Focus on middle-class neighborhoods

By Michael Hicks

Housing policy in the United States is overwhelmingly focused on aiding distressed communities in growing urban places. Mortgage subsidies in our tax code incentivize ownership, while rental assistance and large-scale infrastructure aid tend to focus on maintaining aging homes.

All these programs assume that distressed communities will recover in a coming decade or two and enjoy a viable economic future. For many distressed neighborhoods in the Midwest, that is an unlikely prospect.

Vacancy rates in Terre Haute, South Bend and Muncie averaged more than 14 percent, 18 percent and 15 percent respectively, according to the most recent Census release. These are all close to three times the national average, and close to those experienced by Detroit and Youngstown, who are downsizing their city footprints. These cities and a dozen more in Indiana are in the midst of long-term population decline that will persist much of this century.

The inevitability of shrinking urban footprints in smaller cities demands a focused change to housing policy. This change has to focus on sustaining the most viable portions of an urban area. In the unfolding 21st century, many shrinking cities must alter their focus from sustaining the most distressed communities to enabling the continued success of middle class neighborhoods.

In many ways, this shift will be as politically challenging as helping citizens understand the need to abandon unsalvageable neighborhoods. Let me explain.

In previous columns I noted that neighborhoods, not housing characteristics, largely determine home prices. Crummy homes in nice neighborhoods attract rehabilitation dollars, while great homes in bad neighborhoods decay. Historically, housing policy in distressed communities focused on houses, while policies in middle class neighborhoods must focus on broader community assets.

The good news is that middle class neighborhoods still enjoy private investment from homeowners themselves. But, the first signs of distress often accompany the loss of some key community assets such as a swimming pool or local playground.

Other signs of decay may be poor public infrastructure such as sewer systems, or the absence of amenities that matter to modern residents, such as parks or walking trails.

This is where the public sector can thoughtfully intervene to stabilize middle class neighborhoods, but it is not always politically easy.

For example, just two years ago Muncie’s mayor faced a great deal of criticism for attempting to stabilize a local community pool with a very small subsidy for swim lessons. I think that criticism was unfair and shortsighted. The pool has since closed, endangering the stability of two large, middle class neighborhoods. Yet this is exactly the type of neighborhood stabilization effort that mayors and other elected officials can influence.

School quality always is the most pressing issue for middle class neighborhoods, but other amenities matter. The cost of improving amenities in communities that are likely to survive for several decades is very small. These places pay property and income taxes to local governments and house the middle class families who are the lifeblood of Indiana. Improvements here may actually generate enough new tax dollars to pay for themselves.

Key amenities add direct value to homes. In 2004 I co-authored a paper that found nearby walking trails can add as much as $10,000 to home values, and one recent very high quality study estimated that community pools boost home values by between 1.6 and 2.4 percent. In a perfect world, neighbors would band together to make sure these are funded. In our imperfect world, local elected leadership often will be the key to neighborhood improvements of this kind.

In the end, a focus on investing in decayed neighborhoods is a luxury for large growing places.

Cities with dwindling populations don’t really have that luxury. These places have to triage resources towards those neighborhoods that are likely to be viable two or three generations from now, when population growth returns to their cities.

Michael Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to [email protected].