Chief economist for Zillow says “homeownership is not for everyone”

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The chief economist for Zillow suggests we need alternatives to homeownership for low-income American residents:

All this leaves us with a conundrum: Overall, homeownership is a tremendous boost to millions. But in some specific cases, it simply does not deliver as advertised. Depending on circumstances, homeownership is not for everyone. And our steadfast belief that homeownership is always the better option has led us to worry less about the one-third of Americans that rent,leading to a crisis in affordable rental housing.

Please don’t get me wrong. None of this is to say that lower-income Americans should not aspire to homeownership, nor be given opportunities to access its tremendous benefits. But we also need to be steely-eyed about the realities and foster a wider diversity of options on housing, crafting innovative solutions that address the reality we face, not the one we imagine.

If we truly believed this, we could do different things. We could focus on the creation and maintenance of more affordable rental housing. We could find innovative new ways to build wealth, aside from homeownership. Given the prevalence of single-family rentals in the aftermath of the recession, we could explore the feasibility of renting-to-own on a wider scale. We could narrow and sharpen our focus on addressing the fundamental sources of inequality that drive differences in homeownership in the first place.

Yet, even with the strong negative effects of the recent economic crisis/housing bubble, I wonder if it is easier to promote homeownership than it is to advance other policies. Here are several reasons why this might be the case:

1. Americans really do seem to prize homeownership. Homeownership is closely tied to the American Dream, making this issue both politically and culturally important. As far as I know, every president since the 1920s has promoted homeownership. Suggesting that everyone can’t access the American Dream can be problematic.

2. Renting may be a good short-term solution but because of the status conferred to homeowners, renters receive the opposite sentiments: transient, less committed to their community, more prone to social problems, etc. Plus, how many wealthier residents want to live near cheaper rental housing?

3. Speaking of cheaper housing, affordable housing is a very contentious issue. Where will these units be built? Wealthier neighborhoods and communities want little to do with affordable housing. Which developers will go this route rather than chasing bigger profits with larger and more expensive housing units?

4. Getting at the fundamental issues behind the the differences in homeownership is a huge task. Which shall we tackle first – Race? Social class? Residential segregation? Large disparities in wealth? Unequal access to resources?

Perhaps the price to be paid in housing bubbles is more palatable to those in charge than the other options…

Ferguson doesn’t get much revenue from the Fortune 500 companies in town

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Many suburban communities give tax breaks to corporations so that they locate in their community. Ferguson, Missouri is one such case where Emerson Electronics and other businesses don’t pay as much as they might in local taxes:

In 2014, the assessed valuation of real and personal property on Emerson’s entire 152-acre, seven-building campus was roughly $15 million. That value has gone up and down over the last five years as Emerson has sold off some buildings and built others, but it has not exceeded $15 million in the period since the data center was completed. So what happened to that brand-new $50 million dollar building?…

For tax purposes, Emerson’s Ferguson campus is appraised according to its “fair market value.” That means a $50 million dollar solar-powered data center is only worth what another firm would be willing to pay for it. “Our location in Ferguson affects the fair market value of the entire campus,” Polzin explained. By this reasoning, the condition of West Florissant Avenue explains the low valuation of the company’s headquarters.In fact, the opposite is true: The rock-bottom assessment value of the Ferguson campus helps ensure that West Florissant Avenue remains in its current condition, year after year. It severely limits the tax money Emerson contributes to the Ferguson-Florissant district’s struggling schools (Michael Brown graduated from nearby Normandy High School, a nearly 100 percent African American school that has been operating without state accreditation for the last two years), and to the government of St. Louis County more generally. On the 25 parcels Emerson owns all around St. Louis County, it pays the county $1.3m in property taxes. Ferguson itself receives far less. Even after a 2013 property tax increase (from $0.65 to the state-maximum $1 per $100 of assessed value), Ferguson received an estimated $68,000 in property taxes from the corporate headquarters that occupies 152 acres of its tax base—not even enough to pay the municipal judge and his clerk to hand out the fines and sign the arrest warrants.

St. Louis County doesn’t just assess Emerson a low market value. It then divides that number in three—so its final property value, for tax purposes, ends up being one third of its already low appraised value. In some states, Ferguson would be able to offset this write-down by raising its own percentage tax rate. Voters would even be able to decide which services needed the most help and raise property taxes for specific reasons. But Missouri sets a limit for such levies: $1 per $100 of property. As Joseph Pulitzer wrote of St. Louis during the first Gilded Age, “millions and millions of property in this city escape all taxation.”…

Emerson Electric isn’t the only business on Ferguson’s West Florissant Avenue. The street is also home to a number of big box stores including a Home Depot, a Walmart, and a Sam’s Club, located at the city’s northern limit. These companies all came to town in 1997 through something called tax increment financing—known (to the extent it’s known at all) by the acronym TIF. Along with low appraisals and tax abatements, TIF districts are one of Missouri’s principal tools for encouraging new development.

The conclusion here is that these tax policies reproduce the economic inequalities in Ferguson. Hence, the community has to find alternative sources of revenue, such as targeting motorists.

Here is where this gets trickier: if Ferguson didn’t offer these deals, could it have attracted these businesses? If many suburbs participate in the game of tax breaks, wouldn’t someone else offer good tax breaks? Where race matters here is that communities like Ferguson – lower income, transitioning from white to black over recent decades – have to offer even better tax breaks to compete. But, for all of these communities, it is a race to the bottom as a better deal to attract a corporation means less revenue for the city. Still, local politicians can sell the jobs created or the prestige generated. But, as this article points out, the jobs and prestige may not help much in the long run.

What you might need here is a metropolitan wide policy against such tax breaks or TIF districts to reduce the competition. Or, perhaps some tax revenue sharing program where sales tax and property tax dollars are partly redistributed to reflect who shops at or works at these facilities (they all don’t come from the community in which the firm is located). Yet, such policies require a lot of political will and again encounter the problem of race as communities, especially wealthier ones, will not want to share their revenues with others.

Stopping California and others from taking Great Lakes water

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California may be facing a serious drought but the Chicago Tribune details how regulations have tightened access to Great Lakes water:

Can the Midwest repel demands from afar for its water? The eight states (Illinois included) and two Canadian provinces that border the lakes hope no outsiders can breach the invisible, 5,500-mile wall they’ve erected: In 2008, President George W. Bush signed into law — let us draw a breath — the Great Lakes-St. Lawrence River Basin Water Resources Compact. All eight states and Congress approved the compact, with the Canadians applauding. It’s intended to severely, although not absolutely, block new diversions of water outside the Great Lakes’ vast drainage basin (see accompanying map). A 1909 U.S. treaty with Canada also could thwart big diversions.

Whatever protection Washington giveth to any of us, of course, Washington conceivably can taketh away. Congress typically doesn’t meddle with regional water compacts. But yesterday isn’t forever: The steady erosion of U.S. House seats from Illinois and other Northern states to the Sunbelt invites peril if droughts punish those states. And the Chicagoan sworn to protect Lake Michigan may, um, evolve if arid Arizona tries to conserve water by outlawing construction of her dream retirement condo…

Yes, there’s hypocrisy for Chicagoans: This city reversed a river’s flow so Lake Michigan water would wash away its wastes. And many suburbs that draw from the lake sit outside its watershed; rain that falls on them flows to the Gulf of Mexico via the Illinois and Mississippi rivers. One mitigating factor is that water diversions in Ontario put more water into the lakes than Chicago flushes out.

The compact doesn’t cruelly forbid emergency outflows. David Naftzger, executive director of the Chicago-based Council of Great Lakes Governors, tells us it permits short-term humanitarian diversions if, say, a hurricane ravages water systems in Southeastern states.

In other words, the water isn’t completely protected but it would take a legislative act to start shipping Great Lakes water all over the country. This could become quite the political battle between Sunbelt and Rust Belt states. Which argument would win out: the Sunbelt has more people and potential or the Rust Belt has communities with much longer histories and might be more ecologically sustainable?

Two other quick thoughts related to this:

1. Interestingly, much of the Chicago suburbs are not in the Great Lakes basin as their water drains west to the Mississippi and to the Gulf of Mexico. This reminds me that the divide of the watersheds is not that far from Lake Michigan as Native Americans and traders would need portage over a ridge to get from the Chicago River to those flowing west (like the Des Plaines River). Yet, one group suggests over 75% of residents in northeastern Illinois get their water from Lake Michigan.

2. In another editorial on the same page, the Tribune noted that watching the drought in California could help remind Great Lakes area residents that water conservation should be a priority, even with the seemingly inexhaustible supply in the Great Lakes. There is no guarantee the Great Lakes will always exist.

When broken sidewalks limit mobility

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This story from Shreveport, Louisiana discusses how poorer neighborhoods in the city tend to have more problems with sidewalks:

But Murphy’s citation for walking in the street along Highland’s crumbling sidewalks spotlights the city’s infrastructure failures in the era of the new mayor’s promises to repair and beautify Shreveport’s streets…

For now, there’s no set date when Shreveporters can expect to see most sidewalks installed or fixed, though plans are in progress. And 25 years after the Americans with Disabilities Act went into effect, unsafe sidewalks with missing or poorly-maintained ramps are a common sight…

“If they contact our offices and let us know, we will do what we can to correct those places and make it accommodating for them because a lot of the places around town don’t have those ramps available and we are aware of the issues,” Harris said.

But in terms of fixing the city’s roads and sidewalks, Harris said residential neighborhoods take a back seat to downtown and other highly-trafficked areas…

The Shreveport-Caddo 2030 Master Plan includes a transportation component to address pedestrian issues, but it likely will be years before Shreveport is brought in line with major cities, according to Loren Demerath, a Centenary sociology professor who studies the importance of pedestrian spaces to communities and has been active in local efforts to make Shreveport more bikeable and walkable.

An interesting mix of race, social class, and disabilities all having to do with a simple piece of infrastructure: sidewalks. Without well-maintained sidewalks, it is difficult to be a pedestrian as it either requires a more dangerous route on the road or walking through grass or other areas. If anything, this would be a safety issue in many neighborhoods and discussing safety, particularly when it comes to kids or others who need more protection or space (the disabled or perhaps the elderly), tends to lead to better outcomes. But, it sounds like Shreveport has some work to do in this area and I would guess the city would cite funding issues as a reason the sidewalks are so uneven.

And for those who subscribe to broken windows theory, do broken sidewalks have a similar effect? While the residents may not have much to do with breaking sidewalks, it might just suggest that the city doesn’t care as much about the neighborhood.

Around 25% of Chicago area mortgages still underwater

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The numbers aren’t as bad as two years ago but the sizable number of underwater mortgages in the Chicago region still present a problem for the housing market.

One-quarter of homes with a mortgage in the Chicago area, and almost 24 percent in Illinois, are “seriously” underwater, meaning homeowners owe at least 25 percent more on the loans than the property’s value, according to data released Thursday.

The report from RealtyTrac, which shows the percentage of underwater homeowners growing in most parts of the nation, helps explain why more homes are not coming on the market, despite the desires of would-be sellers. They simply don’t have the equity in their properties to be able to sell them unless they bring cash to the closing table or get approval from their lender for a short sale.

Also driving up the percentage of underwater borrowers is the slowing rate of appreciation that many housing markets are seeing, a trend that economists say is a return to more normalized boosts in housing prices. In the Chicago market, median prices of home sales in March posted a dramatic year-over-year spike after eight months of flat or declining prices.

Outside of the booming housing markets, these underwater mortgages are going to take a long time to clean up. In other words, that big drop in housing values with the economic crisis has long-lasting consequences.

I know this isn’t going to happen but I would love to see numbers on whether it might be possible that the new housing industry could receive a jumpstart through a mass mortgage reduction plan. If enough people could get out from under the underwater mortgages and sell their own homes and move (maybe this would be a requirement for getting a mortgage reduction), could this be a net economic gain in the end?

Over 2,000 new housing units in CHA proposal for Cabrini-Green site

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Redevelopment at Cabrini-Green continues with the Chicago Housing Authority’s unveiled proposal this week for over 2,000 new housing units:

Last night, the Chicago Housing Authority formally unveiled its most recent and fully detailed proposal for the nearly 65 acres of land that once belonged the massive Cabrini-Green housing project. Earlier this year, the CHA unveiled a draft plan for the site, which sought to draw out an idea of where housing, retail and new park spaces would be located, however, last night’s meeting offered a clearer picture of how many housing units are planned for the area. The large area will be redeveloped in three phases, and will ultimately produce 2,330 to 2,830 new residences.

Currently, developers are swarming in with new retail and apartment projects, but some are arguing that the new plans don’t offer enough density. Private developers will compete to build new structures on the large parcel of land, with the first phase delivering 970-1,270 units, according to DNAinfo. The balance between market rate, affordable and public housing has not been unveiled, however the CHA could get started on the first as early as late next year.

This is valuable land as larger parcels like this, particularly on the North Side and near other desirable locations, are rare. I would imagine there will be no shortage of developers who have ideas of how lots of money can be made. Of course, this was one of the arguments of residents and critics of the plan to tear down the high-rises: was this really about providing better public housing and housing opportunities for residents or was this about opening land on the North Side for developers?

Drivers, companies adjusting to changes in car insurance due to autonomous vehicles

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A recent survey asked Americans why they would buy an autonomous car and cheaper car insurance was second on the list:

Of the 1,500 US drivers the Boston Group surveyed in September, 55 percent said they “likely” or “very likely” would buy a semi-autonomous car (one capable of handling some, but not all, highway and urban traffic). What’s more, 44 percent said they would, in 10 years, buy a fully autonomous vehicle…

The leading reason people are considering semi-autonomous vehicles isn’t greater safety, improved fuel efficiency, or increased productivity—the upsides most frequently associated with the technology. Such things were a factor, but the biggest appeal is lower insurance costs. Safety was the leading reason people were interested in a fully autonomous ride, with cheaper insurance costs in second place. (Reasons not to want a robo-ride include fear of hacking, distrust of the technology, and good old love of driving.)

This is unexpected, because how insurance will shake out usually is on the “tricky things to be figured out” side of the ledger, alongside how the government will test and regulate the vehicles. The current insurance business model—car owner has insurance to protect himself from the risk of causing a crash—doesn’t make sense if the computer’s in charge. And if we can make cars that rarely crash, do we even need insurance? We certainly won’t need to spend as much on it (currently about $800 a year, according to the National Association of Insurance Commissioners)…

So yes, we’ll be rewarded financially for giving up the wheel. But in the long run, as fully autonomous cars take over our roads, the insurance companies will have to adapt. They can’t argue against saving lives, but “they’re very, very concerned,” says David Carlisle, chairman of the board of auto industry consultancy Carlisle & Company. “If the car can’t wreck anymore, those premiums have got to go down drastically.”

Sounds like a shake-up is coming for the car insurance industry. And if the business becomes a lot less profitable, how many firms will want to participate?

Another thought for those potential buyers of autonomous cars: how long would it take in car insurance savings to make up for the extra technology needed in the car? This could be like the current hybrid or electric car situation where the premium for such vehicles would take years in gas savings to cancel out.

Census projects record proportion of foreign-born residents in 2060

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Recent projections from the US Census Bureau suggest the immigrant population will continue to grow:

The nation’s foreign-born population is projected to reach 78 million by 2060, making up 18.8% of the total U.S. population, according to new Census Bureau population projections. That would be a new record for the foreign-born share, with the bureau projecting that the previous record high of 14.8% in 1890 will be passed as soon as 2025.

Yet while Asian and Hispanic immigrants are projected to continue to be the main sources of U.S. immigrant population growth, the new projections show that the share of the foreign born is expected to fall among these two groups. Today, 66.0% of U.S. Asians are immigrants, but that share is predicted to fall to 55.4% by 2060. And while about a third of U.S. Hispanics (34.9%) are now foreign-born, the Census Bureau projects that this share too will fall, to 27.4% in 2060. These declines are due to the growing importance of births as drivers of each group’s population growth. Already, for Hispanics, U.S. births drive 78% of population growth…

Foreign-Born Share of Population to Reach Historic High by 2060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The U.S. today has more immigrants than any other nation. As the nation’s immigrant population grows, so too will the number of children who have at least one immigrant parent. As of 2012, these second generation Americans made up 11.5% of the population, and that share is expected to rise to 18.4% by 2050, according to Pew Research Center projections.

This is the first time in 14 years the Census Bureau has made projections of the foreign-born population. Predicting future immigration and birth trends is a tricky process, and the bureau has substantially changed its projections from year to year in light of reduced immigration and birth rates.

While these numbers are sure to contribute to political debate about current policies, they continue trends started in the late 1960s where immigration policies were changed. Additionally, the projections suggest the United States is still a desirable place to immigrate to and that the growing foreign-born population is a significant contributor to the overall growing population of the US.

I would be interested to hear about the discussions behind the scenes regarding the 14 year gap in making such projections. How much of this was guided by politics? What are the upper and lower bounds of the confidence intervals for these projections? Have our projection abilities improved significantly?

Developers give reasons why they won’t construct starter homes

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Here are some of the reasons given by developers regarding their lack of interest in starter homes:

The market for new “starter homes” is drying up, mostly on the supply side. As credit markets recover, there are more and more people who could be buying their first homes … if only builders could build them. But for a host of reasons, they can’t:

  • Materials costs have risen.
  • They lost a lot of their labor force during the economic downturn.
  • Communities entitled large lots during the boom, and now they won’t zone them for smaller parcels.
  • Cash-strapped local governments have raised permitting and other fees.
  • Building codes and other requirements make it harder to build cheap.

This makes it extremely difficult to build a house for less than $200,000 in many places, which is a hefty multiple of local median incomes.

Three quick responses:

1. I know this doesn’t get much discussion in many industries but when they say it is difficult to build for less than $200k, what exactly does this mean? A home at that price won’t meet their profit goals? What kinds of profits do developers and builders make at the lower end of the housing market as opposed to the higher end? Builders can’t make any money off new started homes or they can’t make enough money for them to see it as worth their time?

2. As noted, communities have some influence on this process. How many are really willing to zone for starter homes and/or have different guidelines for starter homes?

3. Isn’t this an opportunity to construct homes more efficiently? It sounds like there is some turmoil in costs – material, more uncertain labor, higher fees and requirements – but this is where the housing industry could find some new solutions.

“Having…a bigger McMansion…probably won’t make you happier. At least, not in the long term.”

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A journalist discusses keeping up with the Joneses and includes this bit involving McMansions:

So what does this mean for the drive to keep up with the Joneses? It means that having a nicer car, a bigger McMansion, a greener lawn or even the latest iPhone probably won’t make you happier. At least, not in the long term.

How many suburban status symbols can you include in one sentence? While this piece summarizes the detrimental effects of spending in order to keep up a wealthier reference group around us, this reference to McMansions is not unusual. Here, the McMansion stands in for a pattern of excessive consumption, a consumer good that isn’t necessary, requires long-term debt, and doesn’t really lead to long-term well being (at least such satisfaction based on comparisons with others).

Perhaps the more scandalous suggestion here is that the iPhone could function in the same way as a McMansion. The iPhone costs a lot less, is much more common (at least 500 million units have been sold – imagine that number of McMansions), and might even enhance sociability (as opposed to the McMansions emphasis on private space). The iPhone is a status symbol in its own right. But, the iPhone doesn’t attract the same level of criticism…