Sunbelt Blues: The Failure of American Housing

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AUTHOR’S NOTE

Most of this book is based on interviews I conducted in Central Florida from 2016 through 2020. The interviewees who spoke to me in an official or business capacity are typically referred to by their last names. Most of the others, especially those whom I spent more time with and got to know personally, are referred to by their first names. In some cases, I have changed the names of businesses and people quoted in these pages to protect their identities.

In Florida, the term most often used to refer to people of Latin American descent is Hispanic, so I have followed that usage in this book. Likewise, while I occasionally speak of people who are unhoused or unsheltered, I mainly use the term homeless, since that is how most people living on the streets and in the woods (and even many of those living in motels) refer to themselves.

Introduction

CELEBRATION’S MAIN STREET is tailor-made for a Fourth of July parade. A redbrick road terminating in a dainty lakefront esplanade, lined with colonnaded storefronts topped by white balconies, it is a compact showpiece for small-town America, the perfect stage set for spectacles like this one. Kissimmee, the seat of Osceola County, fifteen miles to the east, has its share of old-town charm, but it cannot compete, and with its rapidly shifting demographic is more likely these days to attract a crowd for its annual Puerto Rican Day parade in September. Indeed, in 2019, I noticed that Kissimmee’s mayor, Jose Alvarez, chose to march in Celebration on the Fourth of July—though the decision was no doubt swayed by the prospect of votes for his upcoming bid to be an Osceola County commissioner. The town’s military veterans and Daughters of the American Revolution led the parade, but the biggest crowd pleaser was a Star Wars float flanked by Stormtroopers—a reminder that Galaxy’s Edge, a massive Star Wars–themed attraction, was set to open in Disney World in just a few weeks.

Twenty-one years earlier, the Independence Day parade had been my swan song for a year spent in an apartment at the epicenter of this much-scrutinized town in Central Florida. I had come to write a book, The Celebration Chronicles, about the trials and tribulations of its pioneer residents.¹ Back then, in Celebration’s fledgling years, the parade was more of an improvised affair, and I was cajoled by neighbors into playing the role of George Washington at the head of the procession. They also made me promise to return to Celebration, but only when it had grown up. Like children, new towns surely have the right to mature before their character is judged.

I kept my promise. A quarter century after Disney sculpted this New Urbanist experiment out of Central Florida’s scrub and swamp and launched a thousand newspaper articles about the audacity (or folly) of building a planned utopia, I found that Celebration has some new lessons to teach us. But to see why, you had to lift your gaze above street level, to the upper floors of the downtown buildings. There, above the cheering throngs with their starred-and-striped socks and bandannas, were telltale signs of neglect and disrepair: patched and stained walls, rotting columns, bubbling stucco, broken tiles, cracked gutters. Many of the pastel surfaces were covered in layers of grime. And the distress signs on the exterior were nothing compared to the damage on the inside. The condo residents in these buildings have horror stories to tell about the ruination of their units: water intrusion that takes the form of small waterfalls during a storm, blooms of mold growth, vast termite colonies, sagging floors, and wobbly stairways.

In a town where aesthetics reign supreme, these centerpiece buildings had been designed with a deliberately dated, prewar look in mind, but they were meant to appear as if they had been carefully preserved through decades of weathering. Without real maintenance, of course, the look failed. Florida’s climate can be unforgiving to wooden buildings, especially those faced with stucco, and most homeowners should know that diligent upkeep is required to stave off rot and decay. In this most iconic of places, someone was clearly falling down on the job. If this had been a Disney fairy-tale melodrama, the blight would be the result of a spell cast by some fiendish impostor, while the return of the rightful royal owner would restore health and vitality to all. But who was the culprit here, and what were the prospects for a happy ending?

Unlike almost anywhere else, Celebration’s downtown did not grow organically along with the rest of the community. Its tidy retail core, with rental apartments perched on top of the stores (Osceola’s first mixed-use arrangement in decades), was hastily erected in the mid-1990s, in advance of the arrival of residents. Disney’s deep pockets allowed it to initially subsidize the carefully chosen retailers so that they could flout the standard rules of commercial development and open their businesses to visitors long before the town’s population could support any of them. Without doubt, some of the blame for the current grunginess of these buildings is a consequence of that rush job, or what residents used to refer to as Mickey Mouse construction—that is, maximum focus on the facade and minimal attention to what lies behind it. And it was no surprise when other, wholly residential sections of the town also saw their share of construction flaws, as builders with undertrained work crews scrambled to meet the ravenous market demand for a Celebration address.

But expedited building with slipshod results is hardly unusual in Florida’s real estate landscape, where entire subdivisions often sprout overnight, carved out of cow pasture. Nor is the problem wholly a legacy of Celebration’s original construction. It is also the upshot of Disney’s reckless 2004 sale of the entire downtown complex to a private equity investor who had no record of managing town centers nor any vested interest in keeping up the high maintenance standards set by the brand-conscious developer. From his Madison Avenue office, a thousand miles away, he followed the Wall Street playbook of squeezing revenue from his new asset by hiking rents, selling off land parcels for condo development, and refinancing his loans in order to drain off equity for his investors. Hardly any of the proceeds went back into the upkeep of the buildings, and the value of the downtown units plummeted.

The full scope of this trauma, and the dogged efforts of a group of downtown condo owners to fight it, became clear during my regular visits over the next few years. But I also quickly learned that housing distress was by no means confined to the upmarket precincts of Celebration. Variants of this affliction had spread all across working-class Osceola County, soon to be pinpointed as the place with the least amount of affordable low-income housing per capita in the entire United States. And they were equally familiar to tenants and homeowners struggling with housing security throughout the country.

There is no single cause of America’s housing crisis, either in Osceola or nationally, but the shift to out-of-town ownership is a big factor, and it can take many forms. More and more houses are falling into the hands of Wall Street firms and global investors looking to extract rents, fees, and other income streams from every square foot. The biggest transfer of this property wealth has occurred in Sunbelt states whose economies are fueled by an unwholesome cocktail of breakneck growth, hands-off regulation, depressed wages, and real estate speculation. Adding to the money drain is the boom in short-term renting: Airbnb’s sharing economy has turned a sizable chunk of the nation’s housing stock into ad hoc hotels, while the surging number of vacation rental homes with faraway owners has also claimed its share. Like other regions dependent on tourism, the nation’s fifth-largest industry, Central Florida lends itself particularly well to this kind of prospecting. With seventy-five million annual visitors opening their wallets to vacation there, the giants of the travel and hospitality sectors are laser focused on funneling dollars out of the local economy of the Orlando-Kissimmee tourism corridor.

In the meantime, their underpaid service employees are hard-pressed to find a stable place to live, and more than a few are teetering on the verge of homelessness—or are technically over the line, according to some official definitions. Many reside within the attendance zone for Celebration’s schools. When I discovered that Celebration High was enrolling the most homeless students of any school in Florida, I decided to follow them past the town’s white boundary fences and onto the Route 192 strip that runs the length of the county’s developed portions. That stretch would become this book’s focal landscape. There, I found the children’s families shacked up in dilapidated motel rooms, unable to find apartments priced within their reach.² Even before employers cut many of them loose during the pandemic, such households were only a paycheck away from being discharged into the streets and woods to join the ranks of those whom the federal government officially labels the literally homeless.

Alongside the underpaid service industry workers, I found other casualties of America’s low-road economy: families in transition who had lost their homes to foreclosure, disabled and elderly people struggling to subsist on thin government checks, economic fugitives carrying debt burdens from Frostbelt states, climate refugees from the Caribbean, and dealers pushing relief from the pain. Documenting their hardship and their aspirations took me further and further into Osceola’s version of the tollbooth life, where rent is only the largest of a multitude of monthly fees—healthcare premiums, tuition and childcare bills, traffic fines, data charges, sales taxes, administrative fees, processing costs, property assessments, and debt service payments—that are extracted from wages hovering around the federal poverty line.

So what I had originally intended as a dutiful check-in on Celebration’s progress turned into a much longer and different kind of report on the national housing crisis, as seen through the lens of challenges faced by one of the fastest-growing counties in the United States. How did this corner of the Sunbelt become such a tightly confining economic trap? Why is it so difficult to find a reasonably priced apartment or house in a part of the world where jobs are plentiful (Disney is always hiring), and where the promise of cheap and easy living in a frost-free climate attracts scads of new arrivals? More than sixty thousand people move to the region every year. When so many end up without adequate housing, what does that tell us about the warped workings of the real estate market? What can we learn from their downward mobility about the waning of the homeownership ideal that used to anchor the American dream, and the corresponding rise of a rentership society that has spread across the nation?³ And what urgent steps are needed to secure decent housing as a basic guarantee for all, and not just as an object of speculation for the few?

FROM CRISIS TO EMERGENCY

To begin to answer questions like these, we first need to briefly revisit the aftermath of the 2008 housing crash. That calamity occurred because Wall Street cooked up more ways of spinning lucre from financing homes than from almost any other kind of investment. Predatory lending and the Ponzi-style sale of bad debt were the root cause of the market collapse in the US, and the outcome was a series of hammer blows to households and economies all over the world. But in the years following the crash, another mess unfolded, and once again the wolfish financialization of housing was front and center.

Even as US government officials were infamously bailing out large banks, they declined to offer relief to homeowners facing ruin. Instead, they auctioned off hundreds of thousands of foreclosed homes to Wall Street’s private equity firms.⁴ Sunbelt regions—including the metro areas of Phoenix, Las Vegas, Sacramento, Charlotte, Memphis, and Atlanta—were selectively targeted for large acquisitions of units, and much of Central Florida’s housing stock was bargain-picked in this way. After 2008, major banks largely stopped lending to would-be home buyers, but they eagerly provided capital for private equity firms and real estate investment trusts (REITs) to assemble bulging portfolios of homes.⁵ By 2019, an estimated $220 billion of housing value had been transferred from former homeowners to large companies and financial funds.⁶ At the same time, the ownership of commercial real estate, including mixed-use complexes like Celebration’s town center, became increasingly concentrated in the hands of a small group of corporate giants.

While home prices fell during the Great Recession, rents did not, and so the new corporate owners rented out their new assets to casualties of the foreclosures and to young adult households shut out of the real estate market by student debt and the government’s austerity policies. As their profits soared, single-family rentals became the fastest-growing segment of the housing market; by 2018 they accounted for 35 percent of all rented housing units in the United States.⁷ Notoriously, Wall Street’s single-family rentals tend to be poorly maintained by graceless managers who are hard-nosed about extracting all kinds of ancillary fees, ordering evictions, neglecting promised repairs, and failing to return deposits.⁸

Today, Wall Street’s housing assets are often bought unseen by automated landlords; they are selected not by humans but by algorithms. These computer programs don’t see tenants as humans either, so the rental rates they set are decoupled from affordability as defined by local wage scales and are tied instead to the companies’ national profit models.⁹ Tenants who have no alternative but to pay the jacked-up prices are simply vehicles for whisking cash resources out of communities and into offshore investors’ accounts or international financial markets where the asset managers play. Nor is there any way of knowing exactly who profits from the properties, since private equity firms and private or non-traded REITs draw on undisclosed investor pools.¹⁰ In addition, as many as three million homes and apartments have been snapped up by anonymous LLCs, LLPs, LPs, and shell companies through loopholes that facilitate money laundering and hide the identity of actual owners.¹¹

This ownership shift has led to land and rent inflation both in the US and abroad, closing off access to housing tenure and rights in numerous countries. Globally, the distress has spread into rural areas as well as cities: both have seen a steady rise in homelessness, mass eviction, and displacement, along with heightened cost pressure on those who are still clinging to their homes and landholdings. As early as 2014, McKinsey, the world’s premier management consultancy, declared a global affordable housing crisis.¹² In 2015, Miloon Kothari, the first UN special rapporteur for adequate housing, estimated that 1.6 billion people are considered to be inadequately housed, while one hundred million are homeless and another sixty million have been displaced from their homes.¹³ In 2019, two other UN rapporteurs condemned Stephen Schwarzman, CEO of Blackstone, the private equity group with the largest portfolio of rental homes, for pursuing a business model at odds with international human rights law.¹⁴

By 2016, homeownership rates in the US had dropped to the lowest levels in sixty years—and the decline in Central Florida (from a historical average of 66 percent to 55 percent in the course of a decade)—was among the steepest.¹⁵ The National Association of Realtors worried out loud that the American dream cornerstone of its industry was crumbling. The African American–led National Association of Real Estate Brokers lamented that reduced access to housing equity was widening, not closing, the racial wealth gap. Largely due to foreclosures from subprime lending, Black homeownership had fallen to levels last seen before the Fair Housing Act of 1968 prohibited all forms of racial discrimination.¹⁶ The African American ownership rate was now more than thirty percentage points lower than that of non-Hispanic whites, a stunning refutation of the policy consensus, shared by Democratic and Republican administrations alike, that greater inclusion in the private housing market would increase the wealth and security of minority households.¹⁷

In the 1980s, the American industrial economy was hollowed out when manufacturers moved their plants to foreign lands in search of cheaper labor and to escape environmental regulation. Over the last decade, a different kind of asset stripper raided the nation’s housing inventory, but the outcome has been similar; local resources and income are being transferred offshore, and minority groups are disproportionately affected. For generations, national moralists preached the sanctity of the owner-occupied private home as an engine of economic prosperity, and then repackaged the promise for minorities who had long been shut out of the deal. But as it comes under renewed assault from corporate raiders, the formula for building family wealth from real estate is running out of steam, especially for working-class and middle-class households. Increasingly, no median-priced home is off-limits to becoming a rental property, every quarter-acre lot has a distant investor’s dollar value on it, and the proceeds are flowing out of host communities and into international finance markets.

Between 2010 and 2019, the number of renters in the country grew twice as fast as the homeowner population.¹⁸ Renters now make up the majority of residents in most large American cities; in Orlando, just north of Osceola, two-thirds of residents are renters.¹⁹ Meanwhile, the overall cost of housing, but especially rents, is eating up an ever-larger share of most household budgets, rising much faster than incomes.²⁰ A 2020 study showed that almost half of US renters were cost burdened, officially defined as spending more than 30 percent of their pretax income on housing, while almost a quarter were spending more than 50 percent. The worst hit were minority renters: 55 percent of Black and 53 percent of Hispanic renter households were cost burdened, compared to 45 percent of Asian and 43 percent of white households.²¹ New private housing supply (constrained by restrictive zoning, anti-density NIMBYists, and developers reluctant to diversify beyond their standard product of single-family homes) could not meet the needs of lower- and middle-income households, not even in the Sunbelt boomburgs.²² By the end of the decade, the inability to find housing at tolerable prices was a full-blown national condition, affecting every region and location.

Arguably the most telling figures are provided by the National Low Income Housing Coalition. As its 2020 report shows, there is not a single American county where a worker earning the local minimum wage and working forty hours a week—a standard full-time job—can afford a two-bedroom apartment without becoming cost burdened. Indeed, out of the 3,143 counties in the US, there are only 145 where a full-time minimum-wage worker can afford a one-bedroom apartment.²³ Even in states like Massachusetts, California, and Washington, with minimum wages much higher than the federal rate of $7.25 per hour, rents are still out of reach. In Florida, where the minimum hourly wage is $8.56, a worker would need to labor 114 hours every week to afford a two-bedroom dwelling, or 92 hours a week for a one-bedroom. The pathbreaking Fight for $15 campaign, launched in 2012 by fast-food workers, has won raises for tens of millions of low-income employees nationwide, but $15 an hour still won’t make the rent in most parts of the country.

The majority of the nation’s 3,143 counties are not urban, of course; they are rural or low-density suburban. Yet in the public mind, the housing crisis is still a distinctly urban phenomenon, a predicament especially of top-tier cities where so many aspire to live. This perception is shaped by countless articles about tech bros, investment bankers, or gentrifying hipsters displacing working people of color from New York and San Francisco neighborhoods, and by images of sprawling homeless encampments on downtown streets in Los Angeles and Seattle. We know that the rent is too damn high for big-city dwellers because the lion’s share of media commentary focuses on their plight, typically framed as a story about the runaway cost of living in the superstar metropolises.

But in many ways the crisis is more acute in rural areas and provincial cities and in suburban rings where lower- and middle-class households seek relief from the exorbitant prices in the metro cores but where poverty rates have steadily increased over the last two decades.²⁴ The map of upstate New York, for example, is peppered with counties where the percentage of cost-burdened households is as high, or almost as high, as in the better-off precincts of the metro region. And in those places, urban services and public resources are much thinner, getting from A to B is more costly, and jobs paying a living wage are few and far between. Most of their residents are ill-paid workers in retail, hospitals, restaurants, childcare, housecleaning, or construction, not financial or tech employees with stock options. So, too, as inner-city public housing complexes succumb to the bulldozer, and rooming houses and SRO (single-room occupancy) buildings fall prey to gentrification, more and more low-income families are living in hotels, motels, and inns on the urban fringe or beyond it. Motels in particular, whether or not they are designated as extended stay, have become the default residence for a significant mass of Americans priced out of the rental and homeownership markets.²⁵ Countless others are doubled up, reliant on the goodwill of relatives or friends with a room or sofa to spare, and who may be in need of extra cash to pay their own bills. In the Sunbelt states, where right-to-work laws ensure paltry wages, budget motels are a convenient stopgap for the meager availability of affordable housing.

The COVID-19 pandemic amplified the preexisting conditions of economic stress. Converting the chronic housing crisis into an acute emergency, it threatened a massive wave of foreclosures and evictions, routinely anticipated in the media as a tsunami. To stem the tide, federal and local governments issued temporary bans on evictions, but even before these ran out, the ranks of unhoused began to swell. In September 2020, a large Orlando homeless shelter reported that more than 40 percent of those who had sought admittance over the previous two months were experiencing homelessness for the first time.²⁶ The federal moratoriums lasted longer but did not bring foreclosures and evictions to a halt because they only covered mortgage holders with government-backed loans or renters who could prove hardship directly caused by COVID-19.²⁷ By January 2021, the nation’s delinquent renters—as many as ten million people—owed a whopping $57 billion in back rent, utilities, and late fees.²⁸

As small landlords faced ruin, market predators circled overhead, waiting to swoop, for the second time in a decade. By June 2020, private equity groups had amassed almost $1.4 trillion of disposable capital in expectation of another fire sale of real estate. They referred to it as dry powder.²⁹ As the CEO of Starwood, one of the leading firms, reminded his shareholders: It’s really ugly … but obviously when it’s really ugly, it’s a good time to invest.³⁰ Enriched for a decade by tax cuts, loopholes, and exemptions, and further fattened by giveaways embedded in the federal stimulus program, the large corporate landlords and institutional investors were itching to once again profit from the distress of others. This time, not just owner-occupied houses but also buildings owned and managed by mom-and-pop landlords were the likely targets. According to PIA Residential, a private equity real estate firm based in Miami, This eviction moratorium will, unfortunately, create a lot of distressed properties for landlords that cannot pay their mortgages, but for us, it will be an opportunity to buy more.³¹

ORANGE BLOSSOM BADLANDS

The tri-county region (Orange-Osceola-Seminole) of Central Florida that straddles the I-4 corridor—famous for its role as a key swing constituency in presidential elections—is in one of the deepest holes. By 2019, the nationwide crunch was at its most extreme in the four-thousand-square-mile sprawl of the Sanford-Orlando-Kissimmee metro area. With a combined population of 2.1 million, the region was ranked No. 1 for unaffordable housing that year by the National Low Income Housing Coalition, with only thirteen affordable rental homes for every hundred low-income households.³² Osceola, the poorest of these three counties, and the eighth-fastest-growing county in the US, was in the worst shape. That year, 57 percent of its households were categorized by United Way as ALICE (asset limited, income constrained, employed)—that is, working families struggling to afford basic necessities. In United Way’s 2020 report, reflecting pre-pandemic data, that number had increased to 64 percent.³³ There are many sorry indications of this hardship, but if I had to pick a single example it would be the grim statistic that one out of every hundred homeless children in the United States lives in the tri-county region, most of them growing up in cramped motel rooms.³⁴

Geographically, Osceola lies within the original concentration zone reserved for the Seminole people by the white settlers’ treacherous 1823 Treaty of Moultrie Creek. It is named, like several other counties across the country, in honor of the Seminole chief who led his people’s resistance in the 1830s and was heavily romanticized by white Americans after the US Army shamefully captured him while under a flag of truce. By the 1870s, the Seminoles who resisted removal to the territories of modern Oklahoma had been chased down into the Everglades, during the last domestic war east of the Mississippi. Kissimmee was as far south as the railroads came, prompting one commentator to declare that white civilization ends here, while lands to the south were in the possession of a cowboy race known as Crackers … and a remnant of a race of Seminole Indians who hunt, fish, and raise crops in the Everglades.³⁵

A century later, with the arrival of Disney