Doctors connecting health and land use policies

A recent document from the American Medical Association and the Association of American Medical Colleges asks doctors to address health inequities by prioritizing structural conditions. Here is one example involving land use which first asks the conventional question and then highlights a health equity perspective:

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How can we promote healthy behavior?

How can we democratize land use policies through greater public participation to ensure healthy living conditions?

The second perspective highlights a structural perspective in two ways.

  1. Healthy behavior leans more toward an individualistic perspective. A person who has health concerns should adapt their behavior in order to be more healthy. In contrast, healthy living conditions suggests there is a broader context for the individual’s health. Healthy living conditions can help lead to healthier individuals.
  2. With healthy living conditions in mind, the new question highlights two ways that healthy living conditions come about: land use policies and greater public participation. This likely refers to research and experiences certain communities have with decisions made about where to locate land uses – ranging from coal power plants to landfills to manufacturing facilities with toxic output and more – that then affect health. Such decisions involve power, race/ethnicity, and social class as well as decision-making processes.

More broadly, land use in the United States is often determined by zoning and profit-seeking. Zoning often has the goal of protecting single-family homes. Land and location can be turned into money. Health is not a primary concern in all of these decisions even as it can lead to better health outcomes for some compared to others.

h/t Conor Friedersdorf in The Atlantic.

Zillow sought pricing predictability in the supposedly predictable market of Phoenix

With Zillow stopping its iBuyer initiative, here are more details about how the Phoenix housing market was key to the plan:

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Tech firms chose the Phoenix area because of its preponderance of cookie-cutter homes. Unlike Boston or New York, the identikit streets make pricing properties easier. iBuyers’ market share in Phoenix grew from around 1 percent in 2015—when tech companies first entered the market—to 6 percent in 2018, says Tomasz Piskorski of Columbia Business School, who is also a member of the National Bureau of Economic Research. Piskorski believes iBuyers—Zillow included—have grown their share since, but are still involved in less than 10 percent of all transactions in the city…

Barton told analysts that the premise of Zillow’s iBuying business was being able to forecast the price of homes accurately three to six months in advance. That reflected the time to fix and sell homes Zillow had bought…

In Phoenix, the problem was particularly acute. Nine in 10 homes Zillow bought were put up for sale at a lower price than the company originally bought them, according to an October 2021 analysis by Insider. If each of those homes sold for Zillow’s asking price, the company would lose $6.3 million. “Put simply, our observed error rate has been far more volatile than we ever expected possible,” Barton admitted. “And makes us look far more like a leveraged housing trader than the market maker we set out to be.”…

To make the iBuying program profitable, however, Zillow believed its estimates had to be more precise, within just a few thousand dollars. Throw in the changes brought in by the pandemic, and the iBuying program was losing money. One such factor: In Phoenix and elsewhere, a shortage of contractors made it hard for Zillow to flip its homes as quickly as it hoped.

It sounds like the rapid sprawling growth of Phoenix in recent decades made it attractive for trying to estimate and predict prices. The story above highlights cookie-cutter subdivisions and homes – they are newer and similar to each other – and I imagine this is helpful for models compared to older cities where there is more variation within and across neighborhoods. Take that critics of suburban ticky-tacky houses and conformity!

But, when conditions change – COVID-19 hits which then changes the behavior of buyers and sellers, contractors and the building trades, and other actors in the housing industry – that uniformity in housing was not enough to easily profit.

As the end of the article suggests, the algorithms could be changed or improved and other institutional buyers are also interested. Is this just a matter of having more data and/or better modeling? Could it all work for these companies outside of really unusual times? Or, perhaps there really are US or housing markets around the globe that are more predictable than others?

If suburban areas and communities are the places where this really takes off, the historical patterns of people making money off what are often regarded as havens for families and the American Dream may continue. Sure, homeowners may profit as their housing values increase over time but the bigger actors including developers, lenders, and real estate tech companies may be the ones who really benefit.

Developers not willing to build a particular Chicago project because of affordable housing requirements?

Chicago, like many American cities, asks developers of particular projects to include a portion of the space for affordable housing. But, developers argue this may make an entire project not worth their while. Here is a recent example from proposed developments on Chicago’s North Side:

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But those fees and the sites’ location within a pilot area where there are higher affordable-housing requirements – 20%, all on-site – have made some projects difficult to finance. The 700 W. Chicago project also has been made more difficult by the COVID-19 pandemic, which leaves a record level of vacant office space in downtown Chicago…

Omni Group appears to have been able to overcome financing challenges in part because it negotiated a lower purchase price for the site – $38 million, down from an initial $50 million deal with Greyhound – in response to the affordable-unit requirements

The firm is also known for keeping apartment buildings it develops, rather than selling them after they’re built and filled with renters. The decades-long investment strategy may help offset the 500-plus affordable units, which typically lose money for developers because of high construction costs.

The affordable housing requirements are not the only factor at work here but they are a regular part of proposals in many locations. The goal is to have some of the benefits of a new development in a desirable urban location – a valuable asset – address the important issue of affordable housing. If developers have no or little interest in constructing affordable housing on its own, the construction of desirable projects can still help lead to affordable housing.

What would be very interesting to know is how exactly the money, including financing, costs, and profits, works out with the requirements for affordable housing. Can the developers here not make any money or does it reduce their profits below acceptable levels? It is one thing if money will be lost but another if the affordable housing requirements limit the profit. How much return do they expect on a large project like this? Is the goodwill of participating in providing affordable housing worth anything (status, money down the road, favorable approaches to future projects, etc.)? While this is likely firm-specific proprietary information, I imagine some money still could be made.

Flipping houses stats – up then Great Recession then up then down again – and questions

How many houses have been flipped in the United States in the last fifteen years? Here are some of the stats:

person holding pencil

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In the first three months of 2020, 7.5% of homes sold in the United States were flipped, according to a June report from real estate research firm ATTOM Data Solutions. That’s the highest rate since 2006 and a jump from 6.3% at the end of 2019.

Home flipping rates had dropped drastically in 2007 and began to gradually recover in 2010. The number of flipped homes sold in a quarter peaked around 100,000 in 2005, and while it was on the rise in recent years, a decline began in the second quarter of 2019. In the first quarter of 2020, 53,705 single-family homes and condos were flipped, according to the report.

Profit margins have also dropped since 2019, hitting the lowest return-on-investment since 2011. After plummeting with the national economy between 2006 and 2008, profit margins on flipped homes grew at a steady rate until 2017. But since then, return-on-investment has been on a decline.

Still, it’s too soon to fully grasp how the coronavirus pandemic will impact the house flipping market through 2020 and beyond, ATTOM chief product officer Todd Teta said in a statement.

Flipping homes is by now a well-known process due to TV shows and personalities plus its spread throughout the United States. Yet, alongside other phenomena featured on HGTV and among certain groups (such as tiny houses), it can be hard to know how widespread a phenomena is.

Not surprisingly, these stats suggest flipping homes is connected to broader economic conditions: flipping increases when property values are high and repairs to a home can pay off in a sale. When times are tough and property values stagnate or even drop, there is less money to be made in flipping homes.

In the data above, it would be helpful to see how the national trends compare to patterns in particular places. Does flipping work in the hottest markets where prices are already high (limiting who can flip)? What about Rust Belt communities in good and bad times? Suburbs? Urban neighborhoods? I would guess there is a lot of variation across communities.

It is also worth considering what happens to the housing stock in places where flipping does or does not take place. If flipping happens, older housing stock gains new life. If it does not, do these homes simply keep sliding into disrepair?

Finally, this article starts with an example of a family involved in a flipping business but says very little about the role of small flipping businesses or more corporate operations. Even if flipping activity declines during tougher economic times, does it present opportunities for some to buy up properties to flip later? How do the profit margins differ across different kinds of flippers? Are smaller firms or family-owned flippers viewed more favorably by communities than corporate entities?

Building stadiums and arenas – but not for sports

Concerts are lucrative, lucrative enough to construct buildings with 10,000-18,000 seats primarily for shows:

Los Angeles-based Oak View Group, an entertainment and sports-facilities company backed by private-equity giant Silver Lake, is slated to develop eight new arenas over the next three years, six of which will forgo major-league teams, largely to keep their calendars clear for concerts.

An arena can generate twice as much net income from hosting a concert than a National Basketball Association or National Hockey League game, according to Oak View. Live music is expected to balloon to $38 billion industry by 2030, from about $28 billion currently, according to PricewaterhouseCoopers. Oak View said being able to schedule twice as many concerts as it would otherwise with a professional team in house is an attractive prospect in markets including Palm Springs, Calif., and Austin, Texas. And as streaming is helping artists develop larger international audiences, markets including Manchester, U.K., and Milan are ripe for more arena shows, too…

The company said the arenas are being designed with music as the primary focus, from acoustics to VIP amenities. They will include fewer suites – a pet peeve of musical performers, who typically aren’t able to sell tickets for those seats – and add more clubs within the venue to entice concertgoers to linger before or after a show.

Multiple thoughts in response:

1. The ability to tweak the venue for music in multiple ways seems like a big win for artists and audience members. Instead of being in cavernous arenas that need enough floor space for a playing surface, everything can focus on a stage. It will be interesting to see how sound quality in new arenas like this compares to multi-use facilities.

2. This is a reminder that the big money in sports is not necessarily in attendance to games but rather in television rights and other revenue sources. Could this lead to a future with smaller sports arenas that provide an upgraded experience (it is already difficult to compete with large HD televisions) and more emphasis on what is built around the stadium?

3. Sports teams often ask for public money for facilities. And many communities seem willing to provide it, even when the evidence suggests it is not a good investment. Will music arenas also be funded with public money?

4. Since many larger cities already have arenas or stadiums, it will be interesting to see what mid-sized markets get music-only facilities. Some of the locations mentioned above are places without major sports teams (like Austin). But, I could imagine some of these facilities within large metropolitan markets in order to cater to musicians (imagine such a facility in the southwest or northern suburbs of Chicago taking away business from the United Center, Allstate Arena, and the Sears Centre).

5. Just as sports stadiums and arenas have limited games, these facilities will have a limited number of concerts each year. What else could the arenas be used for?

How a bank could still make money offering negative interest rate mortgages

A bank in Denmark explains how they can make money by offering mortgages with interest rates below zero:

Jyske Bank has had to do a lot of clarifying; there’s a widespread misconception that the bank is actually paying borrowers to take their money. First of all, the bank is not actually paying anyone; it is simply forgiving part of the loan each time a payment is made. A mortgage borrower is likely to end up paying Jyske back a little more than they borrowed, factoring in fees and charges associated with arranging the mortgage loan.

And the bank can afford to do this without losing money because it borrows at negative interest rates as well…

Despite being in “historic remortgaging,” Høegh said the negative interest rates don’t actually make it any easier for home buyers to get a loan, but makes it easier to get a bigger loan – a lower rate means a higher disposable budget.

As long as the borrower is paying more in interest than the mortgage cost the bank, there is money to be made.

I might be showing my ignorance here but it leads to a few more questions:

1. Does this change how much volume in mortgages banks and lenders need to make in order to make money?

2. Would an extended period of such mortgages lead to inflated housing values because people can pay more for homes?

3. These changes might not be so bad in a fairly stable housing market but I wonder if there would be more issues in a high-demand or high-price market.

It looks like we would have a ways to go before negative rate mortgages come to the US but it would be interesting to see what happens if they do come.

Reporting on the return of investment for house flippers

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?

Viewing city-to-city trains as public goods and not profit generators

An overview of what expanded Midwest city-to-city train service could look like includes a call to recast the purpose of trains:

Matthews said it is important for Congress to realize that passenger rail offers a public good, just as street lights do. The question is not whether the Southwest Chief makes money, but whether the community makes money because the train is there.

As the thinking about more train service in the Midwest between major cities continues, it will likely take a lot to shift perspectives from making money to providing a public good. If more service is provided, will more people ride it? Of course, it is hard to know what could come of more service until it actually happens. My guess is that we are still a long ways off in the United States from more train service – people still like their cars – and it would be difficult to funnel money from other transportation budgets – such as road maintenance and construction – to trains.

This call for a shift in perspective could serve as a general reminder for all infrastructure projects: focus less on the cost now and think more broadly about what that piece of infrastructure enables. Roads, power lines, water, railroads, and more enable other activities to take place that depend on solid infrastructure.

This also reminds me of sociologist Frank Dobbin’s book Forging Industrial Policy: The United States, Britain, and France in the Railway Age. As railroads emerged in the mid-1800s, Dobbin argues France employed a top-down centralized strategy for railroads in the country, Britain had the most laissez-faire approach, and the United States was in the middle with some government support for railroads. While that occurred at the beginning of the railroad age, much of that transportation money in the United States has gone to roads and highways for roughly a century.

If a megaproject proposal doubles the number of onsite affordable housing units in a bid to get approval, doesn’t this mean the profits will be substantial?

The latest proposal for the Lincoln Yards project on Chicago’s north side will now include 600 on-site affordable housing units – 300 more than before:

It will be the largest on-site commitment in the 16-year history of Chicago’s affordable requirements ordinance, according to Ald. Brian Hopkins, 2nd. Hopkins will join the Chicago developer and affordable housing advocates to announce the revised plan in a news conference Tuesday morning at City Hall…

Sterling Bay wants to build about 15 million square feet of commercial and residential buildings on 54.5 acres of riverfront land along Lincoln Park and Bucktown. That includes 6,000 residential units on the sprawling site between North and Webster avenues…

Under the compromise unveiled Tuesday, Sterling Bay will provide 600 on-site affordable units, while the maximum number of off-site units it will provide within 3 miles decreases to 300, from a previous 600. The Affordable Housing Opportunity Fund payment remains unchanged.

Half of Sterling Bay’s $39 million fee will support construction of about 1,000 affordable units citywide, and the other half will support 15 years of rental subsidies for 130 very low-income families through the Chicago Low Income Housing Trust Fund, according to Hopkins.

Two quick responses:

1. If the developers can offer more onsite units, then Chicago should probably think hard about increasing its requirements. The developer is still very interested in the project even with providing more on-site units.

2. This project must really be projected to turn a nice profit if these last-minute adjustments can be made. Perhaps it is all about negotiating – offer a low figure and then it looks nice if you adjust up – but developers tend to want to get plenty of profit by the end.

On the whole, when these kinds of prime properties come up for development and/or a developer gets a big idea, there could be better ways to ensure there is more affordable housing included in what is eventually built rather than just settling for a relatively low figure. Even with more land devoted to affordable housing and parks, the plans still provides plenty of room for money to be made. Would Sterling Bay be scared off if the affordable housing requirements were higher and, if so, would other developers jump right in to develop such a property?

Dwindling yet still present pay phones

Even as the number of pay phones has dropped dramatically in recent decades, they can still generate money:

In 1999, you could still plunk a coin into one at 2 million phone booths in the United States. Only 5% of those are left today. About a fifth of America’s 100,000 remaining pay phones are in New York, according to the FCC…

But pay phones remain a steady business for some of the 1,100 companies operating them across the country.

Pay phone providers reported $286 million in revenue in 2015, according to the most recent FCC report. They can still be profitable, particularly in places where there isn’t cell phone or landline coverage, said Tom Keane, president of Pacific Telemanagement Services. Keane’s company operates 20,000 pay phones around the country.

Yet, even if pay phones help serve the need for calls in certain circumstances, the article says the future of pay phones is “bleak”:

More low-income Americans, once a steady revenue stream for pay phones, have turned to prepaid phones or receive subsidizes on cellphones through the federal government’s Lifeline program. Ironically, providers contribute to the Lifeline fund on their phone bill taxes.

Four quick thoughts:

  1. What is most intriguing to me here is not that pay phones are dwindling – the rise of smartphones in everyone’s pockets may be just as remarkable – but that there may still be a market for a limited number of pay phones. Is there still a business opportunity in the remaining phones?
  2. Imagine something drastic happens to the cell phone network. How would people communicate over long distances with the decline of pay phones and landlines?
  3. What other features of physical spaces are still around but are also anachronistic like the pay phone? Perhaps the water tower on top of some buildings or the occasional hitching post.
  4. Last thought: it takes some work to have sufficient change to regularly use pay phones. I realized again recently that I rarely make cash purchases and this means I generate a lot less spare change than I did before. If I really needed to use a pay phone, it would take some work to get some change.