“Buy land, they ain’t
making any more of the stuff.”
Will Rogers
Even with the inevitable and growing dearth of housing,
one commodity is still in great supply around most cities, land. During the
past twenty years every city that could expanded their supply of job-producing
lands for everything from retail and commercial acreage to industrial,
warehousing and office. Now there is zoned land everywhere for non-residential
use and it’s forcing down land prices, all to their own competitive
disadvantage. And sadly the jobs aren’t coming either.
Restrictions on housing development, especially in most
areas of California’s 50 mile coastal strip, and the foreclosure crisis have
pushed prices up and up. Foreclosures have led to higher prices simply because
these units have been pulled out of the retail market and are now being rented.
As with all things this is temporary but the result is a severe lack of housing
and increasing prices. You mess with the demand-supply balance and that’s what you
always get. Some builders I know in the Central Valley of California have not
built one house in five years.
And that’s what’s happened to commercial real estate in
all its various forms, oversupply. Commercial lands in foreclosure are being
quietly peddled in bankruptcies at fifty cents on the dollar or even less.
Along the freeways there are miles of land zoned as
commercial/business/professional and they can’t give the land away at any
price. Cities are left scratching their collective heads. There are bright spots
such as San Francisco and some areas of the Silicon Valley – but other areas
are begging for users and jobs.
Housing always leads, or it used to. More homes means
more people resulting in more demand for commercial uses; that was the usual
mantra. Now, not so much. Areas immediately to the east of the San Francisco
Bay area are now, once again, beginning to supply low-cost housing to the job
centers in the East Bay and Silicon Valley. Buy a nice house at a great price
and receive, at no extra cost, a daily five hour commute regime. But you’re
fortunate. A similar home in the San Jose are will cost you three or four times
the price, and to be honest the internal commutes within Silicon Valley are
almost just as bad.
We have overbuilt retail, we still have empty office
buildings, and signs saying “Available” hang on empty warehouse buildings.
Anyone want a million square foot warehouse? No, how about an enclosed shopping
mall? Amazon is flying into the logistic centers that surround our major cities,
demand secrecy, and then provide jobs at about 1 per 1000 square feet. Cities
need four and five per 1000 to even come close to justifying the infrastructure
costs. That rebalance won’t happen for a long time.
I see a lot of rezoning of commercial lands to
residential in the future. One way or another, the costs of the infrastructure
already in the ground will force cities to make these changes – someone has to
pay for the bonds.
But the bright side is that these lands are a bank
account that can be drawn on when the time is right. During the fifties and
sixties a lot of development came from outliers who, like the sod-busters of
the late nineteenth century, opened the way for the massive suburban growth and
the spectacular rise of the American economy.
And I can see this again in America’s future – I’m hardly
a Pollyanna, but when the time is right there will again be another dramatic
shift to the suburbs.
Stay Tuned . . . . . .
