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When one travels southwest from Hereford in the UK along the 49, which is sometimes known as the Ross Road, towards Monmouth and the Welsh border, any number of alternate routes lead to any number of alternate adventures.

Stray a bit east and one can wind up unexpectedly in Aconbury Wood, through which in the middle of a late winter day it can become quite dark, and during a substantial rain, which are not infrequent, countless cedars and oaks render the paths more misty than showery, but no less muddy.

If instead one heads further west and a bit northward across Callow and Bagwyllydiart, the greetings at St Margaret’s before getting to Peterchurch offer lessons in grace and kindness unmatched anywhere.  More or less in the middle of all this hedgerow business is the crossroads of Michaelchurch, a dip down from Vowchurch, and the beginning of the foothills of the Black Mountains, where real treats await.

Along the way ten thousand acres of turnips, lambing Ryeland ewes, carrots, and the occasional goat greet one through rain and thornbushes and northwinds until one has had just a little more dampness than one can reasonably tolerate.  This is the moment when the road turns and just ahead, a bit beyond an apple orchard, two steers, a handful of black lambs, a tractor, and several hundred yards of marvelous dry-stack stone walls, is a softly-stuccoed Vermeer-yellow west Herefordshire pub.  Tucked seemingly between clouds and raindrops, it is a worn and sooty respite where inside is a Franklin-like stove warming wet dogs asleep on the slate floor and providing visitors (even Americans) with farmhouse cider, crusty bread, and piping hot soup.  Here the conversation is a very un-American combination of literal (“by chance were you aware of the sheep shit on your shoes?”) and chivalrous (“right…fancy something to eat or drink?” (though the kitchen is closed)).

The soup inside – earthy and redolent – is as simple, good, and inexpensive as the hills outside are fertile, rich, and loamy.  The air inside is thick with woodsmoke from the stove and frying bacon from the grill.  Outside smells like cypress and fresh buttermilk, of topsoil and compost and humus:  of good crops to come.

The American vernacular – of processed twinkie spongcakes from Dallas, and processed cows from concentrated feedlots in Maricopa, processed backyards from Chemlawn in Tennessee and processed Menhaden from Reedville – has somehow missed the important deforested Welsh countryside for Home Depot’s artificial Christmas tree.  If you make the mistake of cutting down all the trees, yet are wise enough to keep the hedgerows, you have functional reminders that, as Wendell Berry noted, can communicate “the balance of the natural and the human make a landscape that looks comfortable and comforting.”

From 2005 – present, we have extensively studied weak markets.  Our clients have included communities in upstate and western NY, central Michigan, western Pennsylvania, parts of Connecticut and Ohio, and of course the weak neighborhoods in strong cities that have always been our central focus.

In a series of essays and editorials for the online planing journal Planetizen, we have discussed strategic approaches to weak market realities.  If your community is struggling,  we encourage you to think carefully about how best to intervene in low demand situations.  The following are links to useful documents.

The Right Interventions to Restore Confidence in Weak Markets

http://www.planetizen.com/taxonomy/term/3274

Notes on Structural Change: Redefining the Problem of Weak Markets

http://www.planetizen.com/taxonomy/term/3274

The Work of Community Development

http://www.planetizen.com/taxonomy/term/3274

The Work of Neighborhood Stabilization

http://www.planetizen.com/taxonomy/term/3274

A Reminder to the City: Neighborhoods Are Building Blocks of Civic Life

http://www.planetizen.com/taxonomy/term/3274

By Charles Buki and Elizabeth Humphrey Schilling

Reprint from 1/28/2010 Op Ed in Planetizen

http://www.planetizen.com/node/42691

Like Tolstoy’s unhappy families, every weak market is weak in its own way.  Communities need – and deserve – surgically precise interventions based on real data about their exact stage of decline and the true source of their weakness. Interventions based on averages and broad brush approaches not only fail, but often drive these markets further into decline. Interventions that do not consider the psychology of risk are also suspect, because they ignore the motivation behind homeowners’ choices.

In data and experience czb has gathered over the years, in markets across the spectrum from nearly broken to merely behind the curve, the most important indicator of market strength is market confidence. Property owners derive confidence from signals they receive. Cues from other property conditions alert a property owner to how others are reading the market and shaping supply.  Cues from shifts in the market (who is moving in and out) inform a property owner about the nature of demand.

Lacking confidence that the market is getting better, or at least stable, owners conclude any subsequent investment may be an over-investment.  The result:  a pullback and the denial of investments both essential and, paradoxically, affordable.   The irony is that in weak markets these behaviors make property owners their own worst enemies.

Low confidence is not solely the result of years of economic shocks, either.  It is causal.  Some markets have too much confidence, some have very little left in their reservoir after years of decline.  Many more are somewhere in between.  In these precarious markets, restoring and leveraging confidence must be the overall aim of any plan to establish stability and strength.

This first in a pair of commentaries will explain the dynamics of confidence loss in weak markets, and its indispensable but overlooked role in recovery.  The second will explore a true market-based approach to failing neighborhoods suggested by these dynamics:  monetizing confidence and persuading residents to invest in their own turn-around.

Stages of Decline

There are four indications of weakness in the earliest stage of market decline:  Falling prices and sagging other sales data such as time on market, price to list ratio, and population loss; quickened retail turnover; and limited and falling permitting activity.  During this stage, the primary inputs for decline are either job loss or superior competition.  The distinction is important because  most small markets focus their energy on an anemic jobs condition and miss important housing market issues that need attention. Which of these is at work becomes clear upon examination of historic sales data in the context of a thorough property conditions analysis.

The second stage of decline is the tipping point for market confidence.  Reduced levels of owner investment in their homes, milage creep, and retail vacancy all emerge during this stage, when  communities have already failed at their number one responsibility: retaining strong households. The loss of families with the resources to leave has profound implications for those who remain in terms of how wise it is for them to invest.  When strong families take their strong incomes with them, commercial real estate begins to show the effects of dropoffs in spending.  Communities look tired. This is the stage where service costs outstrip revenue, and tax rates become germane indicators of the extent to which a market is in trouble.   A sad irony is that frustration with “rising taxes” often results in a perverse failure by owners to acknowledge that the key culprit driving tax increases is property investment decreases.

This second stage is the most delicate because community memory still sees overall market strength.  Distressed blocks appear (wrongly) to be ideal places to address affordable housing problems – which are, after all, regional – and the region is all too happy to let these sagging markets absorb more than their fair share of struggling families, further degrading recovery potential with too much subsidy on blocks with too little equity.  This is the make-or-break time for successful interventions.  The costs of recovery now pale in comparison with the expense of intervening years later –  when neighborhoods are more completely distressed; however,  perceived community strength makes it hard to find the political will to invest in localized recovery.

In the final stage, after persistent population loss and falling prices, deferred maintenance is no longer sporadic but has taken hold throughout.  The sagging roof and leaky faucet have become the new norm.  Vacancy turns into abandonment.  Affordable housing misguidedly developed on the wrong blocks has failed to generate confidence in the market.  Retail has been degraded significantly, and pocket blight is no longer a threat but a prevailing reality.  In these latter stages of decline, a city whose residents once would have enjoyed a positive rate of return on investments in their homes now confronts a situation completely reversed.  Because this decline is often marked by ups and downs instead of just a straight line collapse, and because it takes decades, successive generations get accustomed to the slow erosion of high standards of maintenance.  They get used to both the sagging roof and leaky faucet, and the palliative if flawed assumption that the task at hand is to make the market more affordable to low-income families.  Meanwhile, population loss continues, prices keep falling, and properties fall further into disrepair.

Implications for Recovery

Breaking down the decline of a market into specific stages highlights two crucial facts about how this process happens.

First, it reminds us that it takes years for a market to fail.  No market is static.  Neighborhoods must continually compete to retain their strong households, and installing new buildings cannot in a weak market address competitiveness on its own.

Second, it reminds us that no market is monochromatic.  Any policy or other market intervention decision based on city-wide or even neighborhood averages runs the risk of putting scarce dollars on the wrong block.  When married to a failure to see a weak market as a demand problem to be solved, the supply-oriented remedy will always seek the lowest cost land possible.  Invariably these are the least valuable sites, which are those in greatest distress.  More affordable housing on these sites is the very definition of counterproductive.

What we’ve found in property-by-property analyses in a number of cities confirms what real estate brokers, appraisers and community developers already know – the location and quality of each poorly-maintained house impacts the values of other homes on a block.  Really knowing exactly what to do on each block to move the market is essential.

Jamestown, New York is a weak market city addressing challenges similar to those in other western and upstate NY communities, as well as those in western Pennsylvania and parts of Ohio and Michigan.  Currently at about 30,000 people, the city has lost population fairly steadily since 1940, though surrounding Chautauqua County still draws new residents. In its struggle to get “right-sized” as a market, Jamestown’s circumstances are valuable teaching tools.

Our analysis of individual building conditions and assessor’s data in Jamestown found that proximity to a poor-quality building reduced high-quality properties’ average sales price by 33%, and  fair-quality properties average sales price by 39%.  Furthermore, poor quality structures exert a far more significant drag on middle quality blocks than on severely distressed ones, and recovering a problem property on a middle quality block pays a far higher dividend than reclaiming a problem property on a problem block.  The implication is that removing a block’s poor-quality properties, particularly when there are only a few, can profoundly increase the value of all surrounding properties, but only if local leadership is willing to make the hard choice between spending resources to repair confidence or spending resources to reclaim abandoned or distressed property without solving for why the property was abandoned in the first place.

This point is essential in identifying where sequentially strategic interventions will be most effective in righting a failing market.  It also highlights the political difficulty of committing to an  effective action plan.

Local governments rightly feel compelled to address their market woes.  Rarely having their own  resources, they look to state and federal programs for assistance, but state and federal programs come with rules that prevent tailored solutions. In fact, most of them promote supply increases on the very blocks least likely to attract buyers of choice.  While these approaches are often suitable in strong markets, in weak markets they are likely to further undermine confidence and drive decline.

Furthermore, local politics almost never reward hard choices.  What local officials need to address is what they already know anecdotally:  even a failed market will still have strong streets and blocks and sections in one part of town, and other blocks elsewhere in various stages of decline.

No one is well served if all blocks are lumped together into the same bucket, though this insight does not alleviate the political risk that must be taken in making these choices. In the case of weak markets, the choices are often all grim.  Yet even where good outcomes are easily achievable, few elected officials have the stomach to invest on Lafayette Street intentionally but not Cherry Street, on Summers but not Myrtle, on 34th Street but not 44th.

Indeed this point becomes more important the deeper into the hole a market falls, as, cruelly, fewer resources have to do more. A failure to think carefully about the stages of growth and decline on each block in a city will fail to get at the structural essence of the problem. The structural problem in weak markets is too little confidence that it makes sense to stay.

This is the problem that causes rational families to flee Michigan for stronger economies in Virginia, to leave the inner city of Baltimore for Reisterstown, MD, to  leave Belmont Avenue in Fresno for anywhere better.  Behind every choice to move is the presence or absence of confidence combined with the wherewithal to do something about it.

The structural problem to remedy is not the existence of abandoned housing. The decision to abandon a property is a symptom of the loss of confidence.  And while abandonment certainly affects confidence among surrounding homeowners, the most important question to answer is not “how do we deal with abandoned properties?” but “what is the most cost-effective way to restore market confidence, and how do abandoned properties fit into that picture?”

The structural problem to remedy is not the low incomes that many working families find too slim to obtain quality housing they can afford.  This is a distinct problem that may need to be addressed at the same time, but should not be confused with the work of rebuilding confidence.

Under such dire conditions as those so many Rust Belt markets are facing, one could easily be led to conclude that in such weakened places, confidence is unrecoverable.  And though there are markets in the United States such as Camden and Gary where this may indeed be true, important data suggests otherwise.

Data from across Indiana, Illinois, Ohio, Michigan, Pennsylvania, and New York provide quantifiable, justifiable reason for concluding market stability is possible.  Interestingly, it is in a different data point altogether where we have recently begun to conclude that very weak market cities can still be recovered.  And it is in this data where the structural problem that needs attention is revealed:  the lack of confidence in the market.

Greetings and Welcome to 2010!  It’s going to be a really good year.  It is true that communities across America have a lot of work to do, but it is also true that we are fortunate in the vast opportunities before us.

The Rust Belt has been suffering for a long time.  But the turnaround has begun.  We know growth for its own sake may not be the path.  And the lessons from places struggling with population loss are now relevant far beyond Michigan and Ohio and Pennsylvania and New York.  There are good reasons to believe we may be able to adapt.

Arizona, California, Nevada and large portions of the west understand all too well the dilemma an excessively soft Midwest and Rust Belt pose.  The challenge of succession means if you can’t retire and sell your home in Pittsburgh where it’s cold, you can’t very well buy your next home in Phoenix where it’s not.  Our work as community developers in 2010 includes making our clients aware that this issue of succession is not merely regional across the country, but local across our towns and cities and metropolitan areas, and especially so in more isolated placed that mainly have internal housing markets.

As markets adapt, so must the community development field, and again, there are good reasons to believe we can.  The portfolios of the nation’s largest affordable rental housing syndicates are in the tank, and they will require our attention.  And on two fronts.  First to be sure the weaknesses in the portfolios don’t undermine the neighborhoods these developments are in, we must be aggressive in the manner of how we refinance them so that we don’t too heavily concentrate needy families in struggling communities and find ourselves in 2020 right where we were in 1980:  with millions of older rental units that are hard to market, prohibitive to repair, and a drag on local vitality .  Second, we need to be aware our portfolio of low income housing required a lot of political capital to finance and build, much of it owing to NIMBYism; we must pursue our important goals of social equity while maintaining this portfolio at the highest standard possible so we don’t wind up with the pyrrhic victory of units no one wants to be near.

Combined with at least two profound environmental challenges:  water scarcity in the west and high heating costs in the east, our attention as community developers to the work of linking equitable housing pursuits with economic development  is our greatest opportunity in this and in coming years.  How to spend scare dollars most wisely?  How to build housing that serves to create and strengthen balanced local housing ladders?  How to construct and tear down in ways that truly build up? How to be genuinely responsive to need, yet sufficiently mindful of the role of demand?

Again, these are opportunities.

In Santa Fe, NM really creative thinking about adaptive reuse, housing affordability, social equity, and water scarcity are driving innovation on the affordable home ownership front, and alongside a purposeful emphasis on local is being woven into everything.

In Geneva, NY residents are working together to incorporate LEED-based landscape design thinking into community organizing, and doing so in the context of using small amounts of highly targeted public dollars to drive market change.

In Park City, UT the focus is all about balance and sustainability:  how to manage a remarkable quality of life in ways that are equitable and sustainable?  And there, genuine leadership is being exercised at each level of government, within the private sector, and among residents:  there is an acute understanding that beauty doesn’t come cheap, it takes work, and fairness is no less important than economic viability.

Whether or not we lost our way recently is debatable.

What’s clear is that in communities across the country, small experiments matter.

The facade improvement program in Jamestown, NY’s downtown has much to say about place.  The commitment to “getting it right” in Norfolk, VA is an inspiration to anyone in community development who stops to deeply ponder the nature of our work and the complexities of place and community.  The aspirations of Ascension Parish, Louisiana to steer their community to a strong future they can sustain is a lesson in the challenge of balancing quality of life and cultural preservation.

And in the far south end of Arizona, in Ajo, an old mining and company town, cross cultural work among the Tohono O’odham Nation, Anglicans, and Mexicans is resulting in significant cooperation on border issues, environmental stewardship of the Cabeza Prieta and Organ Pipe, and economic rebirth.

Less important in 2010 will be what has not worked.  We know.  Of greater value this year is what does work.  We know this, too.