Housing investors, rentals for whom, and what kills you?

The International Business Times has a feature this morning on a survey from Move.com that suggests that investors are going to be dominating the housing market for the next 2 years.  Some of the commentary suggests that this is where the speculators have gone:

–Nearly 60 percent of investors say they’re new to real estate investing. About 33 percent are considering their first investment purchase and 8.5 percent are in the process of buying and selling their first investment property. Of those surveyed, only 36.5 percent had experience in more than one property transaction.

via Investors to Dominate Housing Market for Next 2 Years.

I have to tell you: my experience with this in Los Angeles County for my own long-term home search has been irritating.  There are a lot of cash investors swooping in to buy things near the university where I work.  One of my colleagues and I decided that we were going to live within walking distance of the distance. And after 4 failed offers (one property had 20 offers on it in the first week), I am giving up and living farther away. So is he; he and his partner are giving up on walking and moving looking at Silverlake and Echo Park.

In the West Adams  case, who those rentals are for is clear. In other parts of the region, I wonder whom these investors believe are going to rent their houses?  Traditional buyers locked out of new financing because they don’t have enough cash to buy; banks demanding 25 percent on $500+ houses make for a pretty high class barrier to traditional home buying? People who have been foreclosed on?

At least a dozen people have sent me the slate.com hysteria fest about how your commute is killing you.  It causes you to divorce. DOOM.  I’m not linking to it since it already has pages of links, and I refuse to participate in the hysteria.


Because being unemployed and having no commute is a health issue, too.

Of course you could be spending your time doing better, healthier things than in a commute. Why is this even news? I understand why the original study took the approach that it did, but why the hype? This is like saying every minute you spend eating bacon is a minute you could be spending exercising. Ya think? NO KIDDING? For reals? The opportunity costs of community have always been the issue. That’s why some of us–despite all of the critiques leveled at the civil engineering idea of minimizing travel time,  despite all the flouncing around about how efficiency is an empty goal for planning, despite all the people who want to “slow” cities down–still say that travel time is a key measure of service quality and we should pay attention to it. Travel time isn’t the only measure, for sure, but damn it, time matters. And it matters a lot to people on the lower income scale no matter how many I-bankers swish around and say “my time is money.”

But with all my travails in the California housing market–I have been looking for months–you have to wonder how much discretion anybody other than people with big, big money have on where they live relative to where they work and where their kids go to school.


David Porter on Parking Auctions at Chapman University

Economist David Porter is featured on Reason TV discussing Chapman University’s Parking Auctions.

The video is worth watching, as he’s very engaging, and it’s a pretty cool implementation of auction policies. However, there are a couple of things that I can’t let go without critiquing:

1. I get that he’s trying to be engaging and funny, but I really can’t approve of selecting out quotes from people who participated in the process if you are going to mock those statements. Yes, people say dumb things during policy design and implementation. It doesn’t matter. The ethics of deliberation mean that you don’t get to use occasional lapses in reason or even incivility in others that occur in the deliberation to make points for yourself later, even if you don’t attribute. It’s convenient to use these sorts quotes to show, in an ex poste hero’s journey narrative about your implementation process, how you had to overcome ignorance or criticism to get the program to triumph. Tempting though it is, it’s a bad idea for sustaining the long-term relationships you want to build with a community of people you want to continue planning and building with. Short term win, long-term threat to trust. Porter doesn’t care about that stuff, but planners should.

2. At the end, the problem with auction markets start to become apparent: “well, we need to shift these classes around, and those faculty will be willing to be paid to move to 8 am etc etc.” That is, it’s easy to get caught up in the idea that you can design perfectly efficient outcomes with auctions, when slightly imperfect outcomes may be good enough when you start to pay attention to the transactions costs. More and more rules, more shifting of activities–all of that starts to get complicated after awhile, and it’s all to serve your auction–a tail wags dog problem. Why not just let the auction prices handle the peak and be done with it?

It just reminds me of Sheldon Cooper’s three-person chess:

(BTW, there’s no way in heck that I would agree to teach at 8 am for $10. My colleagues who are early risers would; for them, the $10 would be surplus payment as they are on campus anyway. You’d need to add two more zeros before I agreed.)

Murals in the Golden State Mutual Building

The West Adams Historical Association is sponsoring a tour this Saturday of the Golden State Mutual Building and its interior murals. A chance for my students and readers in the LA area to learn more about the wonderful history of the communities surrounding the University of Southern California.

From the website:

As part of our ongoing efforts at preservation advocacy, WAHA has been working hard to bring greater attention to these threatened historic landmarks.

In conjunction with the opportunity to view the murals, we are putting the final touches on an extensive 40+ page publication that documents the cultural,
business, and architectural contributions of the African American community that abound throughout the Historic West Adams district. A copy of this publication
is included in the ticket price. Just click on the image below to learn more about the tour, and to make tour reservations on our WAHA website.
On site parking is available – entrance on Hobart, just north of West Adams Blvd.

We thank you for your continued support, and look forward to you joining us next Saturday!


A station for Leimert Park – Do the Right Thing

Today at the LA MTA Board meeting, the Board will take action on a couple of really important issues. One I covered earlier–the extension of the Bus Rapid Transit into West Los Angeles–and the other is the addition of a station for historic Leimert Park on Crenshaw Line.

Leimert Park is a beautiful community in mid-Los Angeles, a place with lovely homes, walkable streets, and a long, understudied history. It was designed by the Olmstead brothers, for all you urban planning geeks out there.

African Americans in Los Angeles have been loyal MTA customers for decades. The money we spend on stations in southern-middle communities tends to pay back in riders because these areas have riders already.

Transit advocates are fond of telling me that costs don’t matter, or at least costs don’t matter as much as poopyhead economists think costs matter. If that’s true when it comes to everybody else’s pet projects, it needs to be true of investing in black communities in LA, too.

Go, Mark Ridley Thomas, Go. And then run for mayor. And then governor, and then president. Because you have been great at your job.

2010 0301 lagc neighborhood watch programs lead to new view of lapd in leimert park 1 580x290

Pivo and Fisher on the Walkability Premium for Commercial Properties

Edited thanks to thoughtful commenter Derek Pokora:

The full article in per can be downloaded from Pivo’s academic page at the University of Arizona.

I always follow the work of Gary Pivo, and he and Jeffrey Fisher have a new manuscript in this (excellent) edition of Real Estate Economics. Because this is a scholarly publication, you have to pay for access, unfortunately. I will discuss it extensively here for those who can’t go read it themselves.

Here is the citation:

Pivo, G., & Fisher, J. D. (2010). The walkability premium in commercial real estate investments. Real Estate Economics. doi:10.1111/j.1540-6229.2010.00296.x

From the abstract:

This article examines the effects of walkability on property values and investment returns. Walkability is the degree to which an area within walking distance of a property encourages walking for recreational or functional purposes. We use data from the National Council of Real Estate Investment Fiduciaries and Walk Score to examine the effects of walkability on the market value and investment returns of more than 4,200 office, apartment, retail and industrial properties from 2001 to 2008 in the United States. We found that, all else being equal, the benefits of greater walkability were capitalized into higher office, retail and apartment values. We found no effect on industrial properties. On a 100-point scale, a 10-point increase in walkability increased values by 1–9%, depending on property type. We also found that walkability was associated with lower cap rates and higher incomes, suggesting it has been favored in both the capital asset and building space markets. Walkability had no significant effect on historical total investment returns. All walkable property types have the potential to generate returns as good as or better than less walkable properties, as long as they are priced correctly. Developers should be willing to develop more walkable properties as long as any additional cost for more walkable locations and related development expenses do not exhaust the walkability premium.

The use regional, neighborhood, and building variables in their models. Among their building characteristics include: number of stories, a square of that, the property tax, and whether the property is within a half mile of rail transit station. For neighborhood characteristics, they have property crime rates, population density and Walk Scores. They also use a bunch of regional variables.

One of the nice parts of the paper is their discussion of the Walk Score and what it measures.

Ohhhhhhh how I wish they had had parking availability for this study. A walking premium holds with theory. But theory would also suggest that the sorts of designs that accommodate both parking and walking would be even more productive for the developer and the tenants. The big box world of large surface lots has become uninteresting to a lot of urban consumers. But think about all the urban Trader Joe’s out there that have four stories of parking underneath or above in addition to their street-level storefront. Those are the properties that I bet get a nice value boost, and there’s no way to glean that from their data or model.

The difference is huge for those who argue that walkable developments “take cars off the road.” These developments may do so, but they may also simply generate more trips overall–and that’s certainly not a bad thing from the developer’s viewpoint.

Pivo and Fisher find that apartment properties had little premium value associated with walking–rather, the major boost came to commercial property, and in particular, retail property. They argue that it may be that the Walk Score, reflecting multiple things, is also capturing what may be negative effects from proximity to busy commercial centers (noise, lack of privacy, etc). It could be that–Lord knows, plenty of the people who advocate loudly for urban living completely discount its inconveniences.

But I strongly suspect one of the reasons they don’t see more of an effect for the apartments is that there is just plain more variation in quality and individual building characteristics than they can really capture with the data they’ve got. So it’s not like there is no effect, it’s just really hard to suss here given the data and given, as they point out, the potential conflicting effects from the Walk Score.

They find a 0.18 coefficient for market value with regard to their 1/4 mile buffer, and it’s highly significant, for the rail access variable, but that variable correlates at 0.51 to the Walk Score, and they don’t really present any tests for this problem. The correlation is not the end of the world, but it’s just high enough, and it’s positive, that had I been a reviewer, I would have grouched at them to check on it more. When you are using a combined or index measure like a Walk Score, it’s important to help your reader understand how it may interact or correlate with other measures.

The proximity to transit variable tells an interesting story for urban theory. They have appreciation and income variables for outcomes, and these variables are all logged. They find, just as with the Walk Score, that rail transit access has the highest impact (all effects significant) for retail and commercial property. Retail gets a nice boost in operating income from a higher walk score and rail transit access.

However, the aggregate regressions show a positive value for appreciation and negative for income.

So what does this mean? Their interpretation, if I understand them, means that the value of the additional business you get from walking customers probably gets captured by landlords and property owners rather than businesses renting–that is, they pay higher rents for their location location location. Property owners benefit from walkability, but tenants should think twice if somebody asks them to pony up for walking improvements. It also suggests that the property tax is a good source of funding for walking improvements, given who financially benefits, even though we all know that expecting property owners to pay taxes is the equivalent of spitting on veterans and making cookies for Jane Fonda.

FT on the French and flirtation, me on consent

Peggy Hollinger in the Financial Times writes about the French way of “flirting” and how successful politicians are “expected to have a powerful libido”:

Hollinger concludes in the right way: that underlying the wink-wink-nudge-nudge of French politics, there is misogyny.

But I have questions.

Is it really so hard for somebody with a “towering intellect” to understand that he doesn’t get to race around grabbing people in the US? I mean, it’s supposedly common knowledge all over France that us yanks are all puritanical and uptight. So he’s smart enough to run the IMF, but not smart enough to have his assistant hire a sex worker for the night? It’s New York. It’s not like there aren’t any number of really available call girls.

Or is it that he was unprepared, given the genuflection and admiration he normally receives, that even Ghanian maids have the right to tell you to keep your g-d hands to your g-d self once you’ve been told to?

A truly seductive man who respects women doesn’t have to act this way in order to satisfy his powerful libido. Sex is still fun when it’s consensual. Really. Even an unsubtly seductive man doesn’t have to act like S-K appears to have. Has anybody other than me ever noticed that Hugh Hefner–even after all this time–has never had women complain or sue him for being nasty to them? If he has, I’m not aware of it.

Either he has the best nondisclosure agreements ever, the best hush money (because even Michael Jackson couldn’t pay everybody off), or his relationships with women aren’t as exploitative as they might be given the context–ie, they know what they are doing, he’s honest with them, the boundaries of the interaction are set, etc.

What’s so hard about consent?

What is the right percentage for transit access?

Thoughtful commenter MLD writes about my recent comments on the Brookings study:

In Modesto the average block group resident can get to 38% of metro area jobs in 90 minutes on transit. What about the other 62%? Are they accessible from somewhere on transit? Or are they not accessible by transit at all? That’s a really important distinction when you are trying to compare different sized cities and it distorts the data when they limit themselves to the 90 minute radius.

As I suggested in the comments, I thought that 90 minutes was too generous–MLD suggests here, though I am not sure–that 90 minutes is too restrictive. When I said 90 minutes was too generous to the Brookings folks, they countered that it really wasn’t, given average transit commute times (versus average commute times by any mode, which is what I think they should use.)

It brings up a salient question: how long does a transit trip have to be before it is the same as having no accessibility whatsoever? I’m a high value of time person, so that idea of a 90-minute commute is troublesome. But that’s not true for everybody. As Stephen Wright pointed out: Any place is walkable if you’ve got the time.

I’m sympathetic to the arguments, for example, that HSR is needed in the Central Valley because people there have no accessibility to either LA or SF except by car. However, that’s not strictly true. They have Greyhound and Amtrack, which I just tried out a few weeks ago, and…they’re terrible. (I originally used a different phrase, but this here’s a family blog.) How terrible must they be before basic fairness in public policy kicks in and we provide them connectivity to economic engines of the regions?

Ed Glaeser, I think, would say: if they want access, they should move. There’s something to that logic, too. It’s what I did. I didn’t expect the world to spend billions to come to me.

The second salient question: what percentage of urban population should have access to a job via transit?

You could make argument #1: 100 percent. Transit should be just like any other municipal service, like garbage collection. If you live in a city, and that city has transit, you should have it.

Ok. That makes my head spin with the expense associated with it, but I’ve argued that I hate the transit-subsidy v. car-subsidy babble because it’s an argument that transit people are always going to lose outside their choir–and relative subsidies aren’t the point anyway.

The point is: transit is high-capital, low-revenue/high social returns endeavor which needs a subsidy to operate, so why can’t collectives opt to pool their resources and provide the service to themselves even if the service requires a subsidy? Nobody expects other basic urban services to pay for themselves, like street cleaning. Why can’t transit just be like that? Nobody expects national defense to pay its own way.

Argument #2: 100 percent is cost-prohibitive and unnecessary, so the percentage should be lower.

Not everybody in the city wants a job. We have retired people, bike and walk commuters, etc. According to the BLS, about 60 percent of Americans are legally employed. So would 60 percent be right?

Would some lower value than 60 percent be right?

Should I worry that 62 percent of Modesto residents can’t get to a job by transit, if they, themselves don’t worry about it?

Just as with the Central Valley example, it’s possible to say that if you choose to live in a area without transit access, then it must not be important to you, so why should the rest of us spend the $$$ to make it happen for you? But then there’s the affordability problem: not everybody can live precisely where they want with the amenity set they want, due to budget constraints.

Even so, transit is useful for a lot of travel unrelated to job access. Perhaps 100 percent would want it, regardless of their job status.

I have argued myself into a corner.

Rolf Pendall discusses the deconcentration of poverty

I’ve been wanting to post this essay for some time, but I keep forgetting. Rolf Pendall, over at the Metro Trends Blog, discusses the deconcentration of poverty in post-Katrina New Orleans and Stockton.

The money observation:

Two metros—New Orleans and Stockton—present extreme examples of poverty deconcentration and falling poverty. In New Orleans, poverty and concentrated poverty both fell after Hurricane Katrina devastated poor and high-poverty neighborhoods. The city, the 2010 Census reveals, lost over 11 percent of its residents between 2000 and 2010. Its estimated poverty rate also fell from 18.4% in 1999 to 14.6% in 2006, 2007, and 2008 because the storm destroyed so many low-cost housing units. Indeed, the share of New Orleanians living in high-poverty neighborhoods dropped by 9.4 percentage points. Since 2009, however, poverty is rising again in metro New Orleans.

His discussion of Stockton’s trends is equally as insightful. Go read.