Results for “housing” 708 found
The economics of urban decline
The core intuition is that increases in housing demand boost supply, but supply is durable so declines in demand show up mainly in price. Given this point, Ed Glaeser and Joseph Gyourko tell us the following:
1. Cities grow more rapidly than they decline.
2. Urban decline is highly persistent (you can be stuck deep in the range where new building is unprofitable).
3. Positive shocks increase population more than housing (there is an option value to not building right away).
4. Negative shocks decrease housing prices more than population (housing supply cannot contract readily).
5. The combination of cheap housing and low labor demand attracts individuals of low human capital to those locations. Bill Gates does not live in Buffalo.
Here is the paper, a later version of which just appeared in the Journal of Political Economy. Glaeser also has a recent paper explaining how much and why immigrant segregation has been increasing.
Sophistical arguments, a continuing series
Are you worried about a housing bubble? Go buy that house anyway.
Let’s say you buy and the price of housing then goes up. Surely you are happy.
Let’s say the price of housing, including your house, falls. Well, in absolute terms that is not so bad either. You can simply stay put. Even better, you might buy another house. Consider the polar case where houses fall to a nickel a piece. Yes you wasted 600K on an overpriced big box. But now you can buy your favorite mansion for a dime.
In technical terms, consider the changing price as a budget constraint rotating around a fixed status quo point (you can always stay in the house you bought). The rotating budget constraint will put you on a higher indifference curve.
So go ahead and buy that house. Yes, you might be better off by waiting for the price to fall. But don’t worry about bursting bubbles, you won’t end up worse off.
And let’s assume you won’t have to move anytime soon.
So buy, buy, buy. And don’t stop at homes.
I’ve opened up the comments section, and don’t forget the title of this post.
Steve Levitt’s Freakonomics
What five terms in a housing ad correlate with higher prices?
1. Granite
2. State-of-the-Art
3. Corian [read here, I didn’t know what it was either…]
4. Maple
5. Gourmet
And what correlates with lower prices?
1. Fantastic
2. Spacious
3. !
4. Charming
5. Great neighborhood
In economics language, it is the costly signals which carry real value. You use general words when you have nothing better to say, and remember that for next Valentine’s Day.
The list is from the new Freakonomics: A Rogue Economist Explores the Hidden Side of Everything [you can pre-order, Amazon lists May 1 but it hits the stores April 12], by Steve Levitt and Steven Dubner. Imagine the best of Levitt put into readable form by an excellent journalist. When it comes to the popular exposition of contemporary economic research, this book is a milestone. Why do drug dealers still live with their moms? How do we know that sumo wrestlers cheat? Here is Alex’s previous post on Levitt and names and race. Here is my previous post on Levitt and teacher cheating.
The bottom line in one sentence: "People lie, numbers don’t."
Markets in everything
[some University of Michigan students] are getting $100 cash payments for keeping their dorm rooms presentable and opening their doors so prospective students and their parents can take a look during campus visits…
Participants must let tour groups see their room in the middle of the day, and have to be out of bed and dressed [imagine that!], said Randi Johnson, the university’s housing outreach coordinator. Display of anything illegal, offensive or banned is forbidden.
Here is the story, and thanks to Michael Rizzo for the pointer.
What do Protesters Want?
- Unsurprisingly, general criticisms of the current administration were the most common reasons offered for protest. About 44% of the demonstrators we surveyed expressed a general anti-Bush theme. Domestic policy issues (e.g., housing, welfare, etc.) were the second most common reason for participating in protest. 28% of respondents reported these issues as a motivation for participating in the rally.
- Surprisingly, the third most common reason for participating was for expressive reasons. 26% of respondents said they wanted to exercise their freedom of speech and assembly. Respondents said they wanted their voices to be heard.
- Even more surprising was that anti-war messages (which we coded as “foreign policy grievances”) came in fourth. About 20% of the people we surveyed listed the war, or other foreign policy issues, as a reason to protest. This may have been a function of the context. One point of our paper is that the group that organizes a rally has the biggest effect on what grievances are expressed by the participants. If we had targeted solely anti-war events, this number may have been higher.
- I found it interesting that only 1% expressed pro-Kerry reasons. My collaborator likes to say that the events were anti-Bush and not pro-Kerry. Very true. We wouldn’t expect an outpouring of pro-Kerry sentiment during a rally for housing rights. But on the other hand, pro-Kerry was less popular than “personal reasons,” the category we created for reasons involving meeting friends and members of the opposite sex. That’s got to say something about the Senator’s ability to appeal to his base!
What’s the take home message? Yes, the war is an important and crucial issue in the progressive movement, as it is for the rest of America, but respondents were more likely to be motivated by a general ideological disagreement with the administration and by domestic policies. Events such as the anti-GOP rallies are an opportunity to exercise free speech, express political values and lobby for domestic policy agendas. Once again, we return to Tip O’Neil’s adage: “all politics is local.”
If I believed in Austrian business cycle theory
1. I would think that Asian central banks, by buying U.S. dollars, have been driving a massive distortion of real exchange and interest rates.
2. I would think that the U.S. economy is overinvested in non-export durables, most of all residential housing.
3. I would think that we have piled on far too much debt, in both the private and public sectors.
4. I would think these trends cannot possibly continue. Asian central banks may come to their senses. Furthermore the U.S. would be like an addict who needs an ever-increasing dose of the monetary fix. This, of course, would eventually prove impossible.
5. I would think that the U.S. economy is due for a dollar plunge, and a massive sectoral shift toward exports. Furthermore I would think it will not handle such an unexpected shock very well.
6. I would buy puts on T-Bond futures and become rich.
7. I would think that Hayek’s Monetary Nationalism and International Stability, now priced at $70 a copy, is the secret tract for our times.
Of course that is not me. But at least someone appears to believe in Austrian business cycle theory. By the way, here is one summary of the theory, although I do not agree with the characterization in all respects.
Space matters: why new gadgets come from Asia
Japanese manufacturers became experts at miniaturizing and creating multiple-function devices (like, say, refrigerators that let you browse the Web) simply because the average consumer really needs the room. "Space is everything," says Farber. "Many years ago, I sat down with a person — an American — who was trying to sell telephone extensions into the Japanese market. His sales pitch was that every family needs five phones — one for every room in your house. Japanese people looked at him and said, ‘Well, my apartment is so small that when my phone rings, I just reach across the room and pick it up.’ He wasn’t doing so well."
There’s a subtle secondary manner in which real estate prices have shaped consumer behavior in Japan: housing is so expensive that young people have virtually no means of renting or owning their own homes; even after they’ve joined the workforce, they continue to live with their parents for years or even decades after graduation. Given that the average American spends up to one-third of his or her take-home wages on shelter, by sponging off Mom and Dad, young Japanese men and women have significantly more disposable income to spend on themselves; a $600 Louis Vuitton purse — or a $3,000 ultrathin 1.2-pound laptop — becomes instantly affordable when you’re living rent free.
Here is the full story, courtesy of www.geekpress.com. And don’t overlook the key role of Japanese schoolgirls:
"A couple of months ago, Newsweek Japan did a special issue that listed the 100 most influential Japanese people in history," says Douglas Krone with a chuckle. "Along with ancient emperors, best-selling authors, inventors and scientists, they listed ‘Japanese Schoolgirls,’ because they’ve been so influential, inside of Japan and out."
From hot water to cold air
My post on hot water (and followup here) is drawing more hot air than I expected. Daniel Davies over at Crooked Timber is often very good so I am frankly surprised that he gets this one very wrong. Davies thinks the argument falters if you assume the landlord has monopoly power.
Even if there is a slight oversupply of rental units for sale, time is almost always on the landlord’s side, because waiting is typically much more inconvenient for the party that has to wait without a house to do wait in [sic]. In general, when tenants and landlords are negotiating over the potential Pareto gain that could be made from renting the house, the landlord ends up capturing most or all of the surplus. The hot water and habitability laws are simply aimed at skewing things a bit in favour of the tenant and putting a floor on how bad a deal the tenant can end up accepting.
Wrong. Assume that a rapacious landlord owns the only apartment in the entire universe and you want it. The landlord is therefore going to extract all of your consumer surplus. Without the hot water the apartment is worth $500 a month to you – so that’s the rent. With the hot water it’s worth $550 – so that’s the rent. There is no skewing in favor of the tenant because the law doesn’t change the landlord’s bargaining power one iota. All it does is raise the landlord’s costs so that he may, in fact, quit the business making you worse off.
Daniel has not absorbed the lesson of my post, the rent will go up. He would have an argument if we added rent controls thereby squeezing the landlord from both ends. [Addendum: Glen Whitman gets the analysis exactly right.]
On a different note, many people have focused undue attention on hot water, something that most of us (in this country) really do want in an apartment. The principles involved, however, don’t change much with the good. If you like, think air conditioning instead. Eric Kilby kindly sends me an editorial from a few years ago in the Philadelphia Inquirer (registration required). Here’s what it says:
The zoning board under Thomas Kelly, president of Sheet Metal Workers Local 19, has required some developers of subsidized housing to install central air conditioning – a pricey, discouraging requirement for what are supposed to be low-cost projects. AC, in case you haven’t guessed, is installed by sheet-metal workers.
The most expensive cities
The first three are Tokyo, London, and Moscow. The cheapest major cities are Asuncion, Paraguay; Montevideo, Uruguay; and Santo Domingo, Dominican Republic.
How about the U.S.?
Among U.S. cities, New York, which ranks No. 12 worldwide, is the most expensive. Other cities that rank as among the most expensive are Los Angeles, Chicago and San Francisco. Pittsburgh, meanwhile, ranks as the least expensive city in the country.
Here is some housing information:
For one month in that two-bedroom apartment in Tokyo, you’ll drop a stunning $4,501. In Paris, you can expect to pay $2,422 and in Beijing about $3,700.
The same flat in London will cost you about $3,603, whereas in New York you’ll pay about $3,500. The best “deals” are in Buenos Aires or Johannesburg, where such an apartment will only cost you about $600.
Here is the full story.
Has Bush cut back government bureaucracy?
The following table lists how many of the major agencies or departments had their budgets cut in a given Presidential term:
President and Term, Number of Budget Cuts [see the last link in this post for further explanation of the data. I’ve done minor editing and added the boldface]
Johnson, 4 out 15
Nixon, 3 out 15
Carter, 5 out 15
Reagan 1, 8 out 15
Reagan 2, 10 out 15
Bush, George H., 2 out 15
Clinton 1, 9 out 15
Clinton 2, 0 out 15
Bush, George W., 0 out 15
Obviously Reagan II made real efforts in this direction. George W. comes in tied for last with Clinton II. This is a highly imperfect proxy, but when you are 0 for 15 it is hard to blame measurement error alone.
Here is one unnoticed achievement of Ronald Reagan:
President Reagan is the only president to have cut the budget of the Department of Housing and Urban Development in one of his terms (a total of 40.1 percent during his second term).
Here is the full and sad story on Bush’s fiscal policy for the agencies and departments. Here are the underlying data.
Indian voters reject high-tech
India appears to take a turn for the worse:
The government in Andhra Pradesh state, headed by the coalition’s second-largest member and a leading proponent of India’s technology revolution, was routed by the Congress party, which is also the main opposition on the national stage.
Besides signalling that high-tech prowess had not impressed the millions of rural poor, the result suggested the national election could end in a hung parliament and likely political turmoil as parties searched for new allies.
Votes from the marathon national election will be counted on Thursday but financial markets have already tumbled on fears that India’s crucial economic reforms could be delayed if a weak government comes to power.
Here is the full story.
Let us not forget that India remains a badly messed-up economy. I found the following passage, from William Lewis’s The Power of Productivity, illuminating:
…India has a special problem. It is not clear who owns land in India. Over 90 percent of land titles are unclear…Unclear land titles most affect industries which use a lot of land. These industries are housing construction and retailing. The result is that there is huge demand for the very little land with clear titles. Not surprisingly, the ratio of land costs to per capita income in New Delhi and Bombay is ten times that ratio in the other major cities of Asia…Also not surprisingly, India has very few supermarkets and large-scale single-family housing developments.
But it gets worse: Stamp taxes on land sales run at least ten percent. Furthermore you are often expected to pay real estate taxes, even if you will never be granted title to the actual land. It is said that the money is accepted “without prejudice.” Here is a short article on how to make things better.
Where Your Money is Going
The federal government is projected to spend $21,671 per household in 2004…$3,500 more than in 2001. Tax revenues will reach $16,981 per household through a combination of the income tax, payroll tax, gas tax, estate tax and assorted business taxes typically passed on through higher prices and smaller investment returns. The remaining $4,690 represents the deficit per household, which will be dumped in the laps of our children.
Here is a breakdown of where that $21,671 goes:
Social Security and Medicare: $7,165. The 15.3 percent payroll tax, split evenly between the employer and employee, covers most of these costs.
Defense: $4,240. Lawmakers drastically cut defense spending throughout the 1990s. The September 11 attacks reversed this trend, and the $1,300 per household increase since 2001 has returned defense spending to its historical levels.
Low-income programs: $3,479. Nearly half of this spending subsidizes state Medicaid programs that provide health services to poor families. In line with economywide health-care trends, Medicaid costs are rising 10 percent per year. Other low-income spending includes: Temporary Assistance for Needy Families (TANF), food stamps, housing subsidies, child-care subsidies, Supplemental Security Income (SSI), and low-income tax credits.
Interest on the federal debt: $1,460. Washington is $7 trillion in debt. It owes $4 trillion to the public that owns its bonds and the rest to other federal agencies. Record-low interest rates have reduced the interest payments by $1,000 per household over the last six years. As interest rates climb back to normal levels, so will these costs to taxpayers.
Federal employee retirement benefits: $835. This funds the retirement and disability benefits of federal employees, including the military. Interest from federal trust funds covers part of this spending.
Health research and regulation: $619. Health-research spending has doubled since 1998, and nearly all of that spending growth has been concentrated in the National Institute of Health. This category also includes the Food and Drug Administration and dozens of grant programs for health providers.
Education: $583. Primarily a state and local function, 8 percent of education spending comes from Washington. Federal education spending has surged 76 percent since the 2001 enactment of the No Child Left Behind Act. Most federal dollars go to low-income school districts, special education, and college student financial aid.
Veterans benefits: $565. The federal government provides income and health benefits to veterans. Spending is up 34 percent since 2001.
Unemployment benefits: $451. Unemployment costs fluctuate based on the number of unemployed Americans. Recent costs have ranged between $220 per household in 2000 (when unemployment was low) and $526 per household in 2003 (when unemployment was higher). This year, unemployment costs are decreasing as job growth continues.
Highways and mass transit: $400. Most highway and mass transit spending is financed by the 18.4 cent per-gallon federal gas tax. Per-household costs have increased from $254 in 1998 to $400 this year, and the current highway reauthorization bill in Congress would boost them substantially.
Justice administration: $389. Justice spending includes federal attorneys and prisons, as well as law enforcement grant programs. New homeland security costs have added $100 per household to justice spending.
International affairs: $320. This includes foreign economic and military assistance, operation of U.S. Embassies abroad, and contributions to organizations such as the United Nations. International spending has doubled since the terrorist attacks of September 11, 2001.
The programs listed above cover $20,506 per household. The remaining $1,165 is allocated to all other federal programs, including farm subsidies, environmental programs, space exploration, air transportation and community development.
Here is the full story, I’ve added the bold face. Here is a Charles Murray proposal to let taxpayers choose which parts of government they will finance. You can’t lower your tax bill but you can direct your funds to one department rather than another. The obvious problem is that everyone will wish to send their money to the glamorous programs, but still the sentiment is a good one.
P.S. Don’t forget to send in your check. That’s today’s bottom line, no matter what else I have to say.
Rational gloom
Tyler is not as pessimistic as I am (see my earlier posts here and here) regarding our long-term budget problems. Unfortunately, he should be. Consider Tyler’s most gut-level response:
The United States remains a strong and prosperous country. Our infrastructure, national culture of innovation, human capital, and economic dynamism are unparalleled in world history.
Of course. Who would deny this? The problem is that the budget projections of Kotlikoff et al. already take these factors into account. Their projections assume that the economy will continue to grow, they assume that a nuclear weapon will not go off in Washington, they assume that we will not become bogged down at increasing expense in the Middle East for the next 50 years etc.
A doctor tells a man that he has just 6 months to live. The man replies but doctor I’m only 25, I’m in great shape and I’ve never been seriously sick before. Yes, the doctor says that’s why I gave you 6 months.
Tyler’s next comment reveals a misunderstanding. He says, “The Bush fiscal policies, whatever their irresponsibilities, costs, and drawbacks, haven’t changed those core facts.” But the Bush policies are not the major problem. The major problem is that we are about to be hit by a tidal wave of old people (contra Tyler demographics are the problem not the solution). The baby boom generation, born beginning in 1946, will begin to retire in 2008 and as they do so the demands on social security and Medicare are going to explode. By 2030 there will be 18.2 million people in the United States 85 years of age and older! In 2000, the 65 years and older crowd made up 12.4 percent of the population. By 2030 they will be 19.4 percent of the population.
Critically, combine baby boomers with rising life-expectancy and declining fertility and we have that by 2030 there will be only 2 workers per retiree (down from 16.5 workers per retiree in 1950).
Comparing today’s US budget deficit with that of Brazil or any other country misses the point. It’s the present value calculation over the future that is important. Put simply: Kotlikoff is applying Milton Friedman’s permanent income hypothesis to government accounting. (Kotlikoff is to Stone as Friedman is to Keynes).
Tyler’s most technical point, that g may be greater than r, also misses the mark. If g is greater than r then we can continually roll over our debt and eventually grow our way out of it. But this calculation is only relevant for a fixed debt – the problem is that our debt is rising very rapidly. If the debt were to stand still we could pay it but it ain’t standing still.
Tyler challenges me to put my money where my mouth is. In fact, I have. First, I got a job as a tenured professor! Second, I borrowed a lot of money at the lowest interest rate I expect to see in my lifetime and bought housing. The key problem in the future is going to be inflation and rising tax rates so you want to borrow at a fixed rate and put your wealth in hard to tax assets (Tyler, art may be an even better investment! You can always take it with you over the border.) I also own an internationally diversified portfolio (yes, even some in Brazil).
No, I’m not yet stocking up on cans of spam. We could get lucky. Kotlikoff could be wrong. The obvious facts of demography make me think that he is right enough, however, to warrant taking serious actions now rather than later. But like Kotlikoff, I don’t think our political system is ready.
Mall facts
1. At last count there were 1,175 large regional enclosed malls in the United States. Such malls account for about 14 percent of all U.S. retailing, or about $308 billion in sales.
2. The average mall customer spends 22 seconds looking at a mall map, and often leaves the map baffled.
3. The spaces near mall entrances typically yield lower rents and lower valued items. The shopper, upon entering the mall, is still disoriented and is not yet ready to buy something. That is why hair cutteries are so commonly found near mall entrances.
4. Men are more interested in people watching at malls, whereas women are more interested in shopping. Men also like the non-retail parts of malls, such as food courts, which do not require them to price shop or try on anything.
5. Bookstores have much higher “conversion rates” when they are outside of malls. Bookshops in malls are thought of as places to browse while waiting or marking time, but not places to buy books. Plus it is harder to bundle a mall bookshop with a cafe, which is often the most profitable place in the bookshop. For these reasons, bookshops are leaving malls in droves.
These assessments are from Paco Underhill’s new Call of the Mall. Underhill is arguably the leading expert in the anthropology of shopping, also read his views on selling real estate. This interview presents his views on web retailing.
How it is for me: To enjoy a mall trip, I need one fixed destination, combined with a firm plan to buy something. Add on a free hour to spare, and the desire to eat somewhere in the area or in the mall. The new Chipotle at Tysons Corner Mall is a big draw for me, since they have the freshest Mexican food in my rather sorry neighborhood. I would love a movie theatre at my mall but civilization in Northern Virginia is not yet so advanced. Beyond that, I want enough space in the mall to stretch my legs freely when walking. Given those preconditions, I will buy something for sure, once I have gone. Unlike Alex, I don’t treat sunk costs as sunk. Once I decide to do something I follow through, if only to discipline my choice of original commitments. That is how I make my highly rational, economically calculated, expected utility-maximizing shopping decisions.
What makes rats pessimistic?
Unstable housing conditions, so it seems. Read the full story.