The Foreclosure Epidemic: The Bulldozers Cometh

This post first appeared on Minyanville and Cirios Real Estate.

Simply put: There are too many homes in America.

Travel to the outskirts of Phoenix, California's inland empire -- or even suburban Washington, DC -- and you'll find scores of vacant homes, for-sale signs, and soon-to-be ghost towns. Sprawling Lennar (LEN) cookie-cutter developments, Pulte Home (PHM) condos jammed against freeway sound barriers, mostly vacant strip malls - these are not the relics of dynamic social progress.

There are many who believe that superfluous developments in the so-called exurbs must be razed for housing supply to return to anything like sustainable levels.

But few expect the bulldozers to reach the urban downtown. Just as the "subprime" mortgage problem began in areas where economic fundamentals fell hopelessly out of sync with home prices, so too will urban renewal rise from the ashes of these communities.

Take Flint, Michigan, a city looking to shrink itself just to stay alive.

This once-proud industrial town 65 miles north of Detroit is embracing a trend which may eventually spread to cities throughout the United States: In response to seemingly endless economic woes, government officials in Flint are considering hastening the town's decline in order to rebuild anew.

The New York Times reports that city leaders have floated a plan whereby certain dilapidated neighborhoods would be razed to the ground, consolidating residents and businesses closer to downtown. The aim is to reorganize the population around fewer, more sustainable communities, thereby pushing run-down homes and empty lots to the outskirts of town.

While uprooting citizens is a prickly political topic, the county Treasurer and advocate of the shrinking of Flint grimly noted that "Not everyone's going to win. But now, everyone's losing."

Foreclosures, the latest in a series of economic epidemics to sweep Flint, are causing formerly vibrant communities to turn to dust. Genesee County, of which Flint is the largest town, in addition to Indianapolis and Little Rock, Arkansas, are tackling the foreclosure issue with county land banks. These publicly-funded institutions buy unwanted properties and rehabilitate them before squatters and vandals can take over.

Contrast this government-led form of community development with the policies now operative at Wells Fargo (WFC), Citigroup (C) and Bank of America (BAC) to leave bank owned homes vacant and ripe for vandalism, and you have an example of government policy that can speed up the recovery of a local real estate market.

And while Flint's situation may be unique in that it faces the twin headwinds of the auto industry's demise and the ongoing housing market collapse, it's root troubles are emblematic of towns across the country: Cities, expectant of growth that never came, supported development that proved unsustainable.

Myriad solutions have been proposed to solve this country's housing nightmare, but the simplest, and indeed the most effective may be to simply reduce supply the old-fashioned way, with bulldozers.