Housing 2014

This time of year every national newspaper and trade magazine or journal spits out facts about housing: its recent sordid past, its numbers, and its future. They will write what they write and since every housing market is local it really doesn't mean a thing to most Americans that builders can't find land in north San Diego, or the tiny size of new apartments in New York City, or the dearth of affordable housing in San Francisco. I can assure you that someone in Des Moines doesn't give a rat's pittutty about the rent of an apartment in the City by the Bay, it only makes them smug.

The old reliables are still there, growth of the population, the shifting of population to more southerly locations, the push out of cities into the suburbs (yes, that is the truth, check out Kotkin's and Cox's work), and for some urban markets increased pressure on the housing base – witness San Francisco and the desire by the young techies who want the urban lifestyle yet work thirty miles south in Silicon Valley. As I said housing is local, kind of.

But there are trends in the overall market that should be considered. The following are some thoughts on three of the critical issues facing the general housing market, take them for what they are.

Land

They ain't make any more of it. But forty acres outside of Denver is a lot different than one acre in Santa Monica. The underlying cost of a housing unit is land, but the critical issue is the market and availability. What can the market support? For the better part forty years there has been a gradual, and often with voter approval and bonds, removal of the land from the housing marketplace for parks, wetlands, conservation areas, mitigations, and even aesthetics. Each lost acre forces up the price of another acre. As an example there are tens of thousands of acres of developable land between Oakland and Concord, California but most is now locked into parks and open space. This pushes growth into the Central Valley where farmland is lost. Ones man's scenic view is worth more than orchard or field of corn.

The Baby Boomer Generation

This is a huge opportunity for creative developers. Millions of men and women are sitting on trillions of dollars of equity in their homes waiting for the right moment to move out and "retire." But there is nothing available in their specific market. Here is what they (or I) want: 1850 to 2400 square feet, ground floor master bedroom, highly amenitized interior, good to great suburban neighborhood, garage, security, minimal yard (but good private facilities), and affordable monthly dues/HOA. It is a market that is very underserved in most regions.

Affordable Housing

If there is one glaring debacle that has contributed to the housing crises in the urban marketplace it is the creative use of the fiction called affordable housing (AF). Pass a law to fix a market problem created by the politicians themselves. Everyone feels good, except for the people trying to find a home. It is now so deeply ingrained in the business model of housing that it can probably never be extracted. The most affordable home is an existing home in most urban markets. And to put an existing home on the market requires another home to be built in the same market – usually at a higher price. All well and good, except when a highly subsidized AF comes on the market that directly competes with the existing housing stock. Often that AF is subsidized with fees placed on other non-AF units (adding to their cost), it is given priority in the approval process (time and money), and is targeted at particular markets or economic sectors (approved discrimination). In the long run the housing stock of a region suffers, prices increase, housing becomes unavailable, but I'm happy to say everyone feels so much better. One lasting impact is that the development community walks away from the production of inexpensive and affordable housing. There was a time when this was a good market to build in, now its avoided and left to the quasi-public non-profits, the cities and their whims and agencies, and the cradle to grave attitude of many city and sate governments.

Stay Tuned . . . . . . the next year will be very interesting!

Merry Christmas and What Do You Really Want/Need for Christmas?

 First of all, Merry Christmas to you and all your family, friends, and even those few who you see once or twice a year. Everyone deserves a Merry Christmas. And I sincerely hope that Santa brings you everything you deserve – and if coal, sorry, the price has dropped through the floor due to the clean air bill.

When this season rolls around I have some fun with an old (in the blog-a-sphere three years is old) blog, I just have to reprise my little bit on the high-speed rail. Many have not had the pleasure of the post but I do have to add that some have objected to the flat out theft from the wondrous Midwestern writer and humorous Jean Shepherd. I make no apologies.

And this year there seems to be some adults who now have come to see Santa, especially Sacramento County Superior Court Judge Michael Kenny who has told Santa and the elves in no uncertain terms  - "Show me the Money!"

A Toy Train for Christmas

The Parts and Players:

Santa Claus (The Big Guy) – Washington D.C. and California Governor Brown

Santa’s Helpers (men and women politicians in elf costumes) – State Governments and their minions

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 and after late fall 2013, a California judge

Toy Train – High Speed Rail

Our Scene:
Santa’s huge toyshop in one of America's really big department stores; a long line of children wait to tell Santa what they really, really 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.”

“Excellent Billy, excellent, and what do you want for Christmas?

“Oh Santa I want an erector set to build bridges for my brother, a whole village of affordable 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 wondrous train, all shiny and sparkly and new. And, oh, oh, Santa that would be so great and it would be real cool ‘cause none of friends would have a train like it 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 big.

 “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 wonderfulous 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 I've Been Working on the Railroad), 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 wondrous din. This all scared the little girl. When the elves helped her onto 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 wondrous 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 my teacher says I should. I used it to help my dad and I 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, they know everything.”

“Yes Santa.”

“But Sally, the elves and I know you can improve and be a better human being and we know you want something for Christmas. Billy, that fine young man, who sat on this very knee just before you; see, he's playing in the 'green' cotton candy, 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 new dress and was all smiles.

“Can you hurry Sally?” Tiffany demanded, stamping her shiny Mary-Janes. “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, nice shoes, has a wonderful tan, and always has a smile now that her braces have been removed. 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 track 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 thinking of all the good he can do, 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. He pushed Sally slid off his knee and past all the 'green' cotton candy and watched as she crawled to the slide and started down its slippery surface. But she stopped just for second and took one last look at the Big Guy and all the wondrous elves and the piles of 'green' cotton candy and heard them exclaim ere she slid out of sight, “Sally, you’ll shoot your eye out.”

Merry Christmas and Happy New Year

Stay Tuned . . . . . . . .

Musings and Random Thoughts

A few things have washed over the transom during the past few weeks that need to be addressed. While not earth shaking on their own they may prove in time to be significant and profound.

High Speed Rail:

Readers of this blog fully understand my thoughts regarding the high speed rail in California (and most places elsewhere as well). I have traveled thousands of miles on this transit system in Europe; I know what it can do. I also know that it has contributed to the financial problems that beset the European Union. Debt is not a wondrous thing as France, Spain and Italy now know.

Superior Court Judge Michael Kenny judge in California says that the High-Speed Rail Authority cannot spend the Proposition 1A funds until the funding plan is brought into compliance with statutory requirements. Many believe that this cannot happen without spending more money than is available – a viscous circle. But then again most government spending works this way. Spend, spend until you can't turn away. I'm reminded of the story that tells of Teddy Roosevelt demanding more money for his navy and being refused by congress. He sent the fleet to the Philippines with enough funding for a one-way trip, then said if you want the fleet back – fund my navy. You wonder if the same thing is happening here, let's build something that essentially is worthless on its own (29 miles of track in the middle on California that connects nothing to nothing) but then demands to be finished. For a good overview check this out (one minor typo re: billions and millions).  CLICK HERE

I am beginning to hope that the adults are returning to the argument and like the boy along the emperor's parade route who pointed out the deficiencies of the emperor's clothing allowance, we can only hope that the courts continue to lead in this open debate. It is now very obvious that the state senate and assembly  (who are following the emperor's footsteps) should check out their own toga allowance as well.

Housing:

Why is it that the feds continue to think that they need to meddle in housing? Since the post war years of the FHA and other later "Great Society" programs that have morphed into our current miasma of affordable housing, HOPE funds, non-profit do-gooders, Fannie and Freddie, and other anti-market housing groups, housing has been a cyclical disaster.

No other economic component of modern western society is as critical to the personal wealth of a citizen as the ownership of their home. This is true here in the USA as well as almost every other modern society that places value on the house as an asset and a security for the future of the owner. Sadly it is also seen as a safety valve by the owners for government inflation, as prices rise and money is devalued, the home acts as a buffer; that is until it isn't.

This we all have witnessed during the past fives years as a result of the shenanigans of the banks (and becoming more evident every day), the government and its housing policies of free homes for everyone (now even Barney Frank is contrite), and private speculation by builders and citizens alike. There was no hand on the throttle (even if there should have been in an open market). When the system is gamed for political purposes we all lose and this loss has been catastrophic for many.

And it seems that the timing is right to fiddle with the housing controls again. This article in today's WSJ 

has set my antennae tingling. Housing is seen as a playground by the politicians and unfortunately memories are short. If supply is restricted due to high costs of either construction or borrowing only the politically connected non-profits will be building. Eventually (and not too far away) all housing will be built by a non-profit agency sanctioned by the state and the feds that will control who lives there and the debt for the home will be held by federal institutions. Hold on tight, as I have said in previous blogs we are heading for increased housing prices, lack of availability, increased rates, and new federal regulations to fix the problem. Your new landlord will be a government agency.

Stay tuned . . . . . . . . .