Much has been written about the causes of the foreclosure crisis. Blame has been placed on everyone from irresponsible homeowners to greedy real estate agents, appraisers, and lenders, to sloppy investors, to apathetic government regulators. Others have blamed a "boom psychology", contending that market participants got carried away by a collective and irrational belief in never-ending house price appreciation. This view is the most recent incantation of Alan Greenspan's now famous expression, "irrational exuberance." In his 2008 book The Subprime Solution, Robert J. Shiller sees boom thinking as the main cause of today's mortgage foreclosure crisis, as he writes that: "...the most important single element to be reckoned with in understanding this or any other speculative boom is the social contagion of boom thinking."
We do not accept the premise that the global financial crisis was rooted in some sort of mass delusion. Instead, we contend that the major cause was very real: market participants acting in a rational manner in response to short term economic incentives led to the boom and subsequent bust in housing markets, the credit crisis, and the deep recession. If anything, it was the meteoric growth in risky lending that fueled the run up in prices, affecting the psychology of market participants along the way.
Why is this important? If the key causes of the crisis were "irrational" and "psychological" there is little to be done except hope for more sober behavior next time. In contrast, if the key cause was real economic incentives, as we contend it was, then action to change these incentives is justified. If the market as currently structured is unable to police itself, it is clear that the regulatory structure needs to change. Who will assume this responsibility -- whether a committee of regulators or a single regulator (and which one) -- is currently in debate. More importantly, how and what they regulate should address the concrete causes of the crisis, which we set out to explain below.
Loose Underwriting, Promoted by Excess Capital and Global Demand for High Yielding Investments
Regulatory Actions and Failures Promoted Risky Behaviors
Irrational? Think Again...
Campanella named a Fellow of the John Simon Guggenheim Memorial Foundation
The John Simon Guggenheim Memorial Foundation has announced its 2009 list of Guggenheim fellows in the United States and Canada, a diverse bunch of 180 scholars, artists, and scientists in fields ranging from American literature to video and audio. Chosen from approximately 3,000 applicants, the fellows will receive grants that are intended to provide them with blocks of time in which they can work with as much creative freedom as possible.
During his Guggenheim term, Campanella will be working on two books: The Last Utopia will chronicle the rise and fall of Soul City, North Carolina, an intentional “new town” planned and partially built in the 1970s by civil-rights lawyer Floyd B. McKissick; Designing the American Century will examine the careers of two of the most important American landscape architects of the twentieth century—Gilmore D. Clarke and Michael Rapuano—creators of many of the parks and public works associated with Robert Moses in New York.
The way you move
Daily Tar Heel
Blake Frieman, Staff Writer
Grant Linderman, Photographer
“The most common things in our lives are the things we tend to focus on the least... Transportation is such a common thing, and our commutes have taken over our lives.”
As a teenager growing up in Colombia, Daniel Rodriguez was annoyed at having to be picked up by the school bus an hour before class started. Today, that annoyance is driving him to answer the question of why people travel the way they do, and that knowledge is helping him to reduce the negative environmental impact of transportation. “I’ve been working on this for 15 years — before it was sexy, before people cared about the environment,” he said.
Rodriguez is an associate professor in the Department of City and Regional Planning and a member of the Carolina Transportation Program. The program is a research effort made of faculty members and students from several departments who focus on transportation planning, mass transit issues and land use. To complete this research, he and other professors in his field hand out surveys and use GPS tracking devices with accelerometers in them. This technology allows researchers to track people’s movements in order to get a better handle on where they are going and how long it’s taking them to get there. They might look at people who live in a neighborhood with infrequent bus service and observe their needs to either walk or drive a car to work. From this information, they can determine the best places to build sidewalks or bus stops. The locations of things like these significantly affect how people travel. For example, Rodriguez pointed out the difference between a trip to the local drugstore in Houston compared to Boston. While the person in sprawling Houston has to drive on a highway for 10 miles, the person in Boston can simply walk. Both take the same amount of time, he said, but have different impacts on the natural world.
Parking is another environmental problem related to transportation. He said since a great deal of lots don’t charge drivers to park, they are essentially giving people an invitation to drive. “The parking lots of Harris Teeter, Wal-Mart and Southpoint Mall are all designed for the fourth-busiest hour of the year,” Rodriguez said. “Every other day you’re going to have empty spaces in a mall that are paved over and generating all sorts of water runoff.” Rodriguez praised UNC as being one of the few employers around that charges workers for parking.
But in order to fix these problems, it’s going to take more than just promoting the positive effects of walking or riding a bicycle, he noted. Instead, people need to rethink the choices they make that create long commutes for them in the first place. “My traditional colleagues spend a lot of time thinking about how to get people out of cars,” he said. “I’ve been personally trying to say, ‘Let’s think about more upstream decisions.’”Rodriguez said “upstream decisions” means getting people to move closer to their destination, as well as improving public transportation infrastructure and accessibility.
Drawing on this research, Rodriguez has come up with ways to improve transportation that hit close to home. He and other researchers in the transportation program conducted a study of Chapel Hill Transit bus riders in 2001 and determined that if fares were eliminated, the number of riders would increase by 30 percent. Making buses free turned out to have an even greater impact than expected. Rodriguez said that number actually went up by 70 percent. Sensible transportation can save significant amounts of time and mitigate damaging effects to the environment, he said. “The most common things in our lives are the things we tend to focus on the least,” he said. “Transportation is such a common thing, and our commutes have taken over our lives.” Drawing on his knowledge and experience, Rodriguez said he tries to “walk the talk.”A knee injury in December sidelined him from riding his bicycle to work each day. But once he has recovered enough, he said he will be back on his bike doing his own small part to help preserve the environment.
Impact Awards recognize research that benefits North Carolina
Lindsay Haddix, MCRP 2008, has been awarded the UNC-Chapel Hill Graduate School's Impact Award in recognition for her research on immigration and crime in North Carolina.
Increasingly, North Carolina localities are blaming social ills, particularly crime, on a burgeoning undocumented immigrant population. Many North Carolina sheriff’s offices have adopted or are considering adopting the 287g program, a program that allows local law enforcement to check immigration status, in the belief that the rise in undocumented immigration is a cause of increasing crime rates.
Lindsay Haddix collected publicly available crime and population data in Alamance, Cabarrus, Gaston, Mecklenburg and Wake counties to statistically test these assertions. Her results suggested that there is no statistically significant relationship between immigration and crime in North Carolina counties. In fact, they showed that as the number of undocumented immigrants living in North Carolina increased between 1997 and 2006, per capita violent and property crimes both decreased throughout the state.
Mai Nguyen, Lindsay’s faculty advisor, stated, “Due to her passion and dedication to her research, Lindsay produced a high quality research report that has been disseminated and used by key groups interested in immigration issues in North Carolina.” It also has the potential to impact policy makers considering the adoption of the 287g program in their local jurisdictions.
Rohe elected chair of the Urban Affairs Association.
The director of the Center for Urban and Regional Studies in UNC’s College of Arts and Sciences, Rohe is the Cary C. Boshamer Professor of City and Regional Planning.
The Urban Affairs Association, with about 600 institutional and individual members throughout North America, Europe and Asia, is the international professional organization for urban scholars, researchers and public service providers. As chair of the association, Rohe will act as its CEO. Among other activities, the association sponsors an annual conference and publishes the Journal of Urban Affairs.
UNC study shows lower payments,
write-downs can reduce
mortgage foreclosures
Chapel Hill, N.C. — Allowing homeowners to reduce their monthly mortgage payments can significantly lower the rate of defaults compared to loan modifications that do not reduce payments, according to a new study of recently modified loans conducted by the University of North Carolina at Chapel Hill's Center for Community Capital (CCC).
Further, combining lower payments with a write-down of the loan balances for loans that exceed the value of the home can prevent even more defaults. "Our data clearly show that not all loan modifications are created equal," says Roberto Quercia, CCC director and DCRP faculty member. "By using such data to inform policy and practice, the industry can reduce foreclosures and increase stability in the economy."
The study, "Loan Modifications and Redefault Risk: An Examination of Short-Term Impact," analyzed 10,000 loans that were modified to prevent default. These modified loans came from a pool of more than 1.3 million mostly subprime and adjustable-rate mortgages made during the peak of the mortgage boom, from 2005-2006. The results show that the type of modification matters... (PDF - complete report)
Dr. Song’s new book
Smart Urban Growth for China
Increasing concerns about global warming, soaring gas prices, and environmental degradation are triggering interest in sustainable development, and China is no exception. Through more than two decades of rapid economic growth, China’s level of urbanization increased from 18 percent to 41 percent between 1978 and 2003, and it is expected to reach 65 percent by 2050. This growth threatens to produce shortages of land resources, damage to the environment, and social inequity, all of which pose difficult challenges for China’s sustainable future.
Acknowledging these problems, the Chinese government initiated a movement called “scientific outlook on development,” which stresses the development of a harmonic society, with sustainable and balanced development as its basic requirement, and coordinated and comprehensive growth as its fundamental approach. Chinese scholars, policy makers, and planners are asking questions such as: Are smart growth doctrines developed elsewhere applicable in China? Are public policies effective in managing the problems associated with urban growth? Are the plans efficient as instruments in guiding toward more scientific growth?
This book presents various perspectives on shaping a sustainable urban future for China based on conference discussions of the following questions: What lessons can China learn from other countries through their experiences in combating urban sprawl? What are the “dumb” growth patterns that are economically inefficient, environmentally unfriendly, or socially undesirable in Chinese cities? Finally, to what extent is China’s fragmented planning system responsible for uncoordinated urban growth, and how might it be improved?
About the Editors Yan Song is assistant professor in the Department of City and Regional Planning at the University of North Carolina at Chapel Hill. Her research interests include economics of land use regulations, growth management, and spatial analysis of urban form. Learn more about Dr. song’s research
Chengri Ding is associate professor at the National Center for Smart Growth at the University of Maryland in College Park. He specializes in urban economics, housing and land studies, GIS, and spatial analysis.
Bendor named GSK public policy fellow
Assistant Professor Todd BenDor has been named a 2009 GlaxoSmithKline (GSK) Faculty Fellows in public policy. The GSK fellows conduct research through the Institute for Emerging Issues at N.C. State University. They are selected to identify current public policy challenges facing the state of North Carolina and to translate research and ideas into change.
Dr. BenDor will use the fellowship to work on issues related to environmental restoration and handling urban growth in environmentally sensitive regions of North Carolina. Todd BenDor received a doctorate degree in regional planning from the University of Illinois at Urbana-Champaign. He has been teaching at UNC since 2007. He is also on the faculty of UNC’s Institute for the Environment.
Fellows are expected to identify an area of public policy in North Carolina that corresponds with their area of expertise and is important to the future of the state. Core subjects include education, the economy and economic development, energy and the environment, healthcare, tax and finance modernization, and issues related to land use and planning. For calendar year 2009, IEI is particularly interested in faculty with expertise in physical infrastructure (and related funding, land use and inter-jurisdictional issues), North Carolina’s changing demographics, as well as the provision of programs in the areas of public health and social services.
Nash foreclosures rise,
remain behind trends
By Mike Hixenbaugh The Rocky Mount Telegram
Home foreclosures in North Carolina rose by nearly 30 percent in October from the previous month, but the Twin Counties continued to fare better than other parts of the state, according to data released this week. ...Roberto Quercia is the director of the Center for Community Capital at the University of North Carolina-Chapel Hill, where he has monitored and studied the housing crisis the last several months. He said rural areas like the Twin Counties typically have seen far fewer foreclosures throughout the economic crisis.
“In general, places that have experienced great appreciation — more urban areas like pockets of Raleigh and in Mecklenburg County — tend to show greater foreclosure rates,” Quercia said. “Buyers in those areas were more likely to purchase homes at a peak rate and were more likely to take a risky sub-prime loan to pay for it.”
Order of the Long Leaf Pine to DCRP Professor David Moreau
Governor Mike Easley recently awarded the Order of the Long Leaf Pine to Professor David H. Moreau. The award is the highest civilian award given by the governor of North Carolina. The award was for Moreau’s 16 years as Chairman of the North Carolina Environmental Management Commission, for his many years of service as Director of the Water Resources Research Institute of the University of North Carolina, and for 40 years as member of the faculty of UNC at Chapel Hill.
Dr. Moreau was also recognized recently by the National Academy of Sciences as a National Associate of the National Research Council for “…extraordinary service to the Council in its role as advisor to the Nation in matters of science, engineering and health…”.
David retired from UNC in June 2008, but he “unretired” in October to lead the new Curriculum for the Environment and Ecology. He accepted a three year appointment as Chair of that program beginning January 2009.
mega China
The boom heard ’round the world.
by Sheila Read, Endeavors
Imagine that a town the size of Chapel Hill grew to be larger than New York City in only thirty years. Impossible? Not in China.
The small fishing town of Shenzhen, situated across the border from Hong Kong, shot up from a population of 68,166 in 1978 to 8.27 million in 2006. Shenzhen became a leading manufacturing center in the 1980s after the Chinese government designated the area a special economic zone — in essence a testing ground for capitalism.
Americans best know China from the “Made in China” labels affixed to nearly every type of product available in our stores, from toys to clothing to furniture. We know that many well-paying manufacturing jobs have moved to China — including most of North Carolina’s textile and furniture industries — to take advantage of lower labor costs.
But behind the “Made in China” label is an unprecedented transformation of China’s cities and the consumer craze among the rapidly growing Chinese middle class. As newly prosperous Chinese consumers demand the same amenities Americans have long enjoyed — meat for dinner, cars, appliances, modern homes — pressure on the world’s finite resources of energy, raw materials, and food has increased dramatically.
Thomas Campanella documents the urban transformation in China since the early 1990s in his new book, The Concrete Dragon: China’s Urban Revolution and What it Means for the World. “In terms of speed and scale and sheer audacity, China’s urban revolution is off the charts of Western or even global experience,” Campanella writes.
Professor Roberto G. Quercia’s recent research has been central in the search of solutions to the ongoing foreclosure crisis. Quercia described the conditions leading to the current crisis as "a perfect storm." These conditions include the risks inherent in the sub-prime lending boom of the last few years, the recent collapse of the credit markets, and the resulting burst of the housing price bubble. Findings solutions has been complicated because although capital markets are national and international in scope, housing markets remain local. Zoning and other local decisions that lead to homogeneous neighborhoods may exacerbate the problems in some areas. For instance the concentration of starter homes in low-income and minority areas, a segment that has been hard hit by the crisis, complicates the search for any possible solution.
Quercia recently testified to the NC House of Representatives Select Sub-Committee on Rising Home Foreclosures, where he advocated the use of foreclosure mitigation counseling for homeowners at risk of losing their homes to foreclosure.
The research by Quercia and other researchers at the Center for Community Capital justifies this belief. About half of homeowners in danger of foreclosure do not contact the lender until it is too late. Foreclosure mitigation programs help homeowners link to their lenders and explore alternative options to foreclosure thus minimizing the likelihood of home loss. Their work confirms that homeowners who receive this type of counseling are more likely to preserve their homes.
The preservation of homeownership resulting from this type of program should be particularly important to areas with a lack of diversity of housing types and prices. The concentration of foreclosures in such areas is likely to burden local governments beyond their ability to deal with the problem. According to Quercia, promoting zoning that leads to mixed-income housing neighborhoods is one action that the local planning professionals can put in place to minimize the likelihood of similar crises in the future.
Quercia also welcomed some of the other solutions being discussed that have broad bi-partisan support. For instance, he believes that we need a modern regulatory apparatus to deal with the realities of current capital and credit markets. "This is a step in the right direction and might help things in the future," Quercia says "but it won't help solve the current problem."
Payday lending (followup)
A study released by Quercia and his colleagues at the Center for Community Capital examined the short-term credit options in North Carolina after payday lending was de-authorized. The study shows that most people have other credit options and that they were better off without payday lending. The study offers important insights to states and localities that has considered or are considering payday lending legislation, such as New Hampshire, Oregon, Wisconsin, and Washington D.C.
Exposing the Myth of Irrational Exuberance
Campanella named a Fellow of the John Simon Guggenheim Memorial Foundation
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Impact Awards recognize research that benefits North Carolina
Rohe elected chair of the Urban Affairs Association.
UNC study shows lower payments, 
Bendor named GSK public policy fellow.jpg)
Nash foreclosures rise, 
Order of the Long Leaf Pine to DCRP Professor David Moreau
Prof. Thomas J. Campanella's New Book
The New East 
