Thursday, July 24, 2014

Is Housing Too Expensive?

Roller-Coaster Housing Prices
I read a post the other day that said the reason for the flat rate of housing sales is that they are too expensive. According to the article by Frank Anton, only 1 in 6 homes sold is a new home. Currently the percentage is even lower. One of the reasons is the national average has new homes costing 45% more than an existing home. I’m shocked that it took this long to figure out what has been the norm for more than fifty years—new homes almost always cost more than existing homes.

It is this relationship between the new home and the existing home that has provided the base line for affordable housing—the existing older home is the affordable home market. The twisted belief that we can build new affordable housing is the mantra pushed by agencies, charities, and cities. And the only way it happens is by subsidies, fees tacked on new housing, and grants. In other words new affordable housing exists because someone other than the homebuyer is contributing to the bottom line cost of the house. Which brings me back to home prices.

Outside of those few who believe that all homebuilders are carpetbaggers, speculators, and opportunists, almost every builder I know won’t build unless he has a confirmed market. There is little if any speculative building today, this is a lesson they learned in 2008 when it all when to hell in a lender’s basket. To believe that builders just throw out product like they were chumming for tuna is just plain silly—the forces of the marketplace would kill them.

At any time in any market housing will be too expensive—until it's not. What controls housing costs are five things: land cost, entitlements, materials, labor, and profit. Working backwards the builder makes choices through these five factors to set his price. He narrows his profit, he finds cheaper or non-union labor, he buys materials in bulk, he begs for fee reductions (building the park may be cheaper than paying the park fees), and lastly maybe he can renegotiate the land cost. It is a complex dance played to the tune of the band—the marketplace—that has its own balancing act of interest rates, debt, and income.

The difficulty today, especially in dense urban markets, is the newest player in the game—the non-profit affordable home builder (the non-profit thing is a ruse, they make a lot of money, it’s just called something different). They compete directly and unfairly with the for-profit builder at the first-time-buyer market. Why would a builder go through all the sturm and drang of the entitlement process to compete at the lowest cost/profit level when, with government assistance, he can and will be undercut? They won’t, they will just build to a different price point.

So, the real reason for the rising cost of housing is that we are not building enough housing—period. The only way that housing costs can go down is to noticeably modify one of the five factors. I don’t see this happening in the near future. Land costs are dramatically rising in urban areas, my experience recently is that cities are not interested in reducing their fees (some are raising or expanding their fees), materials costs are holding steady but this is a result of more supply than demand, labor is flat (but the push on the minimum wage may have an effect), and profit is what it is, except when there is competition which can noticeably affect the price.

It’s my opinion the biggest problem right now is the first time homebuyer market. They are unsure about the future and will bide their time. If they can settle into a good apartment, get their student debt managed, and maybe even find a willing partner to share the burden, the market will change. But right now I think they are marking their time—which is not good for the merchant homebuilder.

Stay Tuned . . . . . . . .

Saturday, July 12, 2014

Traffic To Die For

When I listen to the latest on traffic in the Bay Area and San Francisco (Galaxy Base for Cogito Urbanus) you would think we were in a free fire zone of automotive chaos and collisions. Here are a few videos that make you wish for those future days of robot cars.

The above is in Addis Ababa, Ethiopia (I bet some of you thought is was Columbus Circle in New York City). Makes you kind of dream about stoplights and left turn arrows. What is most fascinating are the pedestrians dancing in and amongst the cars. I hate to think of the number of accidents, though libertarians might think this all normal which proves that we don’t need the heavy hand of government over-management.

Note the seven lanes demarcated in the upper left lanes (Traffic Engineers of Africa) with appropriate turn and directional arrows. Watch how they are stringently followed. And I also note the lack of bicycles, I guess they are not as useful in a third world country as I was led to believe.

Now Ho Chi Minh City, Vietnam is an entirely different matter. One difference is the dominant use of motorcycles and mini-bikes. The intersection also has a traffic signal, one I believe, that hangs over the center. As with Ethiopia, pedestrians must fend for themselves.

Mumbai, India looks like any intersection in New York (mostly taxis and pedestrians) or Columbus Street in San Francisco.

Driving in China – Linyi City style. Lanes? I don't need no stinking lanes.

Pedestrian crossing Japanese style. This near the Shibuya train station in Tokyo.

And you thought Los Angeles traffic was bad.

What more can you say when you mix vodka and traffic. This is near St. Petersburg, Russia.

And you can always bet on the Japanese to solve the problem – Nagoya, Japan

Stay Tuned . . . . . . . . .

Thursday, July 3, 2014


The flag of our Greatest Generation
Have a wonderful and safe 4th of July,  just a reminder of why we are here.

IN CONGRESS, July 4, 1776

When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. . . . .

. . . We, therefore, the Representatives of the united States of America, in General Congress, Assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, do, in the Name, and by Authority of the good People of these Colonies, solemnly publish and declare, That these United Colonies are, and of Right ought to be Free and Independent States; that they are Absolved from all Allegiance to the British Crown, and that all political connection between them and the State of Great Britain, is and ought to be totally dissolved; and that as Free and Independent States, they have full Power to levy War, conclude Peace, contract Alliances, establish Commerce, and to do all other Acts and Things which Independent States may of right do. And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.

Stay tuned . . . . . . . . .

Thursday, June 26, 2014

Star Crossed Museum Wars

The “Star” war that has been bouncing around the country the last year or so has finally been ended, and the winner is Chicago. The vanquished is San Francisco. As someone who was raised in Chicago and lived for twenty years in San Francisco I followed this battle with interest. And I’m actually happy that Chicago won – simply because it serves San Francisco right, the town hasn’t been able to make a meaningful decision on its waterfront for years (and when they did they ended up with the debacle of the Americas Cup facility).

The future George Lucas Museum will be a collection of Star Wars memorabilia, artifacts, artworks, and other pieces from Mr. Lucas’s collection. One might call it the largest collection of Galactic Kitsch in the whole universe. Don’t get me wrong the original series of Star Wars shook the foundations of the movie world (all except for those cloyingly annoying teddy-bears in the last episode – or sixth depending how you count). I have friends – adult friends – who have life size statues of Yoda in their offices, R2D2 cigar trays, and even get teary eyed over Hans Solo and Princess Lea. And I have a Star Wars watch still in its original tin.

But, and I mean this most sincerely, does this museum rank a location in a national park? So while there is great concern over the loss of the museum overlooking San Francisco Bay and the Golden Gate Bridge (i.e. Senator Feinstein and Congressperson Pelosi) I would offer than it is a site better suited to celebrate those men and women who passed under that bridge to fight in real wars during the last seventy years than in a galaxy far, far, away.

Century of Progress Fair - Lucas site at base of right tower
Chicago’s site for the museum is very interesting; I was there in fact, on the exact spot a month ago. I visited the site for two reasons: 1) Located there is a monument given by Mussolini and his fascists. It is an ancient marble column from Ostia, Italy given to the city of Chicago by Il Duce to celebrate the 1933 Century of Progress World’s Fair and the transatlantic flight of Italo Balbo and his seaplanes. 2) In almost the exact spot of the future Lucas museum once stood one of tallest structures in the United States, the 625 foot high Sky Ride tower also built for the Century of Progress World’s Fair. I was conducting follow up research for two of my novels that will be published soon.

Unfortunately the recent internal squabbling of City of San Francisco has lead to the loss of the 49’s stadium to Santa Clara/San Jose, the chaos of the Warriors basketball team’s area location, the loss of waterfront housing, the inability to form a housing program that meets the incessant demands of the high-tech industry, and now the loss of the museum. But the tourists still come and spend their dollars; I would suggest that the City is a bit spoiled.

Chicago on the other hand knows how to get things done – big things. When I was there last month cranes were rising everywhere, the city was in bloom, and there were new parks under construction (a delightful children’s park expansion next door to the spectacular Millennium Park). And outside of the streets in disastrous condition due to the very hard winter the city looked good. So it is no surprise that the George Lucas looked here – we all want to be wanted and loved. So at some time in the far away future I will walk through the grand entry of Chicago’s Lucas Museum with great expectations and memories of my youth – but then again isn’t that what museums are for – to remember the past.

May the force be with you.

Stay Tuned. . . . . . . . . . . .