Politics, Economics and other Stuff

Detroit

via Clusterstock, Urbanophile posts

1949:



2003:

Fairfax County Patchwork

All part of the landscape of urban sprawl. Also part of the suburban economy, since this is, I believe, an equestrian barn. 

Million Dollar Homes

There is one type of high density development here in VA that still strikes me as laughable when I see it, though I'll probably get used to it.  Not something I've seen in CT.  These homes are just around one million, though maybe not on this side which face a shopping mall.  Though no sales that I can see in 2009 yet.  Beyond our price point, and in this case not something that bothers me. These are large houses, 4,500 to over 5,000 sq.ft, on 1/8 acre.  Our new house, if things work out, is going to be a bit over 3,000 sq. ft. on a bit under 1 acre, maybe down to 1/2 acre.  Land will be more valuable than the building. If we buy at all, which is an open question. My most preferred candidate house at this stage doesn't even have any street frontage, being a back lot with a long driveway, and backs up on a county park. 

Not clear to me how much this is driven by zoning that is trying to have 'smart growth' and encourage higher density housing. My European exposure does not prevent me from having a visceral reaction against these houses.  Do you get this sort of construction in the NYC suburbs? 

Once the trees grow in it might not be so bad.  So this may just point out the importance of trees. No garages either, weird for America outside of real urban areas.  Actually, how weird is it?  I know lots of people without garages (Alexandria, VA, Cambridge, MA, even very very upscale, New Haven, CT on the lower end of the market). [Ooops, there may be some garages...no garages at all would be too weird.]

 

The Unequal Geographic Burden of Federal Taxation

Since I'm moving to an even higher wage and higher cost location, I though I'd mention this. The point -- despite what the title of the article may imply -- isn't that redistribution from higher income to lower income persons is bad, but that who is higher income in real terms is mismeasured by the US tax system and that this mismeasurement has efficiency costs. Do other countries do better on this dimension?

David Albouy, The Unequal Geographic Burden of Federal Taxation

In the United States, workers in cities offering above‐average wages—cities with high productivity, low quality of life, or inefficient housing sectors—pay 27 percent more in federal taxes than otherwise identical workers in cities offering below‐average wages. According to simulation results, taxes lower long‐run employment levels in high‐wage areas by 13 percent and land and housing prices by 21 and 5 percent, causing locational inefficiencies costing 0.23 percent of income, or $28 billion in 2008. Employment is shifted from north to south and from urban to rural areas. Tax deductions index taxes partially to local cost of living, improving locational efficiency.

Ugly Houses

We're looking for a house to live in.  It is astounding how many ugly houses there are, including expensive new ones.  We do try to avoid areas with a lot of the big new ugly ones, or at least that's a goal.  Like our old house, I'm pretty sure the new house isn't going to be a beauty, since beauty isn't currently in the budget, but I do want to avoid really offensively ugly houses. 

Actually, there are ugly houses even worse than this.  But still. What gets me is the current lack of trees.  I'm willing to pay for trees  -- I think that sort of beauty ought to be in the budget.  We'll see.  From Flickr:

(Not) Photographing Houses

I was walking around a few days ago and thought I'd photograph houses I ran across, but I gave up on that project quickly.  I didn't want to annoy anybody, even if I wasn't challenged.  Furthermore, taking photos of houses is hard, especially if one doesn't want to draw attention to oneself.  Lots of good looking houses don't photograph easily.  Not quite as hard as trees, but houses look better on site than in a random photo. 

Incentives and Behavior of Mortgage Servicers

The NYT has an article on incentives and the behavior of mortgage servicers which reminds me that I ought to know more about this topic.  One question is where the existing contracting arrangements come from and how they can be modified or renegotiated. 

Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue — fees for insurance, appraisals, title searches and legal services.

“It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen,” said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who worked in the law department of a major mortgage company, Ocwen Financial. “I don’t think they’re motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It’s a license to do whatever they want.”  ....

Legal experts say the opportunities for additional revenue in delinquency are considerable, confronting mortgage companies with a conflict between their own financial interest in collecting fees and their responsibility to recoup money for investors who own most mortgages.

“The rules by which servicers are reimbursed for expenses may provide a perverse incentive to foreclose rather than modify,” concluded a recent paper published by the Federal Reserve Bank of Boston. ....

When borrowers fall behind, mortgage companies typically collect late fees reaching 6 percent of the monthly payments.

“For many subprime servicers, late fees alone constitute a significant fraction of their total income and profit,” said Diane E. Thompson, a lawyer for the National Consumer Law Center, in testimony to the Senate Banking Committee this month. “Servicers thus have an incentive to push homeowners into late payments and keep them there: if the loan pays late, the servicer is more likely to profit.”  ...

Mortgage companies not only gain this extra business through their subsidiaries, but also collect reimbursement for the payments when the houses are sold.

The investors who own bad mortgages accept whatever is left. Investors typically do not notice how much they give up to the servicers, because fees are embedded in complex sales.

“It’s under the radar,” Ms. Golant said.

Ultimately, the benefits of delinquency erode incentives for mortgage companies to dispose of troubled loans quickly, say experts, allowing distressed houses to decay and fall in value — a fact of little interest to the servicer.

“At the end of the day, it doesn’t matter what the house sells for, because they don’t take that loss,” said Ms. Golant. “Meanwhile, they are collecting all these fees.”

More Green Shoots

Hm, yet another of the leading indicators seems to be turning, in this case housing starts.  Given the housing market is at the center of the crisis this is a bit hard to interpret -- who is building houses and why? -- but it does match up with the historical pattern of recoveries.  (see for instance Mishkin and comments on that paper by Hamilton, or Ed Leamer -- about time I give these papers a serious read).  Indeed, in the standard macroeconomic literature housing is a bit neglected, as Leamer points out.  

via CR:

Here is the Census Bureau report on housing Permits, Starts and Completions.

Building Permits:
Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 563,000. This is 8.7 percent (±3.0%) above the revised May rate of 518,000, but is 52.0 percent (±3.6%) below the June 2008 estimate of 1,174,000.

Single-family authorizations in June were at a rate of 430,000; this is 5.9 percent (±1.4%) above the revised May figure of 406,000. Authorizations of units in buildings with five units or more were at a rate of 109,000 in June.

Housing Starts:
Privately-owned housing starts in June were at a seasonally adjusted annual rate of 582,000. This is 3.6 percent (±11.3%)* above the revised May estimate of 562,000, but is 46.0 percent (±4.3%) below the June 2008 rate of 1,078,000.

Single-family housing starts in June were at a rate of 470,000; this is 14.4 percent (±11.8%) above the revised May figure of 411,000. The June rate for units in buildings with five units or more was 101,000.

'A dynamic measure of inflation'

Is there a sensible way of getting asset prices (i.e. house prices?) into a welfare based measure of inflation?

Ricardo Reis, A dynamic measure of inflation

This paper shows that conventional measures of cost-of-living inflation, based on static models of consumption, suffer from two problems. The …first is an intertemporal substitution bias, as these measures neglect the ability of consumers to borrow and lend in response to price changes. The second problem is the omission of intertemporal prices, which capture relevant relative prices for a consumer who lives for many periods. I propose a dynamic price index (DPI) that solves these problems. Theoretically, I show that the DPI: is forward-looking, responds by more to persistent shocks, includes assets prices, and distinguishes between durable and non-durable goods prices. Dynamic inflation in the United States from 1970 to 2008 differs markedly from the CPI, it is close to serially uncorrelated, it is mostly driven by the prices of houses and bonds, and it is twice as high as the CPI in 2008.

I'm not sure this is the way to go, but it might be worth a look.  Using owners equivalent rent for housing cost always struck me as questionable short cut to measuring housing costs, since people actually buy houses for partly non-portfolio reasons. 

'Has the Rise in American Inequality Been Exaggerated?'

Robert Gordon has a new paper out, Has the Rise in American Inequality Been Exaggerated?  I like Gordon's point that rising housing costs have impacted college educated households more non-college educated households.  I've wondered about this myself, in particular in the context of understanding how it affects college vs. non-college life cycle choices about housing and fertility. Gordon is no right wing economist, just look at his final Political and Policy Implications section. 

The rise in American inequality has been exaggerated both in magnitude and timing. Commentators lament the gap between the growth in real median household income and the much faster growth in productivity. This paper shows that a conceptually consistent measure of this growth gap over 1967 to 2007 is only one‐sixth of the conventional growth gap. Further, the timing of the rise of inequality is often misunderstood. The lamentably slow growth in real median household income in 2000‐ 07 is not due to higher inequality, and indeed inequality decreased slightly after 2000. This cessation of inequality’s secular rise in 2000 is evident from the growth of Census mean vs. median income, and in the income share of the top one percent of the income distribution. The income share of the 91st to 95th percentile has not increased since 1983, and the income ratio of the 90th to 10th percentile has barely increased since 1986. Further, despite a transient decline in labor’s income share in 2000‐06, by the end of 2008 labor’s share had returned to the same value as in 1983, 1991, and 2001.

Recent contributions in the inequality literature have raised questions about previous research on skill‐biased technical change and the managerial power of CEOs. Directly supporting our theme of prior exaggeration of the rise of inequality is new research showing that two‐thirds of the post‐1980 increase in the college wage premium disappears when allowance is made for the faster rise in the cost of living in cities where the college educated congregate and for the lower quality of housing in those cities. A continuing tendency for life expectancy to increase faster among the rich than among the poor reflects the joint impact of education on both economic and health outcomes, some of which are driven by the behavioral choices of the less educated.