Oct102016
A possible solution to California’s housing crisis
California could cure its housing shortage by mandating that large projects and municipalities provide sufficient housing to match commercial development.
California needs more housing. Everyone recognizes this fact, even the nimbys who oppose all new developments. California builders and developers fail to produce sufficient quantities of housing because they meet opposition at every turn. Nobody wants more housing because they associate housing developments with increased traffic congestion, pollution, and the destruction of the natural environment.
California suffers from an economic malady known as the Tragedy of the Commons. According to Wikipedia, “The tragedy of the commons is an economic theory of a situation within a shared-resource system where individual users acting independently according to their own self-interest behave contrary to the common good of all users by depleting that resource through their collective action.” So how does this apply to California housing?
Each individual in California wants to be the last new resident in their neighborhood. The nimbys lobby their local politicians to block new development because they believe it will improve their quality of life. And since local governments directly control development approvals in California, politicians pander to nimbys or face defeat at the polls; thus almost no new residential developments obtain approval in California, creating a shortage of housing that adversely impacts everyone.
Most economists believe the only solutions to “tragedy of the commons” type problems is for a government entity to step in and force cooperation for the greater good because individuals acting in their best interest fail to produce a desirable result. So how could the nimby problem be addressed in California?
The State established the California Coastal Commission to address a similar problem. The actions of individual developers along the coast was ruining a valuable resource used by everyone. The Commission regulates all land use within the coastal zone and serves as another layer of regulatory approval. We need something similar in housing.
California Housing Commission
A California Housing Commission would have a simple mandate, “To ensure sufficient housing is provided to meet the needs of a growing population and economic growth.” This agency would oversee County and City general plans to ensure a balance between residential and commercial development. Further, the Commission would exercise discretionary approval power over projects of a certain size to confirm the residential and commercial balance is maintained throughout the cities, counties, and regions in California.
Do we really need another agency to approve plans? Unfortunately, yes we do. Without this agency, each local governing body will continue to act in its own best interest and exacerbate the housing shortage.
Is Sustainability a Dodge for Housing in the Bay Area?
Leaders in Brisbane, California, want to prioritize sustainability—and exclude homes—in a massive new development just outside San Francisco.
KRISTON CAPPS, @kristoncapps, Sep 29, 2016
The Bayshore Station might be the closest point to the middle of nowhere that’s still accessible by Caltrain. Located in sleepy Brisbane, California, just south of San Francisco’s Visitacion Valley, the stop doesn’t offer much more than access to a vast abandoned Southern Pacific rail yard. That is about to change.
On Thursday, the Brisbane City Council will review a plan to turn the rail yard upside down. Brisbane Baylands, a massive mixed-use project proposed by Universal Paragon Corporation, the developer that has owned the 684-acre parcel since 1989, would include more than 4,400 housing units. For a metropolitan area parched for housing, the Baylands development promises a blooming desert oasis.
That might be a problem, though, for Brisbane—a city with fewer residents (population 4,282) than the number of new homes, condos, and apartments that Universal Paragon intends to build. According to The San Francisco Chronicle, the city is pushing two alternative concepts, one of which would devote 8.3 million square feet entirely to commercial space. Neither alternative would allow for any housing.
“We’ll provide the commercial,” Clifford Lentz, mayor of Brisbane, told the Chronicle. “San Francisco will provide the housing.”
I appreciate his honesty, but I find his statement appalling. It’s a clear example of why a California Housing Commission is necessary.
It’s as crisp a comment on the Bay Area housing crisis as you’ll find anywhere. Residents of municipalities across the region, dreading traffic and change, reject sorely needed housing on the logic that housing would work better somewhere else.
If California created a housing commission, projects like the one above would have a large housing component in order to obtain the commercial development they want. If the City of Brisbane wants the tax revenue from several million square feet of commercial space, then they must provide housing for the people who will work in that space. Doesn’t that seem like a fair compromise? Consider the alternative…
Brisbane has given the old standard a new refrain, however. The community is pushing for exceedingly high standards for sustainability—standards that do not leave any room for housing. …
But this language fails to adequately convey the fact that building homes and transportation adjacent to employment centers is essential to achieving sustainability. In that sense, Brisbane has missed the forest for the trees. Land use, not building materials, drives sustainability. The city will only meet that metric if housing is allowed. …
Jonathan Scharfman, the director of development for Universal Paragon, describes the framework as “solid” in some respects but says that it wholly ignores the negative externalities associated with “absolutely crushing” commutes in the Bay Area. Scharfman says that Brisbane currently imports some 12,000 workers per day. (That number is not out of line in San Mateo County, which has created more than 50,000 new jobs since 2011 but only 3,000 new housing units.) Without adding housing, building out 8 million square feet of commercial space in Brisbane will dramatically exacerbate the problem for the city’s workforce.
Municipalities all want commercial and retail space because it generates sales tax revenue. None of them want residential development because it incurs the same costs for city services but provides far less revenue, creating the “tragedy of the commons” problem.
“It’s a manufactured justification for a distaste among voters in small towns to claim that having no housing next to a development that’s going to create thousands and thousands of new jobs is sustainable,” Scharfman says. “It’s just anathema.”
Governor Brown recently tried and failed to push as-of-right development approval for high-density housing. While this would have helped provide more housing units, it failed to address the root of the problem.
The simplest solutions are often best solutions. Mandating the County and City governments must provide sufficient housing in their general plans and project approvals is a simple solution that would solve the problem over time. It would eliminate the preference for commercial development at the exclusion of housing, which is the source of the long-term shortage. This solution would work.
Would such a solution be politically feasible? I don’t know. How much worse does the problem need to get before we are willing to act?
Think Wells Fargo scandal is bad? RBS did something so much worse
The revelation that low level branch staff at Wells Fargo retail operations opened accounts against the interests and knowledge of its customers is bad.
In fact, it so bad that the bank’s CEO faced a hammering at the hands of both the House and the Senate in the wake of the scandal, and perhaps far worse moving forward.
Turns out, in terms of bank scandals, the Wells Fargo indiscretions are fairly tame compared to what’s happening across the pond right now at the Royal Bank of Scotland.
Newly leaked files revealed in a Buzzfeed report pull back the curtain on a “Dash for Cash” practice where staffers were allegedly instructed to look for otherwise healthy business banking customers to steer to the bank’s troubled business unit, the Global Restructuring Group.
Once there, these files reveal, the bank began a systemic crippling of those client’s businesses through deliberate fees and interest-rate hikes and asset fire sales.
And unlike the Wells account scandal, this was a top-to-bottom effort to shore up the balance sheet of RBS.
What’s more, RBS is taxpayer-owned, well 73% of it, anyway.
In the Wells Fargo scandal, there is the impression that bank staff felt they could get away with opening these accounts as the damage on a per-client basis remained minimal. There may be some redemption, now, in this feeling that these crimes were as close to victimless as possible.
The RBS “dash for cash” actually included executives forwarding managers “target lists” of loans secured against properties that were then scoured for potential clients to force into costlier loans, according to the in-depth report.
The worse part is knowing that while RBS set a new low in this scandal, one far worse than Wells Fargo, it stands to reason that there very well could be another financial institution still out there, doing something even worse.
They just haven’t been caught, yet.
Inner Cities a Disaster? Not According to Home Prices
Donald Trump mentioned “inner cities” 10 times in last night’s second presidential debate, using words like “disaster” and “devastating” to describe them. When neighborhoods decay, home prices decrease. However, a look at home prices in the “inner cities” of most major U.S. metro areas shows that the opposite is happening. Instead of falling, the median price per square foot of homes sold in the inner cities of 31 major metro areas has jumped 52 percent over the last six years, outpacing price growth in the surrounding metro areas by 18 percentage points. The only inner cities where price growth has fallen behind that of the surrounding metro area are Chicago, Houston and Miami. For this analysis, we defined “inner city” as the 5 kilometers around the city center of a given metro area.
https://www.redfin.com/blog/wp-content/uploads/sites/5/2016/10/Inner-City-Performance.png
Not only have inner cities seen stronger price growth in the past five years, inner-city homes tend to cost 92 percent more per square foot than homes in the surrounding metro area. In Boston, a typical inner-city home costs more than twice as much as a typical home in greater Boston. In only seven of the inner cities we looked at, homes were less expensive than those farther out.
https://www.redfin.com/blog/wp-content/uploads/sites/5/2016/10/City-Center-Price-Markup.png
Real estate investors on U.S. coasts target cheap, out-of-state markets
Even with a good salary as a data scientist at a San Francisco technology firm, Yang Guo, 30, knew he couldn’t afford a home in the Bay Area, among the priciest U.S. markets.
He still wanted to own property in addition to stocks, however, and soon found a way to buy cheap rental houses in faraway cities – and to outsource the associated hassles to HomeUnion, a three-year-old startup in Irvine, California.
The firm is among a small crop of new companies, including competitors Investability and Roofstock, that offer ways to buy, renovate and manage properties in markets that command relatively strong rents compared to their low home prices.
The risks remain the same as any landlord faces, from vacancies to broken appliances to the potential for a rent- or home-price downturn. And using such services places a lot of faith in young companies with short track records.
But the firms, launched after the housing crisis, say they can take much of the worry and work out of owning out-of-state rentals, for fees that typically run from 7 percent to 10 percent for property management and 3 percent for acquisition. Their clients usually buy one or two homes to supplement their incomes and investment portfolios.
The companies are pulling in money from clients in costly coastal markets that is boosting demand and home prices in the lower-cost cities they target. “In the last 12 months, I’ve seen more cash buyers from California than I’ve ever seen in my career, and I’ve been doing this for 25 years,” said Anne Callahan, a real estate agent in Cleveland, Ohio, where the average rent for a single-family home is up 4.2 percent over the last year, according to Zillow Research.
This is what worries me about buying out of state right now. There is so much dumb money chasing these types of deals, especially from the Bay Area. Buying from a turnkey rental company means getting mediocre returns that do not compensate you enough for the risks involved. If the buyers have no experience managing or putting together their own deals it’s so easy to mislead them on the pro formas by overstating vacancy and understating capital expenditures. You can bury just about anything on the financials and they will not have the experience to spot it when/if they do their own due diligence. I’m seeing a ton of these types of newbie out-of-state buyers popping up on Bigger Pockets and to me it’s a huge red flag that these rustbelt markets should be avoided.
“It’s About Time For Recession” Property Manager Warns As Rents Drop “For First Time In Career”
As we’ve pointed out numerous times in recent months, real estate in America’s largest metropolitan areas like New York and San Francisco looks to be rolling over in a big way. Earlier this week we pointed out that the volume of apartment sales in New York was down 20% YoY in 3Q 2016 as buyers disappeared while sellers, who have grown accustomed to selling above asking price, were slow to concede pricing concessions (see “NYC Real Estate Bubble Bursts As Apartment Sales Crash 20%”). Now, the Wall Street Journal seems to be catching on to the carnage noting that residential rental rates have collapsed in San Francisco, San Jose and New York.
“San Francisco and New York are leading the way in the downturn,” said Ken Rosen, chairman of the Fisher Center of Real Estate and Urban Economics at the University of California at Berkeley. “People are going to be surprised that this is happening but they shouldn’t be. It’s been too far, too fast.”
The rental market is coming off its biggest boom in decades. The foreclosure crisis, along with a trend toward urban living, has created seven million new renter households since the housing-market peak in 2006, as the home ownership rate declined to 51-year lows.
http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2016/10/09/2016.10.09%20-%20US%20Rental%20Rates%201_0.jpg
For every good idea, there are 10 bad ones
Setting rent reimbursement rates by ZIP code. Tax breaks and incentives for landlords. Discrimination bans.
Those are some of the solutions that policy makers, housing advocates, public housing administrators and landlords are proposing to fix a broken system designed to help impoverished families find housing.
About a third of Section 8 voucher holders – in Orange County and in the nation as a whole – end up losing their rent benefits because there are not enough landlords willing to accept federal rent checks – because they’re too small or involve too much red tape.
Here are some of the proposals being discussed:
Pay higher subsidies
Critics say that subsidies under Section 8 aren’t keeping up with rent hikes. A plan under consideration at the U.S. Department of Housing and Urban Development seeks to boost subsidies for higher-cost cities within large metro areas.
Section 8 subsidies currently are tied to one rate for each metro area, tied to prevailing rents on the open market. HUD’s plan would set a separate “fair market rent” rates for each ZIP code in 31 designated metro areas.
“For high-rent areas, the voucher wasn’t sufficient,” said Richard Green, director of USC’s Lusk Center for Real Estate who spent a year as a policy advisor to HUD Secretary Julian Castro. “Rent in Culver City is expensive, so if you have rent that’s for all L.A. County, you’re going to be shut out of that city.”
Orange County, Los Angeles and the Inland Empire are not among the 31 metro areas being considered for such smaller-area rent designations. But that could change if further review shows that they should be included, said HUD spokesman Brian Sullivan.
Orange County already took steps in January 2015 to address disparate rents in the 31 cities it serves, creating three separate “payment standards” for north, central and south county cities.
Some housing advocates – including California Housing Director Ben Metcalf – objected that existing voucher holders in lower-cost ZIP codes could lose their homes under the HUD proposal. Those tenants should be exempted from new, lower rates, they maintain.
Another problem, noted Garden Grove Housing Authority Manager Danny Le Huynh, is higher payment rates “means higher costs to the housing authority.”
* Systemic debt structures during the y2k era (2000-2007.75) were built on false asset values. Check!
* Systemic debt structures during the QE/ZIRP era (2009-2016.75) have been re-built on false asset values. Check!
Stay tuned…
The first statement is clearly accurate.
People might argue that the systemic debt structures of the QE/ZIRP era built on false interest rates. The asset values of the reflated bubble are as stable as the interest rates that support them.
For those that believe the Federal Reserve can support asset values and the economy, we have nothing to worry about.
Either way, nobody is looking forward to the Federal Reserve removing the punch bowl.
“For those that believe the Federal Reserve can support asset values and the economy, we have nothing to worry about”.
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This view is consensus.
Consensus visualized…
http://i1.wp.com/bawerk.net/wordpress/wp-content/uploads/2016/10/Net-worth-vs.-NGDP-1990.jpg
That’s a great chart. It demonstrates how financialization created the illusion of wealth that the actual output of goods and services in the economy doesn’t justify.
Correlates exactly with Citigroup’s waiver of it’s Glass-Steagall violation by the Federal Reserve in 1998 when Citigroup merged with Travelers.
Then they repealed the important parts of the legislation and it was off to the races in 1999.
Another great chart.
If War Can Have Ethics, Wall Street Can, Too
Nearly a decade after one of the most devastating financial collapses in modern history, Wall Street appears as corrupt as ever. Evidence is not hard to come by — most recently, the Wells Fargo scandal, in which employees of the company, spurred by perverse incentive structures, opened two million fraudulent accounts in their customers’ names. The bank had put intense pressure on employees to meet sales goals; some employees who reported the wrongdoing were fired, along with 5,300 more, after the scandal broke. All this is but one reminder of how far major actors in the economy have strayed from any reasonable standard of moral behavior.
Despite the recent urging of high-profile figures like Pope Francis and Senator Bernie Sanders to establish a “moral economy,” we have not. Free-market advocates hold fast to justifications that amount to variations on the “invisible hand” theory of Adam Smith — that the economy is not a moral space, but one that relies on a free and fair market, self-interested (as opposed to selfish) actors and amoral (as opposed to immoral) calculation to arrive at the most efficient and innovative outcomes. The invisible hand of the market must be allowed to act; placing moral limits on the economy, they argue, would hinder this flourishing.
To some, the unbridled force and overarching goal to be pursued is the efficiency of the market, even to the detriment of society, transforming market theory into a sort of divine scripture, to be faithfully followed. The suggestion of a moral economy is decried for the inefficiencies that moral limits would place on behavior in the market. It is as if society exists to serve the market, not the other way around.
So what is to be done? Can the economy be transformed from an immoral space into a moral space?
Some progress on this question can be made by examining how we have chosen to navigate an even more perilous manifestation of the human condition: war. The economy, like war, creates winners and losers, makes heroes of those who seize opportunities and victims of those caught between forces beyond their control, and can transform the fortunes of society for better or ill. Yet, unlike war, the economy has no foundational morality. Instead it leaves critical moral judgments with real consequences in the tenuous hands of self-interested economic actors whose guiding light is the maximization of their own benefit, without consideration for the effects on others.
Is there some reason why people keep referring to Wells Fargo as an example of Wall Street? Typically, Wall Street would include companies like Goldman, Morgan, Bear, and Lehman. You know, companies whose primary business involves investment banking.
Mass third world immigration into the state is a huge factor in housing demand.
It’s unsustainable.
The cost of housing is limiting that from getting too bad. You get houses in Santa Ana with 3 or 4 families living in them, but it’s very difficult for immigrants, legal or illegal, to live in California. Mostly, we probably push them over to Arizona, New Mexico, or Texas.
I disagree, they have the ability to get jobs here and when you have 4-5 adults making a few hundred dollars a week, they get by just fine. They may live in crowded homes but they get very comfortable because the culture here in some cities is much like it is in other Countries. Take K-town for example, it’s a mini metropolis, so much money flows through there and the people that live there don’t have to ever leave to get all the things that they would get back in South Korea.
If you are Mexican like my family, you have Santa Ana, many cities in LA county and the IE. I haven’t been to South Gate or Huntington Park lately but wow, it’s like TJ there.