The Doomsday Scenario
Left on our current course, we could send Buffalo into another decades-long economic hibernation. Currently, developers and city leaders are setting the stage for a incredibly fragile economy. Instead of building the economy of the future, the city has been stealthily exporting its problems to the suburbs.
Allowing neighborhoods to go into gross disrepair, harassment ticketing, and barriers to current residents buying lots in their neighborhoods have created an invisible chute ferrying “undesirable” people out of places like the Fruit Belt to clear the way for big-ticket development. As housing stock becomes so degraded, it looks perfectly justified to knock down what a few years prior could have been viable housing. The empty lots left in their place become shovel-ready properties which are more attractive to big developers.
Where we’re headed:
- Developers continue to build “luxury” condo and townhouse stock, defying sensible levels, and are creating a luxury housing stock bubble.
- Rents and tax assessments continue to increase in gentrifying neighborhoods. Current residents are forced to look for housing in more distant neighborhoods which compromises their already non-existent disposable income.
- Middle-class home owners will start to get priced out of their neighborhoods.
- Over-priced housing stock will make marginal-income renters and home owners particularly vulnerable in case of recession.
- To keep adding to their bottom-line, developers will continue to build.
When the recession happens (an inevitability): Issues amplify
- Demand for luxury housing will bottom out.
- Income flows to developers will slow and then eventually halt making it difficult for them to service their loans.
- Luxury space will sit vacant. Lost revenue will go onto developer books as losses. Developers will begin defaulting or re-negotiating loans.
- When the recession deepens, unemployment will increase. Marginal renters and homeowners will be forced to move or sell. Sometimes with not very favorable terms. Since there is no spare “affordable housing” stock in the inner city, the cost of “affordable” housing will spike due to limited supply.
- As more luxury units go un-rented, developers will begin to default on development loans.
- Developer bankruptcy proceedings will be accounted for on municipal, state books as “restructuring” or “forgiven.”
- Municipal and state budget surpluses will begin to disappear because loan repayments will dry up or disappear.
- The pace of region-wide layoffs will increase. The market will become more competitive. Individuals will be forced to economize their lives. There will be more housing re-sorting. Applications for food stamps and other forms of public assistance will increase.
- Crime will increase. More people will be incarcerated which will translate to even more stress on state, county and municipal budgets.
- Tax revenues will decline quickly as more people go off the tax-paying rolls and spending slows.
- Municipal and state budgets will start tipping into deficit status.
- Blame will fall on the government for mismanagement. Developers will escape culpability because they will successfully avoid accountability while steering criticism to state and municipal officials.
Buffalo’s economy isn’t diverse enough to sustain the shock of a real estate bubble bursting. Currently, politicians are doing the bidding of the developers which is likely to taint their records in the future. Much like LP Ciminelli recently has tainted the administration in Albany due to corporate malfeasance.
There is a way for everyone to win though. It’s a lot more exciting and sustainable process. In a way, it’s liberating for everyone. Nobel Prize winning economists and people who yearn for fairness, have put a lot of thinking into charting a course to a beautiful new economic paradigm. The question is if we, the people, opt to stay on the same tired path through the wastelands.