A downside of private streets: who exactly owns it?

There is a dispute about the ownership of a wealthy private street in San Francisco:

Tina Lam and Michael Cheng of San Jose said that in 2015 they were looking at parcels being auctioned online by San Francisco’s tax office when they saw a description of “this odd property in a great location.”

“Part of Pacific Heights, the right location, land in a good neighborhood. We took a chance,” Cheng told the San Jose Mercury News. He said they bought the land sight-unseen, beating out 73 other bidders and dropping $90,000 for the street and its common areas…

The Presidio Homeowners Association, which has maintained the space since 1905, blames a wrong address for the misdirected tax bills at $14 a year, bound for an accountant who had not worked for the association since the 1980s. The debt grew to $994, and the street was sold to recoup additional fees and penalties.

But the association did not know the back taxes threatened ownership of the street, the suit against Lam said. No notices were posted on the street, and no one on Presidio Terrace knew it changed hands until May 2017, when an investor representing Lam asked whether the association wanted to buy it back, according to the suit.

Is an odd case like this enough to suggest that having private streets is a bad idea in the first place? While the municipality does not have to pay the same costs to maintain the infrastructure, it seems like the private street is often an attempt by wealthier residents – whether homeowners or firms – to control their settings. And then there is a compelling reason for local government to make a claim to the street, there is a fight from the owners who felt that this property was theirs.

Why might Americans be interested in the most expensive homes?

Here is one segment of the housing market that is again doing well:

Sale prices of luxury homes in the second quarter of this year were up 7.5 percent from a year ago, the first time luxury gains have outpaced the rest of the market since 2014, according to Redfin, a real estate brokerage which defines luxury as the top 5 percent of the most expensive homes sold in each city in each quarter.

While some point to the recent runup in the stock market, the real reason for the luxury recovery may be a shift in the mind of sellers. They were asking too much, and now that they’re asking less, there is more action in the market, in turn boosting prices again…

Luxury home sales have been rising steadily, causing the supply of those homes for sale to drop. Sales of homes priced above $1 million jumped 19 percent in June compared with a year ago, according to the National Association of Realtors. That was a much larger sales gain than in any of the lower price points.

The sales surge has caused a decline in the supply of luxury homes. Listings at or above $1 million fell 9.4 percent compared with the same period last year, according to Redfin. Those priced at or above $5 million were down about the same. This after five consecutive quarters of double-digit inventory growth.

This change in the luxury market is unlikely to help many Americans though a number of these expensive properties get a lot of media attention. Come to think of it, what exactly is the purpose of media outlets regularly showing expensive homes? Here are a few options:

  1. This could be the curiosity of the masses regarding the practices of the wealthy. How does the other half (or top 10%) live?
  2. Or, is it intended as a critique of the well-resourced by holding up their lavishness up for public display? Look at those wealthy people with their ostentatious homes.
  3. Alternatively, might it encourage class conflict and social change since these expensive homes are out of reach of most Americans? For the many Americans who struggle to find decent housing, highlighting the luxury of the wealthy might serve as a reminder of the distance between groups.
  4. At the least, such regular stories might display the important place real estate and homeownership play in American wealth. It is one thing to own financial instruments but another to purchase more tangible items like property and housing.

This all might be different if the housing market as a whole was booming, particularly if the lower end of the market with smaller homes or starter houses was growing. I suppose this could be a research question: during periods of rising economic boats for all (such as the several decades after World War II), are there fewer media stories on homes and properties of the wealthy compared to homes for the average person?

The houses of Donald Trump

I was recently looking into what Donald Trump has said about the single-family home – arguably the cornerstone of the American Dream – and found this article on his six personal homes (including pictures and video tours). Two quick thoughts:

  1. Not surprisingly, Trump does not go small with his homes. No McMansions here. These are all expensive, luxurious properties.
  2. His homes are all on the East Coast or in the Caribbean. For a man who built his candidacy for president on support from forgotten America, his homes are from the elite areas.
  3. His style seems to be more traditional. This may be to project that his relatively new power – several decades of money and influence – are connected to traditional sources of power. There is not a modernist structure here. The Manhattan penthouse maybe comes the closest but even that is more opulent than modern or edgy.

“[American] Dream Hoarders”

A Brookings Institution scholar examines the upper-middle class and how their choices separate themselves from the middle class:

A great, short book by Richard V. Reeves of the Brookings Institution helps to flesh out why these stories provoke such rage. In Dream Hoarders, released this week, Reeves agrees that the 20 percent are not the one percent: The higher you go up the income or wealth distribution, the bigger the gains made in the past three or four decades. Still, the top quintile of earners—those making more than roughly $112,000 a year—have been big beneficiaries of the country’s growth. To make matters worse, this group of Americans engages in a variety of practices that don’t just help their families, but harm the other 80 percent of Americans…

The book traces the way that the upper-middle class has pulled away from the middle class and the poor on five dimensions: income and wealth, educational attainment, family structure, geography, and health and longevity. The top 20 percent of earners might not have seen the kinds of income gains made by the top one percent and America’s billionaires. Still, their wage and investment increases have proven sizable. They dominate the country’s top colleges, sequester themselves in wealthy neighborhoods with excellent public schools and public services, and enjoy healthy bodies and long lives. “It would be an exaggeration to say that the upper-middle class is full of gluten-avoiding, normal-BMI joggers who are only marginally more likely to smoke a cigarette than to hit their children,” Reeves writes. “But it would be just that—an exaggeration, not a fiction.”

They then pass those advantages onto their children, with parents placing a “glass floor” under their kids. They ensure they grow up in nice zip codes, provide social connections that make a difference when entering the labor force, help with internships, aid with tuition and home-buying, and schmooze with college admissions officers. All the while, they support policies and practices that protect their economic position and prevent poorer kids from climbing the income ladder: legacy admissions, the preferential tax treatment of investment income, 529 college savings plans, exclusionary zoning, occupational licensing, and restrictions on the immigration of white-collar professionals.

As a result, America is becoming a class-based society, more like fin-de-siècle England than most would care to admit, Reeves argues. Higher income kids stay up at the sticky top of the income distribution. Lower income kids stay down at the bottom. The one percent have well and truly trounced the 99 percent, but the 20 percent have done their part to immiserate the 80 percent, as well—an arguably more relevant but less recognized class distinction.

The anxiety of being upper middle class: never quite wealthy enough to have all the goods and experiences of the highest group and always striving to stay above the normal/middle people.

Four quick thoughts:

  1. There is a certain lifestyle to be had here. See, my post a few days ago about a healthy lifestyle may have had some merit…
  2. As described here, many of the efforts appear aimed at avoiding downward mobility. In other words, there is some point in income, education, and lifestyle that cannot be crossed going the wrong way. But, there must be people who have this happen through events like losing a job or a major illness. What happens to them? For the “average” upper middle class person, what really are the odds that they would fall down a rung?
  3. There is a suggestion from the author that Americans shouldn’t and/or can’t just ask the 1% to sacrifice; the top 20% need to sacrifice as well. To put it mildly, this would not go over well. Given their anxieties as well as their tendencies to pull up the bridge after crossing the moat, efforts like affordable housing or school integration or significant increases in taxes will be met with opposition. They would use the rhetoric of the middle class – “we worked hard to get here – anyone could do it” – while pushing hard to protect their own status.
  4. Is the ultimate goal of this group to become truly wealthy? Most of them won’t have that opportunity and must know it. Or, is the goal is to simply not be middle class and have some more advantages than most people? Perhaps it really is about the children: is this the group that more than any other tries to give their kids every advantage as a supposed act of sacrifice?

Legislative options to add more housing in California

A number of legislative options are on the table in California to encourage the construction of more housing and counter the actions of nearby residents:

Dozens of the solutions floating in the state Legislature aim to address that supply problem, including several that would streamline the process by which housing projects get approved (one, for example, would limit the circumstances in which a special permit could be required to build a granny flat). Others would not-so-subtly make it much harder for local residents and government agencies to block new projects, like by requiring a two-thirds vote for any local ordinance “that would curb, delay, or deter growth or development within a city.”

That latter bill epitomizes the frustration many young working people and families have as they try to attain what was once a milestone of adulthood—homeownership—that is now out of reach for even those making decent money. Some of those folks are YIMBYs, or supporters of a “Yes in My Backyard” agenda. “We know that our housing struggles are not the result of impersonal economic forces or lack of individual effort, but derive from bad policy and bad laws that have restricted housing growth for decades,” said YIMBY leader Brian Hanlon, co-founder of the California Renters Legal Advocacy and Education Fund, at an April Assembly committee hearing….

It’s unclear what the chances for each bill are. Though legislators seem eager to spur more housing construction quickly, some of their allies might not be. Many environmentalists, for example, want new projects to comply with CEQA, the state’s landmark environmental law that requires developers to study and possibly mitigate the environmental impact of whatever they build. And developers are never quick to embrace mandates that they include affordable units in their projects.

If the bills do pass, will any of them actually make a dent in what’s become a crippling problem all across the state? The Sacramento Bee’s Dan Walters recently wrote off the current proposals in the Legislature as “tepid, marginal approaches that would do little to close the gap.” Cuff admits many critics dismiss individual bills as a drop in the bucket. “But on the other hand, let’s put a drop in the bucket,” she says. “A drop is better than a drought.”

This is a long-term issue that may take decades to work out. The issue is complicated as it involves social class, race and ethnicity, understandings of local control, and property values.The article notes that some claim the legislative suggestions thus far are too small and I suspect a number of the bills would lead to lawsuits from communities and residents.

If I had to make a prediction (a near impossible task) based on what has happened in many suburbs throughout the United States, I would guess that the wealthier communities will find ways around these legislative actions. This could happen through the courts as they can better afford the time and money or there could be loopholes in the bills. Either way, the burden of the affordable or cheaper housing will likely fall on communities that are lower income and non-white.

Selling “wellness real estate”

Connect health and real estate in nice locations and you have a joint product to sell:

Chopra has been selling our body antidotes to life for two decades, and he has taken on most ingestible platforms. Now he is striking out into the booming domain of “wellness real estate”—building living spaces ostensibly designed to optimize bodily functioning. In collaboration with the design firm Delos and real-estate firm Property Markets Group (PMG), he is finishing construction of a 68-unit luxury tower in Sunny Isles Beach, on the barrier island abutting North Miami Beach. Two angular penthouse units resembling white glass-marble sky mausoleums are listed for $18.5 and $19.5 million…

The trend in Florida real estate, Maloney continued, is pairing with lifestyle brands. “We couldn’t figure out what we were going to do with our new project. When someone brought up Chopra, my ears perked up,” he said. “We’re not going with a car company or a clothing designer. When this concept came up, we thought, ‘wow, wellness.’”…

The Delos press release for these new “exclusive wellness residences” explains that they “will focus on three core wellness principles: air, water, light and sleep.” My guess there is light and sleep are meant to count as one. The Delos building in Manhattan where Chopra lives also features a “posture-supportive flooring system” and a surface coating “which destroys bacteria,” but I don’t know if these are wellness principles.

It then takes the author a while to figure out exactly what Chopra and his company will be doing to promote wellness. Additionally, an academic expert in this field offers a different approach:

The key to these technologies is that unlike the multimillion-dollar properties of Delos, Colistra and his colleagues are primarily concerned with scale—how to deploy mass-produced housing units that are equipped without creating huge disparities in who has access. “This is probably the antithesis of what they’re doing,” he said of Chopra and company. “What we’re looking at are population-health strategies in which health and wellness is accessible to everyone. When you’re talking about $15 million condos, it very quickly devolves into social inequities. Health is divided between the haves and have-nots.”

And that same expert suggests the answer is not really technology but social connectivity. So how about selling small town northern Minnesota as the ultimate wellness property?

If only wellness were not just a tagline that could sell more products…

Sales of luxury homes continue to slump

Several new reports suggest the luxury housing market is not doing so well:

Sales in the Hamptons, Aspen and Los Angeles fell by double-digit percentages in the fourth quarter, as the supply of unsold homes grew and prices came under pressure, according to market reports Douglas Elliman and Miller Samuel Real Estate Appraisers & Consultants.

Separate research from Redfin found that luxury properties nationwide under-performed the broader housing market for the eighth consecutive quarter. The supply of homes priced at $1 million or more rose 1 percent in the fourth quarter, while the number of $5 million-plus homes was up 15 percent.

The article starts with the suggestion that the election limited sales. But, that doesn’t do much to explain the issues over eight quarters. Perhaps there is a bit of a luxury home bubble? I mean, how many multi-million dollar properties can be bought and sold? I also feel like I have seen numerous news stories in recent years about the latest home that is breaking the record for asking price. But, such homes are only within reach of the wealthiest people.

It would be interesting to hear what experts think this slump means. Builders shifting away from super expensive homes to cheaper homes? The wealthy looking to invest in other kinds of real estate? Any problems with vacant properties in these communities?