Another Take On the Housing Boom Aftermath

by: Tim Iacono

Well, that Caroline Baum is a fast reader. Last week I noted that Daniel Gross's new book "Pop! Why Bubbles Are Great For The Economy" might be worth reading just to find out what the Slate columnist had to say about the housing bubble.

While no book order has yet been placed with Amazon.com, truth be told, the whole idea of reading the book has been completely forgotten and would have permanently slipped away if not for Ms. Baum's column yesterday.

First, a quick recap.

The premise of the book appears to be that, despite the mania associated with rapid economic change, where businessmen, investors, and much of the public lose their collective heads bidding up share prices for railroad companies or dot coms, technological innovation proceeds at a rapid pace and after the inevitable popping, something good is left behind.

Naturally, the question at hand is what good might be left behind after the once hot housing market completes its cooling down process. Call it a bubble or call it a boom, there are going to be a lot of half-built condo towers and half-completed housing developments dotting the landscape well into the next decade as a new boom in foreclosure auctions continues to develop.

After taking the initiative to read the book, Caroline not only answered my question but had a few thoughts of her own.

Every asset bubble leaves a new collection of bubble literature in its wake.

Some of the books go on to become classics: John Kenneth Galbraith's "The Great Crash,'' for example. Others ("Dow 36,000'') are remembered for their curiosity value. Still others are just plain curious, as in, what was the author thinking?

Daniel Gross's "Pop! Why Bubbles are Great for the Economy'' has to be assigned to this third category, because it's based on a flawed premise. The author, who writes Slate's Moneybox column, believes investment bubbles that leave behind a usable commercial and consumer infrastructure are ultimately a net positive for the economy.

How does the real estate bubble, currently deflating, comport with this thesis? Not well. It's painful to watch Gross shoehorn those many-times-flipped condos into his usable- infrastructure framework.

"The bubble achieved a goal that billions of federal dollars, and 30 years of good intentions, could not: gentrification and renewal in formerly some of the most wretched spots of cities,'' such as the South Bronx, Gross writes.

What happens when those gentrified inner-city blocks are dotted with For Sale signs on unoccupied foreclosed homes? It's called urban blight. How do those unproductive assets become productive? The author doesn't say. (Gross's publicist might want to reconsider book-signing events in the once-hot housing markets of Phoenix, Las Vegas and Fort Myers, Florida, where homeowners aren't likely to see much greatness in the bubble's aftermath.)

Ouch! Urban blight, in pastel.

While there are some shining examples of urban renewal, recent anecdotal accounts point unquestionably to the "cruel joke" finale rather than the "happy ending" that inner-city housing bulls have promised for years as $30,000 row homes turned into $80,000 row homes and are now on their way back down despite the new granite countertops.

While the rapid increase in homeownership since the turn of the century may have looked like a good idea at first, it now seems clear that there are practical limits, somewhere in the mid-60 percent range, for this statistic.

Of course, all hope should not be lost for a lingering beneficial effect in the aftermath of the late, great housing boom.

The nation has a continuing problem with a growing homeless population (perhaps set to get worse as more houses go back to the bank) while at the same time maintaining a government and central bank with no known bounds in throwing good money after bad (uh, see Iraq).

Why not run the printing presses an extra shift every day over the next year or so and just buy up all the properties from distressed sellers and then give them away to the homeless? Home prices will remain lofty, everyone will have a place to live, and the economy will just keep on booming!