Grand Game! Real Estate Edition

Grand Game, Grand Game, Whatchoo Gonna Do?  Whatchoo Gonna Do When They All Read You?

This guy is some piece of work.  It turns out that the reason that real estate is expensive in San Francisco is not the bizarre web of restrictions on new building, or the requirements that people not sub-let, or the requirements that existing houses must be preserved at all costs.  The shortage is entirely the product of an artificial restriction imposed by dumb regulation.  But our boy wants to blame...greed! Check it out:


San Francisco has struggled to rehouse those who lose their homes. Scott Wiener, who chairs the city’s Land Use and Development Committee, says: “The number one challenge in the city is housing affordability. It’s not surprising that when you have a growing population and don’t build new housing, you see an explosion in house prices. In the last decade we’ve added at least 50,000 new residents to San Francisco, and produced very little new housing.”  (Editor's note:  The "speculators" would have loved to build new housing, but the law prevents it.  Not the state legislature, but the city of SF).


Though he doesn’t much care for the start-up douchebags, Redmond blames not individual tech workers for the current crisis, but property speculators and the lawmakers who have let them take advantage of their precious commodity: space. 

“If we had a major earthquake in San Francisco, the water mains all broke, and some guy showed up with a water truck and started selling water for $10 a gallon, people would be pissed,” he says. “That guy would be ridden out of town; he’d be attacked with sticks and pitchforks. But that’s what the real estate people are doing right now – and they’re getting away with it.”

Nice.  This fellow even gets in a shot in about price-gouging.  (Think about it:  If someone took in water after a major earthquake, they'd be more evil than someone who sits at home and says, "Someone should DO something!"  Really?)

 It's a tour-de-force of economic illiteracy.  I'm going to assign it as a class homework.  ATSRTWT

With a grateful nod to Brad H.  You were right, buddy.  This is awesome.

Prices

House price dynamics with dispersed information 

Giovanni Favara & Zheng (Michael) Song
Journal of Economic Theory, forthcoming

Abstract: We use a user-cost model to study how dispersed information affects the equilibrium house price. In the model, agents are disparately informed about local economic conditions, consume housing services, and speculate on price changes. Optimists, who expect high house price growth, buy in anticipation of capital gains; pessimists, who expect capital losses, prefer to rent. Because of short-selling constraints on housing, pessimistic expectations are not incorporated in the price of owned houses and the equilibrium price is higher and more volatile relative to the benchmark case of common information. We present evidence supporting the modelʼs predictions in a panel of US cities.

Ayn Rand Live?

It's as if Ayn Rand is writing history, more than 20 years after her death.  An email from Pelsmin:

Every now and then I hear someone say this entire presidency is aimed at destroying America. Personally, I think that’s extreme, and it’s really aimed at “moving us to our proper place in the world,” which is less dramatic but also directionally misguided.

But then I read this story in today’s WaPo, explaining how the Obama administration wants to encourage aggressive mortgage lending to low-credit/low income buyers. They are working to assure banks that they won’t be held responsible for failed mortgages as long as they conform to FHA guidelines, and that the government (taxpayers) will repay on defaults.

Under FHA guidelines “a borrower can get a home loan with a credit score as low as 500 or a down payment as small as 3.5 percent.” The DOJ is getting involved. The only difference I can find with 2008 is that back then the government was pushing home loans with nothing down to high-risk individuals, with an implicit backing of Fannie Mae, and now the government is pushing home loans with nothing down to high-risk individuals, with an explicit backing from FHA. I didn’t think Washington could stun me. But here we are, the ashes of the economy still warm, and they’re breaking out the matches and gasoline again. And is this possible: “since the financial crisis in 2008, the government has shaped most of the housing market, insuring between 80 percent and 90 percent of all new loans”? Do we again have banks operating under the moral hazard of making loans with government assurance of repayment? Also, what’s the logic of the statement “as young people move out of their parents’ homes and start their own households, they will be forced to rent rather than buy, meaning less construction and housing activity.” I guess this is somehow possible, but don’t they need to live somewhere besides the basement? So they will move into homes they own, or homes they rent. Construction will be needed for buildings occupied by owner or buildings occupied by renter. What am I missing? This is the most disturbing news story I have read in years. Really.

Phone call for Joe Tham.  You doubted me.  What do you say now?

The culture that is India: Luxury living edition

Fascinating article in the NYT about booming property values in desirable areas of New Delhi, where teardown properties can allegedly go for over $10 million.

There are some specific points in the piece that do not bode well for India's chances develop.

First, the best areas of New Delhi seem to be government owned and given out to politicians as perks:


Few properties come available in the leafiest, most prestigious section of the capital, known as Lutyens’ Delhi, because the area is mostly dedicated to government housing. Powerful government ministers live in British-era bungalows with stately lawns of several acres, while lesser officials are eligible for different categories of government housing in an oasis largely separated from the rest of the chaotic capital, where many people live crowded into slums or shanties. “This is the best part of Delhi, the core of Delhi,” said Munish Kumar Garg, who oversees the allocation of government housing. “If these properties in Lutyens’ Delhi were put on sale, there would be a queue two kilometers long.” Mr. Garg, the director of the government’s Directorate of Estates, controls one of the more valuable residential real estate portfolios in the world. Asked how many New Delhi properties fell under his agency, he shrugged. “It would be difficult to know,” he said. “Maybe 10,000.”

Yes, in 2013, the Indian Government is managing 10,000+ residences for government employees, just in New Delhi.


Second, the process of buying a house is not extremely transparent. There aren't often public real estate listings and purchases frequently require large amount of unreported cash payments that avoid tax issues:

Though India’s economy has cooled, the demand for property in elite areas remains so strong that even finding a house for sale is tricky: formal listings do not exist; prices usually circulate by word of mouth. Transactions often require some “black” money, or stacks of cash paid under the table to avoid taxes. The buyers are often Indian industrialists looking for a trophy property, a real estate Rolex. Or, real estate agents and sellers say, they can be politicians or their proxies, who often pay with trunks of cash.

Help me pick my house design

People, we have issues at Chez Angus.  We have two different designs for the front of our potential house in Santa Fe.

Here's option 1 (which loyal readers have already seen):

and here's option 2:

Give me your thoughts in the comments.

I bought it off the Baptists

These renderings may or may not end up being what we eventually build in Santa Fe, but they are where we are at now in the process (clic the pics for even more speculative images). 

Of course, Mark E. Smith is always relevant:

A Beautiful ____ in the Neighborhood(s)

An Alternative Approach to Addressing Selection Into and Out of SocialSettings: Neighborhood Change and African American Children’s EconomicOutcomes

Patrick Sharkey
Sociological Methods Research, May 2012, Pages 251-293

Abstract: This article develops a method to estimate the impact of change in a particular social setting, the residential neighborhood, that is designed to address nonrandom selection into a neighborhood and nonrandom selection out of a neighborhood. Utilizing matching to confront selection into neighborhood environments and instrumental variables to confront selection
out of changing neighborhoods, the method is applied to assess the effect of a decline in neighborhood concentrated disadvantage on the economic fortunes of African American children living within changing neighborhoods. Substantive findings indicate that a decline in neighborhood concentrated disadvantage during childhood leads to increases in adult earnings and income, but has no effects on educational attainment or other social outcomes.

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Neighborhood Effects on the Long-Term Well-Being of Low-Income Adults

Jens Ludwig et al.
Science, 21 September 2012, Pages 1505-1510

Abstract: Nearly 9 million Americans live in extreme-poverty neighborhoods, places that also tend to be racially segregated and dangerous. Yet, the effects on the well-being of residents of moving out of such communities into less distressed areas remain uncertain. Using data from Moving to Opportunity, a unique randomized housing mobility experiment, we found that moving from a high-poverty to lower-poverty neighborhood leads to long-term (10- to 15-year) improvements in adult physical and mental health and subjective well-being, despite not affecting economic self-sufficiency. A 1–standard deviation decline in neighborhood poverty (13 percentage points) increases subjective well-being by an amount equal to the gap in subjective well-being between people whose annual incomes differ by $13,000 — a large amount given that the average control group income is $20,000. Subjective well-being is more strongly affected by changes in neighborhood economic disadvantage than racial segregation, which is important because racial segregation has been declining since 1970, but income segregation has been increasing.

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With a nod to Kevin Lewis

Words of wisdom

"Alternative energy is expensive. Insulation is cheap." ~ Sam Hagerman, president of Passive House Alliance US

More good stuff here.

Mrs. A and I are working toward building a passive house in the Santa Fe NM area.