STL Develops

MetroLink is at a crossroads. Faced with budget restraints Metro is either going to have to reduce services if funding levels remain the same or expand service if St. Louis County voters approve a 1/2 cent sales tax increase to along with an already approved city increase. In my view the debate of whether the tax should be approved comes down to the question is Metro responsibly managing public money or are taxpayers in essence wasting their money on Metro funding. Of course beyond this issue are ideological arguments running to extremes. There are those on the far right that think there should be little or no taxes and everybody can use their money as they see fit and all will be utopia. On the far left are people who think few if any people should use cars and if we all spent our auto-related money on public transit all would be utopia. Most of us realize that we need a strong public transportation system in order to: allow those who can’t afford a car, to work and go about their lives, reduce pollution, reduce congestion on the roads for drivers. At the same time most of us realize it is far too expensive for St. Louis to build a transportation system heavily reliant on rail travel like Chicago or new York, and realistically it is not going to happen anytime soon. If we tried to do it we would bankrupt the region. So if we throw the extreme vies out the window, what is the debate on this proposition about?

It comes down to question what the tax payers will get for their money? Will they get a more efficient transportation system that better meets the public transportation need in the region, or will Metro squander their hard earned money? The state recently completed an audit of Metro focusing on its handling of the cross county extension. The Audit finds that metro mismanaged the recently completed cross county expansion and questions several additional compensations that were paid to staff members. You can read the full report in order to see what the state auditor found as well as Metro’s response to the findings. It is important to note that the report is critical of some of metro’s spending and the management of the cross county extension, but not Metro’s overall handling of the regions public transportation system.

I am willing to forgive a company for making a mistake, and clearly management of the cross county expansion was mistake. I believe partially because it was an extremely large project for Metro to take on with little experience. Also, they were allegedly pressured to use local companies when larger companies from out state, with more experience could have been used. The fact remains that demand for public transportation is up and Metro is losing a significant amount of funds unrelated to cost overruns and wasted spending. According to Metro’s website the reduced revenue includes:

• Federal subsidies, peaking at $22 million annually, were phased out by 1999.

• State of Missouri subsidies were reduced from $3.5 million in 2001 to $1.4 million today.

• Regional leaders elected to build the Shrewsbury I-44 MetroLink Branch with local funds to speed construction. Metro must commit $37 million annually in Prop M funds to pay back the bonds.

• St. Louis County reduced its appropriation to Metro by nearly $10 million to meet non-transit obligations in 2009.

• $10 million in federal startup funds for the Shrewsbury I-44 MetroLink Branch will expire in Fiscal Year 2010.

• Municipal TIF projects have diverted up to $8 million annually from 1/2 cent transportation fund

If we are going to be a progressive region, we simply need a strong transportation system. If we want to just stick with the old and continue to spend money on roads and reduce spending on public transportation, we are going to be left behind once again. This attitude of ignoring population trends, which suggest the future population increase will be in urban areas as urban sprawl is beginning to reverse, is akin to those who decided St. Louis should stick to reliance on the river and not paying to lay railroad tracks that would have linked us with New York. You may remember Chicago decided to try the new technology and lay the rail road tracks. St. Louis needs to begin to think progressively and fund public transportation, while making sure to keep pressure on Metro to perform.

I want to start off by saying that I believe the United States is an amazing place to live.  After traveling to 10 different countries in Europe, North America, and the Middle East, I think the US is actually one of the least prejudice places I have been in the world.  However, we do have a history of institutionalized racism, and I think it is important to remind ourselves of this from time to time.  In fact, even after years of studying this, I’m still amazed at information I find.  Looking at our history is important to understand why our region looks the way it does and plan for a stronger future.  The implications of public policy decisions in the past affect all people in St. Louis.  Public Policies have particularly influenced housing decisions greatly, and were as much or more a reason for flight from cities as the racial motivations that many attribute to this phenomenon.  So I’ll explain briefly why I think government policy made moving to the suburbs financially appealing, and how this was racially motivated, but even non-racist people would have been induced to move.

The reason this is so important, is that many people claim that the suburbanization of America was a result of personal choice, and therefore unavoidable and “just the way it is.”  However, this is not true, the federal government clearly influenced this phenomenon, as explained in City Politics: Private Power and Public Policy by Dennis R. Judd and Todd Swanstrom were the data for this post comes from unless otherwise noted.  The housing market in the United States prior to 1934 was basically completely market driven, banks in essence loaned money to consumers and typically charged high down payments, often 30%-50%, and had short amortization terms, often 6-10 years.  FHA insurance insured loans given by banks that followed certain criteria and allowed consumers to use 20% down payment and amortize the loan over 25 or 30 years.  This program overwhelmingly benefited the suburbs, between 1935 and 1975 over 75% of the of the FHA insured mortgages insured new housing.  About 33% of all homes bought in the 1950’s were VA or FHA insured.  You may say, so just because people moved to suburbs with their loans, doesn’t mean there was anything malicious going on?  Well Examine this excerpt from the 1938 FHA underwriting manual:

“Areas surrounding a location are [to be] investigated to determine whether incompatible racial and social groups are present, for the purpose of making a prediction regarding the probability of the location being invaded by such groups.  If a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes.  A change in social or racial occupancy generally contributes to instability and a decline in values.”

Notice the word “invaded”, if certain incompatible groups move into a white area it is considered an invasion by the FHA.  Here are the definitions of invade from Websters Dictionary online:

1: to enter for conquest or plunder

2: to encroach upon : infringe

3 a: to spread over or into as if invading : permeate <doubts invade his mind> b: to affect injuriously and progressively <gangrene invades healthy tissue>

Is it really fair to say that when someone moves into a neighborhood, they are invading.  So far none of this really shocked me, what shocked me was the ranking of favorable races that was submitted by Homer Hoyt in 1933 when he was an FHA advisor advisor.  He later became the principal housing economist for the FHA from 1934-1940 which obviously includes the period when the 1938 underwriting manual was written.  In his report Hoyt said:

“While the ranking may be scientifically wrong from the standpoint of inherent racial characteristics, it registers an opinion or prejudice that is reflected in land values; it is the ranking of races and nationalities with respect to their beneficial effect upon land values; Those having the most favorable effect come first in the list and those exerting the most detrimental effect appear last:

1. English, Germans, Scotch, Irish, Scandinavians

2. North Italians

3. Bohemians or Czechoslovakians

4. Poles

5. Lithuanians

6. Greeks

7. Russian Jews of lower class

8. South Italians

9. Negroes

10. Mexicans”

Apparently, which part of Italy you come from matters, probably because those from the south have darker skin color.  I think the above information is substantial evidence that the federal government intentionally promoted segregation and provided “favorable” groups with much more favorable financing which allowed these people to greatly benefit from the greatest engine of wealth building for the average American, home equity.

This Old House Magazine recently rated the Shaw neighborhood as one of the top places to buy an old home in the Midwest.  They site the Victorian era neighborhood’s beautiful homes, wide streets, and proximity to Tower Grove Park and the Botanical Garden as aesthetically pleasing features that make the neighborhood a pleasant place to be.  In addition, they mention the growth of local cafes, pubs, galleries and restaurants as an appealing features.  The homes in the neighborhood were built between 1880 and 1940 and feature a mix of Victorian-era, Queen Anne, and Second Empire homes and also some Arts and Crafts, Georgian, and English Tudor.  The prices of course are also appealing.  They say you can buy an unrestored Victorian era home for as little as $125,000 or double if it is restored. 

This is a neighborhood that I am very familiar with and it is one of my favorites for many of the reasons mentioned in the article.  The homes are beautiful and the neighborhood becomes more vibrant each year as more people move in and businesses open.  One of the great features of this neighborhood is the diversity of the people.  There is a mix of income levels and races in the neighborhood, which gives it a good feel.  The article mentions that homes could be bought for $125,000, but this would most likely be an unlivable home.  Victorian homes that are livable cost $200,000 and above with a nicely restored home costing $300,000 and up.  This neighborhood is still rough in some parts, as there are some bad land lords who don’t screen their tenants well.  However, I think the Shaw neighborhood is well on its way to revival and I don’t see it turning for the worse.  The new Biotech corridor along Forest Park Parkway is nearby, and this neighborhood provides great housing stock for future employees of this corridor.  This is a neighborhood that I personally am interested in investing in, and there are some great investment opportunities here.

While we’ve all seen the doom and gloom news reports about the state of the real estate market , it is a fact that St. Louis is really better off than most metropolitan areas according to Forbes . While I can tell you as a real estate professional that this year has been slow, we are actually doing better than most cities. St. Louis developers have struggled as evidenced by the shut down of Taylor Morley and Pyramid Companies, as well as the public troubles of Saaman Realty. However, St. Louis has a reasonably low inventory of vacant new construction compared to cities in the West and South that have thousands of speculative neighborhoods sitting empty, especially in the city and near by suburbs. Downtown St. Louis has been overbuilt, but developers have responded. Properties originally planned to be condos or lofts are being developed as rental housing, like The Lawrence Groups Park Pacific development, or commercial space. Also, projects that were proposed have been cancelled or put on hold like Pyramids COs Leather Trades Build. If you buy a property today are you going to be able to sell it for a huge profit next year of the year after? Probably not. But I do think that St. Louis property values will begin to rise significantly sooner than most of the country. Right now prices are favorable and interest rates are low, so I think that there are definitely some great long term deals to be made.