Lead Story…. The massive construction worker shortage and resultant cost inflation has gotten a lot of attention over the past few months in real estate circles. There’s an equally pressing timing problem that is causing just as many headaches for builders and developers: permitting delays. Laura Kusistod had a great piece in the WSJ last week discussing how much of an issue this has become. During the downturn, municipalities cut back on planning department personnel. The decision made sense at the time – cities and counties were in a budget crunch and plunging prices coupled with a massive amount of inventory caused development to grind to a halt and made employees who processed permits largely expendable. Fast forward several years and many cities have not re-hired, leaving them woefully understaffed as the market has recovered. The permitting stage of the building process has become such a bottleneck that projects can sit idle for months, often costing builders a lot of money. Developers of single-family homes reported that the median delay was seven months in 2015, compared with four months in 2011, according to the National Association of Home Builders. That’s a huge amount of time, especially in the relatively low-margin business of home building and it’s likely to continue since budget-conscious cities and counties are just as concerned about being overstaffed in the next downturn as they are with clearing the backlog. Our advice? Take the over. If you think a project might take 4-6 months to permit, assume it will take eight and put yourself in a position to outperform expectations. You, your capital partner and your lender will all be happier for it.
Missing Workers: The unemployment rate has dropped below 5% but the labor force participation rate keeps falling. Why aren’t more Americans working? It’s complicated. See Also: Why there is no easy fix for the low labor force participation rate.
Time to Shine? Friday’s jobs report had some good signs that Millennials are finding their way off of mom’s couch and into the workforce. However: New data shows how high property prices, combined with unemployment and high debt loads are holding Millennials back.
Difficult to Remove: If you own a rental property in California and your tenants don’t pay, best of luck trying to evict them in any sort of reasonable time-frame. Eviction avoidance companies aren’t making things any easier.
When I Was Your Age…: Apparently, I grew up at the wrong time. My accommodations over 4 years of college consisted a 40’s vintage cinder-block dorm room that resembled a jail cell and a hundred year old duplex with a leaky roof, a minor rodent issue. I also walked to school uphill in the snow both ways. Today, investors are piling billions of dollars into high-end off campus housing that resembles a Cabo beach resort, complete with pools, spas, saunas and fire pits so that coddled college students can live the good life.
Overlooked: California’s feel-good affordable housing policies like rent control, direct financing through bonds and inclusionary ordinances are failing horribly to provide enough housing to the non-affluent. They also divert attention from the real housing problem in California: we simply don’t have enough units.
Stalling Out: The stock market’s latest slide has bad implications for the luxury housing market.
Long Way Down: Hong Kong has been in a housing boom for over a decade that would make a San Francisco homeowner jealous. Buoyed by tight supply, low mortgage rates and a seemingly endless stream of newly wealthy buyers from mainland China, property prices surged 370% from 2003. The party might be ending though. Prices are down 10% from September and sale volume was down 70% YOY in February as issues with the Chinese economy take their toll.
Rising Like a Phoenix? The “for profit” college sector has taken a big hit in recent years with “diploma mill” accusations sending enrollment crashing nearly 29% from it’s peak. In order to mount a comeback, they are going to have to refocus on their niche – working people with families, and regain public trust.
Up In Smoke: Legalized marijuana is accomplishing something that the drug war never did – reducing cartel profits.
Chart of the Day
Whiskey Tango Foxtrot
Clowning Around: A man wearing a clown costume was arrested for smoking meth in the bathroom of a Georgia Waffle House. If you’ve ever been in a Waffle House in Georgia, this story will come as no surprise to you whatsoever.
Lame: The LA Clippers have been a third tier organization since they came into existence. Their new mascot, a ridiculous cartoon buzzard-looking-thing called Chuck the Condor will do nothing to help change that. Also, you’ll enjoy this link if you find a video of an overweight, billionaire owner dunking a basketball off a trampoline at all entertaining.
Landmark Links – A candid look at the economy, real estate, and other things sometimes related.
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