Empty Houses and Toxic Loans

Amid all the commentary on the housing bubble and the banking crisis of 2008, few have asked what kind of houses and communities the real estate boom was helping to create. This is not surprising; the collapse of Lehman Brothers, the threat to the U.S. and world financial system, and the Bush Administration's bailout plan have pushed all such questions into the background.

It is important, however, that we ask them. The consequences of our current crisis will include not just financial disruption, but bricks and mortar—houses and subdivisions built on the assumption that the market would take care of community planning with little oversight from the communities where the homes were being built. The result, in far too many places, was suburban design on steroids. The new "financial instruments" that have now proven so badly flawed financed bigger houses in neighborhoods where two or three cars became a necessity because the nearest stores and services were ten or twenty miles from home.

Many of these houses are now in foreclosure, unsaleable, or abandoned. Most, because of the housing bubble, were priced far beyond the means of ordinary families. In 2003, the New York Times reported that the rise in housing prices had affected mainly communities that were already affluent. By 2008, houses everywhere had been affected to some extent. The market did a good job of making money for developers and hedge fund managers; it did a poor job of providing affordable, sustainable houses in liveable neighborhoods.

What we forgot in the early years of the 21st Century is that, as Adam Smith argued, markets alone do not create a viable society or the good life. Smith, who in his time was known as much for his moral philosophy as for his economics, relied on our moral sentiments to restrain market excesses and protect the common good.

It is impossible to know whether there will eventually be buyers for the houses now in foreclosure, or how long they will sit empty in virtually abandoned neighborhoods. As fuel prices rise and access to public transit becomes an asset, the automobile-centered suburb and the McMansion will surely become less viable. If we are wise, we will learn from this episode and begin once more to invest in real neighborhoods and sustainable housing.