Tag Archives: economic crisis

Advantage of a tiny house: you can drive it around and unload it when needed

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The tiny house has this advantage over traditional homes: you can put it on a truck and move it when needed.

Sitting on an unsaleable trailer, Kirsten Shaw and her husband decided to do something radical: following a growing trend in the U.S., they eschewed the Calgary-standard McMansion and instead started to build a portable tiny house. Mrs. Shaw, who works in a Calgary health food store, and her husband, a contractor, are constructing their new home paycheque by paycheque. When it’s complete sometime next year, the fort-like dwelling will take up about 200 square feet. Along with a converted van, that’s where the family of three (which swells to six when her husband’s children from a previous marriage join in) plan to live and travel. The Post’s Jen Gerson spoke with Mrs. Shaw in this edited transcript…

It seems like this tiny houses have become more popular, do you think that has anything to do with what you just described, that people aren’t really getting ahead?

It could be for us it’s that I guess I really have taken a good long look at the fact that you’re very much in a relationship with the government that you’re very vulnerable…If there was an oil crisis and the food stopped getting trained in and trucked in here well we can’t really grow things here in Calgary.

It’s more like giving us the security in that we have the power to do what we need to do to survive as a family and always make sure we’re provided for. If that means picking up and driving somewhere where food grows in the southern states or even out on the islands we can do that and not have to worry.

Here is the twist to this downsizing story: the family is worried that they will need to be more mobile in order to respond to changing economic conditions. Owning a home ties you down too much; not only does it require a much larger financial commitment, it takes more time to move since this involves selling the home, finding another place to live, and doing something with all the stuff one can accumulate in an average new home of over 2,000 square feet. This would seem to match up with some commentary that part of the problems with the recent recession is that possible employees can’t easily go to where the jobs are because they are tied down by underwater homes.

Perhaps we could envision a future where more workers have to be mobile, both to cut expenses but also in order to find temporary work…not exactly the typical image of the American (or Canadian) Dream.

Oddity of Illinois Home Rule allows municipalities to get into a lot of debt

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The Chicago Tribune has an interesting piece of how the Illinois oddity of granting Home Rule powers to municipalities starting in 1970 can lead to overborrowing:

The state used to cap how much towns could borrow on the backs of taxpayers. Even for loans under the cap, the state forced cities and villages to put many “general obligation” borrowing deals before voters. The intent was to protect taxpayers from massive debt.

But local officials complained they needed easier ways to borrow. Chicago’s first Mayor Richard Daley led the charge for municipalities to set their own rules. The result was the 1970 Illinois Constitution and a concept that transformed how the city and suburbs are governed: home rule.

It has let towns borrow as much as they want, and raise many taxes, all without direct voter input. Any town with at least 25,000 residents gets the power. Smaller towns can vote it in via a referendum measure…

The vast majority of states — including all of the largest ones — do not offer municipalities such blank checks.

Ken Small of the Florida League of Cities said he would worry if his state had Illinois’ loose rules.

Read on for details on how several Chicago suburbs have accumulated massive amounts of debt.

I don’t think I’ve ever seen any municipal leaders denounce or reject Home Rule powers. Indeed, they tend to accentuate the positive sides of the powers as they allow municipalities more local control and the ability to finance projects on their own rather than having to rely on outside funding. And this would seem to fit with what many suburban residents tend to want as well: more local control, meaning that “big government” doesn’t control everything.

But, as this article suggests, local government officials aren’t necessarily any better at handling financing and borrowing. I was struck by reading this piece and an earlier one featuring the plight of Bridgeview, Illinois that a number of these borrowing situations arose when smaller communities wanted to jumpstart economic development. Struggling to do things on their own, they borrowed lots of money for retail, residential, and entertainment projects intended to bring in more tax dollars through property and sales taxes. A number of these projects didn’t pan out, possibly because of unrealistic hopes and also because the economic crisis made it difficult even for established and more financially stable communities to pursue larger developments. The lesson here? Perhaps slow and steady really is better here as big change for small communities is difficult to attain.

Another issue: the article suggests Chicago led the way to get the 1970 legislative act passed. Were some communities opposed to this or did they get behind Chicago as this could also benefit them?

Argument: data says US housing bust has ended

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A Wall Street Journal columnist says the data is clear: the US housing bust is over. Here is some of the data he finds convincing:

Nearly seven years after the housing bubble burst, most indexes of house prices are bending up. “We finally saw some rising home prices,” S&P’s David Blitzer said a few weeks ago as he reported the first monthly increase in the slow-moving S&P/Case-Shiller house-price data after seven months of declines.

Nearly 10% more existing homes were sold in May than in the same month a year earlier, many purchased by investors who plan to rent them for now and sell them later, an important sign of an inflection point. In something of a surprise, the inventory of existing homes for sale has fallen close to the normal level of six months’ worth despite all the foreclosed homes that lenders own. The fraction of homes that are vacant is at its lowest level since 2006…

Builders began work on 26% more single-family homes in May 2012 than the depressed levels of May 2011. The stock of unsold newly built homes is back to 2005 levels. In each of the past four quarters, housing construction has added to economic growth. In the first quarter, it accounted for 0.4 percentage points of the meager 1.9% growth rate…

Economists aren’t always right, but on this at least they agree: A new Wall Street Journal survey of forecasters found 44 believe the housing market has reached its bottom; only three don’t.

The details of the argument aren’t quite as rosy: Wessel suggests at the end that things could still go wrong with housing but housing itself is unlikely to drag down the economy by itself.

It will still be interesting to see how long it takes housing to recover. Not everyone has a positive outlook about housing values.

 

What happens when there are 65 million vacant homes in China

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A review of a new book about China leads with this information about the recent “building binge” in China:

This spring in Beijing, I asked a businessman an obvious question about the risks to China of an economic crash-landing, to which I got a less obvious reply. It is impossible to travel around China without concluding that the place is in the grip of a building frenzy. In less than a decade, China has pumped around $4 trillion into property; tens of millions of houses and apartments as well as Ozymandian public buildings and factory estates – and what hits the eye is how much of it all stands empty. Across the country, uninhabited concrete blocks scab the land, not only in the megacities of the eastern seaboard but also in the sleepier southwest; from filthy mining towns in Henan, all the way to entire ghost towns in Inner Mongolia. With an estimated 65 million homes standing vacant, residential construction last year was still running at a rate of five times demand.

Dwarfing even the $2 trillion borrowed for the Railway Ministry’s high-speed networks since 2008, and the thousands of kilometres of 4–6 lane toll roads with barely a vehicle on them, China’s building binge is the most striking example of what Prime Minister Wen Jiabao famously, but impotently, denounced in 2007 as the country’s “unbalanced, unstable, uncoordinated and unsustainable” model of economic development. Now, with house prices and sales sagging in response to government restrictions aimed at deflating history’s biggest ever property bubble, and with local governments as deep in bad debt as the developers, I asked the businessman what was to prevent the bubble actually bursting, in a spectacular financial explosion?

His answer was that it wouldn’t happen. A lot of these empty apartments, he said, had been bought by Chinese families as investments, and they would patiently hang on to these speculative purchases because interest on savings was derisory. Secondly, although some developers would go to the wall, the bubble would simply not be allowed to burst for fear of public anger as well as economic chaos. China had massive reserves if need arose, he said, and would not hesitate to bundle nonperforming loans off into a state “bad bank”. Its plans to build 36 million “affordable” homes by 2015 would also help to offset faltering private sector demand. When in a hole, in other words, the Party keeps digging.

This isn’t the first piece I’ve read suggesting that we could be headed toward a pop of the property bubble in China…

Chicago housing values reverse 49 month slump – with a $100 gain

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The latest data about median housing values in the Chicago region suggests prices are back up – but only a little:

May’s 0.1 percent year-over-year gain in the median sales price of existing homes in the nine-county Chicago area broke a 49-month losing streak that stretched to April 2008. The last time they showed a year-over-year increase was March 2008, the month John McCain earned enough delegates to secure the Republican presidential nomination.

Does that $100 finally signal a turnaround for Chicago’s housing market, particularly because, from May 2010 to May 2011, the median price dropped 10.8 percent?

“What it signals is the first stage of the bumpy ride at the bottom,” said Geoffrey J.D. Hewings, director of the regional economics applications laboratory at the University of Illinois. “I think the trend is going to be modestly positive, but there may be months where it is not.”…

Not every county recorded improvement in its median price, but in Cook County, which accounts for more than half the Chicago area’s sales activity, the median price rose 3 percent, to $170,000, from $165,000 in May 2011. And in Chicago, where overall sales rose 19.6 percent, May’s median sales price of $203,000 was up 6.8 percent from a year ago, largely because of an 11.9 percent gain in the median sales price of single-family homes.

My take: the housing recovery will still take quite a while. A $100 increase the region probably doesn’t mean much and it is not until we see a number of consecutive months of an uptick that we can claim this is a trend. Even then, it could take years (decades?) to make up the drop in housing values.

 

The rules for buying a home, seven years ago

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Here is one writer’s take on the rules for buying a home circa 2005:

The old-school home-buying rules (well, not your granny’s old school, more like 7 years ago old school) told us:
A. To buy as much home as we could afford, ahem, qualify for, with as little money down as possible.
B. To buy the biggest McMansion in the neighborhood so everyone would know we “made it.”…
C. We’d always make money, because homes “always appreciated.”

While I haven’t seen rules like these formally written down, I suspect many observers would agree that these rules were commonly followed (if not formally written) and helped lead to the current economic crisis. However, I wonder how many people actually followed these rules. In other words, what percentage of mortgages actually qualified as A? How many people actually bought their homes for the primary reason to show people they “made it”? What percentage of homes lost money between 2005 and 2012? Since I suspect 100% of home purchases did not meet these criteria, how much does the common narrative fit what actually happened?

Sociologist: economic crisis leads to mistrust of the system

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As the economic crisis drags on and Americans have lost a lot of wealth, one sociologist suggests the economic uncertainty leads to mistrust of the system:

“I don’t want to romanticize the past — it wasn’t perfect — but there was a sense of security, and that is gone,” said Thorne, a sociologist at Ohio University and an expert on bankruptcy and consumerism.

“We felt that if we played by the rules, that we would do all right. Now there is a feeling that you are never on solid ground, even if you do the right thing.”

Thus the biggest loss may go beyond the decline in the American family’s assets, she said: trust.

“Despite our most honest efforts, through all of our lifetimes, we worked our jobs, we played by the rules, and we still lost. That fosters fear and mistrust in the system.”

While the economic effects of a recession or slow recovery are well-known, I’ve been interested in commentators who have argued that there is much longer-lasting social and emotional impact. While Thorne is quick to not “romanticize the past,” there is some nostalgia here: American prosperity after the end of World War II was perhaps unprecedented in history. What happens if we never see this again, in the United States or elsewhere in the world? If this sort of prosperity and certainty doesn’t come back for a long time, how would people find a new level of trust in the American system?

Study suggests US gov’t loses $71 billion a year because of tax exempt religious institutions

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A new study suggests tax exemptions for religious institutions cost governments $71 billion a year:

How much money does the U.S. government forgo by not taxing religious institutions? According to a University of Tampa professor, perhaps as much as $71 billion a year.

Ryan Cragun, an assistant professor of sociology, and two students examined U.S. tax laws to estimate the total cost of tax exemptions for religious institutions — on property, donations, business enterprises, capital gains and “parsonage allowances,” which permit clergy to deduct housing costs…

If history is a guide, the Free Inquiry article and any call for tax reform it may engender are not likely to have much effect. Since the 1950s, there have been several attempts to quantify religious tax exemptions — all of them wildly varied in their conclusions — and only a handful of legal challenges to those exemptions. Most were unsuccessful…

States bypass an estimated $26.2 billion per year by not requiring religious institutions to pay property taxes.

This seems like a lot of money but here are a few thoughts about this:

1. You would need to put the cost of these exemptions versus other areas of the tax code in order to know how this compares. For example, would repealing the mortgage interest deduction bring in more money? The study itself makes some of these comparisons:

To put this into perspective, the combined total of government subsidies to agriculture in the United States in 2009 was estimated to be $180.8 billion.38 Religions receive at least 40 percent of the subsidy that agriculture does in the United States. Another way to illustrate the size of the subsidy may be to illustrate how much tax revenue would increase at the state level if religious institutions had to pay property taxes. In Florida, where the state government’s budget was $69.1 billion in 2011, the amount of tax revenue lost from subsidizing religious property was $2.2 billion or 3 percent of the state budget. The additional revenue would have mostly prevented the $1.1 billion cut to firefighter and police retirement plans and the $1.3 billion cut to public schools.39

So is this a battle worth fighting instead of fighting agriculture subsidies?

2. I think we may see more calls for things like this during this period of economic troubles. The federal government as well as state and local governments need money so they are looking for ways to find “easy” money.

3. It could be interesting to look at how this affects local municipalities, particularly ones with more religious congregations that consequently don’t get the tax dollars they might if that land was occupied by homeowners or businesses. For example, a community like Wheaton, Illinois has a large number of churches (including a claim that the suburb has “more churches per capita than any other town in America”) and could have more tax revenue if that land was put to other uses.

Abundance in DuPage County: 45 mosquito abatement agencies

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Illinois is well-known for having many government units. The Chicago Tribune makes this point by talking about fighting mosquitos in DuPage County:

DuPage has 45 separate entities — special districts, townships, municipalities — providing mosquito abatement services, Of those, 36 have signed separate contracts with the same vendor for the bug spray they use to keep the mosquito population down. If they pooled their buying power, no doubt they could get a better deal.

Here’s the worst part: Spraying for skeeters has little lasting impact. The anti-bug mission could be carried out much more cheaply and efficiently under the county Health Department. The citizens of DuPage don’t need any other mosquito abatement agencies, let alone 45.

So why do all these governments cling to this dubious mission? “They’re very protective of their turf,” DuPage County Board Chairman Dan Cronin tells us…

Unfortunately, it’s the same story across the state of Illinois — which has 7,000 school districts, townships, library boards, fire-protection districts and other government units, generally with separate oversight and taxing authority. The Census Bureau says that’s far more than the total in any other state.

This is not a new story in Illinois and across many places in the United States. Americans like having local control over all sorts of things and this can get in the way of regional cooperation. Intriguingly, the argument made in other parts of this editorial is that taxpayers could save money if communities would consolidate some of these separate bodies and have better purchasing power. Is this an argument more likely to be made in tougher economic times?

One thought came to me when reading this: is the presence of more taxing bodies tied to political conservatism? DuPage County is well-known for its political conservatism and presumably, local communities like having this many taxing bodies as it allows people to have more direct input rather than handing off tasks to larger, bureaucratic bodies. Perhaps the political leanings of a community have little impact on this and it is more about a historical legacy (could be something in Illinois that came out of a state/county/township/municipality system) or specific system of government.

Upcoming film about a unconstructed 90,000 square foot mansion

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I’ve seen several references to the film The Queen of Versailles which comes out later this summer. Here is what the movie is about:

A Florida real-estate tycoon and his appealing, immensely flawed wife try to build the country’s biggest McMansion in photographer-turned-filmmaker Lauren Greenfield’s documentary, which is stranger than any work of fiction. Surrounded by controversy since well before its Sundance premiere (when subject David Siegel tried to sue the festival), “Queen of Versailles” veers from profound human compassion to domestic horror as Siegel’s wife Jackie wanders through her enormous but trashed home scraping dog crap off the carpets. It’s like a Theodore Dreiser novel for our time, infused with the vivid, vulgar spirit of reality TV. (Opens in theaters July 20; VOD release is likely but has not been announced.)

There is one problem with this: the home at the center of this film is not just a regular American McMansion.

At 90,000 square feet, it will be America’s largest single residence, boasting ten kitchens, a private ice-skating rink, and enough tacky antiques to make Michael Jackson blush. It’s telling that while the couple’s dream house was inspired by the famed palace, it was most directly modeled on a Las Vegas theme-park imitation of French grandeur.

A home that is 90,000 square feet is far beyond a McMansion. There are not many homes in the United States that are 90,000 square feet so it is difficult to argue that this home is mass produced. The home is named “Versailles,” referring not to some builder’s model but rather the well-known French palace. The home may be tacky and not have a lot of architectural merit but this is home is way beyond the size of anything that can be reasonably called a McMansion.

In reading several early reviews of this film, it seems like critics think this film is about more than just the vanity of a few wealthy people: the uncompleted mansion serves as a metaphor for the excesses of the early 2000s.