Friday, December 17, 2010

Next Year's Urban Scene – Some Thoughts

A short missive here at the end of the year. I intend to have an excellent Christmas and prepare for an even better New Year, so to clear the way this is it for 2010 but be ready for next year – there are a lot of interesting and challenging things to come.


• The architectural business, especially for housing, will continue to founder. There will be an increase in mergers (of failing firms joining other failing firms) like two stars that collide; they may be brighter but only for a moment. Star designers of firms will, out of necessity, join other firms to try and continue on.

• Interest rates on housing will continue to rise. This will, for those that can, start a brief but explosive push to refinance before rates go too high. Then demand will flatten, rates will continue to rise, new housing will continue to suffer.

• Solar power needs markets to grow, and for the time being housing will not be the place. After all the government buildings, Walmarts, shopping centers, and office buildings are covered, where will this market turn? Traditional housing designs are not suited to panel installation. There will be a change in the designs of residential and multi-family roofs – less hip and more flat designs. This will dramatically affect the look of residential housing; also look for solar leasing deals with the big builders.

• Master planned communities will still sit on the sidelines, waiting, waiting, and waiting.

• There will be a five year breather on high-speed rail. When too many public service union jobs are lost due to budget cutting, there will be a quiet revolution to put off increasing our bond debt for this frivolous venture. Especially when it is found the only people who will profit are Chinese companies – to the tune of billions of tax dollars leaving the US.

• There will continue to be a movement of Boomers to the healthier and sunnier urban areas (Austin, Houston, San Diego for example), but there will also be a strong and financially important segment of this group that will stay in place and seek local options. Look for high quality and well serviced condominiums and apartment complexes in these markets. As they leave their big homes they want to stay local, live well, and have access to amenities, family and friends. They are not going too far afield unless it’s on a cruise ship.

• Speaking of cruise ships, with all the trouble in European cities (I know it’s isolated – but the traveler thinks not), look for cruising to continue to be supported – it is perceived as a safe way to see the world, if only its edges.

• Urban retail (much overbuilt everywhere) will look to be repurposed (lovely phrase), like overbuilt office space that was converted to housing; look for retail to face some of these same opportunities. Infill housing in parking areas at urban malls comes to mind in many markets.

• The continued growth of urban senior and active adult housing; the potential to repurpose failed condos into high-rise active adult complexes may save some vertical properties.

• The growth of apartment complexes – especially high end. These offer a mortgage free lifestyle that will verge on the resort and hotel level. Big impact in high-salary areas (Silicon Valley, Chicago’s Streeterville, San Francisco, and other high-value urban markets) where housing costs are too high for a transient worker climbing the ladder.

• More and more shopping on-line – driven by less and less product in the stores and the difficulty in accessing stores with the products. Amazon will blow the doors off most retailers.

• The urban scene will embrace the electric car in its many forms. But it still consumes energy, will clog the expressway the same as a nasty gas guzzler, and will still hurt if you are hit by one. Very few, like a friend of mine, will be self-sufficient with a private solar power system recharging their Volt. (Still trying to figure out how that works when he’s home only at night).

• Look for some reality in the draconian and silly environmental laws pushed during the last five years - more tempering than elimination. Cities will be desperate to attract builders and residents, the approval process must be streamlined; it will have to with the smaller and smaller staffs in most cities.

• And yes, there will still be a suburbia (its death, while wished for by some, is a long way, if ever, off), still an urban complex, still places in the country, and still commuters. Get over it; it is not as bad as you hope.

By the way a friend and political blogger, Rich Galen has an excellent post today, go to:

And a wonderful video I suggest is:

And one last one on Quantitative Easing is:

Have a wonderful Christmas, hug your friends and children, and spend the time preparing for an exciting New Year.

Stay tuned . . . .

Friday, December 10, 2010

A Toy Train for Christmas

The Parts and Players:
Santa Claus (The Big Guy) – Washington D.C.
Santa’s Helpers (Men and Women in Elf Costumes) – State Governments
Billy (Good Little Boy) and Tiffany (Good Little Girl) – California, Florida, Washington State, Illinois, New York, et all
Sally (Not so Good Little Girl) – Ohio and Wisconsin
Toy Train – High Speed Rail

Our Scene:
Santa’s huge toy shop in one of the big department stores; a long line of children wait to tell Santa what they want for Christmas.

The first child climbs up on Santa’s knee with the help of one of the elves.

“And what’s your name little boy?”

“Billy, Santa Claus, Billy.”

“Have you been good?”

“Oh yes Santa, I have been very, very good.”

“That’s good Billy and what do you want for Christmas?

“Oh Santa I want an erector set to build bridges for my brother, a whole village of dollhouses for my little sister, and a turkey with all the stuff and stuffing for my dad, see he’s lost his job.”

“I’m sorry to hear about that, I’ll see what I can do. Billy, you want so much for your family and that’s good, very good, but Billy, what do you want for being so good?”

Billy thought for a moment then turned his head to Santa with a huge smile.

"Santa I want a toy train. It would be the most wonderfulous thing in the whole world, a toy train that I can play with, run the track all through my room and maybe even in the hallway. It just has to be the most special and wonderous train, all shiny and sparkly and new. Oh, oh Santa that would be so great and it would be real cool ‘cause none of friends have a train and they all would wan’na come over and see it and play with me in my room. Please Santa, please.”

“But Billy I gave you a set of Hot Wheels and racetrack a few years ago and a really cool airplane and terminal set last year. Aren’t they fun to play with anymore?”

“Nah, Santa. I broke the racetrack and the planes just aren’t any fun anymore, but a toy train would be real cool, did I say the other kids would wan’na come over and see it.”

“Yes you did, but Billy, that is a very big toy for someone your size.”

“No. I’m a big boy, see!” Billy puffed himself up real tall.

“Yes, I guess you are now that you are all puffed up. Yes, Billy, Santa has to agree that you are a big boy now and can take care of such a wonderous toy. Santa will see what he can do. Just watch for a big green box under your Christmas tree.”

“Oh thank you Santa, thank you.”

Billy, with the help of the elves (who were all smiling and singing), climbed off Santa’s knee and slid down the slide into a huge pile of green cotton candy. Billy was in heaven.

The next child in line wasn’t sure about Santa, he was so big and his suit was all red and furry. The bells on all the elves (who were scurrying about still talking about the good little boy Billy), jingled and jangled creating such a wonderous din. This all scared the little girl. When the elves helped her to Santa’s knee, Santa wasn’t sure what was going to happen. He was afraid for his suit.

“And what’s your name little girl?”

“Sally,” she said quietly, still shaking.

“That’s a pretty name, have you been a good little girl?”

Sally thought for a moment. She looked at the Big Guy and all the elves dressed in green elf costumes, green cotton candy billowed all around them, it was a wonderous sight.

“Santa, I have not been a good little girl. I have saved my lunch money and not given it to my friends at school like the teacher says I should. I used it to help my dad and bought him a new tie, he was trying to get a job, and he did Santa, he was so happy. And I yelled at my brother when he bought some ice cream just after he had a whole mouthful of candy. So you see, I have not been a good girl.”

“I see, yes Sally, those aren’t good things to do, you should always mind your teacher.”

“Yes Santa.”

“But Sally, the elves and I know you can improve and be better, I know you want something for Christmas. Billy, the fine young man who sat on this very knee just before you, said all he wanted was a toy train, all shiny and sparkly and new. Wouldn’t you want a toy train? Santa has a whole box full of them at the North Pole.”

Sally thought for another moment then looked over at the next child standing in line, her name was Tiffany. She wore a bright dress and was all smiles.

“Can you hurry Sally, I just have to talk to Santa and unlike you I have been a very good little girl.” Even the elves could hear Tiffany’s strong Valley Girl accent.

Sally looked back at Santa. “Santa, I really don’t want a toy train; I know that if I get it my parents will have to buy more track so that I can run it down the hallway and then I will have to get more cars and a new engine and then I will have to buy one of those fancy train stations and I will have to get a little bridge to run the train over the other tracks and then a crossing thing with arms that go up and down and then I will have to get a huge box to keep them it and besides it will be fun for a little while then I will get bored and want something new and then it will just sit around and be in the way and besides it will only go in a circle and not really go anywhere really fast.”

Santa was shocked; not because she said it all in one sentence and one breath, it was because everyone wanted a toy train, that’s why he had a box full.

“Sally you just aren’t a very good girl; you only think of yourself and not others.”

Sally was saddened to hear that from Santa who had always been a hero to her.

“Santa,” Sally said, “why don’t you give the toy train to Tiffany, she is always a good little girl and wears really nice clothes and always has a smile. I think she gives her lunch money to the teacher who uses it for good things. Yes, Tiffany is a good little girl, give her the toy train. She deserves it and besides I have heard that her parents are real rich and can buy her all the tracks and stations she wants.”

Santa was very pleased, he had so many trains to give away and the line of good little boys and girls disappeared around the green cotton candy mountain.

Santa, pulled from his reverie, felt a tug on his sleeve; Sally looked up at him with her sad eyes. “Santa I really don’t want anything for myself, but if you can, my little brother wants a Red Ryder BB Rifle.”

Santa was stunned and outraged beyond belief what his ears had heard. Sally slid off Santa’s knee all by herself and pushed her way through the green cotton candy. She crawled to the slide and started down the slippery surface but she heard the Big Guy and elves exclaim ere she slid out of sight, “Sally, you’ll shoot your eye out.”

Merry Christmas and Happy New Year

Stay tuned . . . .

Thursday, December 2, 2010

Housing, Oh Housing – Wherefore art thou . . . going?

The Case-Shiller Home Price Index was released yesterday and after scratching my head and asking myself why I even bother to look at charts like this (too depressing–it is the same curve of my own business model), I came to the inevitable conclusion: open another bottle of wine; pull up a blanket–this ride is far from over. And the big question, (it came up in three distinctly different conversations today): When is this ride going to be over?

Impatience is setting in, big time. Everyone is forming their own opinions about where the housing market is going (hopefully to a better place than where it sits now). With the unstoppable growth in the American population over the next fifty years, there will be:
1.A pent up and poorly met demand, like the 1930s,
2.A slow growth in housing to match the needs of the marketplace,
3.A roller coaster ride of fed money and private capital trying to game the market and the system,
4.Or “Return with us now to those thrilling days of yesteryear” where we build like crazy, inflate prices, go bust then do it all over again, and again, and again (sound familiar Tonto?).

The big issue today is a lack of clarity in the marketplace, foreclosures, the cheapest housing in years, rental versus ownership – situation abnormal. Sure the next 100 million Americans (thank you Joel Kotkin, it’s all your fault) will need places to live and shop and work, but there is not a Central Planner in the world that could ever figure that one out, no matter how smart you think you are in Washington. There are fewer and fewer qualified buyers for more and more available housing units – what would Ludwig von Mises do? Probably have a good chuckle – history does repeat itself, itself, itself. "Ludwig, how is that Market is Supreme thing. Yeah, it does work, you may not like it but there it is." It is now no longer a regional problem but, like a virus, has begun to infect everyone everywhere (think Ireland, Portugal, West Covina).

It is interesting that a few bold thinkers are now challenging the American dream of homeownership, the fundamental tenant of the American psyche since WWII. In 2000 the average rate of homeownership in New York City was about 31%, meaning 69% rented, in Chicago the ratio was 43% owned to 57% rental and in Los Angeles 62% rented. I would offer that in the last ten years this number has not changed much.

Hanley Wood Market Intelligence said that national homeownership today is at 67% almost the exact opposite of the large city trends in renters versus owners. But in 1960 ownership was at 62 % – not a significant difference in fifty years. So what is the immediate future?

It will be easier to find funding for rental units than for single family units. Many for sale condominium projects are now converting to rental just to stay alive. And throughout the country, large regions (the suburban ring areas especially) are now two story detached single-family rentals (by foreclosure or hard choice). These units are part of the housing mix that is meeting the demands of the ongoing growth in this country. They are now horizontal apartment complexes not vertical.

Not everyone wants to live in a city, especially a big city. Not everyone wants to own a house, especially now. Not everyone wants to rent, but many will have to. What I am waiting for is how the building industry will address this fundamental American issue. I do not believe the government has a clue.

Stay tuned . . . .