Assorted Friday links


4. I liked this. I am a "more housing" guy for pretty much those reasons.

For what it's worth, a related concern is that every "city" should somehow be a cross-section of America, with high and low income housing. That's crazy. Many cities are too small for that. And there is certainly no move to normalize cities, counties, or states by size or population.

(I live in a small city. The affordable housing is just a couple miles away, but across a city boundary. Requiring one city to do it all is crazy.)

Gentrification is one of the weakest left wing causes ever. It's the apex of utopia: they want run down neighborhoods to be improved but they don't want that said neighborhoods become richer! Or even worse, they want poor neighborhoods to become rich but somehow rents should not reflect that.

It's an insane conversation, and they know it.

"they want run down neighborhoods to be improved but they don’t want that said neighborhoods become richer!"

Maybe they want people to prosper, not to be diaplaced by rich people.

I like this comment.

You could snark about "jews will not displace us!"

or you could ask "where are these extra rich people coming from?"

Finally, you could wonder about prosper. Prosper in my mind involves effort. Not just cashing a check.

So open the city to development. 'Rich' is a relative term; these places are being bought up because they are cheap.

Blacks are reliable vote banks for the Democrats. And they often live in compact neighborhoods that by law have to be gerrimandered to elect a Democrat. So they love them. The problem for the Left with gentrification is that Blacks get upset when they get displaced by other Democrat voters. Young people. Gay people. Double income, no kids people. So they can't get laws passed against it because Hipsters vote Left as well. But they can complain.

Democrats do not want poor neighborhoods to be rich because then they would vote Republican. They have a strong interest in Blacks remaining on welfare because they will always vote Democrat. They needs to take money from Republicans and give it to people in poor neighborhoods so they can get elected. That would not work if they took money from their own voters.

So ultimately gentrification does threaten Democrats in a big way. If enough White liberals move into the city center, they will get married, have children and vote Republican. The one party states that the Democrats have created in all those failed cities would be threatened. When was the last time Baltimore elected a Republican mayor?

"Young people. Gay people. Double income, no kids people. "
"If enough White liberals move into the city center, they will get married, have children and vote Republican. "
Who? The gays? The double income people?

I think he means the senior dementia, the one sure path to Trumpism.

We all risk aging into that scary state where Fox and Friends is the only "third party information" we can take in.

4. The number one obstacle to housing being built as economists think it should be is property rights.

If a person owns a house and land and won't sell, a high rise luxury apartment can't be built on that lot and the adjacent two dozen lots.

Why do conservative economists become central planners redistributing other people's property to the rich when dealing with working class home owners?

And plenty of vacant lots are available in cities for their high rise luxury condos. In cities like Detroit, Cleveland, etc.

Say what???? "Conservative economists" are in no way advocating that people are forced to sell anything! They are just saying government should not prohibit people building "unavoidable housing" on land they own.

You've gone full Mulp.

Never go full mulp.

Your "property right" shouldn't extend to properties you don't own.

I agree that there are very major downsides to property rights de facto including a veto on others' uses, but the progression of both zoning law and HOAs in the US suggests that there is widespread demand for exactly that. Absent zoning regulations I imagine that HOAs, restrictive covenants, and similar arrangements would duplicate much of their effects. Of course developers could potentially pay off HOAs to pursuade their membership to vote in an exception, similar to how they currently buy off local zoning authorities by delivering community amenities, impact fees, etc.

I am pessimistic that, absent major crises of local fiscal solvency, much can be done to open the door to substantial new development in areas with already-inflated housing prices.

You are wrong about that, Mulp. They way housing is regulated in the cities with a crisis, you can't just build subject to regulatory requirements like properly connecting to utilities and earthquake resistance, which are issues either you or Rayward have brought up previously to justify saying no to projects. You have to get special permission for each project and the city officials can deny it for any reason or no reason at all. That is the obstacle to housing.

You have the right to reject sale of your property, for any reason or no reason at all. You have the right not to be harmed by pollution or be affected by nuisances like noise or odors. You do NOT have the right to have your view unobstructed, even if it was a factor in your decision to purchase. You do not have the right to have your share of free city parking diluted. And you definitely do not have the right to laws designed to make sure your property value never decreases.

The number of homeowners who refuse to sell out for a big payout to let the developer build a high rise luxury apartment is minuscule to the number progressive advocates who think the building owner should not be allowed to tear down their two rent controlled units to build 6 market rate units.

It is clear that mulp is a virgin. Thus he cannot understand the paradox of lost highway. Lost cities do not need nor can they afford high rise luxury apartments. We resort to harsh regimes of a bitter winter and hard days work. Something a virgin could never understand.

6 was pretty interesting. Stocks can't go up forever. No matter whether these not-quite-predictions hold, the only and ancient defence is to have a balanced portfolio, and to rebalance in the good times as well as the bad.

Extra credit if you find holdings with low correlations.

Anyway I take this as a reminder that if 2018 is a crazy good year, rebalance again, after.

But stocks can go up forever, right? They capture NGDP growth. And public companies may be getting more efficient at converting NGDP into earnings. Of course I expect we'll see some NGDP shocks and therefore stock prices will fall at some point.

I would say that stock *valuations* cannot go up forever, so to the extent a rally is driven by multiple expansion, then there is an upper limit on that expansion.

Either Grantham is senile or he was never very good but just happened to live through a raging bull market in the 1980s or 1990s.

He's a serial bubble spotter. Here he is in June of 2015:

Since then, the S&P500 has earned a 34% return.

In the linked piece, he posits an additional run-up from today's prices (~2,700) to 3,400 or 3,700 and then says THAT would be a bubble.

Not to be taken seriously. He relies on Shiller's 10-year earnings history, which is a really dumb rear view mirror way to think about it, because it includes the huge outlier negative earnings from the fourth quarter of 2008.

A year from now, Shiller's 10-year earnings history approach will suddenly look a lot better, when 2008 falls out of the calculation. Dumb.

Grantham is not senile and he is not a bad manager or analyst. He is also a personal friend of mine and I respect his work tremendously.

However, there is no such thing as a market forecaster. When he tries to be one, he knowingly takes the risk of being wrong much of the time. It is part of his shtick - GMO puts out 7-year forecasts that are very popular, and mostly wrong. Why 7 years? Because other people put out 5 and 10 year forecasts.

If you don't like Shiller's 10-year earnings lookback, use a different number. I also think it is too long.

He wrote several years ago that the whole idea of investing nowadays is to spot bubbles and invest accordingly.

Buffett and Munger have forgotten more about investing than your buddy ever knew.

I remember Buffet once saying that to consistently beat the market, you must have an undiversified portfolio.

That's a tautology, since a diversified portfolio *is* the market.

Buffett and Munger are great investors. Jeremy Grantham is a great investment management entrepreneur. Big difference. Grantham has built a major institution and employed hundreds of people at six- and seven-figure salaries. Has he added value on net for his customers? Probably but I can't prove it. He was extremely bearish going into the 2000-2003 and 2007-2009 bear markets, so he probably saved his customers a bundle, but I don't know what his participation on the upside was.

My biggest peeve with Grantham is that he intentionally misrepresents modern economics (efficiency in particular) so that he can kick down strawmen and make himself seem smart.

Funny how the people who most vehemently claim markets are inefficient find themselves unable to beat it...

What, no crypto in the house!

It's outta here!

#4. Yes, today's affordable housing was yesterday's luxury condo; this is common sense. Set-asides for affordable units or below market units or whatever they're called create opportunities for graft among local politicians (and probably developers, too), so those aren't going anywhere.

"Yes, today’s affordable housing was yesterday’s luxury condo"

Sometimes it works that way, sometimes it doesn't. I live in a neighborhood where a lot of almost 100 year old houses are today's luxury housing. The chances of these homes becoming affordable to lower income people based on age alone is zero. What it would take would be a major decline in the economic health of the city.

It seems to me that what affordable housing advocates need to accept is not so much that lower income folks will have to accept older housing stock but that, especially in places like Seattle, they'll have to accept living away from the most desirable areas.

Personally I would love to own a Brownstone townhouse. Really I would. Luckily while many of them are worth millions of dollars, some of them are extremely cheap. Can anyone think of a way of making an incredibly valuable piece of very old property worthless? Well here's a hint: these are the places you find Brownstones in New York:

There are many brownstones throughout numerous New York City neighborhoods, especially in the Brooklyn neighborhoods of Park Slope, Clinton Hill, Fort Greene, Cobble Hill, Carroll Gardens, Boerum Hill, Gowanus, Windsor Terrace, Prospect Heights, Crown Heights, Brooklyn Heights, Bedford Stuyvesant, Sunset Park, Bay Ridge and parts of Williamsburg, Bushwick, Greenpoint, and Prospect Lefferts Gardens. The Manhattan neighborhood of the Upper West Side, Upper East Side, Harlem, East Harlem parts of Washington Heights and most other neighborhoods in Manhattan have brownstones scattered throughout the city from the Lower East Side to Midtown. In Queens, the historic district of Long Island City and in The Bronx the historic districts of Mott Haven, also host many brownstones.

Which ones are cheap?

It would not even be hard to turn your neighborhood into one full of low income people and worthless housing. Just Section 8.

A huge problem with affordable housing mandates is that they are an excise tax on housing. An excise tax on a necessity. So the people who pay the highest percentage of their income to the tax are those that are either just outside the means testing for access, or are below that limit, but whose needs are best served by moving in without waiting in line for the affordable housing.

#4. As i commented in the other thread, an overlooked factor is San Franciso's infamously strong tenants rights laws which make it very difficult for landlords to get rid of a tenant, especially a low income tenant (such as a disabled person). A consequence of this is it disincentivizes the construction of low-end units, and incentivizes building high end luxury units instead, as high income earners are less likely to be problem renters. It also incentivizes landlords to renovate to convert low-end units into luxury units, price units out of the range of the relatively poor, and to take units off the market. All of this reduces the supply of mid-range and low-range housing. It's essentially the same problem that European labor markets have - if you make it impossible to fire someone, firms will resist hiring anyone they aren't 100% sure of, if you make it impossible to evict a tenant, landlords will avoid renting out apartments to anyone they aren't 100% sure of.

4. Sumner's goal is certainly laudable: "Moving to higher quality homes is an important part of economic progress." What Sumner is advocating is that developers should be able to go into "low rise slum" and build more expensive housing: "Thus if you allow developers to go into a low rise slum in Seattle and build lots of high-rise units in that neighborhood, then more people will be able to live there." But Sumner doesn't limit his social engineering to slum: "The key point here is that by far the most effective way of providing "affordable housing" for average people is to get upper middle class people to vacate their existing homes, to free them up for middle class people to move in." And this: "There seems to be a consensus that young people do not understand that these housing regulations explain why it's hard for them to find "affordable" houses. In the 1960s, young people marched in favor of civil rights and against the Vietnam War, because they correctly understood the issues at stake. Today the issues seem to be too complex for people to grasp." Stupid young people in combination with stupid poor people living in "low rise slum" and stupid "average people" who won't vacate their homes for developers. I suppose that means poor people and average people and young people won't be moving to higher quality homes.

What do you think of my argument above - that tenants rights laws, which make it notoriously hard to evict renters, disincentivizes developers from building low-income housing, and incentivizes landlords to take low-income housing off the market and/or upgrade it to high-end luxury housing?

Not to mention that these landlords have no incentive in upgrading their buildings or allowing things like subletting. It's a bad idea anyway you look at it

I was reading an article the other day about a landlord who had a tenant in a rent controlled 4 bedroom house, paying $1000/month rent, who was making a killing renting out rooms for $900 each.
He couldn't get rid of her or change the lease to rent out the rooms on an individual basis himself.

It has gotten to the point where I know a couple small-time owners who prefer to keep units vacant and off the market so they don’t have to deal with onerous laws and entitled tenants.

Poor people are a terrible inconvenience. And they are increasing in numbers! Here's reality: the richest 1% of Americans own roughly 35% of the country's total wealth (the figure was 34.6% in 2007, and I m confident it has at least equaled the 2007 figure), and the percentage is rising. These people want and deserve to live where they want to live, in nice places like the Bay area, and not next door to an Airbnb. And they don't wish to subsidize housing, health care, or anything else for poor people. To answer your question, landlord-tenant laws in some jurisdictions discourage investment in "affordable housing". But consider what happened after the financial crisis: billions were invested in houses that were lost to foreclosure, billions, converting what were owner-occupied homes to rental housing. Landlord-tenant laws didn't discourage the investment. Capital, like water seeking its own level, will seek the highest rate of return, whether it's "affordable housing" or Bitcoin. What I admire about some of the economists at Mercatus Center is that they have the courage of their convictions, and that includes a market self-correction of the high level of inequality that is creating many of the social problems today, including housing. If you don't know what I mean, then you don't know the economists at Mercatus.

I'm unclear what you mean. Do you mean that investment in affordable housing wouldn't be discouraged if we had a bubble in building low-rent apartment blocks? Maybe another market crash would result in some high end condos becoming rental properties?

Capital, like water seeking its own level, will seek the highest rate of return, whether it’s “affordable housing” or Bitcoin.

Yes, and the landlord tenant laws reduce the rate of return on low-end housing by increasing the frequency with which landlords lose money renting to poor people. Apparently in San Francisco, the risk of losing money on low-rent apartments is so high that landlords will take properties off the market rather than rent them out.

Yes, your final paragraph is simply not something rayward understands. Besides the whole "people deserve to live in the Bay Area", which is an absurd statement.

To some people, the idea that landlords might turn a profit (!!!) renting to poor people (!!!) is intrinsically abhorrent. That is the problem, in a nutshell.

How could you possibly read sumner’s argument as “social engineering”? He isn’t advocating the government force people to do anything, only that it let people build expensive houses if they want to.

You've been conditioned to believe only government engages in "social engineering". I suggest you open your eyes, and your mind.

So everything that anyone does is social engineering? What's rayward's definition of social engineering?

Sumner is usually spot on, and he is right in principle this time. However, the average quality of the Seattle housing stock is fine. it's the quantity that's a problem. So an increase in medium-priced housing would move the supply curve in the right direction too, and would help a lot.

"Affordable" housing, as someone else said, is just an invitation to graft.

Seattle is, currently, almost an exact match for Detroit in both land area and population, which is to say -- not very dense. At one point, Detroit had almost 3X the population in the same area. And even then, Detroit consisted mostly of neighborhoods of single-family detached houses.

Young people marched against Vietnam because the state was threatening their property: their very lives!

But since this is the state threatening some other person's property, they don't care.

Just try having the state put up some rules on tenants, say, "every tenant must perform 10 hours of upkeep per week on their rental unit" and suddenly they'd be marching in protest once again. "That's my time! Why should it go to the landlord!"

6. Jeremy Grantham on stuff.

Will the bubble pop? It is a bubble because the market indices are dominated by 5-10 very large pension systems. It is a small group, each is now making this unitary decision, sell a bit of stock to fund future cash liabilities. But each, in turn, has to watch the back of the fund behind them. So they need the coordinated channel,this is not some flea market.

No, the market indices are not dominated by a few large pension systems. They are dominated by individuals saving for retirement in defined contribution plans (mostly 401K's and IRAs). The era of huge defined benefit plans is long past, and even CALPERS is moving to a DC structure.

The biggest pension plans in the world are in the Netherlands, Singapore, etc. and they are not that big (around $1 trillion, compared to $8-9 trillion for U.S. DC plans).

let me in f o's . . .

is iok, lil poopies, ~currier & ives

lil' p p s's, every inch of this song, i have lived

a big speaks, lil flux, shuts down to a chatter

just the way it was . . .

A Big speaks, STFU and listen, . . .

i m here 4 u, lil p, p shits, in whatever capacity

nice with the cold temperatures

sometimes a big buck, mumbles up, and you best listen & STFU

didn't read any of the links, just talking, 2my friends

lil f o, nobody, s heads . . .

u cannot plan this stuff . . ., it just happens sometimes, voltaire

big cigar chirps up sometimes, & some acute mice pick it up sometimnes

boobie, doobie, doo

keeping the bump going, circa, always when he shows up

the girls, always had an affinity 2me, wtf can i say?

hang on lil poopies, we'll listen 2 some music

nineteen sixty four . . . lil f heads

not usual you hear an alpha chirp up

a big buck, sings to you, tonight

feel these horns, and the way i run across this field

dear lil f o f's

a big buck mumbles, on a currier & ives, daY

dearl lll' p of s f o's,. i listen 2these songs regularly:

hold on to your imnagined

a big buck shares with you, a magical piece of zen:

and we're here, in this sulpher bath, up here hi, in the rockies

this guy just killed it with the women

sharing dreams, lil fo's, . .

boo woo woo woo woo woo, boobity do dah day

after reading about it enough, then, a real thing shows up on the screen

and there they were, 2018

is, ok lil, f o p p, nobody f heads

you got a girl like kathy ronnenberg? eveybody else can F U!

#1 The blind playing the blind. Sad.

#4 ... Sumner makes an important point. But I notice the comments around it are full of baggage. Our housing market is geared towards the interests of current investors or holders in real estate. This creates baggage around our thinking.

When looking at the supply of affordable housing, we need to look at the production of housing 20 years prior. Those are the units that are no longer new, although new and expensive when built.

An opportunity for a great study exists in Toronto. Twenty years ago the production of housing units, mostly small, began to explode downtown. These were not cheap at the time. Along the lines of Sumner's writing, construction continues to this day of ever more expensive and higher quality units. The data available would be an increasing stream of units coming online every year for the past 20 years. In most buildings the first 12 or less floors are devoted to smaller rental type units purchased by investors. When initially built, expensive to rent. The data would have to be adjusted for inflation, and perhaps some quality markers such as concierge, number of floors, amenities.

I suspect the data will show that strong construction rates today result in an increase in the stock of lower and medium priced housing 20 years from now.

4. I'm curious about the existing stock of housing in which lower-income people live, i.e. what's "affordable" today. Of what does it consist, where did it come from etc.? Knowing something about that might allow us to repeat it, or at least avoid policies that get in the way or profoundly dumb approaches (e.g. insisting on low rents for new construction in premium locations).

There must be a literature on this (Tyler's Second Law), but I don't know where to find it.

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