by Rob Inglis and Jonathan Thompson
Surprise, Ariz., doesn't look very surprising. It might be anywhere in the suburban West. Home Depot and Wal-Mart rise like islands from an ocean of pavement, and late-model SUVs gleam in the midday sun. Homes with red-tiled roofs line up like stucco boxes on a giant supermarket shelf. There's little to distinguish this from the hundreds of square miles of housing developments that have sprouted around Las Vegas and San Diego. If it weren't for the palm trees, you could be in suburban Salt Lake City.
But only Surprise has the Radiant Church. Inside this 55,000-square-foot behemoth, 50-inch plasma-screen televisions display huge images of American flags. Starbucks-trained baristas serve up frothy espresso drinks, and the casually dressed congregation nibbles Krispy Kreme doughnuts. The pastor, Lee McFarland, wears jeans and rides a Harley. His uncanny ability to tap into the exurban zeitgeist made this the fastest-growing megachurch in one of the nation's fastest-growing metro areas.
Radiant symbolizes the breakneck growth and prosperity that have come to define Surprise and its Western siblings. Since it was incorporated in 1960, Surprise -- an exurb of Phoenix -- has burgeoned from 500 people to over 100,000 people spread over 100 square miles. Most of that growth happened in the last decade, and it happened largely independent of any economic base, such as manufacturing, mining, farming or even high-tech industry. Instead, growth created its own economic base. To the members of Radiant Church, it must have seemed like a miracle.
Now it seems more like a mirage. On a warm day a few months back, about 200 people -- mostly female and Spanish-speaking -- stood in line in front of the church. Many held small children, or scolded older ones for throwing the ubiquitous red landscaping rocks. They weren't here for a sermon, or even for the doughnuts. They came to take advantage of the church's economic relief program, which distributes food, gas cards, and small cash payments to help with utility bills. The church began the program last October, after it became clear that a profound shift had occurred in Surprise and the neighboring communities.
After a decade of riding high, the exurbs are in crisis. In California, Nevada and Arizona, thousands of foreclosed homes sit empty, weeds reclaim vacant lots in new subdivisions and big-box stores are shutting down. The local newspaper warns of roof rats infesting abandoned neighborhoods and mosquitoes colonizing unused swimming pools. Many observers believe that this is only a slump, albeit a deep one, and that the old patterns of growth will someday return. Others aren't so sure. It's possible, they say, that even after the national economic crisis subsides, the Western urban urge to expand rapidly and without limitation may have ended.
"I'm not sure that the era of sprawl is over," says Ed McMahon, senior fellow at the Urban Land Institute. "But the paradigm of unlimited suburban and exurban growth has definitely shifted."
Bob Guerro is short, muscular and clean-shaven, a retired Marine who works for the Arizona Department of Corrections. His wife, Rayo, his high school sweetheart, works at a local daycare center. Their 22-year-old son and 18-year-old daughter both still live at home. In 2004, the Guerros sold their California home and bought one in Surprise for $260,000. They didn't know it, but they arrived at the tail end of a 50-year dream that was about to abruptly end.
That dream began in 1954, alongside what was then the modestly sized city of Phoenix, when a man named John Long created Maryvale, a master-planned community of wide streets, cul-de-sacs, nearly identical affordable homes and a big shopping mall. A few years later, the feds said that air conditioning could be included in home mortgages. Maryvale set a template for suburban growth in Phoenix and the nation, and air conditioning made it possible for that growth to occur without newcomers broiling in 120-degree summer heat.
Arizona began to shift from an economic past built on the "four c's" of citrus, cotton, copper and cattle into a future built on, well, growth. The change was rapid: Phoenix's population grew from just over 100,000 spread over about 17 square miles in 1950, to four times that a decade later. Today, 1.5 million people live in Phoenix proper -- which covers more than 500 square miles -- and millions more live in the amoeba-shaped appendages that spread out for miles in every direction.
The pattern of this remarkable growth, which was mimicked by other Western cities, was apparent from the beginning. As early as 1959, a Phoenix planning task force worried about the city's tendency to "leapfrog" outward, leaving huge tracts of land vacant close to its center -- a trend that has just become more pronounced. In spite of efforts to encourage infill development, most homebuilding has happened farther and farther out on the fringes, gobbling up desert land at alarming rates. Surprise, for example, was just a little town, separate from greater Phoenix, in 1990. Now it's been swallowed by sprawl.
Though this tendency to grow away from the city center, its jobs and its amenities seems counterintuitive, it makes sense from an economic and even a cultural viewpoint. Western cities typically have plenty of private land onto which to grow. If they run out, they develop ways to convert public land -- Las Vegas has grown onto once-federal land and Phoenix and Salt Lake City co-opt state land (see related story, page 14) -- much as early settlers homesteaded and staked mining claims on public land. Many of Phoenix's newcomers -- especially between 1970 and 2000 -- were retirees, so there was less need to build housing near employment. Most importantly, though, the farther you go from the city, the cheaper land tends to be.
And that's the only way to keep these exurban growth machines running. People are not flocking to Arizona's urban fringe to grow oranges or build computers; they're coming because it's cheap. In a 2004 survey by the Behavior Research Center of Arizona, 86 percent of respondents listed affordable housing as "somewhat" to "very important" factors in their decision to move to the Phoenix area. Just 67 percent rated jobs as important, and only 59 percent cited the weather.
Grady Gammage, a real estate attorney who has promoted, studied and chronicled Arizona growth for years, says the period between 1970 and the late 1990s followed the "normal Arizona growth cycle." In other words, 1.8 million new people gobbled up more than 500 square miles of desert and farmland, and the number of miles driven collectively by Phoenicians rose from 12 million per day to 70 million -- and that was "normal." But between 2000 and 2006, the growth machine went really nuts, the laws of supply and demand were thrown out of whack, and folks like the Guerros got caught up in the grinding gears.
Generally, people move to a community for a specific reason -- jobs, climate, scenery -- creating a demand for housing. If the demand exceeds supply, then prices go up, and someone builds new houses to meet the need. Something else seemed to be happening on the fringes of Phoenix. Instead of being lured by jobs or amenities, people came in large part because houses were relatively cheap. "Phoenix and Las Vegas became the ultimate suburbs of Southern California," says Christopher B. Leinberger, a real estate developer and visiting fellow at the Brookings Institution, where he studies urban planning. "They became the place for folks in California who could no longer afford the late 20th century American dream."
Just because a place is relatively cheap doesn't make housing affordable, however. That brings us back to the Guerros. They wanted a nicer house than they could afford, so their lender offered a solution: An adjustable-rate mortgage. Their monthly payments were $2,700. Of course, the bank would jack up their rates after two years, but it didn't matter. With home values climbing steadily, they could refinance before the rate reset, pull out enough cash to buy a jetski or a new car, and keep their mortgage payments in check. In other words, the banks were creating affordable housing where it didn't really exist; with easy and tricky loans, they were creating purchasing power, or demand. Tens of thousands of such loans were issued in Arizona, and the major homebuilders even got into the game, offering financing in a manner more often associated with car manufacturers.
This artificially inflated demand did the trick. In just five years, Surprise gained another 50,000 people, and added more than 7,000 homes in 2005 alone. Maricopa County -- which contains the bulk of the greater Phoenix metro area -- grew faster than anywhere else in the country, and the Phoenix area issued more than 62,000 residential building permits. The economy responded: In 2006, Arizona's gross domestic product grew by 6.7 percent, compared to 3.1 percent for the nation as a whole. The construction industry provided 9 percent of all non-farm jobs in Arizona, making it by far the biggest employer in the state. Those jobs drew more people, who took out more loans to buy more houses, creating more demand … you get the picture.
Housing prices soared -- nearly doubling, on average, over two years -- to create almost instant wealth. Speculation was so rampant that it threw population estimates for a loop. Last year, with the bust in full swing, state and local officials discovered that their method of counting people -- by starting with 2000 census numbers and then estimating population using the number of houses built and sold -- didn't work. They had assumed an occupancy rate of 98 to 99 percent, when in fact at least one of every 10 new homes was sitting empty, even before the bust. A lot of people were making a lot of money. A lot of people would lose money, too.
By the time the Guerros' mortgage reset, this frenzied feedback loop was spiraling in on itself. Gas prices had soared, people couldn't pay their loans, and the housing bubble couldn't inflate itself anymore. Even as their home's value plummeted, the Guerros' loan payment increased by $1,100 a month. Bob tried to talk the lender into lowering the payments, but the bank wouldn't budge. He then paid a "mitigation company" some $3,000 to renegotiate the loan. "But everything they were doing I had already done," he says. "Basically, they did nothing for us except take our money."
With their funds dwindling, the Guerros had to face the prospect of losing their house, along with the $80,000 they had spent on a pool and other improvements. "It was scary," says Rayo. "We had realtors coming to our door, trying to get us to do a short sale, telling us, ‘They're going to change your locks. Your furniture will be outside.' " The bank gave them until Sept. 22, and Bob made sure that they were out on time. "It was stressful. Did a lot of crying," says Rayo. "And praying," says Bob.
They weren't alone. Since 2005, Arizona, Nevada, California and Florida have led the nation in foreclosures. During 2008, the foreclosure rate in Arizona was one in every 163 homes, nearly three times the national average, with much higher rates in parts of the greater Phoenix area. The Arizona growth machine ground to a sickening halt.
After they lost their home, Bob and Rayo Guerro rented a new place in nearby Twelve Oaks, one of dozens of partially built out housing developments in the greater Phoenix area. They are now buying the house in an owner-financed deal from a builder desperate to get something back from his investment. It's actually an upgrade for the Guerros -- if you disregard the fact that parts of the development look post-apocalyptic. Fifty yards from the entrance, for example, an abandoned brand-new house rises from a field of vacant lots and toppled real estate signs. On the front porch, instead of a rocking chair, there's a dried-out tumbleweed.
This may very well be a vision of the future of Phoenix -- especially its outer-edge communities. Average prices have dropped nearly 50 percent, but there are even better deals out there -- one broker told the Arizona Republic that he just put a $119,000 price tag on a home that sold for over $400,000 a few years ago.
Gammage believes that the low prices will draw people back and "will get us back to the normal Arizona growth cycle before this last boom, when about half as many houses were built." Arizona has recovered before, after being hard-hit by the savings and loan crisis of the late 1980s. There were a lot of foreclosures then, credit tightened and growth slowed, especially on the fringes. Back then, however, foreclosure notices were only being issued at a rate of about 1,000 per month. In 2008, the rate was 10 times that or more.
And even if all the cheap houses currently on the market -- there are more than 80,000 homes for sale in Phoenix right now -- were bought up, then what? The sale of those homes alone can't kick the old growth cycle back into gear by itself, because it won't create any new construction jobs. Without new high-paying jobs and easy credit, the purchasing power is just not there to inspire new construction.
Ed McMahon believes that many now-abandoned neighborhoods will repopulate as prices continue to drop. But the movement back to the fringes will be tempered. As the recession ends, gas prices will climb again. When you have to drive to work, to the store and to everywhere else, that cheap home out in the exurbs doesn't seem so cheap. "People aren't looking enough at the combination of transportation and housing costs," McMahon says. "Any short-term gain in lower prices is going to be offset by the long term."
But it's more than just simple economics, McMahon says. "The collapse has really changed the way people think about housing," he says. "We saw it as the quickest way to wealth. Now, that's not the case." People may forget about the American dream of home ownership, and just rent a place -- a loft in the city, perhaps.
That's how Leinberger of the Brookings Institution sees it. He says that we're seeing the swing of the pendulum back towards the urban core after 50 years of swinging outward. Downtown Phoenix and Scottsdale -- an upscale suburb near downtown -- will weather the downturn fine, as will any other areas that manage to fall along the line of Phoenix's brand-new, and unexpectedly popular, light rail. Others "may not recover," he says.
For those places, Leinberger envisions a grim, downward spiral. As prices remain high in the urban core, it will force lower income folks out into the exurbs, where supply is high and prices low. They may rent McMansions that have been divided into duplexes, or buy houses cheap enough that they're not inspired to maintain the property. Property tax revenues will fall with property values, and local infrastructure and government programs will deteriorate. These can all add up to create a slum, a fate that befell Maryvale -- Phoenix's very first suburb -- as the exurbs flourished.
Back at Radiant Church, Jose Hernandez, one of the few men waiting in line for help, explained that he had been looking for a job for months, without luck. As the housing market collapsed, so did the larger economy. The homebuilding industry has shed 80,000 jobs in Phoenix alone. Tax revenues have shrunk, the state is facing a $3 billion budget shortfall next year and area schools recently laid off hundreds of workers. Social programs are losing their funding.
While Hernandez spoke, the food bank ran out of goods, so Pastor McFarland had to run to Costco for more. Carrie Fay Amaro, a church employee, explained that Radiant has always had an informal food bank. As the economic crisis deepened and more people started coming to the church for help, they called the city to figure out where they should refer those who need serious help. The city replied that the church " ‘is all we have,' " Amaro says. The church soon had more needy people than food.
On that day, back in November, 200 people lined up for help at the church. Since then, the church has helped over 16,000 individuals. In order to keep supplies up, they've had to make regular appeals to the congregation. "Jesus cared about the poor," announced one of the church's huge television screens after a sermon in November. "Do you? … So, what are you going to do about it?"© High Country News