Hooray for Falling U.S. Real Estate Prices
Housing-Market / US Housing Jul 01, 2010 - 07:52 AM GMTBy: LewRockwell
Jeffrey A. Tucker writes: Pittsburgh is a town that makes me want to rhapsodize like a Randian. Its skyline, the materials and shapes that make up the structure of the city, celebrate man's creative genius in every way. It is more beautiful than the most cultivated garden because it is a picture of order out of chaos and all directed toward the betterment of society.
In capitalism's structure of production, the city once stood between the first producers of raw materials somewhere in the mountains of West Virginia and the mansions of the final owners in Rhode Island and Connecticut. It is the city that transformed what nature gave us into things we can use. It was called the Iron City and, later, the Steel City. Steel now only refers to the backbone of the city's spirit. It has remade itself yet again.
Forbes has listed Pittsburgh, Pennsylvania, at the top of its list of affordable cities in which to buy a home. But keep in mind that this was not a straight line onwards and upwards. Three decades ago, it was the symbol of the panic of the time: the de-industrialization of America. The place was nearly gutted but look at its strength today even in the presence of the second great depression. As Forbes notes in passing that the city "never experienced the dramatic run-up in prices that characterized the national housing bubble – so it was spared the subsequent bust."
True, and there is a dramatic story here that reveals how impossible it is for legislation to ever win out over the price system. Politicians, regulators, bankers, unions, and the press can scream and yell, punch and kick, and sign all the laws they can print, but the market presses on to achieve its own results.
In this case, Pittsburgh is the winner. There is really no sign of recession in Pittsburgh. It is a beautiful, bustling city with surprisingly clean air, low unemployment, and happy people everywhere. There are construction projects on every corner, students pouring in and out of universities, technology companies starting and building, and new people moving in just to enjoy the amenities. Its low prices are not a bane but a key attraction.
There is no sign of the former misery when the steel industry in the U.S. was in inexorable decline. The city was built by steel in both a physical and economic sense. Garet Garrett’s book The Cinder Buggy tells the story of how steel transformed the iron city and how, before that, this city had been the beneficiary of the 19th-century boom in commerce owing to its famed three rivers.
It would have been impossible for me to understand these things were it not for Garrett's great book, which I write about at length in my book Bourbon for Breakfast. Here we discover how Pittsburgh played a central role in the very creation of modernity, and how it became a benefactor to us all, making it possible for us to enjoy the highest standards of living in the history of the world.
There is also an economic lesson in its rise from ashes. The source of Pittsburgh’s suffering in the last twenty-five years of the 20th century was not the macroeconomic business cycle. The doldrums were not due to the Fed or to any tyrant. Its decline came about organically from voluntary trade. It was the loser in a dramatic shift in the global division of labor that had a profound local impact. It turned out that America, broadly speaking, was not a very viable competitor in the production and distribution of steel. Other nations, others firms located in other places, could do it more efficiently and effectively.
All these years later, this might seem like a forgone conclusion. Pittsburgh moved on and transformed itself. But at the time, it was not obvious at all. People said that without steel, there could be no Pittsburgh and without Pittsburgh there could be no vibrant economy in the United States. Pundits screamed and cried about the gutting of America’s industrial strength, and thousands of televisions special appeared about the plight of the workers in the industry.
The city itself went through a long period of wrenching transition in which housing prices and real-estate prices fell through the floor. Businesses shut down. Tax revenue plummeted. Its residents were scattered to the winds. Even the symbol of its skyline, which once seemed glorious, now looked like the very image of the last days. Not even the vaunted steel union could do anything about it.
It all seems like ancient history today. Steel is gone. The evidence of its past is everywhere – an indelible stained mark on the physical surroundings and the culture of the city – but there is no living reality. But what has taken its place has made up the difference. So while the rest of the country went through a real-estate boom and bust, Pittsburgh stayed on its long course forward to recovery, having been spared the ups and downs. The curse was a blessing after all.
One of the city's tallest buildings is the old U.S. Steel building, a wonderful structure that expressed in architecture the very love of steel. Its beams are exposed on the outside, in raw black. Magnificent. Only one thing: today the building is labeled UPMC for University of Pennsylvania Medical Center. And why? UPMC occupies more than 50% of the rented space.
The lesson here is that it is pointless to stand against the mighty winds of market change and scream stop. All the efforts to save the steel industry were useless and wasteful. The tariffs, the antidumping rules, and the subsidies failed to stop the inexorable trend.
But it was not the end of the world after all. The move of steel from home to abroad freed up the city’s magnificent resources for other uses, and recovery came in time, generated by the market.
It will be the same with real estate around the country. Prices will not be stopped. Markets will adjust. We can fight it and waste trillions doing so. But it will make no difference. If the dawn is to come, it will be brought to us by the market economy. It turn, that market economy will again make greatness possible, not granted by "great" politicians but by truly great owners of capital, the kind of people who built and continue to make Pittsburgh a paragon of the social triumph of capitalism over central planning.
Jeffrey Tucker [send him mail] is editorial vice president of www.Mises.org.
© 2010 Copyright LewRockwell / Jeffrey A. Tucker- All Rights Reserved
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