Friday, September 28, 2012

Noodling Housing, Cars, Cities and Statistics

Housing and Supertankers - A lot in Common
Housing – The Builder Supertanker is Slowly Turning
Here are a few articles about housing and how it is slowly coming back. Check out last week’s blog for more.


And here’s a great snap shot of where we are:

Driverless Cars
I am not sure how comfortable I am with this. This week “range anxiety” has been the phrase of the week (Do I have enough electrons left to get to Grandma’s house?). What was also very interesting is the discussion of the non-stop evolution of a car that will get you there while you take a nap, or text, or read a book. While the state of California itself seems to be the embodiment of a driverless car, Gov. Brown will sign a bill to OK the real thing: Driverless cars. (GO HERE)

Here is a video that will scare or intrigue you: (article)

San Jose
Readers know how much I just love lists. Especially those that tout one city over another or in some cases demean another city by pointing out it's the “worst place to ….” whatever.

In this latest list the “Richest Cities,” are pointed out. Since this is grammatical as well as factually incorrect (none of these “cities” are rich, and in fact most are failing). But in comparison to the rest of the state I guess they are “rich.” What is really listed is how financially successful the region’s employed are. (GO HERE)

Some Uncomfortable Stats
John Mauldin is without a doubt my favorite economic writer, he is witty, prolific, very smart, and very right (most of the time) (GO HERE) In my weekly missive from John titled “What If The Fed Has It ALL Wrong,” he lays out an interesting series of graphs and table (he loves these things), worth looking at. 

But he also noted the following:
Meanwhile, the less affluent, the other 80% – some 250 million people – are little concerned by an eventual wealth effect but highly, directly, and immediately impacted by the side effects of all these QEs, namely rising commodity prices and near-zero interest rates. 
Consider that:
  • 15% of the US population lives in poverty.
  • 44% of those 46.2 million poor Americans are in "deep poverty," which is half the level of the poverty line, defined as $22,811 for a family of four.
  • More than 45 million Americans are in the food-stamps program, which is 15% of the population, compared with the 7.9% participation from 1970-2000. Food-stamps enrollment has been rising at a rate of 400,000 per month over the past four years. Just last month (August), nearly twice as many people went on the food-stamps program (173,000) than managed to find a new job (96,000).
  •  More than 11 million Americans are collecting federal disability checks.
  • 11.2% of the labor force is out of work, if we include the 7 million people no longer seeking employment. This number (over 17 million workers) is unchanged since 2009.
  • Full-time employment remains 1.4 million below its 2009 level. Needless to say, part-timers earn and spend considerably less.
  • Most of the 43.5 million American retirees must cope with nominal interest rates, near zero through 2015, when inflation is around 2.0%.
We have a very deep hole to climb out and all the blaming going around accomplishes little. The business climate has to change from one of pointing out inequities to one that promotes accomplishment. The American public is not a science or economic experiment.

Stay Tuned  . . . .

Thursday, September 20, 2012

The Next Five Years in Housing bright I have to wear shades!

There are over 70 million Baby Boomers and according to my fuzzy math, over 25 million Baby Boomers own homes. And during the next twenty years there will be a strong shift by these Boomers toward the retirement phase of their lives. Their homes will add to the inventory and their retirement will demand more but different types of new housing. This existing Boomer inventory normally has a higher and better quality than many of the recently foreclosed homes and is often in older second and third ring neighborhoods that surround American cities. While these units will help some of the housing need they cannot meet all the demand. We are a suburban nation; each successive ring of suburban growth supports the core. And like a tree, these rings of annual growth support the expanding tangle of roads and neighborhoods. Each part of this urban tree supports the others, and on much of the outlying branches and leaves is where new housing will flourish.

The government and the newest QE3 may help. The continuation of low interest rates at this critical time will support the housing industry. But it must stop sooner than later or it will fuel another round of housing inflation and “bubble time.” The rules of supply and demand cannot be overturned and the market is a cruel mistress. Waiting for the feds to make timely adjustments is like the referees this year in the NFL, they will make the call but it will take three long commercial breaks to resolve. Markets will drive the recovery in housing, but interest rates will have to rise at some point to dampen the exuberance. If not, we will ride that same horse again.

It is in the government’s interest to support housing. But when they begin to offer deals that even a wise thinking investor falls for than they have overstepped their role. Free money and low interest rates led us to much of the pain of the past five years. And none of us were immune to its call.

The government needs housing, especially new housing. It is the catalyst for the economy and like the auto industry is vital to the future of jobs and finance. The American economy is built upon the complex action of buying open land and converting it to a community of homes. Hundreds of thousands of jobs result. Social stability is created. Culture is nurtured. Dreams are fulfilled.

During the next five years there will be a gradual but very real upswing in new home construction. Every region will be different. I have always been a firm believer in demographics and it will be demographics that will drive this growth. Here is the Census Report from 2010, it will give you an overall snapshot.

What is shown in this report is the regional areas of the south and west grew substantially over the census period and, it can be assumed, continues today (though in California there may be some drop off). The key number is the 27 million new folks across the country. Back to my fuzzy math, this translates into the need for maybe 12-15 million more homes for families and singles. We have built since 2000 only 9.6 million new homes according to the Census (GO HERE). Obviously the ground is well prepared for growth, there is a market standing on the sidelines.

Another area of real growth: There are 1,750,000 college graduates per year. There are also over one million college dropouts per year. That translates into an impressive number of young adults looking for housing. How is this market being served? For many it has been their old bedroom at home. This will change. (GO HERE)

Housing is critical to the future of America. Like the auto industry (with its seven to ten year car life) there is a built-in obsolescence to housing. Currently somewhere around fifty years is the replacement cycle. But the technologies and the square footages of older homes, say pre-1970, are out of date. Electrical systems, wi-fi, heating and cooling, and most especially kitchens and bathrooms, all drive buyers into new homes. This is especially true for those in their thirties and forties. In fact I heard that the age when the consumer is at their prime is 46. That is the exact market for many builders such as Toll Brothers.

The next five years may be as exciting as any I’ve seen in my forty plus years in the housing industry. I am optimistic (one has to be in this profession); so the future’s so bright I have to wear shades!

Stay tuned . . . .

Thursday, September 13, 2012

The Return of the City State - Galt's Gulch

City State - Old Model
Who would have thought the newest and most remarkable innovation in city planning may come from Honduras. There, the Honduran president, Porfirio Lobo has given his full backing to an idea to build new cities that are outside the laws, tax system, judiciary and police of the country. The goal is to turn around their disastrous economy by allowing less restrictive growth and development in new areas of the country outside the specific control of the government. Millions have been pledged by an investor group. (GO HERE for the Guardian article)

Much of this is based on the ideas of Paul Romer, a professor at the Stern School of Business at New York University. He calls these “Charter Cities” and cites examples such as Dubai, Hong Kong, and Singapore. Good company if you can make it work. There are no scratch recipes available to make these experiments work. But there are some things going for it – but now after a lot of negative reactions, Romer has issues with much of what is planned – or he’s lost control, not sure which. A lot of this sounds strange and interesting at the same time. Who are the developers, why give up such control, and how will you employ (as the developer says) 45,000 people in less than three years?

As a planner, I know that the greatest difficulty many new communities face is integrating new neighborhoods into the existing urban framework. And this means both physically and politically. Every city I have worked in sees these new neighborhoods as sources of revenue to fix existing infrastructure, schools, and transit problems. From the start these new residents are saddled with a disproportionate amount of fees to covers bonds to build the community itself, fix adjacent roads, and repair old and tired sewer and water systems. The new community’s success is often marginal, and during bad times, like the last five years, disastrous. This Honduran model is new and dangerous, bold ideas are always a threat to someone.

Already declared elitist and for the rich, the usual forces are mustering to fight these attempts to bring some better level of housing and business growth to one of the most unsafe countries in the world (its murder rate is one of the highest). And if there is one thing that scares off businesses and developers is murder and kidnapping. But businesses do employ people who may then begin to have a better standard of living. Sometimes you have to do things that are remarkably different to be successful – witness the threatened entrepreneur in America and their fight for deregulation and creative freedom.

The usual canards are thrown out about forests and agricultural frontiers (read subsistence farming). Indigenous peoples are threatened, cultures will be lost. Possibly. But then again poverty and social collapse have significant impacts on these people and cultures as well – maybe more so.

The Socialist Party, a Marxist blog/news site (it calls itself Marxist), claims that it is just another attempt by the Honduran elite to crush worker’s rights. (GO HERE) They even mention Bain and Company as a consultant to the group (and they throw in Mitt Romney’s name for spite). It is better to be a citizen of a failed country, living in fear, than an employee in a safe environment, I guess.

The primary developer is MKG and its idealistic libertarian Michael Strong. The government/management structure, as noted in the New York Daily News.Com is:
Daily operations will be administered by a board of governors.
Those governors will establish the rules and laws of the city, and future legislation will be subject to popular vote, said Michael Strong, CEO of MKG.
Hondurans will be allowed to live and work in the cities — which Strong says will be home to textile manufacturing, product assembly and outsourced businesses, like call centers.
"Once we have jobs, then we will need affordable housing, schools, clinics, churches, stores, restaurants, all the businesses that create a real community," he told the AP. (GO HERE)

Here is a blog that may have more information – but I am not sure of its validity, (GO HERE) One my favorite magazines Fast Company, has this interesting take on the story (GO HERE).

Notwithstanding the controversial aspects of something like this, this is a concept and something to ponder. How would such an entity survive in the Californian structure of urban plans, general plans, statewide development studies, urban boundaries, and urban limit lines? It is virtually impossible to start a “new” city almost anywhere in the United States. It would be seen as a threat to any existing city, county or state. Laws of your own? Management of employees outside the current labor accords? Schools run by private organizations? And most probably non-union? I find it fascinating – so Galt’s Gulch (for the Rand insider only).

Italy was such a land of city states until the end of the 19th Century; it took a civil war to bring Italy together. I will keep an eye out on the goings on down south, a land not unknown to civil wars.

Stay Tuned . . . .

Friday, September 7, 2012

How to Draw the Wrong Conclusions

The Bank of Dad

In an article by Eliot Brown (GO HERE) posted in his Wall Street Journal blog, Report: In D.C. Area, Developers Flock to ‘Walkable Urban’, he discusses a report by the noted urban theorist, developer, and professor Christopher Leinberger. Leinberger's report offers that much of the success and growth of new development in the DC area is due to their walkable nature. Numbers are thrown about, percentages noted, results tabulated.

Brown notes Leinberger’s comment: “That’s the market telling you, dramatically, build more of this stuff. There’s pent-up demand for walkable urban.” So walkable communities are the future in urban planning, and this conclusion is based on the growth in Washington D.C. Damn, I wish I’d have paid more attention in class.

What drives Leinberger’s conclusion is the newish term Walk Score. The link opens a convenient web site that lists walkable cities and how the numbers are totaled. It’s comforting to know that New York is the most walkable American city, never would have thought that. Washington is seventh, Oakland Ca. is tenth. The site notes that of the top fifty, Jacksonville, Florida is last. And there are a lot of cities between NYC and Jacksonville. To me this is like listing cities and their restaurants and making a livability comparison. And depending on the time of the year, what’s walkable in the summer in Phoenix and Mesa, Arizona, Las Vegas or even Jacksonville? And Minneapolis in the dead of January – it makes you wonder. The rankings are all scientifically deduced, yet how real can they really be.

I just love these ranking systems. Sometimes they make you scratch your head: ‘Most Livable Cities,’ the ‘Most Family Friendly Cities,’ the ‘Cities with the Most Bike Racks,’ and how about ‘Cities that Cause the Most Fat People,’ (I made up the last two, maybe). Lists, I think, are more about American’s love of keeping score than really producing a usable product.

Anyway, in most of these designated cities no one would voluntarily walk from one neighborhood to another (beyond a few blocks). And beyond walking to the corner store or bodega or Starbucks, they will drive to get what they need to fix up their apartment or house or shop for more than just their next meal. There may be a few with excellent transit systems (like New York and San Francisco), but beyond just a few cities, walkability is just a cute phrase. Means nothing.

At Mr. Leinberger’s web site LOCUS, there are all sorts of interesting agendas on their opening page, “…change federal and state policy,…policy is set and funds (your tax monies - my comment) allocated,…are sustainable for the environment, the economy and their bottom line.” In almost all instances (GO HERE) he declares we can be saved by more involvement of federal programs, tax subsidies, and loan guarantees. I would offer that many of the problems in the development industry today are directly connected to “involvement” of the feds in the development industry, such as the loan requirements by the feds through laws enacted by congress. And you can include the federal reserve, inflation, and too much cheap money as a few more of the culprits in this mess. And not to mention state regulations.

Sure Washington D.C. is a poster child for walkable communities. But I would offer that this walkable urban growth in DC (see this article) is not a result of some dreamy eyed urbanista wanting the good life in Washington, it has more to do with the billions of American tax dollars, the billions and billions in federal deficit dollars, and special interest dollars being pumped into this city through government agencies, lobbyists, defense and social contractors, and other similar folks. To repurpose Willie Sutton's phrase as to why he robs banks, “Walkablity, it’s where the money is.”

Stay Tuned . . . .