Location of the Newhall Ranch development | Map via the California Department of Fish and GameIf you haven't heard, less than 50 miles from downtown Los Angeles, developers are currently planning to build an entirely new commuter city of more than 60,000 thousand people on the grounds of Newhall Ranch in the Santa Clarita and Santa Clara River valleys. That's 60,000 people exactly where we don't need them--out on the urban periphery, where car is king and where the interstate is the only means of accessing Los Angeles and her job market. More cars on the road, more air pollution and more sprawl--the exact opposite of what this city needs.
There are ample environmental reasons to put the nix on this project. To name just a few: It will require the L.A. River-style paving of the nearly untouched Santa Clara river; the project is in California condor country and developers have been given a special legal protections should they kill one of the creatures, which would otherwise be a federal crime; and the project threatens to undo the benefits of Measure R and L.A.'s green regional transportation planning by injecting tens of thousands more cars onto our interstate system.
But at the heart of this matter (because lets face it, environmental concerns always play second fiddle when big money is on the line) is whether this project makes any sense on an economic level. After all, Santa Clarita, right next door to the proposed Newhall development, was at the heart of the U.S. housing bubble collapse. Local realtors have taken to calling the area the "foreclosure capital of the world." After taking a quick glance at various housing indicators, it's easy to see why.
The chart above indicates the average home value in Santa Clarita in the past 10 years. As you can see, home values have tanked in the past three years, retreating back to 2003 levels. And they're still on the decline.
That's probably because there are 915 homes on the market and over 1,000 foreclosures. This for a city of just over 170,000. And the carnage isn't done yet. Scanning the blogs of local realtors, "short sale" appears to be the phrase of the moment. Meaning people are unloading their homes at firesale prices to avoid foreclosure.
So given declining home values and foreclosure chaos in Santa Clarita, what sense does it make putting 20,000 new homes right next door?
"It takes courage," says Dr. Nancy Sidhu, chief economist for the L.A. County Economic Development Corporation. "The early 1990s were not entirely dissimilar to now. You had land prices that were extremely cheap. Developers took risks and were eventually rewarded. Developers build for future demand."
True. But what future do suburban-style developments on the urban periphery really have? After all, the Southern California housing boom of the 90's and early 00's was fueled by subprime lending. The reason suburban development succeeded during this time was that people who were traditionally couldn't afford homes were given risky loans to move out to the burbs. Santa Anita saw its population grow from 151,088 to 176,320 in the past 10 years. Cities like Palmdale and Hesperia experienced the same growth thanks to subprime lending.
All three places are also currently mired in foreclosure nightmares.
These cities grew because financing schemes were created to put people in homes who couldn't afford them. Developers made off with cash while U.S. taxpayers were stuck bailing out the banks when these lending schemes crashed. (For those of you who want to learn more about this, I highly recommend Matt Taibbi's most recent book Griftopia.) Subprime lending was an essential financial instrument in making sure developments like Newhall Ranch could solicit buyers. It also was what created the housing bubble that sank America into our current economic woes.
"Is (subprime lending) what it's going to take to get people in these homes?" asks Sidhu of Newhall's proposed development. "We'll have to see."
But what is the future of subprime lending? Currently, loans of any kind in California are extremely difficult to come by. Liz Appleton-Young, chief economist of the California Realtors Association, says her organization recently conducted a survey of potential homebuyers--two-thirds of whom rated getting a loan "9 or 10" on the difficulty scale.
"Subprime loans are certainly not as available," she says, "And down payments have gone up."
If the Newhall development does go through, it won't be completed for several years. So there's a chance the lending situation could have recovered. But Appleton-Young says she doesn't expect a return to the freewheeling subprime ways of the early 00's anytime soon. And even if it does return, there's still a glut of housing from the previous boom laying around unsold, which will compete with any new development.
"It's not going to be easy to sell in this stage of the cycle. Eventually it will. Who doesn't want brand new? But you still have plenty of homes available on the market. And it's certainly difficult to see things getting back to the way they were in the next 5-10 years."
Compounding all the potential lending problems, is the fact that all indications are that young professionals, of the ilk who could afford to buy at Newhall Ranch, have no interest in reenacting their parents' suburban lifestyle--but instead prefer a car-free, ethnically diverse, exiting urban lifestyle.
Appleton-Young says there are currently no studies which prove young homebuyers have no interest in living in the suburbs, but "anecdotally, I agree with you," she says. "People in their 20's are renting instead of buying. And with the price of gas going up it's difficult to imagine them wanting to spend the extra time and money to commute."
So if the young, wealthy professionals with families who can afford these homes have no interest in commuting 40 miles to work each way every day, who exactly is Newhall Ranch's target market? Can suburban developments like Newhall Ranch exist without subprime lending? No one really knows.
But the fact these questions have no answers should give everyone--not just environmentalists--serious pause as to whether the prospect of destroying environmentally sensitive land and screwing with regional transportation plans, is something we should be undertaking.
The L.A. Vitamin Report is a column about quality of life issues by Matthew Fleisher. It is brought to KCET's SoCal Focus blog in partnership with Spot.Us, which receives support from the Cailfornia Endowment.