Category Archives: Sociology

Reporting on the return of investment for house flippers

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Selling flipped homes is up while the average return on investment for flipping a home is down:

Homes that were resold within 12 months after being purchased made up 7.2 per cent of all transactions in the first quarter, the biggest share since the start of 2010, Attom Data Solutions reported Thursday. Meanwhile, the average return on investment, not including renovations and other expenses, dropped to 39 per cent, an almost eight-year low…

“Investors may be getting out while the getting is good,” Todd Teta, chief product officer at Attom Data Solutions, said in the report. “If investors are seeing profit margins drop, they may be acting now and selling before price increases drop even more.”

Three quick thoughts:

  1. The return on investment for flipping a home is down. Changes in the real estate market mean there are fewer homes with large return potential. I wonder how much of the lack of such homes is due to fewer homes on the market versus sellers getting better at pricing their homes versus multiple kinds of investors driving up prices at the lower price points.
  2. The return of investment of 39% sounds high…until you factor in “renovations and other expenses” which are not part of the figure. So what is the actual average return on investment once factoring in everything? 5%? 15%? This initial figure then helps make sense of the need of flippers to reduce expenses and make cost-effect renovations because those decisions directly connect to profits.
  3. Thinking of the money in house flipping, I have seen little about the accuracy of HGTV shows and other shows that often provide a purchase price, expenses summary, and then give a profit at the end. Are those figures normal? Do they represent unusual housing markets and/or unusual advantages to being part of a TV crew doing house flipping?

Argument: Trump “is acting like a real estate developer”

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Want to understand the behavior of President Donald Trump? Megan McArdle suggests he is simply doing what a real estate development might do:

Because what you see on TV shows about house-flippers is, writ large, the nature of the whole business: To compete in a highly capital-intensive industry, almost everyone takes on a lot of debt. Like most real estate people, Trump loves debt — “There’s nothing like doing things with other people’s money,” he told a rally in 2016. “Because it takes the risk, you get a good chunk of it and it takes the risk.”…

That’s why the real estate business rewards a certain willingness to put everything you have on a long shot; if you can’t cheerfully take risks with horrific potential downsides, you need a different job. The best argument for this approach is that some problems can’t be solved any other way — if developers demanded steady, predictable incomes like the rest of us, most of America would still be farmland.

In its best form, the developer’s way of thinking can achieve the impossible — or at least what the more staid and methodical folks said was impossible. I opposed moving the U.S. Embassy to Jerusalem and was at best ambivalent about sticking with Kavanaugh, but I have to admit that the apocalyptic doom predicted by Trump’s opponents has so far failed to materialize, while the political gains were immediate, and large.

Then again, there’s a reason most of us don’t live like real estate developers, or want to. Bankruptcy is a sadly normal fact of life in the real estate business, which is why Trump can tout his extensive experience negotiating with creditors. The cost of gaining wins with big bets is that you never know when you might lose everything.

Analyzing behavior and motives from afar is a difficult task. Yet, this argument raises some interesting questions:

  1. Could an average American describe how a real estate developer operates? A few might be known to a broad number of people but I’m guessing many operate behind the scenes. And these developers can significantly effect communities.
  2. It would be interesting to know how the president polls among real estate developers. Would they proudly call him one of their own? Would they recognize the approach?
  3. Are there examples of other real estate developers who became political leaders? If so, did they act in similar ways?
  4. Is there a way to quantify or easily explain the amount of influence real estate developers have had in cities or places? Donald Trump was a big name developer: widely recognized, some degree of wealth, and a number of large buildings with his name on it. Yet, how much did he influence New York City or other locations?

 

Wanting to preserve the past, music masters edition

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A long piece details the calamitous fire that hit an important vault of music at Universal Studios Hollywood on June 1, 2008:

Eventually the flames reached a 22,320-square-foot warehouse that sat near the King Kong Encounter. The warehouse was nondescript, a hulking edifice of corrugated metal, but it was one of the most important buildings on the 400-acre lot. Its official name was Building 6197. To backlot workers, it was known as the video vault…

The scope of this calamity is laid out in litigation and company documents, thousands of pages of depositions and internal UMG files that I obtained while researching this article. UMG’s accounting of its losses, detailed in a March 2009 document marked “CONFIDENTIAL,” put the number of “assets destroyed” at 118,230. Randy Aronson considers that estimate low: The real number, he surmises, was “in the 175,000 range.” If you extrapolate from either figure, tallying songs on album and singles masters, the number of destroyed recordings stretches into the hundreds of thousands. In another confidential report, issued later in 2009, UMG asserted that “an estimated 500K song titles” were lost…

The vault fire was not, as UMG suggested, a minor mishap, a matter of a few tapes stuck in a musty warehouse. It was the biggest disaster in the history of the music business. UMG’s internal assessment of the event stands in contrast to its public statements. In a document prepared for a March 2009 “Vault Loss Meeting,” the company described the damage in apocalyptic terms. “The West Coast Vault perished, in its entirety,” the document read. “Lost in the fire was, undoubtedly, a huge musical heritage.”…

Today several of the company’s nearly 1,500 facilities are devoted to entertainment assets. Warner Music Group stores hundreds of thousands of master recordings in Iron Mountain’s Southern California facilities, and nearly all of Sony Music Entertainment’s United States masters holdings — more than a million recordings — are reportedly kept in Iron Mountain warehouses in Rosendale, N.Y. The Boyers, Pa., facility where UMG keeps most of its United States masters is a 1.7-million-square-foot former limestone mine. The facility offers optimal archive conditions, climate control and armed guards.

The boom in cultural products in the last 100 years or so with the rise of mass media and new technologies presents unique challenges for corporations, the public, and preservationists. How should all of this material be preserved? The amount of space needed for storage could be huge – even for digital files (see the Library of Congress efforts to collect tweets). Keeping all of that material safe from fire, temperature changes, water damage, and other forces is costly and requires constant vigilance. Technology changes and renders prior productions difficult to utilize. There may need to be an obvious payoff for whoever is storing this material in order to go through all the effort.

One solution to all of this is to get mediocre copies of things. The example at the end suggests music listeners can access so much through streaming services. One expert profiled in the story describes it this way: “The music sounds like it was mastered in a Coke can,” he says. “But on long drives, it’s the best.”” I suppose it could be argued that having access to music and films and other items is worth it, even if the quality is not that great.

But a bigger question is this: just how much material is worth saving? What will people in the future want to look back on? Will future people see big benefits from the most preserved material ever compiled by previous generations? How will future preservationists, historians, and others construct cultural narratives about life today based on so much material (both tremendously popular and not)?

Looking at “The McMansion Effect:” home satisfaction and size of the homeowners’ home

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A new study under review looks at how satisfied owners are with owning some of the largest homes in their area:

This finding, Bellet reasons, has to do with how people compare their houses with others in their neighborhood—particularly the biggest ones. In his paper, which is currently under peer review, he looks closely at the construction of homes that are larger than at least 90 percent of the other houses in the neighborhood. By his calculation, if homes in the 90th percentile were 10 percent bigger, the neighbors would be less pleased with their own homes unless those homes grew 10 percent as well. Moreover, the homeowners most sensitive to such shifts are the ones whose houses are in the second-biggest tier, not the ones whose houses are median-sized.

To be clear, having more space does generally lead to people saying they’re more pleased with their home. The problem is that the satisfaction often doesn’t last if even bigger homes pop up nearby. “If I bought a house to feel like I’m ‘the king of my neighborhood,’ but a new king arises, it makes me feel very bad about my house,” Bellet wrote to me in an email.

The largest houses seem to be the ones that all the other homeowners base their expectations on. In neighborhoods where the biggest houses are more modest, Bellet told me, expanding the size of one’s house can be 10 times as satisfying as undertaking such an expansion in a neighborhood where the biggest homes are palatial.

Bellet sketches out an unfulfilling cycle of one-upmanship, in which the owners of the biggest homes are most satisfied if their home remains among the biggest, and those who rank right below them grow less satisfied as their dwelling looks ever more measly by comparison. He estimates that from 1980 to 2009, the size of the largest 10 percent of houses increased 1.4 times as fast as did the size of the median house. This means that the reference point many people have for what constitutes a big home has shifted further out of reach, just as many other lifestyle reference points have shifted in an age of pronounced wealth inequality.

Read the working paper here.
Three quick thoughts:
  1. The term McMansion in the paper seems to refer simply to the largest homes. At least a few of the homes are not likely McMansions since the term is much more complex than just referring to homes with a large amount of square feet. Is the big home architecturally sound? Is it a teardown replacing a smaller home? Is it less of an issue of the single home and more an issue of sprawl and excessive consumption? Calling all big homes McMansions does not add much to helping understand what exactly is going on with large homes. Not all large homes are made alike or may be as satisfying. It may, however, add sizzle to the title: “The McMansion Effect” sounds good.
  2. I would like to see more research that addresses the issue of homeowners comparing their homes to others around them. This paper suggests satisfaction is linked to nearby comparisons. How far does this geography extend – walking distance? Half a mile? 2 miles? Within the same municipality? Compared to what is seen on TV?
  3. This sounds similar to a recent argument about the “Dream Hoarders,” the group just below the wealthiest people who have status anxiety about keeping up. Here, those just below the biggest homes in the neighborhood can feel worse. Is it the largest houses that are the problem or the people in the next to largest houses who then long to have the biggest house. If only we could control the pesky human tendency to compare ourselves to people who have just a little more than us…

Linking nicer cars to a suburb on the rise

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From the Australian suburbs: one insider suggests seeing nicer cars in driveways signals good prospects for the suburban community.

The gentrification of the driveway happens before the gentrification of a suburb, says the boss of a data analytics company.

Upmarket vehicles beginning to appear in the carports and garages of houses is often a forerunner of a suburb on the rise, as renovators move in...

When more models such as a BMW X5 or an Audi SUV begin appearing in the driveway of houses and apartments in particular suburban streets, it is a reliable predictor of a suburb undergoing gentrification and becoming much more popular with renovators. Extra investment in community infrastructure often followed, and there was a broad flow on to higher property prices…

He said households who were taking out a loan for $500,000 to buy a rundown home in an up-and-coming area were often also purchasing a $30,000 to $40,000 car to fit the aspirational lifestyle.

The article chalks this up to a big data insight as bringing together multiple pieces of information helped reveal this relationship. I can see how this new information might help investors but it is less clear how this would help residents or local governments.

More broadly, this gets at something my dad always said: look at the cars in driveways, on the street, or in parking spots and it gives you a sense of the people who live there. In societies that prize cars, such as in the United States and Australia and particularly their suburbs, a vehicle becomes an important social marker. The one-to-one relationship might not always work as some people buy more expensive cars than their housing might indicate and vice versa (recall the stories of millionaires driving old reliable cars). Yet, on the whole, people of different social classes drive different vehicles in varying states of repair. Hence, various brands aim at different segments of the market. Famously, General Motors did this early in the 20th century with five different car lines to appeal to different kinds of buyers.

UPDATE: I probably did not contribute to this upward trend with long-term ownership of a Toyota Echo. But, it looked good for its age.

 

Consequences of suburbs growing, back to city movement declining

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Willing Frey at The Brookings Institution sums up recent trends in growth rates among cities and suburbs:

As we approach the end of the 2010s, the biggest cities in the United States are experiencing slower growth or population losses, according to new census estimates. The combination of city growth declines and higher suburban growth suggests that the “back to the city” trend seen at the beginning of the decade has reversed.

These trends are consistent with previous census releases for counties and metropolitan areas that point to a greater dispersion of the U.S. population as the economy and housing market pick back up, perhaps propelled by young adult millennials who may be finally departing dense urban cores as they make a delayed entrance into marriage and the housing market…

Primary cities vs. suburbs growth rates

In both regions, city growth exceeded suburban growth in the early years of this decade, where Sun Belt growth in both cities and suburbs exceeded Snow Belt growth. As the decade wore on, city growth declined in both mega-regions while suburban growth remained higher. This is evident when looking at the individual metro areas in each region (download Table C). In 2011-2012, city growth exceeded suburb growth in 19 of the 34 Sun Belt metros, and in eight of the 19 Snow Belt metros. However, in 2017-18 the city growth advantage appeared in just nine Sun Belt metros and two Snow Belt metros. Among these 11 areas that still registered city growth advantages are: Los Angeles, Washington, D.C., San Francisco, Denver, and Boston.

It is helpful to see the longer trends in the data, particularly when lots of media outlets want to jump on one-year estimates (such as Chicago’s recent population loss).

While it is helpful to compare cities and suburbs (and these changes do matter for a lot of reasons, including perceptions), I wonder how much this covers up larger changes across metropolitan regions or feeds narratives that cities and suburbs are locked in mortal competition. All of the above data could be true while Sun Belt regions continue to grow at a strong rates. Regions could think about policies as a whole that would enhance conditions for many more people than just those in cities or suburbs.

Finally, I’ve written before about how it would likely take decades to unseat the primacy of suburban life in the United States. Was the back to city movement or great inversion just a blip on the radar screen? Or, will it cycle back at closer and closer frequencies? The global economic system may have something to do with this – what happens with the next major downturn? – yet overcoming decades of expressed preference for suburbs will not be easy.

Non-fiction books can have limited fact-checking, no peer review

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An example of a significant misinterpretation of survey data in a recent book provides a reminder of about reading “facts”:

There are a few major lessons here. The first is that books are not subject to peer review, and in the typical case not even subject to fact-checking by the publishers — often they put responsibility for fact-checking on the authors, who may vary in how thoroughly they conduct such fact-checks and in whether they have the expertise to notice errors in interpreting studies, like Wolf’s or Dolan’s.

The second, Kimbrough told me, is that in many respects we got lucky in the Dolan case. Dolan was using publicly available data, which meant that when Kimbrough doubted his claims, he could look up the original data himself and check Dolan’s work. “It’s good this work was done using public data,” Kimbrough told me, “so I’m able to go pull the data and look into it and see, ‘Oh, this is clearly wrong.’”…

Book-publishing culture similarly needs to change to address that first problem. Books often go to print with less fact-checking than an average Vox article, and at hundreds of pages long, that almost always means several errors. The recent high-profile cases where these errors have been serious, embarrassing, and highly public might create enough pressure to finally change that.

In the meantime, don’t trust shocking claims with a single source, even if they’re from a well-regarded expert. It’s all too easy to misread a study, and all too easy for those errors to make it all the way to print.

These are good steps, particularly the last paragraph above: shocking or even surprising statistics are worth checking against the data or against other sources to verify. After all, it is not that hard for a mutant statistic to spread.

Unfortunately, correctly interpreting data continues to get pushed down the chain to readers and consumers. When I read articles or books in 2019, I need to be fairly skeptical of what I am reading. This is hard to do with (1) the glut of information we all face (so many sources!) and (2) needing to know how to be skeptical of information. This is why it is easy to fall into filtering sources of information into camps of sources we trust versus ones we do not. At the same time, knowing how statistics and data works goes a long way in questioning information. In the main example in the story above, the interpretation issue came down to how the survey questions were asked. An average consumer of the book may have little idea to question the survey data collection process, let alone the veracity of the claim. It took an academic who works with the same dataset to question the interpretation.

To do this individual fact-checking better (and to do it better at a structural level before books are published), we need to combat innumeracy. Readers need to be able to understand data: how it is collected, how it is interpreted, and how it ends up in print or in the public arena. This usually does not require a deep knowledge of particular methods but it does require some familiarity with how data becomes data. Similarly, being cynical about all data and statistics is not the answer; readers need to know when data is good enough.

Leader who does not like “Mayor 1 percent” label joins Wall Street investment firm

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Former Chicago Mayor Rahm Emanuel does not like one of the names applied to him during his mayoral tenure:

Dellimore also pressed Emanuel on the “Mayor 1 percent” tag that has dogged him for years, a nickname critics use to tie him to wealthy supporters and downtown development they say he favors at the expense of struggling outlying neighborhoods.

Emanuel first responded by taking a swipe at wealthy Blackhawks and United Center owner Rocky Wirtz, who has publicly ripped Emanuel for raising entertainment taxes at big venues such as the United Center: “Go ask Rocky Wirtz what he thinks about being part of the 1 percent.”

When Dellimore said the criticism comes from poor and working-class neighborhoods that feel like they’ve been left behind while the Loop and adjoining neighborhoods have boomed under Emanuel, the mayor changed tacks. He defended investments downtown.

“You name me one world-class city in the world with a decaying central business district,” Emanuel said. “Name one. They don’t exist. I’m proud that we have a thriving, successful central business district that gives us the revenue to also fund from 14 to 33,000 kids in summer jobs.”

Few local governments would argue that downtown development is a bad thing. After all, growth is good and stagnation or decline is terrible.

Yet, if a leader wanted to counter an image of working for the wealthy or the better-off neighborhoods in a city, would joining a Wall Street investment firm be a good next move?

Former Chicago Mayor Rahm Emanuel is joining the Wall Street investment firm Centerview Partners LLC, whose leaders include long-time friends and campaign donors…

“Rahm’s leadership and vast experience providing strategic advice, coupled with a track record of successful planning and execution, will bring tremendous value to our firm and our clients,” Effron said. “Establishing a presence in Chicago is a logical next step for Centerview as we continue to grow, and it positions us to better serve existing and new clients throughout the Midwest.”…

Emanuel on Wednesday rejected any notion that his work as mayor affected the hiring…

Emanuel previously spent more than two years as a Chicago investment banker at Wasserstein Perella & Co., from 1999 to 2002, a job he took after serving as a top aide to President Bill Clinton.

So perhaps this is little surprise given Emanuel’s track record as mayor and roles prior to becoming mayor. Or, maybe he thinks providing commentary for The Atlantic and ABC News will help balance out or help people forget about the Wall Street work.

Online courses open opportunities…to study close to home

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The spatial dimension of taking online courses provides a surprising finding in a new survey:

While studying online theoretically gives students who are place bound for work or family reasons more geographic flexibility than does in-person study, the Online College Students research shows that ever larger numbers of fully online students are staying close to home.

As seen in the graphic below, 67 percent of respondents said they lived within 50 miles of a campus or service center of the college where they are studying, up from 42 percent just five years ago. Meanwhile, the proportion who said they are studying at least 100 miles from where they live has dropped by more than half, to 15 percent in 2019 from 37 percent in 2014.

The report’s authors offered this analysis: “The growing number of schools offering online programs provides students with more options closer to their home. Local schools have greater visibility among employers and others in the community, which is valuable to students.”

The explanation offered makes some sense: nearby colleges are known in the community. A degree from a local school may mean more than a school from elsewhere.

But, this could lead to some interesting connections:

1. Does this suggest that students have a hard time differentiating from all of the online course options out there? One way to filter all of those options would be to stick to recognizable nearby names.

2. I wonder how the marketing of local institutions matters. Media outlets in the Chicago area are full of advertisements from universities and colleges pushing online programs. Of course, there are national voices advertising in there as well but some of these can be unknown institutions (I’m thinking of Southern New Hampshire University).

3. Could this be linked to decreased geographic mobility among Americans? If Americans like to be rooted in a place, choosing a place to take college classes – whether online or not – may matter.

4. I’m reminded of findings that suggest social media users often make online connections with people they already know offline. In other words, social media users are not always seeking out random connections or unknown people to interact with. Could the same principle apply to colleges?

In the long run, what if the online world ends up leaning local in terms of the connections people make and maintain?

The factors that keep stop some Americans from moving even when they have opportunities elsewhere

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Richard Florida summarizes survey data that looks at why Americans are resistant to moving:

The survey identifies respondents’ most recent move, their probability of moving in the next two years, and other data related to moving including job opportunities and income prospects, housing costs, the distance from current home, costs of moving to various locations, crime rates, taxes, community values and norms, and proximity to family and friends. The researchers use these data to estimate the overall costs—what they call the “willingness to pay” or WTP—for people to move different locations. They then use statistical models to examine the importance of these psychological factors compared to other mostly financial explanations.

A significant reason for the decline in mobility is that many of us are highly attached to our towns. Nearly half of those in the survey (47 percent) identify as rooted. The rooted are disproportionately white, older, married, homeowners, and rural. Their reasons for not moving are more psychological than economic: proximity to family and friends, and their involvement in the local community or church.

Another 15 percent identify as stuck, lacking the resources or ability to move. The stuck have less formal education, are in worse health, and are less satisfied with their jobs, the survey finds. In addition, they are more likely to live in cities and live relatively close to family members. Their reasons for not moving are mainly economic: the costs of moving, the affordability of housing in other locations, the difficulty of qualifying for a new mortgage, and the perception that there is less opportunity for them elsewhere…

It turns out that the personal costs of moving—and leaving family members, loved ones, and friends behind—are quite high. According to the study, the average American perceives not moving as worth a sacrifice of more than 100 percent of income. The psychological cost of leaving family and friends alone equates to 30 percent. As the study reads: “The median person in our sample will forego 30 percent of his or her income in order to stay close to family.”

I’m guessing there is a lot more to explore here with more data collected from a variety of angles.

Why does Florida talk of these factors as primarily psychological factors? The survey results do not sound like Americans are afraid of moving but rather there are broader social and economic forces that both tie them to their current communities and limit their perceived options elsewhere. Together, these sound like sociological conditions.

How does this fit with suggestions that local ties and interactions are fewer in number or weaker in intensity in America today compared to the past? Or, do Americans now have tools that allow them to maintain and stay in certain social networks without a need to move across networks or join new ones?

How can researchers get at a different cultural milieu regarding mobility? Over time, how could Americans shift from fairly mobile to less mobile?