Downtown Dayton Housing Insanity
by Mark Luedtke
publication date: 122314
With apologies to The Who: Meet the new housing bubble. Same as the old housing bubble, but worse. In September, 2013, the most expensive home in Manhattan cost $130 million. By May, 2014, somebody paid $147 million for a New York mansion. Similar bubbles are expanding from London to Australia. Prices for housing for the rich have skyrocketed around the world.
Dayton hasn’t escaped the insanity. The Dayton Daily News reports, “Charlie Simms, president of Charles Simms Development, said his company is negotiating to purchase a parking lot on the southeast corner of Sears and Second streets to make room for the new townhouses near the Second Street Market. The development, which if built according to current plans, will feature 22-townhomes that will be sold for between $180,000 and $210,000, Simms said.”
Simms’s company developed three other downtown residential developments at Patterson Square, Rubicon Square and Patterson Place.
You don’t have to be an economist to recognize something is grossly wrong here. Not two blocks west from two of Simms’s developments, half of downtown Dayton real estate sits empty. Retail fronts are empty. Except on show nights, after 5:00pm, the city looks like a graveyard. The entire region is overbuilt. Taxpayers in Miami County have been forced to pay for the destruction of 80 properties since 2009. Yet Simms is making money building expensive, new housing. This begs the question of how.
The DDN continues, “Simms told the Dayton Daily News in August that there remained a strong demand for urban living and that could result in the remaining townhomes and condos from his Rubicon Square and Patterson Place developments to be sold out by late this year or early 2015.”
Rubicon Square, completed a year and half ago by Miami Valley Hospital, hasn’t sold out, so demand cannot be as strong as Simms would have us believe.
Clearly market forces are not behind the development of housing downtown by Simms or at the Water Street development. What Simms calls demand isn’t real demand. It isn’t market-driven. It’s bubble-money demand, and these projects are being supplied by bubble-money too. Blame the Federal Reserve (Fed) for this distortion of markets. Dayton is experiencing a textbook example of a housing bubble, the same as the rest of the world. As every central bank in the world legally counterfeits money in lockstep, bubbles are being blown worldwide, including this housing bubble in Dayton. The same is happening in the entire region.
Because the Fed is holding interest rates at zero, projects that wouldn’t be profitable in an honest market - one with real interest rates - appear profitable while the interest rates are held artificially low. This allows Simms and other political cronies to borrow money at zero interest and divert capital - building materials and labor - away from productive projects to fund their wealth-destroying projects.
The Austrian School of Economics calls this malinvestment. The result of these projects is the waste of resources that doesn’t become apparent until the bust hits. When the bust hits, the malinvestments become apparent: the empty, decrepit factories, shopping centers, retail spaces, houses and other decrepit properties we see everywhere in Dayton. Dayton is littered with the malinvestments of the past. Simms and others building housing downtown are creating malinvestments of the present, soon to be exposed.
Local rulers make the problem worse with subsidies because it’s still hard for many developers to get loans. The DDN explains, “Instead, developers have to package tax credits, grants and loans, a process that is time consuming. Which is where the city and/or Citywide can step in.” Citywide is funded in part by the city.
Our rulers are stealing our money to fund malinvestment by their cronies, making them richer, us poorer and saddling the city with new, soon-to-be decrepit, underutilized and abandoned buildings like the eyesore parking garage on the river by Riverscape. They’re not only stealing our money. They’re stealing resources from us that, if we had a free market, would be employed to benefit everybody.
Our rulers make every day Christmas for their rich cronies. Dayton Mayor Whaley said of Simms, “Charlie was the first one in. They’ve been successful in that model, so we want to continue that model.” In other words, more subsidies for her good crony Simms.
But even the good times for the rich must end. Eventually interest rates rise and malinvestments become exposed. While still keeping interest rates at zero, the Fed recently ended its unprecedented Quantitative Easing (QE) program in which it counterfeited up to $85 billion a month. Former Reagan budget director David Stockman warns low oil prices are on the verge of exposing malinvestments made in the fracking business, popping a bubble he believes to be bigger than the housing bubble.
The regular rich are about to get slammed the way poor and middle class people already have been. Politicians and plutocrats will own pretty much everything in our new feudal society. If you think wealth disparity is bad now, wait until government’s institutionalized thieves steal everything.
Originally published in the Dayton City Paper.
Originally published in the Dayton City Paper.