Rational Behavior in an Irrational World

Edward J. Dodson

[Reprinted from GroundSwell, July-August, 2005]

For much of my professional life, my colleagues and I worked to design and implement initiatives to bring people back into cities. Our efforts were described as "redevelopment" or "revitalization," and with the expenditure of enormous sums from public and private sources, we experienced a degree of success. One lesson learned over several decades was the importance of forging public/private partnerships and involving community residents. The relationship between neighborhood revitalization and employment and economic vitality in the central city is a synergistic one, as you know.

Today, the central districts of many cities have rebounded from their lowest points of disinvestment and out-migration of the late 1970s. There are many reasons this has occurred, reasons beyond the collective, structured efforts of everyone associated with redevelopment efforts. Demographics plays an important role. Attachment by individuals to historical landmarks and tradition plays an important role. Changing land values and the expectation of future changes play an important role.

We know the typical story of the urban pioneers, individuals who move into neighborhoods where some of the housing stock was once grand but has suffered from decades of deferred maintenance and even abandonment. Others, including artists, looking for inexpensive lodging and spaces to pursue their interests, are attracted to empty industrial buildings. After a decade or so of such individual efforts, public agencies begin to target these neighborhoods for larger-scale revitalization. Investors willing to speculate on a future accelerated pace of rising land values acquire and hold properties, waiting for individuals or developers to offer them a price yielding high gains. Eventually, some neighborhoods become "gentrified," and long-time residents - particularly lower-income renters - are forced by rising housing expenses to leave. If property assessments are adjusted according to changing market values, many lower-income homeowners also find themselves unable to absorb rising property taxes. They are forced to sell; and, even though they experience a considerable gain, they must find housing elsewhere. People of modest means are more heavily dependent upon the supportive structure of a close-knit community; so, moving to a new neighborhood or town is often a traumatic circumstance. The redevelopment community has made some attempts to soften these problems but the scope is far greater than the resources employed.

The turnaround in many of the older U.S. cities has now reached the stage where only the well-to-do will soon be able to afford urban living. Few new or rehabilitated housing units are being constructed that lower-income households can afford. Many of the large residential homes once converted into apartments for four or five families are being rehabilitated for single-family occupancy. Where are our working poor going? A recent report issued by the U.S. Bureau of the Census indicates that the nation's largest cities are again losing population to the suburbs. Moderate-income households and newly-arriving immigrants are looking to surburban areas for employment and for affordable housing options. With the median price of housing approaching $300,000 or more in cities such as San Francisco, Boston, Chicago, Minneapolis or Washington, DC, leaving the city is a rational choice.

According to the Bureau of the Census, nearly 70 cities with populations over 100,000 have experienced population declines since 2000. In some instances, people are forced by financial considerations to leave a region entirely. The distance one might have to go to find affordable housing is more often than not likely to be outside any reasonable commuting distance to work locations. Public transit options often do not exist at all.

The entire New York City metropolitan area is one of the nation's major exceptions to the above trend. The major reason is that New York City's five boroughs are essentially cities within a city, each with its own rate of growth, housing stock, bases of employment, and great ethnic and cultural diversity. Manhattan, of course, has its own attractions to those who can afford to pay upwards of $1 million for a modest unit in a cooperative. Harlem is being rebuilt and rehabilitated one building and one block at a time - increasingly for an ethnically-diverse population of professionals. Brooklyn is experiencing what can only be described as an urban renaissance, and the vast tracts of empty land that twenty-five years ago characterized huge parts of the borough are blossoming with mixed-use development. Across the Hudson River in New Jersey, cities are rebounding in response to very similar demographic trends.

In the Philadelphia region, where I reside, we continue to experience sprawling, but "negative" growth. The city is still losing more people than it is attracting, although those moving into the city tend to have higher incomes than those leaving. The inner ring suburbs have an aged infrastructure, already high property taxes, and housing prices too high for most families with young children to afford. So, sprawling development continues, even as established suburban communities organize to preserve what is left of remaining open space. In some parts of Philadelphia, a high percentage of residential properties are being purchased for speculation by out-of-region investors, raising concerns among existing residents over the arrival of transient, renters. Another important change is that the City of Philadelphia is now only one of many regional centers of employment and commerce. City residents are as likely to commute to jobs outside the city as suburban residents are to come into the City to work. These days, gridlock on the highways occurs in all directions at all times of the day.

At the end of January of 2005 I left my professional life behind and joined the demographic group of retired persons. I have resided in the New Jersey suburbs of Philadelphia for nearly twenty-five years, commuting everyday into the City by commuter train. Back in 1983, when my wife and I purchased our first home together, we bought a modest colonial-style home for $86,000. Interest rates were around 13 percent then, but were soon on their way down. By 1987, when we decided to look for a somewhat larger home on a quieter street, the land market had returned to its upward climb, and we were able to sell our property for $119,000, purchasing our second property for $152,000 (essentially putting the entire gain into the new acquisition). Today, we are both the beneficiaries and victims of the upwardly spiraling land market. The current market value of our property has climbed to nearly $400,000. However, our annual property tax bill has also climbed - to around $8,000. At the same time, our household income is down dramatically. Retirement tends to do that for most people. We may soon be looking to "downsize" to a smaller property or relocate to an area where property taxes are less burdensome.

Our situation is hardly unique. Here in New Jersey, owners of primary residences - led by a small army of retirees who have the time and energy to petition state government - have been pushing for a state constitutional convention to force an amendment to the constitution limiting property taxes. These are people who have lived in the same neighborhoods and towns for decades and find themselves being forced by rising property taxes to sell out and move to somewhere they have no desire to be.

Virtually the lone Common Grounder here in southern New Jersey, I have done what I can to ensure that if there is a constitutional convention, that the case for restructuring of the property tax to exempt property improvements from the tax base is heard. Now that I am among the retired, perhaps my efforts will have greater effect. Being rational in an irrational world often puts one in a space occupied by only a few others; often there are no others.