Is Homeownership A Luxury Or A Necessity

Is Homeownership A Luxury Or A Necessity

Hello, dear readers! How are you? The debate surrounding homeownership often stirs passionate opinions, with some viewing it as an essential cornerstone of stability and security, while others argue it has become a luxury reserved for the privileged few. As the landscape of housing markets shifts and societal values evolve, the question arises: Is homeownership a luxury or a necessity? In this exploration, we will delve into the various perspectives that shape this ongoing discussion, considering economic, social, and personal factors. Greetings to you as we navigate this complex topic together! Please continue reading.

Table of Contents

1. Understanding Homeownership: A Luxury or Necessity?
2. The Financial Implications of Homeownership Today
3. Cultural Perspectives on Homeownership Around the World
4. Homeownership Trends: Luxury in Urban Areas vs. Rural
5. Renting vs. Buying: What’s Best for Your Lifestyle?
6. The Psychological Impact of Homeownership on Families
7. Homeownership and Economic Stability: A Deep Dive
8. Factors Influencing the Perception of Homeownership
9. The Role of Government in Promoting Homeownership
10. Homeownership as a Wealth-Building Strategy

Understanding Homeownership: A Luxury or Necessity?

Homeownership often sparks a debate on whether it is a luxury or a necessity in today’s society. For some, owning a home represents a significant milestone, symbolizing stability and financial security. It provides a sense of belonging and personal space to create cherished memories. Conversely, others view it as an unattainable dream, burdened by rising prices and economic uncertainty.

In urban areas, renting may become the more practical choice, allowing flexibility and lower financial risk. Ultimately, the perception of homeownership is subjective, intertwining personal values, cultural influences, and market dynamics. As lifestyles evolve, the definition of what constitutes a home continues to shift, leading to a re-examination of priorities in our quest for comfort and security.

The Financial Implications of Homeownership Today

Homeownership today carries significant financial implications that extend beyond mere mortgage payments. With rising interest rates and fluctuating property values, potential homeowners must navigate a complex landscape. The initial investment can be daunting, as down payments and closing costs often strain budgets.

However, owning a home can also serve as a hedge against inflation, providing stability in an unpredictable economy. Additionally, tax benefits associated with mortgage interest deductions can alleviate some financial burdens. Yet, homeowners must remain vigilant about ongoing expenses, such as maintenance and property taxes, which can accumulate over time.

Ultimately, the decision to buy a home requires careful consideration of both immediate costs and long-term financial health.

Cultural Perspectives on Homeownership Around the World

Cultural perspectives on homeownership vary significantly around the world, reflecting distinct values, traditions, and economic conditions. In Western countries, homeownership is often viewed as a symbol of success and stability, with a strong emphasis on individual property rights. Meanwhile, in many Asian cultures, owning a home is not only a financial investment but also a way to honor family heritage and provide security for future generations.

In contrast, some indigenous communities prioritize communal living and shared spaces over individual ownership, emphasizing the importance of land stewardship and connection to nature. Additionally, in rapidly urbanizing regions, such as parts of Africa and Latin America, the dream of homeownership is often challenged by economic barriers, leading to innovative housing solutions like co-housing and informal settlements.

These diverse perspectives highlight the complex relationship between culture and the concept of home.

Homeownership Trends: Luxury in Urban Areas vs. Rural

Homeownership trends are shifting significantly between urban and rural areas, reflecting changing preferences and economic conditions. In urban centers, luxury properties are increasingly sought after, driven by a younger demographic that values proximity to amenities, culture, and employment opportunities.

This trend has led to a rise in high-end condominiums and modern townhouses, appealing to affluent buyers. Conversely, rural areas are experiencing a surge in interest as more individuals seek spacious homes and a quieter lifestyle, especially after the pandemic. Buyers are now drawn to properties with larger lots and natural surroundings, often at more affordable prices compared to urban luxury.

This contrast highlights a broader societal shift where lifestyle choices increasingly dictate real estate preferences, leading to diverse opportunities in both markets. Homeownership is now more about personal values than mere investment.

Renting vs. Buying: What’s Best for Your Lifestyle?

When considering whether to rent or buy a home, it’s essential to evaluate your lifestyle and financial situation. Renting offers flexibility, allowing you to move easily for job opportunities or personal reasons without the burden of selling a property. This is ideal for those who prioritize mobility or are unsure about their long-term plans.

On the other hand, buying a home can be a sound investment, providing stability and the chance to build equity over time. Homeownership often comes with added responsibilities, such as maintenance and property taxes, which can be demanding. Ultimately, the decision should hinge on your financial readiness, lifestyle preferences, and long-term goals.

Carefully weigh these factors to determine which option aligns best with your current and future needs.

The Psychological Impact of Homeownership on Families

Homeownership significantly influences the psychological well-being of families, creating a sense of stability and belonging. Owning a home fosters feelings of pride and accomplishment, contributing to improved self-esteem among family members. This stability often translates into stronger family bonds, as a permanent residence allows for the establishment of routines and traditions.

Furthermore, homeowners typically experience lower levels of stress compared to renters, as the security of a fixed living situation mitigates anxiety related to housing instability. The control over one's living environment can also enhance a family's sense of identity and community involvement, leading to greater emotional resilience.

Ultimately, the psychological benefits of homeownership extend beyond financial investment, nurturing a healthier family dynamic.

Homeownership and Economic Stability: A Deep Dive

Homeownership serves as a pivotal pillar of economic stability, influencing both individual prosperity and broader community health. Owning a home not only provides families with a sense of security and belonging but also acts as a powerful wealth-building tool. As homeowners invest in their properties, they contribute to the local economy through renovations and maintenance, fostering job creation and enhancing property values.

Furthermore, stable housing reduces reliance on social services, allowing governments to allocate resources more efficiently. The ripple effect of homeownership extends beyond finances; it cultivates strong neighborhoods and promotes civic engagement. By nurturing a culture of ownership, we empower individuals and strengthen communities, creating a robust foundation for sustainable economic growth.

Ultimately, the journey toward homeownership can pave the way for personal and communal resilience in an ever-changing economic landscape.

Factors Influencing the Perception of Homeownership

The perception of homeownership is influenced by various factors that shape individual attitudes and societal norms. Economic conditions play a crucial role, as higher incomes and stable job markets often enhance the appeal of owning a home. Additionally, cultural values significantly impact perceptions; in some societies, homeownership is viewed as a symbol of success and stability.

Personal experiences, such as family background and previous housing situations, also contribute to how individuals view ownership. Furthermore, access to information about the housing market and financial literacy can affect decision-making processes. Government policies and incentives, such as tax benefits or subsidies for first-time buyers, further influence perceptions by making homeownership more attainable.

Ultimately, a combination of economic, cultural, personal, and policy-related factors shapes how individuals perceive the value of owning a home.

The Role of Government in Promoting Homeownership

The government plays a crucial role in promoting homeownership, as it directly influences housing markets through various policies and programs. By providing financial assistance, such as grants and low-interest loans, the government makes homeownership more accessible to low- and middle-income families.

Additionally, tax incentives, like mortgage interest deductions, encourage individuals to invest in property. Government-backed mortgage programs, such as those offered by the Federal Housing Administration (FHA), reduce the risk for lenders and help borrowers qualify for loans they might not otherwise obtain.

Furthermore, zoning regulations and urban development initiatives can enhance the availability of affordable housing. Overall, by implementing strategies that support homeownership, the government fosters economic stability, community development, and individual wealth creation, ultimately contributing to the nation's prosperity.

Homeownership as a Wealth-Building Strategy

Homeownership serves as a powerful wealth-building strategy for many individuals and families. By purchasing a home, homeowners can build equity over time as property values appreciate. Unlike renting, where monthly payments contribute to someone else's wealth, mortgage payments gradually increase the owner's stake in their property.

This equity can be leveraged for future investments, home improvements, or even retirement funding. Additionally, homeownership can offer tax benefits, such as mortgage interest deductions, which can enhance overall financial stability. As homeowners invest in their properties, they also create a sense of community and belonging.

Overall, homeownership not only provides a place to live but also acts as a crucial step toward financial independence and wealth accumulation in the long run.

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Rent Control

New York state is about to pass a suite of the most restrictive rent control laws in many years.  Among other things, the laws would restrict vacancy decontrol, and limit the ability to pass the cost of improvements through to tenants.  As such, it is moving New York away from second generation rent control toward first generation rent control.  Richard Arnott gives some examples of second generation control:Second-generation rent controls commonly permit automatic percentage rent increases related to the rate of inflation. They also often contain provisions for other rent increases: cost pass-through provisions which permit landlords to apply for rent increases above the automatic rent increase, if justified by cost increases; hardship provisions, which allow discretionary increases to assure that landlords do not have cash-flow problems; and rate-of-return provisions, which permit discretionary rent increases to ensure landlords a "fair" or "reasonable" rate of return. Second-generation controls commonly exempt rental housing constructed after the application of controls, although new housing may be brought under the controls at a later time.  In some jurisdictions, second-generation rent control has permitted full vacancy decontrol, whereby the unit becomes completely decontrolled when it is vacated. Other jurisdictions' programs permit inter-tenancy decontrol, whereby controls apply during successive tenancies but no restrictions are placed on inter-tenancy rent increases. Others contain alternative decontrol mechanisms; probably the most common has been rent level decontrol, whereby a unit is decontrolled when its controlled rent rises above a certain level. Yet others have no decontrol provisions.  Such rent regulation often contains provisions which accord tenants improved security of tenure—rent increase appeal procedures, eviction procedures more favorable to the tenant, and so on—and it often includes restrictions to prevent cutbacks in maintenance, and on the conversion of controlled rental housing to owner-occupied housing.Richard is one of the finest urban economists alive, and has taken the view that second generation rent control might do more good than harm.  This is certainly not Econ 101 gospel, but one one needs only to move onto Econ 201 to see where he is coming from.    If property owners have pricing power, the equilibrium rental rate could well be above the social optimum, and the quantity of housing produced could fall below the social optimum.  The idea that property owners might have pricing power goes back at least as far as David Ricardo, who worried about the corrosive effects of "economic rent" on social welfare.  It is certainly plausible to think that in a select few markets, such as New York and San Francisco, landowners do indeed have pricing power.  And this may argue for second generation rent control--but not the move toward first generation rent control, which puts tight caps on rent increases, eliminates vacancy decontrol, and imposes controls on new buildings.Nevertheless, it is not clear to me that even second best rent control helps much with allocative inefficiency in markets where supply is inelastic--if there is a ceiling on the number of units builders can build, a price intervention is not going to bring about additional units.  So the issue is about redistribution.Rajasekaran, Treskon and Greene have a nice white paper summarizing the literature on the winners and losers of rent control in the few jurisdictions where it exists in the US.  That literature shows that (1) rent control does indeed benefit incumbents; (2) does harm to those outside the rent control system (except, perhaps in Cambridge, MA); (3) probably reduces the stock of rental housing and (4) probably reduces the quality of the housing stock.  Diamond, McQuade and Qian find that the costs and benefits of San Francisco's second generation rent control (which has vacancy decontrol and no control of new buildings) are about equal.  This does not mean that this would be true for first generation rent control.But even if second generation rent control is neutral in terms of costs and benefits, it doesn't necessarily lead to desirable distributional outcomes.  It is almost certainly true that the average property holder is wealthier than the average renter, and therefore that on average rent control redistributes income from higher to lower wealth people.  But rent control does not target the incomes/wealth of either property owners or renters.We don't know much about the distribution of wealth among property owners.  We can turn to the US Census Rental Housing Finance Survey to see that nearly half of all units (and about 3/4 of all properties) are owned by individual investors.  Similar numbers are managed by either the owner herself or an unpaid agent of the owner.  So a substantial number of units are held by Mom and Pops.  According to the 2016 Survey of Consumer Finances, the median value of "equity in non-residential property (which includes residential properties with 5 or more units)" among those who hold such properties is about $70,000.  It is safe to say that a substantial number of owners of properties for rent do not have oodles of wealth.As for the distribution of benefits to renters, consider the following graph:Rent control in Los Angeles applied to buildings constructed through 1978.  I took data from the 2016 American Community Survey (I know, I need to update it) to look at the income distribution of those living in buildings built in the 1970s (the best I could do to get at the newest rent stabilized buildings) and those living in buildings built in the 1980s (i.e., the oldest non-rent stabilized buildings).  Do you see a difference in these distributions?  Neither do I.  And to me, good social welfare policy is targeted to those who need help.The thing that bothers me most about rent control is that it allows elected officials to say they are tackling housing issues in our most expensive MSAs, while they continue to punt on the issue of supply elasticity.  I am waiting to see more of our great cities take up the example of Minneapolis, whose government eliminated single family zoning in that city.  I would even be OK with cities combining temporary rent control with Minneapolis style zoning, knowing that in the presence of sufficient supply, people would ultimately no longer feel the need for rent control.  Rent control alone, however, just gives electeds cover not to fix the fundamental problem.  

Two Moral Dilemmas for Housing Policy

Of course there are far more than two, but two seem particularly all encompassing to me. They are(1) Should everyone, regardless of income, have access to housing in every neighborhood?(2) What is the minimum acceptable quality of a house?These are questions whose answers come with tradeoffs.  With respect to (1): suppose we decide that everyone should, if they wish, be able to live in a house on a beach in Laguna (as it happens, the Southern California beach town I most enjoy visiting).  Such a policy would be costly, and has implications for the distribution of other goods.  But there are reasons to think it is socially desirable for people of mixed income to live together.  The correct answer will involve normative judgments we make as a society, but we need to make these judgments explicitly.  I don't know that we do that.  Personally, I think everyone should be able to live in a safe neighborhood, be in a place where they can send their kids to a decent, publicly funded, school, and have a reasonable commute to work (30 minutes or less?  45?) within their choice set.  If people choose to live further away, that is their business.As for (2), in the US context, I would think the minimum acceptable house would have indoor plumbing, clean water (I wish I could say this was a given),  good sanitation, reliable electricity,  a minimum amount of floor space per person (although I am not sure what that is), and be very, very fire resistant.  I am perhaps leaving something out, but anything beyond an agreed upon minimum adds to the cost of providing housing.  Again, I don't think when we discuss housing we discuss the tradeoffs enough.   

Office Building Classifications

I was poking around for a definition of Class A buildings and had a hard time finding a solid definition.In BOMA's Building Class Definitions, buildings are grouped into Class A, Class B and Class C. But BOMA does not recommend the publishing of a classification rating for individual properties.Metropolitan Base DefinitionsClass A. Most prestigious buildings competing for premier office users with rents above average for the area. Buildings have high quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence.Class B. Buildings competing for a wide range of users with rents in the average range for the area. Building finishes are fair to good for the area. Building finishes are fair to good for the area and systems are adequate, but the building does not compete with Class A at the same price.Class C. Buildings competing for tenants requiring functional space at rents below the average for the area.BOMA goes further with International definitions:International Base DefinitionsInvestment. Investment quality properties are those that are unique in their location in the best metropolitan markets in the world, their design and construction quality, the solidity of the tenants and the tenant markets that they serve and the outstanding building management that is responsible for operating and maintaining them. These properties stand out as leaders not only within their own metropolitan areas but also within the international investment community. Investment properties usually contain state of the art mechanical, electrical, life safety, elevator and communications systems. Their finishes are of the highest standards and they often provide the occupants with a mix of amenities - in variety and quality - that is exceptional. Often they house a lead tenant for whom the property is named and usually they are located in a premier metropolitan area. Investment grade properties need not be considered to be "trophy" material but trophy properties are usually investment grade.Institutional. Institutional grade properties are those of sufficient size and stature that they merit attention by large national or international investors, hence the name. These properties are of good design and construction, although they are rarely monumental in design or the use of construction materials. They are typically large. They may be located in secondary metropolitan areas, but invariably they will have a very stable tenant base.Speculative. Speculative properties usually will conform to popular design conventions (at the time that they are constructed), but without the use of exceptional materials or construction methods. The design and construction of these properties emphasizes functionality, in contrast with aesthetics or image and the design rarely reflects the image of any particular tenant or occupant. To attract national or international attention, speculative properties must be relatively large, although minimum size requirements are lower for properties located in premier office markets. They are often occupied by multiple tenants. Of course, Wikipedia has an entry: Wikipedia's Class A Office SpaceAlthough the US seems to be lacking objective classification of buildings, the Moscow office market has laid out some objective standards for classifying buildings: Office Building Classification. According to the Moscow Office of Jones Lang LaSalle:The new classification aims to divide the office stock into three classes according to a number of objective criteria. The classification was developed with the participation of professionals from the Construction, Property Management and Office Service industries.  The principal difference of the new classification from the previous one is the division of stock into А, В+ and В- classes. The major difference is also in giving a more structured criteria for modern office building classification. Leading real estate consultants: CB Richard Ellis Noble Gibbons, Colliers International, Cushman and Wakefield, Stiles and Riabokobylko and Jones Lang LaSalle have prepared a new classification of office buildings, dividing modern quality office stock  into 3 classes: A, B+ and B-. Square Feet started this with his (or her) Guide to Office Building Classifications.Disclaimers

Is California a Big Spender?

People say so.  But what people say is sometimes not true.I did the following exercise.  I took Census of Government Data on State and Local Spending for 2016 (the most recent available year) and divided it by State GDP for 2016.  This is what I got:California is right in the middle, ranking 23rd, and sitting next to that well-known hotbed of socialism, Utah.

New Law Liberalizes REIT Provisions

New Law Liberalizes REIT Provisions

Hello, dear readers, how are you? Today, we delve into an exciting development in the world of real estate investment trusts (REITs) with the introduction of a new law that liberalizes REIT provisions. This landmark legislation aims to simplify regulations and expand opportunities for investors, fostering a more dynamic market environment. As we explore the implications of these changes, greetings to all who are eager to understand how this could reshape the landscape of real estate investments. Please continue reading to uncover the potential benefits and advancements this law brings to both investors and the broader economy.

Table of Contents

1. Key Changes in REIT Regulations
2. Impact of Liberalization on Real Estate Industry
3. Benefits of New REIT Legal Framework
4. How the Law Affects Investor Confidence
5. Comparison with Previous REIT Regulations
6. Implications for Real Estate Investment Trusts
7. Potential Challenges for REIT Managers
8. The Role of Government in REIT Liberalization
9. Future Trends in REIT Market Post-Law
10. How REITs Contribute to Economic Growth

Key Changes in REIT Regulations

Recent amendments to Real Estate Investment Trust (REIT) regulations have significantly reshaped the investment landscape. These changes aim to enhance transparency and attract a broader range of investors. One notable adjustment is the increased flexibility in asset types that REITs can invest in, allowing them to diversify beyond traditional real estate into sectors like infrastructure and data centers.

Additionally, the new regulations streamline the approval process for mergers and acquisitions, making it easier for REITs to grow and adapt to market demands. Enhanced disclosure requirements also promote accountability, ensuring that investors have access to critical financial information. Overall, these regulatory changes are designed to foster a more dynamic and resilient REIT market, encouraging both institutional and retail investors to participate actively in this evolving sector.

Impact of Liberalization on Real Estate Industry

The impact of liberalization on the real estate industry has been profound and multifaceted. As countries open their markets, foreign investment flows increase, leading to a surge in property development and infrastructure projects. This influx of capital not only enhances the quality of real estate offerings but also stimulates local economies.

However, liberalization can also lead to rising property prices, making housing less affordable for local residents. Additionally, the increased competition may force domestic firms to innovate and improve their services. While the benefits of economic growth and urban development are clear, the challenges of balancing foreign investment with local needs must be carefully managed to ensure sustainable growth in the sector.

Benefits of New REIT Legal Framework

The new Real Estate Investment Trust (REIT) legal framework offers significant benefits that can enhance investment opportunities and financial stability. By streamlining regulations, it encourages more investors to participate in the real estate market, thus increasing liquidity. This new structure allows for greater transparency and better management practices, which can lead to improved returns for investors.

Furthermore, the framework often includes tax incentives, making REITs more attractive compared to traditional investments. Enhanced governance measures ensure that investors’ interests are prioritized, fostering trust and confidence in the market. Additionally, the increased accessibility of REITs can democratize real estate investment, allowing smaller investors to benefit from large-scale property portfolios.

Overall, the new legal framework not only promotes growth but also stabilizes the market for both seasoned and novice investors.

How the Law Affects Investor Confidence

Investor confidence is significantly influenced by the legal environment surrounding financial markets. A robust legal framework provides assurance, encouraging investors to commit their resources. Laws that protect property rights and enforce contracts foster a sense of security, making investors more likely to engage in long-term investments.

Conversely, a lack of regulatory transparency or the presence of corrupt practices can erode trust, leading to market volatility and reduced investment activities. Furthermore, legal changes, such as new regulations or tax policies, can create uncertainty, prompting investors to either withdraw or hesitate in making decisions.

Ultimately, a stable and transparent legal system is essential for cultivating a positive atmosphere where investors feel safe and motivated to invest, thereby driving economic growth and innovation.

Comparison with Previous REIT Regulations

The recent changes in Real Estate Investment Trust (REIT) regulations have sparked significant discussion among investors and industry professionals alike. Compared to previous regulations, the current framework offers more flexibility in asset types, allowing REITs to diversify their portfolios beyond traditional properties.

This shift enables investments in infrastructure, healthcare, and other sectors, which can enhance returns and mitigate risks. Additionally, the new rules streamline compliance processes, reducing operational burdens for REITs. However, some stakeholders express concerns about potential overextension and the need for stringent oversight to maintain investor protection.

Overall, while the updated regulations aim to foster growth and innovation within the REIT market, careful monitoring will be essential to ensure that these benefits are realized without compromising stability or transparency.

Implications for Real Estate Investment Trusts

Real Estate Investment Trusts (REITs) have become increasingly popular among investors seeking exposure to the real estate market without the complexities of direct property ownership. The implications for REITs in today's economic landscape are significant. Rising interest rates can pose challenges, as higher borrowing costs may squeeze profit margins and impact property valuations.

Conversely, a strong rental market can bolster income, especially for REITs focused on residential and commercial properties. Additionally, the push for sustainable and environmentally friendly practices has led many REITs to adapt their portfolios to meet consumer demand for green buildings. As technological advancements reshape the industry, REITs that embrace innovation will likely gain a competitive edge.

Overall, savvy investors must stay informed about market trends and regulatory changes to navigate the evolving landscape of REIT investments effectively.

Potential Challenges for REIT Managers

Real Estate Investment Trust (REIT) managers face several potential challenges that can impact their operations and investment performance. One significant challenge is market volatility, which can affect property values and investor sentiment. Economic downturns can lead to decreased rental income and increased vacancy rates, putting pressure on cash flows.

Additionally, regulatory changes and compliance requirements can impose operational burdens, requiring managers to stay informed and adaptable. Competition for prime properties can also drive up acquisition costs, making it difficult to achieve desired returns. Furthermore, the need for effective property management and tenant relations is crucial, as poor management can lead to reputational damage and financial losses.

Finally, interest rate fluctuations can impact borrowing costs, influencing overall profitability and investment strategies for REITs.

The Role of Government in REIT Liberalization

The role of government in Real Estate Investment Trust (REIT) liberalization is crucial for fostering a conducive environment for investment and economic growth. By implementing policies that encourage transparency and reduce regulatory burdens, governments can attract both domestic and foreign investors to the real estate market.

This liberalization process often involves revising tax structures, enhancing legal frameworks, and promoting efficient capital markets. Additionally, governments play a significant role in ensuring that REITs operate within a fair competitive landscape, which can lead to increased market participation and innovation.

Ultimately, a supportive government framework not only enhances the attractiveness of REITs but also contributes to broader economic stability and development by mobilizing capital for infrastructure and housing projects.

Future Trends in REIT Market Post-Law

The future of the Real Estate Investment Trust (REIT) market post-law is poised for significant transformation. As regulatory frameworks evolve, investors are likely to see increased transparency and improved governance stKamurds, which can enhance trust in the market. The shift towards sustainability will drive demand for green REITs, focusing on eco-friendly properties that attract socially conscious investors.

Additionally, technology integration, such as blockchain for transactions and AI for property management, will streamline operations and reduce costs. Urbanization trends may push REITs to diversify portfolios into emerging markets and sectors, such as logistics and healthcare real estate. Overall, the combination of regulatory changes, technological advancements, and shifting investor preferences will shape a dynamic and resilient REIT landscape, paving the way for innovative investment opportunities.

How REITs Contribute to Economic Growth

Real Estate Investment Trusts (REITs) play a significant role in contributing to economic growth by facilitating capital flow into the real estate sector, which in turn stimulates job creation and enhances infrastructure development. By pooling funds from a diverse group of investors, REITs enable the acquisition, management, and development of income-generating properties, ranging from residential complexes to commercial buildings.

This investment not only provides returns to shareholders but also stimulates local economies through increased demand for construction services, property management, and maintenance. Additionally, REITs contribute to affordable housing initiatives, ensuring that a broader segment of the population has access to safe and secure living conditions.

As they promote urban renewal projects and revitalization efforts, REITs help enhance property values and community appeal, attracting further investment and tourism. Moreover, the income generated from REITs is often reinvested into new projects, creating a continuous cycle of economic activity that benefits various sectors.

Through these mechanisms, REITs not only support the real estate market but also contribute to overall economic stability and growth, making them a vital component of the financial landscape.

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For those that think homeless people migrate to warmer climates....

....here is a scatterplot of the Census 2017 homeless count per capita against mean January temperature by state:See a correlation?  No?  That's because there isn't one.(Note: y-axis was previously mislabeled).Update: David Albouy asked me to look after controlling for urbanization.  Here is what I got:Homeless people do tend to congregate in more urbanized states.  But again, climate has nothing to do with propensity for homelessness.

Ads that amuse

I was browsing the web, and an add popped up up for a beautiful Porsche, with the tag-line, "a slice of the Autobahn on the 405."I am sure the car is lovely to sit in, but that is about all one does on the 405.

Massachusetts City and Town ByLaws

Here is collection of bylaws and ordinances available online for Massachusetts:AbingtonActon AdamsAgawam Amesbury (Zoning)AmherstAndoverArlingtonAshburnhamAshby Ashby (Zoning)AshlandAttleboro (Zoning) Auburn BarnstableBarnstable (Zoning) BarreBecket Becket (Zoning)Bedford Bedford (Zoning)BelchertownBellinghamBellingham (Zoning)BelmontBelmont (Zoning) BillericaBillerica (Zoning)Blackstone (Zoning)BoltonBoston Boston (Zoning)Bourne Bourne (Zoning)Boxborough Boxborough (Zoning)BoxfordBoxford (Zoning)Brewster Brewster (Zoning)Bridgewater (Zoning)BrooklineBurlington Burlington (Zoning)CambridgeCanton Canton (Zoning)CarlisleCarverCarver (Zoning)CharltonCharlton (Zoning)ChathamChelmsfordChelsea Chelsea (Zoning) Chester (Zoning)ChicopeeChilmarkClintonCohassetConcord Concord (Zoning)CummingtonCummington (Zoning)Danvers Dartmouth Dartmouth (Wetland)Dartmouth (Zoning)DedhamDeerfield DennisDighton DouglasDoverDudleyDunstableDunstable (Zoning)Duxbury Eastham (Zoning)Easton (Zoning)Essex EverettFairhaven (Zoning)Fall RiverFalmouthFitchburgFoxborough (Zoning)FraminghamFramingham (Zoning)FranklinGardner (Zoning)Gill Gill (Zoning)Georgetown Gloucester Gloucester (Zoning)Goshen (Zoning)Grafton (Zoning)Great BarringtonGreat Barrington (Zoning)Greenfield (Zoning)GrotonHamilton (Zoning)Hampden Hampden (Zoning)Hanover Hanover (Zoning)Hanson Hanson (Zoning)HarvardHatfield Haverhill HinghamHoldenHollandHollistonHolyokeHopedaleHopkintonHudsonHull (Zoning) Ipswich (Zoning)KingstonKingston (Zoning)Lancaster (Zoning)Lanesborough (Zoning)Lee (Zoning)LenoxLeominsterLexingtonLincolnLittletonLongmeadowLowell (Zoning)Ludlow Ludlow (Zoning)Lynnfield (Zoning)MaldenManchester-by-the SeaManchester-by-the-Sea (Zoning)Marblehead MarionMarlborough (Zoning) MarshfieldMashpee Mashpee (Zoning)MattapoisettMaynard Maynard (Zoning) Medfield MedfordMedway Medway (Zoning)MelroseMendon MiddletonMilford (Zoning)Millbury Millbury (Zoning)MillisMillis (Zoning)MillvilleMilton (Zoning) Monson (Zoning)Montague (Zoning) NahantNantucketNatickNatick (Zoning) NeedhamNew BedfordNew Bedford (Zoning)New MarlboroughNewburyNewbury (Zoning)NewburyportNewtonNorfolkNorth Andover North Andover (Zoning)North Attleborough North Reading (Zoning)Northampton NorthboroughNorthborough (Zoning) Northbridge Northbridge (Zoning) NorthfieldNorwell (Zoning) Norwood Norwood (Zoning)Oak Bluffs (Zoning)Orange OrleansOtisPalmerPalmer (Zoning)PaxtonPeabodyPeabody (Zoning)PelhamPepperell (Zoning)PetershamPhillipstonPhillipston (Zoning)PittsfieldPlymouthPlympton Plympton (Zoning)PrincetonPrinceton (Zoning)ProvincetownQuincyRandolphRaynham (Zoning)Reading RehobothRevereRichmondRochester (Zoning) RocklandRockport Rockport (Zoning)RowleyRowley (Zoning)RoyalstonSalemSalisburySalisbury (Zoning)Sandwich SaugusScituateSeekonkSharon Sharon (Zoning)Sheffield Sheffield (Zoning)ShelburneShelburne (Zoning)Sherborn (Zoning) Shirley (Zoning)Shrewsbury Shutesbury (Zoning)SomervilleSouthamptonSouthboroughSouthborough (Zoning)SouthbridgeSouthwickSpencerSpencer (Zoning)Springfield Sterling Sterling (Zoning)Stockbridge Stockbridge (Zoning) StonehamStow Stow (Zoning)SturbridgeSudburySunderland (Zoning)Sutton Sutton (Zoning)SwampscottTaunton (Zoning)TempletonTewksbury (Zoning)Tisbury Tisbury (Zoning)TollandTopsfieldTopsfield (Zoning)TownsendTruroTruro (Zoning)Tyringham Upton (Zoning)UxbridgeWalpole (Zoning)WalthamWarehamWatertown (Zoning)WaylandWellesley Wellesley (Zoning) WellfleetWendell (Zoning)West BoylstonWest NewburyWest Springfield West Springfield (Zoning)West Tisbury (Zoning)Westborough (Zoning)Westfield Westfield (Zoning)WestfordWestminsterWestonWestwoodWestwood (Zoning)WeymouthWilbrahamWilbraham (Zoning)Williamsburg Williamsburg (Zoning)WilliamstownWilmington Wilmington (Zoning)WinchendonWinchesterWinthropWoburnWorcesterWorthingtonWrentham (Zoning)YarmouthYarmouth (Zoning) From Massachusetts Law Updates, produced by the Massachusetts Trial Court Libraries: Massachusetts Town and City Bylaws. Disclaimers

California is getting richer..because it is becoming clubbier.

Jung Choi, Eul Noh and I have a paper that shows that when high skill people move to high skill cities, rents for low skill people rise more rapidly than their incomes (high skill people generally see their incomes rise more than rents).  One manifestation of this is that high skill places are pushing out low skill workers.And so we see this currently in California.  Adam Fowler and Hoyu Chong of Beacon Economics looks at American Community Survey Data to look at net domestic migration in California.  More people are moving out than moving in, but it is the lowest income people who are doing the moving.  High income households are actually moving in.There is some irony here, because I often hear people authoritatively say that California's taxes and regulations are pushing wealthy people away.   We will have to see the impact of the curb on the state and local tax deduction on migration (that federal tax law change does increase the relative tax burden for income income people in California), but up to this point, the wealthy seem willing to pay the costs of California's access to labor markets and beaches.What is disturbing, though, is that low income people are moving out at the same rate they are leaving during the great recession, despite the fact that unlike in 2008, the unemployment rate here is at historic lows.  For economies to function, they need people like home health care workers and cooks, people who do important work but don't make a lot of money doing it.  The culprit for the exodus of lower income people from California is almost surely that there isn't enough housing here (the only state with fewer units per person is Utah, whose fertility rate is 30 percent higher than California's).  It is no longer the case that scarcity in housing is limited to Malibu and Beverly Hills--it is reaching San Bernardino and Riverside Counties, the traditional safety valves for inexpensive housing here.  When higher income people compete with lower income people for the same resources, the higher income people tend to win. 

Is it reasonable for Angelinos to expect a shorter commute?

I have lived in LA for 11 years now, and I think it is safe to say that among the top topics of conversation is traffic and the misery of commuting.  And in a sense, people are right aboutthe fact that they have long commutes:  LA-OC Metro 2017 American Community self-reported average travel time to work ranks 246 among the 260 largest Metropolitan Areas, and share of people with a commute of an hour or longer ranks 231 (we will get to who does worse in a bit).  Thanks to Steven Ruggles, Sarah Flood, Ronald Goeken, Josiah Grover, Erin Meyer, Jose Pacas and Matthew Sobek, IPUMS USA: Version 9.0 [dataset]. Minneapolis, MN: IPUMS, 2019, who make it easy to download various data sets and play with them.But should people reasonably expect LA to do any better than this?  Consider this plot of number of commuters in an MSA against average travel time (I looked to see if someone else had done this particular plot, and couldn't find anyone who has.  If I have failed to cite work already done on this, I apologize).Two things are pretty clear: larger cities have worse commuting times, and Los Angeles has shorter commutes than New York, but also shorter commutes than some places with smaller numbers of commuters.How does it do in context?  If we run a simple bivariate regression of number of commuters explaining travel time, we get this:That is a lot of explaining for one variable--the t-statistic is 11 and the R2 is .32.  And I don't worry too much about getting the direction of causality wrong here.  The regression predicts that LA's commute should, given its size, be six minutes, or about 20 percent, longer than it actually is.  So it appears that people who live in Los Angeles and Orange Counties have shorter commutes than they should expect, given the very large size of their employment market (and there are large benefits to living in such large employment markets).  I should note that the scatter plot above looks quadratic, and so I also did the quadratic regression:The addition of the squared term improves the fit, and so now we can explain almost 38 percent of the variation in commuting time with one variable.  It doesn't change the basic result, however, that LA's commute times are considerably shorter than its size would predict (although its commutes are five, rather than six, minutes shorter than the model would forecast).So we who live in LA really have nothing to complain about with respect to congestion--we get agglomeration benefits from living in a very large city (Ed Glaeser, Enrico Moretti, Vernon Henderson, Stuart Rosenthal, Will Strange, Jane Jacobs, Alfred Marshall, and many, many others have written about the productivity and consumption benefits of living in a large MSA), and the congestion costs, while real, are relatively low.   But....this doesn't tell the whole story.  Look again at the scatterplot above, and one sees that the MSA with the longest commute is the relatively small Easton, Pennsylvania.  What is going on here?  Easton is a town immediately to the west of the Delaware River from New Jersey.  It is on Interstate 78, 68 miles to the west of the Holland Tunnel.  It is an inexpensive housing market.  And people commute from there to metro New York.And so it is with Los Angeles. One place with fewer commuters than metro LA, but a longer commute, is Riverside-San Bernardino, the Inland Empire.  The Census counts people who live there as living in a separate metropolitan area, but they are in fact very much part of the Los Angeles regional economy.  And the people who live there have commutes that are more than 20 percent longer than the model predicts.  People who live out east may get some of the production externalities of the region, but I am not sure, after their exhausting commutes, that they benefit that much from the consumption externalities.So I, and my neighbors, who live in Pasadena have no reason to complain about our commutes (cost of housing is a different issue).  Those who live in Ontario, on the other hand, have a point.

Floor Area Ratio and Residential Property

Floor Area Ratio has longed been used as a way regulate building density under zoning laws.  The owner of the property can choose to build a short building on most of the property or a taller building on less of the property.Although Floor Area Ratio has been used to regulate commercial properties, there was some uncertainty as to whether you could use it for single family residential property in Massachusetts. Floor Area Ratio restrictions is one way to limit McMansions.In the case of 81 Spooner Road LLC v. Town of Brookline (SJC-10104), the Massachusetts Supreme Judicial Court ruled that towns and cities can use Floor Area Ratio to regulate the density of single-family residential properties.The uncertainty comes from M.G.L. c.40A, §3 that provides in part: "No zoning ordinance or by-law shall regulate or restrict the interior area of a single family residential building . . . provided, however, that such . . . structures may be subject to reasonable regulations concerning the bulk and height of structures and determining yard sizes, lot area, setbacks, open space, parking and building coverage requirements. . . ."A property owner challenged the Town of Brookline's imposition of a 0.3 Floor Area Ratio on a single family house the owner proposed to build on a vacant lot.The Massachusetts Supreme Judicial Court ruled in part:"that regulation of single-family residences pursuant to the authority in the proviso of G. L. c. 40A, § 3, second par., including bulk regulation by floor-to-area ratio, is a proper exercise of the zoning power, provided the effect of such regulation on the interior area of such structures is incidental.  Although the town's bylaw requires consideration of gross floor area of single-family residences for purposes of calculating floor-to-area ratio, this is not a prohibited direct regulation of interior area.  Its effect is only incidental."It looks like Massachusetts cities and towns can use Floor Area Ratio to limit McMansions from sprouting up, with over-sized houses growing in existing neighborhoods.Disclaimers

Blockshopper

Blockshopper.com is trying to make news out of residential transactions. The site has launched in Chicago, St. Louis, South Florida and Las Vegas, trolling the listing services and registries of deed to find what notable people are doing with their real estate.According to Law.com, some lawyers at Jones Day are not happy that their real estate purchases are making headlines: Lawyers Shrink From Web Real Estate Spotlight. They have sued Blockshopper. Of course, that is just more publicity for Blockshopper. Not free publicity since they will need to pay the lawyers.Will the suit go anywhere? I thought real estate records were public documents and open for anyone to see. So what is the problem?Disclaimers

Lots of folks over 65 are spending a lot on housing.

The Census has a nice tool that allows one to map American Community Survey data by counties (at least counties with sufficient population to develop estimates based on samples).  I drew two today.  This first one is the share of those renters over the age of 65 who pay more than 30 percent of their income on rent.The second one is the share of those owners over the age of 65 who spend more than 30 percent of their income on homeowning.The picture for elderly renters is pretty grim: in most counties that are mapped 45 percent or more are spending more than 30 percent of their income on rent.  So one may take a small amount of comfort in the fact that the 78 percent of those over 65 are homeowners.  But in the median county mapped here,  a quarter of those over the age of 65 pay more than 30 percent on housing cost.  This is because such people have either not paid off their mortgage, or have high property taxes.Altogether, about 55 percent of those 22 percent of the 65+ households who rent pay more than 30 percent of their income in rent, and 26 percent of the 78 percent who own pay more.  This means nearly 1/3 of those over the age of 65 live in an unaffordable house.It is hard to imagine things getting better.  The old population is growing quickly--the very old population is growing even more quickly.  As people age, their incomes fall, so absent falling housing costs, the share that will be pressured by housing costs will increase in the years to come.     

E.B. White on the definition of democracy (h/t Leslie Appleton-Young)

E.B. White in the New Yorker in 1943:We received a letter from the Writers’ War Board the other day asking for a statement on “The Meaning of Democracy.” It presumably is our duty to comply with such a request, and it is certainly our pleasure.Surely the Board knows what democracy is. It is the line that forms on the right. It is the don’t in don’t shove. It is the hole in the stuffed shirt through which the sawdust slowly trickles; it is the dent in the high hat. Democracy is the recurrent suspicion that more than half of the people are right more than half of the time. It is the feeling of privacy in the voting booths, the feeling of communion in the libraries, the feeling of vitality everywhere. Democracy is a letter to the editor. Democracy is the score at the beginning of the ninth. It is an idea which hasn’t been disproved yet, a song the words of which have not gone bad. It’s the mustard on the hot dog and the cream in the rationed coffee. Democracy is a request from a War Board, in the middle of a morning in the middle of a war, wanting to know what democracy is.

Opportunity Funds Overfloweth

National Real Estate Investor published a story by Joe Gose on the flow of capital into distressed property funds: Opportunity Funds OVERFLOWETH."Opportunity funds concentrating on distress intend to take advantage of the seized-up debt markets in a few different ways. Many funds are buying debt at a discount from investment banks stuck with billions of dollars of loans they can't securitize. Other investors believe loose underwriting and over-leveraged properties will soon lead to maturity defaults, essentially defaults that occur when a landlord can't refinance a property because it isn't worth the loan coming due or because a landlord can't come up with a slug of equity that lenders want. Those funds intend to buy up that real estate, or at least gain a position in the assets."It will be interesting to see if the capital markets come back into time to avoid a commercial real estate crash.  The loose underwriting standards we saw eighteen months ago are gone (for the foreseeable future). But most commercial property owners have enough cash flow to pay the monthly debt payments.The problem will come at maturity. Commercial property owners may have a hard time rounding mortgage debt to replace the maturing debt. It was the short maturity on Mr. Macklowe's debt that forced him to sell the GM Building. More commercial property owners are going to be faced with mortgage debt maturity. Will there be mortgage debt there to replace it?Disclaimers

Where are the half-million units?

One of the many useful things the people at the St. Louis Fed do is maintain the FRED page, which has a cornucopia of economic data that is easy to download and graph.   Tonight I just happened to be curious about this picture:The red line is permitted housing units; the blue line is completed unit.  Let's assume that there is a lag of one year between permitting and completion (the length of the time series means that any reasonable lag assumption should be innocuous.  If we look at permits going back to 1967 and ending one year ago, we find that slightly more units were completed than permitted (this is OK, because small places do not necessarily report building permit data to the Commerce Department).  But since 2008, about 500,000 fewer units have been completed than permitted.  This is about a six percent melt from permitting to completion.So the question is: why?  Very curious about this.

When Life Hands You Lehman, Make Lehman-Aid

Over the weekend, Lehman Brothers lost its interested buyers and got ready to file for bankruptcy. According to the New York Times, interested buyers wanted the federal backstop that was put into place for JP Morgan Chase purchase of Bear Stearns: 2 Wall St. Banks Falter; Markets Shaken.According to the Wall Street Journal, the lack of a backstop scared off Bank of America and Barclays PLC: Ultimatum by Paulson Sparked Frantic End. Most people think various buyers will swoop in and buy individual pieces of Lehman.On Sunday afternoon, a trading session was opened to allow firms to try to unwind their derivatives transactions with Lehman by finding other parties to step into Lehman's shoes: Lehman Risk Reduction Trading Session and Protocol Agreement.It should be an interesting Monday and an interesting week.Thanks to Rob Hyndman for coming up with this blog post title. I stole it from one of his Twitter Post (@rhh)DisclaimersAll of these companies are clients of The Firm, but I am not aware of The Firm's participation in any of the weekend's events. If The Firm was involved, I was not. 

Joel Kotkin, Housing Affordability, and the Fringe

Joel Kotkin notes quite correctly that housing is expensive relative to incomes in California--he is certainly not alone in this view.  His cure for this particular illness--make it easier to develop on California's metropolitan fringe.At first glance, he has a point.  The median price of a house in Banning, California (which I think counts as the fringe), is $257,000, which seems pretty affordable.  Here is where Banning is:There is not a lot of, um, public transit available in Banning.  The nearest job centers are in Riverside and Palm Springs, which are 31 and 23 miles away.  Riverside has about 170,000 jobs; Palm Springs has about 26,000 jobs.  So let's say average distance to jobs is about 30 miles.What are the implications of this for affordability?  First, the cost of driving is, according to the Federal Government, about 58 cents per mile.  This means driving cost is about $35 per day.  Let's say people can work from home one day a week, so they drive to work 16 days per month.  Living in Banning adds $560 per month relative to living next to a job.Now let's say you're a parent and need to pay for daycare.  As best as I can tell searching daycare websites, the least expensive late afternoon care costs about $8 per hour (feel free to correct me if I have this wrong).  Assuming an afternoon drive of 45 minutes to Banning, that is another $128 per month per kid.We have now added $688 per month for a household with one young child in living costs by living at the fringe.  At a 4 percent interest rate, this "payment" translates into a $144,000 mortgage--that $260k house is similar in cost to a $400K house near jobs.Note I haven't taken into account the opportunity cost of time, and I am only talking abou private costs.  Surely there are social costs to having people drive longer distances--particularly with respect to greenhouse gas emissions. 

Economic Emergency Stabilization Act of 2008

The White House and Congressional Leaders finalized the Bailout Bill: Current draft of the Economic Emergency Stabilization Act of 2008. (from the Wall Street Journal) It will be interesting to see how it progresses through the House and Senate. I expect to see a lot of salesmanship as politicians try to weave into their current political campaigns. What does it actually do?  Read this summary from the WSJ.com: Shape of Massive Bailout Bill Starts to Develop Definition.  Disclaimers

Housing really is harder to afford

I have enjoyed reading Michael Kinsley's stuff for as long as I can remember.  The problem is that he inspired a group of young people to value cleverness and contrariness, and so we get stuff like Kevin Drum in Mother Jones saying that housing costs are not rising at an alarming rate.Allow me to present two pictures (and again, let me acknowledge the people at IPUMS for making it easy to use census and American Community Survey Data).  The first is median rent to median renter income for about 225 MSAs in 2000.The next is the same picture, but for 2016.Notice how in 2000,  in the vast majority of MSAs, the median renter would spend less than 30 percent of income on the median rental unit.  By 2016, that had reversed: the median income renter pays more than 30 percent of income in rent in the majority of cities.  And while the 30 percent number is somewhat arbitrary, that fact that rents relative to incomes rose nearly everywhere is not.  It is easy to see why renters are upset.

Largest Real Estate Investment Managers

Pensions and Investments Online put together a list of the Largest Real Estate Investment Managers. The list is ranked by total worldwide real estate assets, in millions, as of June 30, 2008. Disclaimers

What is it about LA?

Cities will make the following deal with developers: we'll give you more density, if you provide units that are deed restricted to be "permanently affordable," meaning will have rents below some ceiling that is tied to area median income.I have now talked to developers who say the deal works in Seattle and New York, but not in Los Angeles, because city governments around LA specify so much of what must be done during the development process.This argues (again) for the need for performance based regulation.  For instance, when the EPA requires auto makers to have a minimum MPG for their fleet, it doesn't tell the auto makers how to get there--it just says, "get there."  

Is the increasing cost of housing about productivity?

Construction productivity has long lagged productivity in other sectors.  For example, a McKinsey report has manufacturing productivity in several OECD countries increasing by 70 percent, while construction productivity has been flat.Microeconomic theory holds that in a competitive economy, in equilibrium, the Marginal Rate of Physical Transformation between goods must equal the Marginal Rate of Substitution (that is, the tradeoff on the production side must equal the trade-off on the consumption side).  Prices equilibrate both.  So let's say in the case above, one could in 1994 trade one house for one bundle of manufactured products. By 2012, one could trade one house for 1.7 bundles.  For this to equilibrate, this means that the price of housing must rise to 1.7X the price of manufactured goods.  This might, in the end, lead people to consumer more housing (because increasing productivity in the manufacturing sector could raise incomes), or less housing (because its relative cost is housing).The world is more complicated than this--for example, we have not seen overall productivity spill over anything like completely into wages.  But if you wonder why the rent is to damn high, the productivity story could well be a large part of the reason. 

A New Chapter for Me

Yesterday was my last day at The Firm. It was hard to walk out the door after 13 great years. Andy Sucoff extended me an offer to join the real estate group during the summer of 1995.  It has been great working with one of the best group of real estate lawyers in the country. I was able to work on interesting and complex real estate transactions. I will miss the practice and my clients.Don Oppenheimer transformed my practice by introducing me to knowledge management about 8 years ago. The Firm was very forward-thinking in trying to maximize the collective intelligence of its attorneys and staff. And still is. We have experienced tremendous success through the knowledge management program. It has been growing even more with The Firm's adoption of enterprise 2.0 tools as part of the knowledge management program.I had a great time and learned a great deal during those two chapters of my career. But, a great opportunity presented itself and I had trouble ignoring it. So, now I start a new chapter.I am taking a few days off to relax. I have some biking trips and kayaking trips lined up. Of course, you cannot rely on New England weather.Later this month, I join Beacon Capital Partners as their Chief Compliance Officer. It is a big change in career. But I am looking forward to new challenges and opportunities.As for Real Estate space? It will live on.At least for a little while longer.  Disclaimers

Shopping

I just had a major home repair that illustrated (1) that law of one price doesn't always hold and (2) people should shop for expensive things.The expensive thing was a new roof on my vintage 1911 house.  That the place needed a new roof (including a tear-off of the old roof) was not a question. I call up a handyman I know and like, and I got a quote of X.  His work is good, but it turns out he is not bonded and doesn't always see the need for permits.  So I decided to investigate further.I call up roofing company A, and I get a quote of 3X.  But, as the salesman told me, "if I act now!" The price would be 2.5X.  I passed.I call up roofing company B, and I get a quote of 2X.  I think I may be stuck with this, but I decide to call one more.Company C gives me a price of 1.1X, with bonding and permitting included.  The new roof is beautiful too (and uses the same shingles offered by A and B).  It was very much worth the bother of shopping.So roof shopping is like car shopping, mattress shopping and mortgage shopping--some people selling the products take advantage of the fact that there are people who don't have the ability to fend for themselves.  The sad thing is that those least able to afford absurd mark-ups are those most victimized by those mark-ups.  And that is why we need consumer protection.

Eight double spaced pages that might change the world.

Geoffrey Heal computes the cost of going entirely to renewables by the year 2050.  The paper is short and to the point.  His computations are:US GDP is currently a shade under $20 trillion.  If Heal is correct, this means the cost of going to all renewables is ~ 11 basis points per year over the next 31 years.  It is hard to imagine that the negative externalities of fossil fuel are less than 11 bps.  Heal also argues that costs will, if anything, be lower than the computed costs.Imagine--it is possible to stop greenhouse gas emission while improving the economy.  

Emerging Trends in Real Estate

The Urban land Institute's  Emerging Trends in Real Estate for 2009 came out with a picture of doom and gloom, predicting that in 2009, commercial real estate will suffer its worst year since the industry's crash of 1991-92, with a noticeable rebound unlikely until 2011 at the earliest. It also forecasts a decline of 15% to 20% in property values, on average, from their 2007 peaks, with even sharper declines coming in weaker markets.Of the 50 markets tracked, the study found only Dallas and Houston have prospects for investment and development in 2009 that should be better than in 2008, thanks to their exposure to the energy industry. All other markets face deteriorating conditions next year, the study said.But, the report does point out that there are opportunities to be found. Disclaimers

FinCEN Withdraws Proposed Rulemaking for Unregistered Investment Companies

On September 26, 2002, Financial Crimes Enforcement Network issued a notice of proposed rulemaking, proposing to require unregistered investment companies to establish and implement anti-money laundering programs. (Anti-Money Laundering Programs for Unregistered Investment Companies, 67 FR 60617 (Sep. 26, 2002))In that notice of proposed rulemaking, FinCEN proposed to define the term “unregistered investment company” as (1) an issuer that, but for certain exclusions, would be an investment company as that term is defined in the Investment Company Act of 1940, (2) a commodity pool, and (3) a company that invests primarily in real estate and/or interests in real estate. FinCEN proposed requiring these companies to file a notice so that FinCEN could readily identify such companies and require them to establish and implement anti-money laundering programs.I have been watching that rule-making process because it could have a profound impact on buying and selling real estate. For big commercial transactions we keep an eye on the parties to see if there is a reason to be wary and to see if they on the Specially Designated Nationals and Blocked Persons List. But I had some concern that they could extend the "know your customer" rules deep into real estate transactions imposing lots of administrative overhead for little benefit.  Yesterday, FinCEN gave notice under 31 CFR Part 103 Withdrawal of the Notice of Proposed Rulemaking for Anti-Money Laundering Programs for Unregistered Investment Companies . FinCEN is not abandoning the possibility of pursing the rulemaking. Given the six year span since the notice, they feel it has gone stale. If (or when) they decide to proceed with an anti-money laundering program requirement for unregistered investment companies, they will publish a new notice.  Disclaimers

Creating a Title Insurance Behomoth

Fidelity National Financial, Inc. (NYSE: FNF - News) and LandAmerica Financial Group, Inc. (NYSE: LFG - News) today announced the signing of a definitive merger agreement under which FNF will acquire LFG. [Press Release]That means Commonwealth Land Title Insurance Company and Lawyers Title Insurance Corporation will combine with Fidelity National Title, Chicago Title, Ticor Title, Security Union Title and Alamo Title.The combined company will have almost half of the real estate title insurance market, based on the Demotech Performance of Title Insurance Companies 2008 Edition.Disclaimers

A Look at Commercial Real Estate Debt

The Real Estate and Real Estate Capital Markets Group at Goodwin Procter put together A Look at Commercial Real Estate Debt: Where We Are Now and Where We May Be Going.Disclaimers

I host a podcast.

It's a chat about Robert Galbraith's Career of Evil.  Panelists Lisa Schweitzer and Aubrey Hicks made is work.

Not Creating a Title Insurance Behemoth

Fidelity National Financial, Inc. (NYSE: FNF - News) canceled its plans to acquire LandAmerica Financial Group, Inc. (NYSE: LFG - News) . The combination would have created a behemoth that controlled almost half of the title insurance market.Under the agreement, Fidelity National had discretion to terminate the merger on or before Nov. 21 under its contractual due diligence termination right. Fidelity exercised that termination.LFG's stock price plunged over 80% today on that news. On Nov. 10, LandAmerica reported in its third-quarter results that it was no longer in compliance with financial debt covenants and hadn't yet obtained waivers, putting into a growing list of companies with "growing concern doubts."See also:Busted Deal Slams LandAmerica - Wall Street JournalSo Much For That Merger - David Stejkowski of The Dirt Lawyer's BlogLandAmerica Moves Forward - LandAmerica Investor RelationsDisclaimers

Not Not Creating a Title Insurance Behemoth

The off and on combination of Land America Financial Group with Fidelity National Title Title is back again. LandAmerica press release: LandAmerica Signs Stock Purchase Agreement for Underwriters.The two signed a merger, then Fidelity terminated, now they restructured the transaction again. This time, Fidelity is purchasing the Lawyers Title and Commonwealth Land Title subsidiaries.The parent holding company and its 1031 exchange company are filing for bankruptcy. That sounds like bad news for anyone with cash sitting in a LandAmerica 1031 account. It turns out that the company had $290 million invested in auction rate securities as part of the its 1031 business.[Fitch Downgrades LandAmerica's IFS to 'BB'; on Watch Negative] Perhaps that is what Fidelity saw during its diligence and decided to cancel the original deal.That means Commonwealth Land Title Insurance Company and Lawyers Title Insurance Corporation will combine with Fidelity National Title, Chicago Title, Ticor Title, Security Union Title and Alamo Title.Its unclear how the transactions will impact employees and agents of LandAmerica, Lawyers Title and Commonwealth Title. David Stejkowski of the The Dirt Lawyer's Blog thinks it will be good for agents to "have the backing of the 800 pound gorilla in writing policies."The combined company will have almost half of the real estate title insurance market, based on the Demotech Performance of Title Insurance Companies 2008 Edition.See my prior posts:Not Creating a Title Insurance BehemothCreating a Title Insurance BehemothDisclaimers

Should young people borrow to get their 401(k) match?

I think the answer is yes.  Suppose you are a young person, early in your earnings years.    Your employer offers you a one to one 401(k) match on, say, 5 percent of your income.  The employer match gives you a guaranteed 100 percent immediate return on your investment (I know of no other deal like this).  But after paying rent, college (or other school) debt, utilities and food, you haven't got five percent of your income left over.  Should you take on credit card debt to finance the 401(k) contribution?If (and that is a big if) you are a prime borrower, the answer is likely yes.  Suppose your investments earn an eight percent return and, as a prime borrower, you pay 15 percent interest on your credit card.  You are creating a $200 asset for every $100 of debt you take on.  The asset grows by 8 percent, compounded, per year, and your debt grows by 15 percent, meaning that in year 11 the value of your debt will exceed the value of your assets.  (Clearly, if credit card interest is in the 20s, it is a completely different story.But, one expects income to increase over the early part of the life-cycle, making it possible to amortize the credit card debt over time.  It is important to be disciplined, and not use any more credit card debt than necessary, and to pay it off as soon as possible, but it also makes sense not to leave money on the table.  

1984: Something happened to Rent CPI

Using one of the world's most useful websites, FRED, I drew a graph of rent CPI and all CPI going back to the beginning of the series.Until 1984, rent growth and CPI growth pretty much matched each other, meaning inflation adjusted rents stayed nearly constant.  And then, a departure began between the two: rents have been rising faster than inflation, and the difference between he two is accelerating.In a well functioning housing market, rents should stay fairly constant across time.  If rents rise above inflation, builders have incentive to build, until they create enough vacancy that real rents fall again (in the old days, this would usually entail a little bit of overshooting).We do not, alas, have a well functioning housing market in the US.  My hypothesis is that this is because builders, unlike, say, auto manufacturers or farmers, need to get permission from governments to respond to demand pressures, and often do not get it.     

Tenant Allowance and Build-Out Obligations When a Tenant Files for Bankruptcy

Sutherland published a timely legal alert on what a landlord can do with a tenant allowance and tenant build-out obligations when a tenant goes bankrupt: Obtaining Relief From Tenant Allowance and Build-Out Obligations When a Tenant Files for Bankruptcy.The alert points out that lease provisions that allow the landlord to stop completion or funding upon the tenant filing bankruptcy are largely unenforceable as ipso facto provisions under section 365(e).The alert notes two cases which came down with different results on tenant accommodations.In re Postle Enterprises, Inc., 48 B.R. 721, 724 (Bankr. D. Ariz. 1985) found an improvement allowance to be a financial accommodation under 11 U.S.C. § 365(c)(2),(e)(2)(B). Therefore allowing the landlord to limit its exposure.In re United Press International, Inc., 55 B.R. 63, 66 (Bankr. D. D.C. 1985), that court found a landlord’s build-out of a tenant’s premises to a tenant’s specifications did not rise above “an ordinary lease” and as such was not a financial accommodation.Thanks to James B. Jordan, David J. Rabinowitz and Garland L. Reid of Sutherland for putting together an alert on a topic that is on the mind of landlords.Disclaimers

Stealing the Empire State Building

The New York Daily News tried to show that it is easy to "steal" property by filing fake deeds. The story is rather foolish, but if you want to read it: It took 90 minutes for Daily News to 'steal' the Empire State Building.The reporters think that by filing a forged deed, they somehow could control the building and get a mortgage. Sure it is possible to try to steal money by going through this exercise. Of course you are just leaving a paper trail that makes it easy to figure out what happened and get caught. I could also jump into a car and drive off. That is stealing too.What is wrong with the story? The property manager is unlikely to turn over the bank accounts to some unknown person just because they have a deed. Tenants are unlikely to redirect rent payments without more evidence of a transfer. A mortgage lender is not going to turn over loan proceeds based on mere deed. One reason to insert lawyers into the real estate conveyance process is to prevent scams like this.Mortgage lenders demand lots of documentation because they try to avoid scams like this. Mortgage lenders get title insurance to protect against fraud and scams.It was a stunt and created an interesting headline. However, someone is likely to pay a fine or go to jail for it. I am not a New York lawyer but I would guess that there is a law against filing fake documents.DisclaimersImage is by David Shankbone from Wikimedia Commons

The median male earner--the top line overstates progress

Has the median man made progress economically since 1980?  Not really.  While male median income rose (in 2017 $) from $35,589 to $40,396, or 13.5 percent,  this modest increase masks the fact that the share of men in their peak earnings years has increased, and that earnings at the median within peak earnings years categories have decreased. Share in Age Category Median Earnings (2017 $) 1980 2017 1980 2017 15-24 0.216 0.120  $13,057  $13,734 25-34 0.232 0.183  $44,252  $40,575 35-44 0.161 0.167  $56,911  $52,403 45-54 0.136 0.169  $56,732  $53,985 55-64 0.127 0.165  $45,200  $48,863 65+ 0.127 0.196  $20,845  $32,654 Note that population share for 35-64, prime earnings years, rose from 1980 to 2017; earnings fell for every population group between 25 and 54.  The median 30 year old is making less than their counterpart from 27 years earlier, as is the median 40 year old, as is the median 50 year old.Had income within each age category remained constant at 1980 levels, current median income for men could be $40,306, or almost exactly where it us now.  On an age adjusted basis, there was no median income growth.  But that probably overstates economic well being at the middle--the one category where income has risen rapidly is the 65+ group, which may reflect the fact that 65 year olds no longer feel that they can retire.  So when current generations think they are not keeping up with the past, they are on to something.Some notes: (1) I use 1980 as the base year, because how median income was measured changed that year, and so previous years are not as comparable.  (2) I look only at men, because the labor force participation rate among women has changed so much that 1980 and 2017 data are not comparable (although it is no doubt the case that women are far more economically independent now than in 1980). Source: US Census Bureau: Current Population Survey, Annual Social and Population Supplements.  Table P8.   

Government Seizes 650 Park Avenue

According to the Wall Street Journal, the United States Attorney for the Southern District of New York has filed a forfeiture proceeding against 650 Fifth Avenue in New York.In its press release: United States files civil forfeiture action against ASSA corporation's interest in Manhattan office tower (.pdf), the DOJ claims that a 40% interest in the building is held by the ASSA Corporation which is acting as a front for Bank Melli. The Government of Iran controls Bank Melli and ownership is considered an export under the Iraninan Transaction Regulations (Title 31 CFR, part 560)Disclaimers

Health Care REIT, Inc. Added to S&P 500

Standard & Poor's announced that Health Care REIT Inc. (NYSE:HCN) will replace Sovereign Bancorp Inc.(NYSE:SOV) in the S&P 500. Standard & Poor’s Announces Changes to U.S. Indices [.pdf] Sovereign is being acquired by Banco Santander SA, leaving a vacancy in the index.Health Care REIT, Inc. is an equity real estate investment trust that invests across the full spectrum of senior housing and health care real estate, including independent living/continuing care retirement communities, assisted living facilities, skilled nursing facilities, hospitals, long-term acute care hospitals and medical office buildings. Disclaimers

Tenant-in-Common Interests are Securities

On January 14, the SEC issued a no-action letter to OMNI Brokerage, Inc., Argus Realty Investors, L.P., and PASSCO Companies, LLC regarding their tenant in common interest program. The SEC said no to the "no action.""Based on the facts presented, the Division disagrees with your view that the proposed offer and sale of undivided tenant in common interests pursuant to the Master Lease Transactions and Property Management Transactions (each as defined in your letter) do not involve securities within the meaning of Section 2(a)(1) of the Securities Act of 1933. As a result, the Division is unable to assure you that it would not recommend enforcement action to the Commission unless such offers and sales are registered under the Securities Act or exempt from registration."TIC sponsors will need to revisit their platform if they have not been treating their TIC interests like securities. In an article in National Real Estate Investor, Beth Mattson-Teig points out that the no-action letter is limited to the specific facts presented in the request for confirmation: SEC Confirms TICs as Securities.SEC No Action Letter to OmniOmni Letter Request for Confirmation (.pdf) submitted in 2006Disclaimers

REITs May Pay Dividends in Stock to Save Cash

In a Bloomberg story By Hui-yong Yu, REITs in U.S. Consider Paying Dividends in Stock to Save Cash, many publicly traded REITs may take advantage of a IRS ruling allowing them to pay dividends instead of cash.On December 10, 2008 the Internal Revenue Service issued Revenue Procedure 2008-68 announcing that the IRS will treat a cash option stock dividend as satisfying a public REIT’s distribution requirements for 2008 and 2009 so long as shareholders can elect to take at least 10% of the dividend in cash.According to a REIT Alert from Goodwin Procter, IRS Issues Guidance on Taxable Stock Dividends:The Revenue Procedure provides that the IRS will treat a capped cash option stock dividend by a REIT as a taxable dividend, and will consider the amount of stock distributed to be equal to the amount of cash which could have been received instead, if:the dividend is made by the REIT to its shareholders with respect to its stock;the terms of the dividend allow each shareholder the right to elect to receive its entire distribution in either cash or stock of the REIT of equivalent value, provided that the REIT may impose a limitation on the amount of cash to be distributed in the aggregate to all shareholders of not less than 10% of the aggregate distribution; andthe number of shares to be distributed is determined as close as practicable to the payment date based upon a formula utilizing market prices.Disclaimers

Compliance Building

With my move from Goodwin Procter to be Chief Compliance Officer at a real estate company, I have been using a blog to keep my notes. I have just open up this blog to the public. You can see what I have been up to at Compliance Building.Disclaimers

By world standards, the middle class in the US still does very well

By World Standards, The Middle Class In The US

Hello, dear readers! How are you? When we examine the concept of the middle class through a global lens, it becomes clear that the stKamurds and expectations can vary significantly from one country to another. In the United States, the middle class is often characterized by a blend of economic stability, access to education, and a certain lifestyle that reflects both opportunity and challenge. As we delve deeper into this multifaceted topic, we’ll explore what it truly means to be part of the middle class in the US, how it compares to other nations, and the evolving dynamics that shape this demographic today. So, greetings once more, and please continue reading!

Table of Contents

1. Historical Context of the American Middle Class
2. Economic Indicators Defining Middle Class Status
3. Variations in Middle Class Income Across States
4. The Role of Education in Middle Class Stability
5. The Impact of Housing Market on Middle Class Families
6. Social Mobility and the American Middle Class
7. Middle Class Spending Habits and Consumer Behavior
8. Challenges Facing the Middle Class in Today’s Economy
9. The Influence of Healthcare Costs on Middle Class Life
10. Comparing Middle Class Lifestyles Across Different Countries

Historical Context of the American Middle Class

The American middle class emerged as a distinct social and economic group in the late 19th and early 20th centuries, shaped by industrialization, urbanization, and rising educational opportunities. Following World War II, this demographic experienced unprecedented growth, fueled by post-war prosperity, the GI Bill, and expanding consumer culture, which allowed many families to achieve home ownership and access to higher education.

However, the middle class has faced significant challenges in recent decades, including wage stagnation, rising living costs, and economic inequality, leading to a re-evaluation of its role in society. The historical context of the American middle class reflects broader societal shifts, portraying a narrative of aspiration and resilience, while also highlighting the ongoing struggle for stability and equity in an ever-changing economic landscape.

Economic Indicators Defining Middle Class Status

Economic indicators play a crucial role in defining middle-class status, providing insight into the financial health of households. Key metrics such as income levels, employment rates, and education attainment are essential in assessing this demographic. A stable income, often measured against the median income of a region, serves as a primary indicator of middle-class standing.

Furthermore, job security and access to quality employment opportunities contribute significantly to economic stability. Education, particularly higher education, enhances earning potential and fosters upward mobility, thereby solidifying middle-class status. Additionally, homeownership rates and access to healthcare are vital indicators, reflecting the economic security and overall well-being of families.

Understanding these indicators helps policymakers devise strategies to support and strengthen the middle class, which is integral to a thriving economy.

Variations in Middle Class Income Across States

Variations in middle-class income across states highlight significant economic disparities in the United States. Factors such as cost of living, local job markets, and educational opportunities contribute to these differences. For instance, states with robust economies, like California and New York, often boast higher middle-class incomes, yet they also face elevated living costs.

Conversely, states in the Midwest may offer lower average incomes but compensate with more affordable housing and overall expenses. This intricate balance influences the quality of life for middle-class families, impacting their purchasing power and social mobility. Understanding these variations is crucial for policymakers aiming to address economic equality and improve living stKamurds across diverse regions.

Efforts to bridge the income gap can lead to a more equitable and prosperous society for all citizens.

The Role of Education in Middle Class Stability

Education plays a pivotal role in ensuring the stability of the middle class, acting as a catalyst for economic opportunity and social mobility. By equipping individuals with essential skills and knowledge, education empowers them to secure better-paying jobs, fostering financial security. This stability is crucial in a rapidly changing job market, where technological advancements and globalization continuously reshape employment landscapes.

Furthermore, educated individuals are more likely to engage in civic activities, contributing to community development and social cohesion. As families invest in education, they not only enhance their immediate prospects but also set a foundation for future generations, perpetuating a cycle of opportunity.

In this way, education serves as both a safeguard and a springboard for the middle class, reinforcing their role in society and the economy.

The Impact of Housing Market on Middle Class Families

The housing market significantly impacts middle-class families, shaping their financial stability and quality of life. As home prices rise, many families find it increasingly difficult to afford suitable housing, leading to heightened financial strain. This situation often forces them to compromise on their living conditions or relocate to less desirable areas, which can affect their children's education and overall well-being.

Additionally, rising mortgage rates can limit access to homeownership, pushing families into rental markets where prices are also climbing. The challenge of balancing housing costs with other essential expenses creates a precarious situation for middle-class households, ultimately influencing their ability to save for the future, invest in education, and achieve long-term financial goals.

As such, the housing market plays a crucial role in determining the economic health of middle-class families.

Social Mobility and the American Middle Class

Social mobility is a crucial aspect of the American dream, representing the ability of individuals to improve their economic status through hard work and education. The American middle class has historically been seen as a cornerstone of this mobility, providing a pathway for many to achieve upward movement.

However, recent studies indicate that opportunities for social mobility are declining, with rising income inequality and stagnant wages posing significant barriers. Many families in the middle class struggle to afford quality education and healthcare, which are essential for advancement. This stagnation can lead to a sense of hopelessness, as younger generations find it increasingly difficult to surpass their parents' socioeconomic status.

Addressing these challenges requires a concerted effort from policymakers to create equitable opportunities that foster a more dynamic and accessible middle class in America.

Middle Class Spending Habits and Consumer Behavior

Middle class spending habits significantly shape consumer behavior in modern economies. This demographic, often characterized by stable incomes and moderate discretionary spending, tends to prioritize essential goods and services. Recent trends indicate a shift towards experiences over material possessions, with increased spending on travel, dining, and entertainment.

Additionally, middle class consumers are becoming more conscious of brand values and sustainability, often favoring companies that align with their ethical beliefs. Digital shopping has also transformed their purchasing patterns, with online platforms offering convenience and variety. As this group continues to evolve, businesses must adapt their strategies to meet these changing preferences, ensuring they remain relevant in a competitive market.

Understanding these dynamics is crucial for marketers aiming to engage effectively with this influential consumer segment.

Challenges Facing the Middle Class in Today’s Economy

The middle class faces a myriad of challenges in today’s economy that threaten their stability and growth. Rising inflation has eroded purchasing power, making everyday essentials increasingly unaffordable. Simultaneously, stagnant wages fail to keep pace with the cost of living, leading to financial stress and uncertainty.

Housing prices have surged, pushing homeownership out of reach for many families. Additionally, student debt burdens young professionals, hindering their ability to invest in the future. The gig economy, while offering flexibility, often lacks benefits and security, leaving many without a safety net.

As the divide between the wealthy and the middle class widens, understanding these challenges is crucial for policymakers. Addressing these issues is essential to ensure that the middle class can thrive and contribute to a balanced economy, fostering social mobility and opportunity.

The Influence of Healthcare Costs on Middle Class Life

In today’s society, the burden of healthcare costs profoundly impacts the lives of the middle class, often dictating their quality of life and financial stability. As insurance premiums rise and out-of-pocket expenses soar, families find themselves trapped in a cycle of debt and anxiety. Many are forced to make difficult choices, sacrificing essential needs like education and housing to cover medical bills.

This financial strain not only affects individual health outcomes but also creates a ripple effect on mental well-being and community ties. Furthermore, the fear of unexpected medical expenses can lead to a reluctance in seeking necessary care, ultimately worsening health conditions. The struggle against escalating healthcare costs remains a pressing issue, demanding urgent attention to ensure a healthier, more secure future for the middle class.

Comparing Middle Class Lifestyles Across Different Countries

The middle class lifestyle varies significantly across different countries, shaped by cultural values, economic conditions, and social norms. In countries like the United States, the middle class often enjoys access to larger homes, personal vehicles, and a diverse range of consumer goods, reflecting a culture of consumption.

Conversely, in nations such as Sweden, the middle class may prioritize sustainability and work-life balance, often living in smaller, eco-friendly homes while benefiting from robust social welfare systems. Meanwhile, in emerging economies like India, the middle class is rapidly growing, characterized by a blend of traditional values and modern aspirations, leading to unique consumption patterns and lifestyle choices.

These differences highlight how local contexts influence the experiences and expectations of the middle class globally.

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