California's Redevelopment Agencies: A Compromise?

Recently, new California Governor Jerry Brown suggested gutting the state's 400 Community Redevelopment Agencies in a bid to help balance the yawning budget deficit. One reason for that is because these agencies don't pay property taxes on their holdings, which adds up to billions on lost revenue each year. On the other hand, were it not for the incentives made possible by these agencies, many urban infill projects would be made impossible. Two colleagues of mine, Christopher Thornberg of Beacon Economics and G.U. Krueger of HousingEcon.com, argue that there should be a compromise for this very important -- and controversial - issue. From the Sacramento Bee:

On the pro-redevelopment side, there is a legitimate claim that these agencies have played an important role in helping to build California.

Developers wanting to invest in urban communities, particularly areas that are underdeveloped and need it the most, face daunting challenges. There are fights with local zoning boards, a potential lack of appropriate infrastructure for a specific project, and huge environmental remediation costs for urban land. Having a local redevelopment agency behind the effort can be an enormous help, as can the right to declare an area blighted, something a redevelopment agency has the power to do.

Some developers go so far as to say that the soft money from redevelopment agencies is the "make or break" difference in a project. This is especially true for affordable housing projects, which California desperately needs.

Redevelopment agencies also bring much-needed organizational principles to the table. A fancy entertainment zone will not be profitable without local draws such as sports venues and hotels. No single developer will be willing to make an investment unless others are willing to make them as well.

Redevelopment agencies act to coordinate these efforts. They guide the collective actions of multiple developers, provide technical expertise and take risks where local bureaucrats won't. Without this kind of central, guiding force, many profitable projects might never start at all. This is particularly true for very large projects – think Downtown Los Angeles Live.

There are also serious cons to the redevelopment argument. Brown and his supporters make valid points. Most basically, the idea that redevelopment must be funded during this period of intense fiscal crisis is simply wrong. Pick your standard cliché here – rearranging the deck chairs on the Titanic, or fiddling while Rome is burning. Clearly there are more pressing uses for the state's funds in the short run...

To read the entire opinion piece, click here: http://www.sacbee.com/2011/02/08/3384812/find-compromise-in-redevelopment.html#ixzz1DaO4Jsiy

Telling my harrowing story about Egypt on local radio

When the protests in Egypt started to break out, I was actually on a tour of the Nile with my mother, who had joined me after we visited my older brother on a family visa to Saudi Arabia (since Saudi Arabia offers no tourist visas, I wasn't able to go with friends and no other immediate family members were interested in going).

By the end of the week, we were back in Giza, a suburb of Cairo, but instead of going on sight-seeing tours of the city, we were told to stay in the hotel. By Saturday, looters had surrounded the hotel and the army was called in to protect the area around the pyramids. It was then, via WiFi that was still working in the hotel, that I emailed the John & Ken Show in Los Angeles, since I thought it'd be a great story for their radio show. The story I told them was what it was like to be trapped in that hotel, our experience at the chaotic airport, and how we eventually got out of the country.

You can find the podcast of that radio show by clicking here (I believe it requires a PC and not a MAC):

http://www.kfiam640.com/mediaplayer/?station=KFI-AM&action=ondemand&item=20858681&feed_name=JohnandKen.xml

Could a double dip in housing kill the recovery?

Writing in Time magazine, Rana Faroohar argues that not only is the housing market not leading the achingly slow economic recovery, but that a double dip in prices could sink the nascent recovery:

The latest figures from the Case-Shiller home-price index, showing a fifth straight month of price decreases — including major drops in cities such as Boston, Washington, Las Vegas and Dallas — have economists worried that we may be headed for a double dip in the housing market this year, which could restrain the economic growth we're finally starting to see. And 2011 was supposed to be the year housing recovered; now, analysts are betting on anything from a 5% to 20% price decline...

A rising number of foreclosures, tied to persistently high unemployment, is smothering housing's rebound. According to the Mortgage Bankers Association, there are already 4.5 million homes in some stage of foreclosure. Some experts believe an additional 1.5 million may be added to the pile this year. With that kind of distressed inventory on the market, it could take four to five years for prices to come back up, according to Capital Economics senior U.S. economist Paul Dales.

What's particularly troubling is that data suggests a good number of those properties belong to lower-income, higher-risk borrowers who had already gotten a break on their mortgage payments via federal programs designed to reduce defaults. November data (the latest available) on these so-called modified loans showed that 45% of them had been canceled, meaning that the borrowers very likely redefaulted, even after the payments had been adjusted...

You can read the entire article here:
http://www.time.com/time/business/article/0,8599,2045854,00.html#ixzz1DZyR49Bt

Social Networking Replacing Traditional Advertising?

Although most of the attention given to the ‘green revolution’ in home building has been focused on sustainable design, alternative energy uses and low-impact construction methods, another resource-saving trend continuing to impact the industry is how builders and developers market their products to customers.

Whereas advertising-centric messages such as billboards, ads in newspapers or new home guides and on-site printed collateral certainly remain part of a marketing director’s arsenal, over the last several years they’ve had to expand their artillery to include an online world which continues to evolve and expand. After all, what better – and paper-saving -- way to tell potential customers about the latest updates in green living?

A decade ago, it was considered essential for a serious company to at least have a traditional Web site. But since then, the combination of ever-evolving technology and shorter attention spans now suggests marketing campaigns should also include Web site versions for smart phones, traditional blogging, micro-blogging (Twitter), video (YouTube) and regular social networking (Facebook) to connect with potential buyers.

To be sure, most small companies aren’t set up for this additional workload, so many outsource the new tasks to their respective PR firms, or even hire specialists who focus exclusively on helping maintain an online presence. For example, if a builder wanted to launch a comprehensive campaign on their green building practices, a package could include blogging and Twittering several times per week, reciprocal links with green-oriented blogs and Web sites in the area, shooting informational videos for YouTube which rank high on various search engines and tapping Facebook fans or friends to help consistently spread the word.

At the same time, however, the most successful campaigns manage to pair these online offerings with traditional offline events such as model opening parties, community gatherings or even charity benefits. The goal of that is also increasingly long term: if a company shows that they’re truly invested in the local community, then buyers are more likely to gravitate to their products and services.

Although much of this work is being done by PR firms which specialize in the building industry, generalists with experience in other industries are also beginning to meld their press contacts and event experience with online social networking. For example, Sharon and Bob Jimenez, who have experience as TV news correspondents and currently co-host the show “L.A. Business Today,” launched ICON Imaging Public Relations in the mid-90s to assist clients in building their own brands in multiple media. With a resume that includes two Presidential campaigns, Common Cause, the City of Los Angeles and several real estate-oriented companies, Sharon was also instrumental in producing 2010’s “Gerrymandering: The Movie” and founded a non-profit to bring jobs in entertainment production back to California.

Of course in the PR world, results are what matter. By merging her offline contacts with the online world, Sharon helped her candidate raise over $10 million online, and managed to snag a coveted slot in the annual Tribeca Film Festival to promote her movie. Adds Sharon, “Although technology has certainly changed the way we promote a client, the basics of consistency, creativity and authenticity remain the same whether it’s on Facebook, Twitter or simply talking with a reporter.”

For those builders looking to promote green building or sustainability and compete with lower-priced foreclosures -- as well as the homes they themselves built just a few years ago -- social networking is providing an important new framework in which PR is slowly supplanting advertising. But, like with anything else, the framework only works if it’s intertwined with authentic messages which find the right audience.

Does a housing bust make a declining city?

The L.A. Times has a story about a report issued by the Research Institute for Housing America, a division of the Mortgage Bankers Assn. According to the report, neighborhoods in those inland areas hit hardest by the housing bust -- such as the Central Valley and the Inland Empire -- may "never" rebound.

Really? NEVER? That's a awfully long time for some pretty large geographic areas. I can just see the headline now in the year 9011: "Prices in Riverside still at 2003 levels." Whenever anyone says either "always" or "never" I've learned to pretty much disregard what comes after that.

For one thing, the Inland Empire of today is much different than it was even 10 years or 15 years ago (I lived in Upland in the early 90s when working for a home builder). People no longer have to drive into L.A. or Orange County to get their basic shopping, culinary or entertainment fix. For another, since the 1980s, the area's economy and population grew significantly faster than those of surrounding counties and has already achieved a critical mass of eventually sustaining itself once an economic rebound resumes.

Will there be some areas of the IE which will take longer to rebound than others? Of course, just like other cities. Those submarkets further away from existing employment centers such as Hemet, San Jacinto or the High Desert simply won't have the demand seen in Temecula, Ontario or Chino. But as the local economy diversifies and grows, so will those now-moribund areas. Will there be pockets of neighborhoods which don't join the rebound? Of course -- just like we see many parts of Central Los Angeles.

Another separate issue is that of the Coachella Valley, which really doesn't consider itself part of the Inland Empire. In the north, cities such as Palm Springs, Rancho Mirage and Palm Desert cater largely to the retired and second home owner, which should benefit from the valley's enviable winter weather and Boomers across the country looking to downsize. To the south, however, it's a different story, with over-building in Indio, Coachella and La Quinta taking longer to absorb inventory.

Finally, even leaders in the Inland Empire are trying to get away from the long-used moniker, preferring instead to use the 'Riverside-San Bernardino region.' With reports like this from the Research Institute for Housing America, can you blame them?

From the article:

A traditional city in decline is one that has suffered a sustained population drop, leaving behind empty houses, apartment buildings, offices and storefronts. Cleveland and Detroit, for instance, suffered from the erosion of manufacturing and the loss of residents, who left in search of jobs.

Instead of eroding a particular industry, however, the housing bust left a glut of homes because of overbuilding and the foreclosure crisis. Follain argues that the future of these cities is threatened in similar ways to that of Rust Belt cities.

"Long-vacant neighborhoods are going to develop, and we can imagine what can happen," he said, including potentially higher crime and lower property taxes.

In California, some coastal cities already are seeing a housing market recovery. But inland areas that were built on optimistic assumptions of continued population growth and ever-climbing home values are facing a much more difficult recovery.

Celia Chen, a housing economist with Moody's Economy.com, predicts that a full recovery in parts of California, Nevada, Arizona and Florida won't occur until 2030...

January column for Builder & Developer magazine now online

My column for the January issue of Builder & Developer magazine is now posted online. This month's issue, which is entitled "After-Effects from 'The Great Recession' Continue to Linger" -- discusses the slow economic rebound to come in 2011, how apartment demand will rebound first and offers the latest building forecasts for the year.

An excerpt:

Although the National Bureau of Economic Research officially declared the ‘Great Recession’ over in June of 2009, over 18 months later the building industry continues to wait for that proverbial light at the end of the tunnel. Sure, there were some rumblings of activity in the land market in early 2010 as it seemed that a rebound was imminent, but that turned out to be related more to homebuyers taking advantage of tax credits than sound economic fundamentals. So what can we expect in 2011?...

Click here to read the entire column.

Click here to read the entire magazine in digital format.

The Housing Chronicles Blog goes mobile

Traveling on the road without your laptop but still need your occasional fix from The Housing Chronicles Blog?

Fear not. Whether you're using an iPhone, Android, Blackberry, Windows Phone or some other smartphone, simply key in the regular Web address and the new widget will automatically allow you to scan the latest posts from the comfort of wherever you are.

Oh, and Happy New Year 2011!

Special consulting offers at MetroIntelligence to start out 2011!

As a way for new clients to become familiar with the consulting work produced at MetroIntelligence Real Estate Advisors, they're offering an introductory special to start off 2011. Here's a summary of their most common consulting assignments and the special pricing you can expect as a new client:

Reality Check

Whether you call this a gut check or a reality check, the goal is the same: an objective opinion on the merits of the real estate project in question.

Cost: $100 to $300/hour depending on the complexity of research.

2011 Introductory Special for New Clients: 25% off customary fees

Turnaround time: A few hours.

In-House Feasibility Study

What is the current competitive posture for pricing and absorption in the appropriate market area? Is it wise to spend more money on the due diligence required to close the deal?

Cost: $2,000

2011 Introductory Special for New Clients: $1,500

Turnaround time: 1 to 2 days


Intermediate Feasibility Study

By combining the insights gained from in-house analysis and conducting an on-site visit, we can get a much better sense of locational issues as well as key competitors impacting your project.

Cost: $3,500

2011 Introductory Special for New Clients: $2,625

Turnaround time: 2 to 3 days


Competitive Market and Economic Overview

By tapping the expertise of our colleagues at Beacon Economics along with insights gained from in-house data analysis and field research, we can then review the assumptions the client has made for the project's revenue, sales rates, local job growth and where their buyers will be coming from.

Cost: $6,500+ depending on complexity of the analysis and the project's location

2011 Introductory Special for New Clients: $4,875+

Turnaround time: 5 to 10 days


Opportunity Analysis

Has the client selected the appropriate product for this particular building site? What other options should they consider? This option can also include consumer research and focus groups.
Cost: $9,500+

2011 Introductory Special for New Clients: $7,125+

Turnaround time: 10 to 20 days


Demand Analysis

Who are the client's buyers for their product in that particular price range? From where will they be coming, where do they work, and how do you translate them into buyers?

Cost: Variable depending on scope and complexity of assignment

2011 Introductory Special for New Clients: 25% off customary fees.

Turnaround time: 10+ days


Affordable Housing Market Study

These studies generally conform to the guidelines set forth by state governments or the Dept. of Housing and Urban Development. Builders of affordable housing must include them as part of their application packets for tax credits, tax-exempt bonds or HOME Funds to prove there is a need for their proposed project at a specific location.

Cost: $4,000 to $7,500 depending on complexity of proposed project, income levels and populations served.

2011 Introductory Special for New Clients: 25% off customary fees.

Turnaround time: 5-10 days

Has mobility really declined due to the recession?

For a couple of years we've been hearing that one reason unemployment is elevated is because people can't move because they're stuck in their homes.

The thinking was that without the historical social mobility that has allowed the U.S. economy to constantly re-invent itself that the right people couldn't move to the right jobs.

Or so it seemed.

However, according to a recent paper by Greg Kaplan and Sam Schulhofer-Wohl and available online at the National Bureau of Economic Research, the decline in interstate social mobility has been steadily occurring since the mid 90s and is not specifically related at all to the Great Recession. From their summary:

We show that the significant drop in the annual interstate migration rate between the 2005 and 2006 Current Population Surveys is a statistical artifact. The Census Bureau’s imputation procedure for dealing with missing data before the 2006 survey year inflated the estimated interstate migration rate. An undocumented change in the procedure corrected the problem for the 2006 and later surveys, thus reducing the estimated migration rate.

The change in imputation procedures explains 90 percent of the reported decrease in interstate migration between 2005 and 2006, and 42 percent of the decrease between 2000 (the recent high-water mark) and 2010. After we remove the effect of the change in procedures, we find that the annual interstate migration rate follows a smooth downward trend from 1996 to 2010. The 2007–2009 recession is not associated with any additional decrease in interstate migration relative to trend.

A related story in Newsweek posits that the decline is likely due to changes resulting from the information age and a service-based economy than anything else:

The decline, which is often attributed to early recession troubles with selling homes or paying for moves, is a “statistical artifact,” according to a report published by the National Bureau of Economic Research. It’s 90 percent attributable, the study claims, to a 2006 change in the way the bureau estimates missing data. Once the change is corrected for, the steep drop in moving rates disappears. Interstate migration is indeed falling, says University of Pennsylvania professor Greg Kaplan, who coauthored the study. But the trend is decades old and, says Kaplan, may be “an optimal response” to the information economy, where work is no longer as regionally diverse.

If you want to read the entire study, it is available for download for $5 at the NBER Web site.

Forecast for 2011

Although the National Bureau of Economic Research officially declared the ‘Great Recession’ over in June of 2009, over 18 months later the building industry continues to wait for that proverbial light at the end of the tunnel. Sure, there were some rumblings of activity in the land market in early 2010 as it seemed that a rebound was imminent, but that turned out to be related more to homebuyers taking advantage of tax credits than sound economic fundamentals. So what can we expect in 2011?

For the general economy, the recovery will remain painfully slow, but our colleagues at Beacon Economics are not predicting a double-dip recession because the imbalances we saw during the boom years have been largely wrung out of the system. Nonetheless, as the fiscal stimulus programs of the past two years begin to abate, expect to see more layoffs in the public sector at the state and local levels, as well as officials finally forced to address untenable pension promises. In addition, as the Federal Reserve and Congress begin to reverse historically low interest rates and huge budget deficits, consumer spending – which accounts for more than two-thirds of the country’s GDP – will grow at a reduced pace.

With up to 65% of the earnings for the companies listed on the S&P 500 coming from overseas, domestic job growth will also remain lackluster, so it will take time to replace the 7 million jobs lost in this downturn. Although the U.S. retains the world’s largest manufacturing sector by value, capital investments and increasing productivity will replace many of those jobs, requiring retraining for millions of workers. Yet the good news for construction workers is that although it will take several more years for their jobs to come back, it’s not easy to outsource the building of new communities overseas or replace workers with automated equipment. A year from now, Beacon Economics is forecasting the national unemployment rate to remain elevated at 8.8% and not approach the 8.0% level until the middle of 2013 – well above the levels seen in the boom years, but still representing a slow and gradual decline.

For the real estate market, improvement will vary widely depending on the sector. The first sector to rebound will likely be apartments, led by former homeowners looking to rent as well as the rise of the Echo Boomer population. As the economy improves, people forced to live with each other due to financial issues – such as boomerang children living at home, roommates who have nothing in common, and even former couples who simply share space – will opt for their own households as soon as they can.

Naturally, the rebound for new housing will depend largely on the state of the foreclosure market, which is expected to remain elevated through 2012 even though the rate is flattening out in some hard-hit areas such as Los Angeles. Not surprisingly, discounted foreclosures will continue to pull down median sales prices, but an important caveat here to remember is that many foreclosures offer low-quality housing with missing appliances, damaged interiors and neglected yards. Once those foreclosed homes are eventually flushed through the pipeline, prices could stage a moderate rebound based both on better-quality comps and an improving economy.

Finally, with just about 200,000 unsold units – the lowest since 1968 -- builders have kept a tight lid on inventory, which should help bolster the industry when the rebound occurs. For 2011, the NAHB is forecasting 655,000 single-family starts that should climb nicely to 970,000 starts by 2012. For the multi-family sector, an unforeseen rebound in mid-2009 helped bump up the forecast to 125,000 units by 2011 and 210,000 units by 2012.

Housing Chronicles named in Top 50 real estate blogs

The Web site Online Business Education has listed The Housing Chronicles Blog among the Top 50 real estate-related blogs online. You can find the entire list here.

December 2010 column for Builder & Developer now online

My column for the December issue of Builder & Developer magazine is now posted online. This month's issue, which is entitled "Short-Run Pain Can Lead to Long-Term Benefits" -- is essentially a review of the housing market and the economy in 2010.
An excerpt:

According to a recent study conducted by the NAHB, although the nation’s builders certainly over-built single-family homes from 2003 through 2005, the cumulative surplus relative to population growth was completely worked off by the end of 2007. That’s not to say we still don’t have a huge over-supply relative to buyers’ ability to buy or qualify for mortgage loans – it just means that based on historical precedent and average household sizes, the nation is technically under-housed.

In fact, between the end of 2007 and 2009, the sharp declines in new building led to a projected deficit of nearly 2.2 million units. By the end of this year, that deficit will have reached nearly 3.3 million units. In other words, as the foreclosure pipeline is eventually addressed – and it must be in order to clear the inventory of homes in default -- this country will face a tremendous pent-up demand for new housing across the entire income spectrum.

Click here to read the entire column.

Click here to read the entire magazine in digital format.

Short-Run Pain Can Lead to Long-Term Benefits

As the building industry continues to wait for a sustained rebound which stubbornly refuses to appear, it’s easy to grow frustrated with economists and prognosticators who seem to constantly update their forecasts. So what’s going on?

One reason that it’s hard to get a handle on the economy is because the federal government has pursued various policies which have simply postponed the inevitable consequences of the past. In times of great economic duress, this makes sense, as too many negative hits at once can send an economy into a tailspin leading to a depression. But by spreading out these hits over time so the economy can adjust, any recovery is also muted.

Another reason it’s been difficult to gauge the timing of a rebound is that the bust in housing demand and prices hasn’t been uniform across the country: while Arizona, Florida and Nevada continue to suffer disproportionately, places like Texas and Washington, D.C. are on the mend. In addition, when real estate bubbles pop, it’s not like they re-inflate immediately – the market tends to bob along the bottom for two or three years before sustained demand is possible. An even with mortgage rates now at generational lows and home price affordability far higher than during the boom years, the demand for housing now simply needs ample time to recharge its batteries.

In the meantime, this recharge is continuing unabated, only instead of living in their own homes, potential new households are doubling up with roommates and with family members while waiting for job growth to return. In general, between 1960 and 2005, the United States has averaged 1.2 million net new households per year. In some years builders have certainly over-built relative to demand, but in many others years (such as during recessions), they can’t build enough homes.

According to a recent study conducted by the NAHB, although the nation’s builders certainly over-built single-family homes from 2003 through 2005, the cumulative surplus relative to population growth was completely worked off by the end of 2007. That’s not to say we still don’t have a huge over-supply relative to buyers’ ability to buy or qualify for mortgage loans – it just means that based on historical precedent and average household sizes, the nation is technically under-housed.

In fact, between the end of 2007 and 2009, the sharp declines in new building led to a projected deficit of nearly 2.2 million units. By the end of this year, that deficit will have reached nearly 3.3 million units. In other words, as the foreclosure pipeline is eventually addressed – and it must be in order to clear the inventory of homes in default -- this country will face a tremendous pent-up demand for new housing across the entire income spectrum.

And yet, much like the nascent recovery, this pent-up demand differs from state to state. A similar analysis conducted by the NAHB for each state showed some of the states with the most foreclosures – such as Arizona, Florida, Nevada and California – have still racked up single-family housing deficits relative to population growth ranging from 50,000 to 145,000 homes.

At the recent Building Industry Show in Southern California, the energy this year was much different than in 2009. Not only was it more hopeful, but I heard stories of multiple deals getting done in order to start prepping for the rebound. While it was still gallows humor from land brokers and lenders opining on panels, the general consensus was that 2010 would go down in history as one of those years in which the industry’s survivors hang on because they know that the rebound – when it comes – will be formidable.

November column for Builder & Developer magazine now online

My column for Builder & Developer magazine is now posted online. For this month's issue, which is entitled "Promoting Green Living as a Lifestyle" -- I wanted to discuss how builders can leverage their model homes to show prospective buyers how using green products throughout the home can extend far beyond brick, mortar and drywall.

An excerpt:

Imagine, if you will, walking through what looks like a fairly typical model home complex for a new green community. Perhaps it offers the latest in energy-efficient appliances, LED lighting, solar panels, drought-tolerant landscaping, and more. But in addition to that, the homes in question feature an array of sustainable consumer products – tightly secured to tables, cabinets and countertops, of course -- that the eventual occupants might use in their daily lives.

From household chemicals and children’s toys to food and personal care items, to obtain ratings on the greenest of the green, these shoppers would only need to scan product bar codes via an iPhone application or visit the Web site for a new company called the Good Guide. Started in 2004 by a professor of environmental policy at UC Berkeley named Dara O’Rourke after he realized he didn’t really know what was in the sunscreen being applied to the face of his two-year-old daughter (which, after testing in his lab included a suspected carcinogen as well as a chemical which could disrupt hormones), O’Rourke’s goal is to bring academic-quality research on everyday products to the masses.

As I was reading this story recently in a national newsmagazine, I couldn’t help but think how easy it would be for homebuilders to leverage the mainstreaming of green products into their own sales and marketing campaigns. In September of 2010, the site for Good Guide tracked 300,000 visitors who reviewed its ratings on more than 75,000 items, so the interest is certainly there. It’s also an opportune time to provide objective research – sort of a Consumer Reports for green products – to a general public who overwhelmingly say they prefer environmentally responsible products in surveys but have grown increasingly wary of ‘greenwashing.’...

Click here to read the entire column.

Click here to read the entire magazine in digital format.

SoCal home sales dip in October

There are two stories in the Los Angeles Times and the Riverside Press-Enterprise for which I opined yesterday. In both cases, I wanted to stress that (a) by October we're starting to move into the slowest quarter for home sales (both new and existing) and (b) we have no choice but to pay the consequences of the tax credit programs and other incentives which borrowed demand from the future. While I certainly support the idea of spreading out economic pain to avoid a depression, anyone who expresses surprise at falling sales when the market has to abide by normal fundamentals simply wasn't paying attention in Econ. 101.

You can find the L.A. Times story here.

You can find the Riverside Press-Enterprise story here.