Photo: Trey_Campbell on flickr
Some cities probably won’t ever recover.That’s the conclusion of a new study on vacancy rates, demographics, and market patterns by the Mortgage Bankers Association.
Wayne County, Mich. had an incredible 27.6 per cent housing vacancy rate in Q2 2010. The next worst was a 17.3 per cent vacancy rate around Cleveland.
Wayne County also registered an incredible 62.2 per cent business vacancy rate. Business vacancies around the country tended to be 50 per cent worse than housing vacancies. Again the next worst was a distant 35.1 per cent around Cleveland.
Deterioration is a risk in any city with massive price declines, like Stockton and Fresno, or secular changes, like the Rust Belt.
Here’s how a city dies:
Not surprisingly, home prices decline sharply in markets that suffer substantial and persistent decreases in population or employment. Such decreases in population and employment trigger declines in the demand for housing, and because people are more mobile than houses, it takes many years for supply and demand to become balanced again and for house prices to return to prior levels. This finding is supported by strong narrative and empirical evidence: home prices decline to a much greater extent when population falls than home prices increase when population grows. Of course, a substantial and persistent decline in housing demand can be driven by factors other than population. If these other factors are not persistently in decline, then house price declines in these areas need not be persistent either. Hence, the key to any forecast of house prices in many markets today depends upon future housing demand in these markets relative to that reached prior to the Great Recession. For those markets in which housing demand seems likely to remain below previous peak levels, recovery in their real estate markets will be long in coming. For example, Stockton, California, which is a key case study in this paper, may become a new type of declining city born of the Great Recession and the housing boom and bust of the 2000s.
The empirical evidence on declining cities strongly confirm widely varying experiences among submarkets of metropolitan areas that experience persistent and negative shocks to housing demand. Indeed, some of these neighborhoods and submarkets experienced declines so severe that their future viability seems questionable or, at a minimum, that the road to recovery will be protracted. This finding is highlighted by the experiences of Cleveland and Stockton during the 2000s, both of which include neighborhoods that have experienced declines in house prices and wealth much more severe than the metro average.
But there’s always hope. Check out 10 global ‘dead cities’ that made amazing come backs >
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