Landmark Links March 21st – Wrong Way

Wrong Way

Lead Story…. As mentioned last week, LA’s Measure S crashed and burned in an epic ballot box beating, with more than 70% of voters opposing it.  While it’s good to see NIMBYs get spanked at the ballot box (they rarely do in California), all this really does is preserve the status quo – and the status quo is not good.  In other words, Measure S’s defeat means that a moratorium that would have hurt housing affordability substantially didn’t pass but it does nothing to actually put a dent in the housing affordability crisis.  Carson Bruno of the Pepperdine School of Public Policy pointed this out in an article for RealClearMarkets.com:

In addition to defeating any ballot measure that creates controls, mandates, or new rules on housing development, our leaders need to be actively tearing down barriers to entry for housing development at the municipal, regional, and state levels. Even the most basic process in California to get a housing project passed – whether its infill or not – is so byzantine its amazing anyone has the courage to actually propose a project. Between local General Plan zoning mandates that almost require multiple advanced degrees to comprehend, constantly changing opinions and attitudes of city councils, the myriad of appointed planning and environmental commissions, and CEQA and the guaranteed lawsuits to follow CEQA review, it takes a huge amount of effort, patience, and money to even get a proposal approved. Then building starts, which is further governed by employment and wage mandates, additional environmental review, and likely, new litigation. Being a Californian developer is not for the faint-of-heart.

In California’s current housing environment, it is no surprise, then, that the most commonly built new development is luxury housing. Given the amount of time, effort, and money required to get a proposal approved and then built, luxury housing is the only type that can guarantee a profit for developers (and even then, it is sometimes cutting it close). However, not only might this issue not be as big a problem as NIMBY-Residentialists like to make it, it also goes to prove that our current land use system is massively out-of-whack.

Think of housing needs as a ladder. Right now all the ladder’s rungs are full with a long line of people at the bottom wanting to climb up. But if we add a new rung is added at the top (i.e. luxury housing), then those who could afford the new higher rung and on the ladder can climb up, thus creating space for others to climb up below. By relieving supply pressure at the top, even adding luxury housing can ease the housing unaffordability issue below. And we are seeing examples of this happening already (albeit slightly) in places like San Francisco. This, however, doesn’t happen overnight. Patience is needed by both politicians and the community alike.

But more housing at all income levels is ideally what we ought to be achieving. And to do so, you need to cut away the mandates, rules, and process layers that increase the cost to approving and constructing new housing. This is the only sustainable way to incentivize developers to build units up and down the income spectrum. By tearing down the barriers, the housing will come.

The problem is that not only are more affordability friendly measures not being pushed but that there are several measures being proposed in Sacramento (AB 199 being the most egregious) that would make building affordable housing more difficult.  Most of the bills making their way through Sacramento lately deal with either raising wages for contractors or creating more state subsidies for affordable housing.  The prevailing wage bills would be bad for affordable housing across the board.  The subsidy bills would amount to little more than a drop in the bucket in terms of satisfying the actual demand for affordable units. California’s housing affordability problem can be solved but we need to take a step in the right direction first by proposing legislation that actually deals with the disease (it’s too difficult and expensive to build) rather than the symptom (subsidies for affordable units that often drive prices higher).

Economy

I Don’t Think the Hard Stuff is Going to Come Down For a While: According to Vanguard, the price of four years at a private college could be as high as $500k 18 years from now.  Have a nice day.

No Roadmap: How a lack of rotational programs and more diverse employers recruiting on campus make it more challenging for college grads to find a job than ever before.

Commercial

Risky Business: Rising interest rates have more borrowers opting for cheaper floating rate debt when buying or refinancing, taking interest rate risk in order to make a deal pencil today.  Somehow, I feel like I’ve seen this movie before.

Residential

Binging: Goldman Sachs has been on a delinquent mortgage buying spree, snapping up over $4.5 billion of Fannie Mae backed loans in an effort to make good on a portion of it’s $5.1 billion settlement with federal and state governments for it’s rose in selling and packaging loans during the bubble.  See Also: How ‘consumer relief’ after the mortgage crisis can enrich the big banks.

Thanks Captain Obvious: A new report by the National Low Income Housing Coalition found a shortage of 7.4 million affordable and available rental homes for extremely low income renter households (below 30% of their area median income).  This is most pronounced on the west coast (surprise, surprise).

Profiles

Miracle in a Corn Field: How financial de-regulation in the credit card space transformed Sioux Falls, South Dakota from a struggling agricultural town to one of the best performing economies in the United States over the past 30 years, bucking the greater downward trend in the midwest region.

Going Pro: Once considered a sleazy business run by the mob and other nefarious characters, sports betting is beginning to look a lot more like Wall Street.

Grand Theft Auto: Google and Uber are locked in a vicious patent fight over technology for self driving cars with the former claiming that the latter stole their intellectual property.

Chart of the Day

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WTF

People are Strange: In the latest example of things that make me lose faith in humanity, people with too much money and too little common sense are now getting plastic surgery for their pets.  Example A:

“Dogs of the Upper East Side” artist Linda Olle told DuJour, “I knew someone who planned to get his bulldog puppy ball implants. He said he thought it would make the dog look and feel better about himself.” She had her doubts, she said, but then recalled how happy she’d seen friends’ pets after, say, a haircut.

Ouch: A drunk guy in China stuck two fish up his butt and almost died.  Fortunately he made it and will remain in the gene pool for another generation.  In related news, he’s applying for US citizenship and plans to settle in Florida.

The Truther is Out There: There is now a dating website exclusive belt for tinfoil hat wearing conspiracy theorists.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarkcapitaladvisors.com

Landmark Links March 21st – Wrong Way

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