The credit bust will turn a lot of things right side up

Everyone has been led to believe that the credit bust is a big problem.  That is about as true as saying that going cold turkey on that drug habit is a big problem.  Sure, there is going to be turbulence and pain but don't mistake the cure for being a problem.  Withdrawal is going to happen when you get used to something bad which is subsequently taken away but kicking the habit is the only path back to health.

Because of the credit based inflation of the past several decades many things have been turned on their heads so that they seem normal now even though they should not be seen as such.  One of my pet peeves is the ridiculously high valuations that people have placed on property with "character" that is close to downtown.  Realtors will be quick to talk about these gems as being "close in and near the action".  I have a different take which is that they are old and run down.  I much prefer my newer subdivision on the outskirts of the old city because it has newer water and sewer pipes and underground electrical cables and the like.  I think new shelter is worth more than old shelter.  Call me crazy.

So why do so many people believe that old, run down stuff is so valuable?  Well, when the credit money is flowing and jobs are plentiful and taxes are easy to assess on homeowners, the older stuff gets maintained better because the money exists to do so.  No, those living in areas with old infrastructure do not pay extra taxes to maintain their run down infrastructure.  All the tax money goes into a bucket and payments are made from it to solve problems as they pop up.  Of course, all the problems pop up in the older sections of town.

If you think about it, this policy is essentially a transfer of wealth from those who bought in newer neighborhoods to those who live in older neighborhoods.  The debt Ponzi tends to have that effect on the economy and you can see it in so many ways.  That is a completely economic statement so don't read anything more than that into it but it is also true.  My property taxes should go way down because my neighborhood has new roads and good pipes that never break but instead the city constantly tries to increase them in order to pay for all the problems in the older neighborhoods.  This article underscores my point about the dying old city infrastructure.   The people living there already think they pay enough in taxes to maintain their infrastructure but those people have no idea of just how expensive putting new pipes and wires and asphalt actually is.  That's why the repairs are crappy patchwork jobs that simply kick the can down the road and its why they have major problems on a regular basis. The truth is that their taxes would be much higher if they had to pay the full cost for maintaining their dying, aged infrastructure themselves.   As the credit bust wears on there will be less and less taxes collected and that's when people are going to wake up and realize that new shelter is better than old shelter.  As a result I expect that property values of older, close in real estate are going to plummet relative to the newer real estate on the outskirts.

Bottom line: if you are in the market for a house, look at the big picture beyond the house.  If the neighborhood is old then expect the infrastructure to need lots of repairs at a time when there is no money to make them.  It could result in frequent loss of service to your house and it could also result in neighborhood-specific special tax assessments by the city which could be many thousands of dollars.   But don't count on people in newer neighborhoods continuing to be assessed taxes which are spent in someone else's neighborhood because people are waking up to the unfair reality of that scam.