How Foreclosures Feasted on Some Cities, Not Others

A look at foreclosures in two Southern California cities shows why some fared better than others in the housing crisis.
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Here’s a tale of two cities in Southern California, one that survived the worst of the foreclosure crisis with a few scratches, and one that was badly beaten up.

In 2000, Santa Paula, a historic oil town bounded by vast greenbelts of orange, lemon, and avocado groves, had a population of 29,000 and a median household income of $42,000. When the subprime mortgage industry collapsed eight years later, 16 of every 1,000 homes in the “Citrus Capital of the World” went into foreclosure, well below the national average of 22 for every 1,000 homes.

Another old town, Lake Elsinore, closely matched Santa Paula in size and household income in 2000. Today, the city is known for its freshwater lake, the largest in the region; its casino, “California’s Friendliest Card Room”; its outlet shopping; and its high rate of foreclosures — 86 per 1,000 after the housing bubble burst.

The key difference, says Garrett Glasgow, a political scientist at the University of California, Santa Barbara, is that Santa Paula had slow-growth policies in place to prevent rampant residential construction, while Lake Elsinore was aggressively pro-growth. Between 2000 and 2008, Lake Elsinore was the 12th fastest-growing city in the state. The city’s slogan is “Dream Extreme.”

It’s a pattern that was repeated throughout California, according to a recent study in Urban Affairs Review by Glasgow and co-authors Paul Lewis and Max Neiman, political scientists at Arizona State University and University of California, Riverside, respectively. The stronger the city council opposition to residential growth in the late 1990s, their data show, the lower the rate of foreclosures nearly a decade later.

The Jan-Feb 2012
Miller-McCune

This article appears in our Jan-Feb 2012 issue under the title "Foreclosure Forcefield." To see a schedule of when more articles from this issue will appear on Miller-McCune.com, please visit the
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The study, then, runs counter to a prevailing view among public-policy scholars that cities are swept along helplessly by larger trends. The authors explain: “Although the foreclosure crisis was driven by national and global forces, more cautious local government policy approaches to residential growth appeared to moderate the damage. … One might claim that if more cities had made an effort to manage growth, then the housing meltdown might have been significantly less burdensome.”

Glasgow, Lewis, and Neiman base their conclusions on foreclosure data from most of California’s 480 cities and surveys of 300 city planning directors conducted by Neiman and Lewis for another project in the late 1990s. The surveys, they say, provided a reliable policy forecast for the decade that ended in debacle.

Of course, other factors mattered besides growth policies. Cities that were built out or had higher property values or were located in coastal counties fared better in the foreclosure crisis (or their home prices declined less sharply) because they had little vacant land on which to expand. Those with higher percentages of African Americans and Latinos fared worse — a sign, the researchers say, of lower household wealth or predatory lending practices in minority communities.

A diversified economy, Lewis says, helps explain why the city of Davis, a slow-growth town buffered by biotechnology firms and a major university, experienced only 0.23 foreclosures per 1,000 homes in 2008 and 2009. By contrast, there were 66.5 foreclosures per 1,000 homes, a rate around 290 times as high, in Hesperia, a pro-growth bedroom community in the Mojave Desert that had roughly the same number of people and median household income as Davis in 2000. The No. 1 employer in Hesperia is the local school district, and In-N-Out Burger is in the top 10.

But even after accounting for the effects of unemployment, socioeconomic status, demographics, and geography, the researchers find that “smart-growth” cities such as Davis and Santa Paula were at a definite advantage when the crisis hit. Typically, these cities placed limits on construction, put a premium on the quality of growth, and resisted the temptation to annex land outside their boundaries. They were finicky about the location, type, and design of new housing, and they likely attracted fewer risky buyers, or investors seeking to “flip” properties for quick resale.

Glasgow, Lewis, and Neiman stop short of advising local officials to embrace slow growth. They acknowledge that strict controls may simply shift more housing elsewhere, magnifying the misery of more vulnerable communities when a boom goes bust. But a little moderation goes a long way, they say: if cities make the right choices, they can significantly improve people’s lives.

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