Quotulatiousness

February 8, 2018

The revenge of the return of the bride of rent control

Filed under: Economics, Politics, USA — Tags: , — Nicholas @ 05:00

Megan McArdle on the unexpected return of one of the very worst economic policies known to mankind, or as our beloved Prime Minister would insist “peoplekind”:

According to the Wall Street Journal, rent control seems to be making a retro comeback. Most forms of intelligent life could be forgiven for asking why.

Serial experimentation with this policy has repeatedly shown the same result. Initially, tenants rejoice, and rent control looks like a victory for the poor over the landlord class. But the stifling of price signals leads to problems. Rent control starts by producing some sort of redistribution, because the people with low rents at the time that controls are imposed tend to be relatively low-income.

But then incomes rise, and rents don’t. People with higher incomes have more resources to pursue access to artificially cheap real estate: friends who work for management companies, “key fees” or simply incomes that promise landlords they won’t have to worry about collecting the rent. (One of my favorite New York City stories involves an acquaintance who made $175,000 a year, and applied for a rent-controlled apartment. He asked the women taking the application if his income was going to be a problem; she looked at the application and said, “No, I think that ought to be high enough.”)

So the promise of economic justice erodes over time, as lucky insiders come to dominate rent-controlled apartments, especially because having gotten their hands on an absurdly cheap apartment, said elites are loathe to move and free up space for others.

The longer the rent-control policies remain, the more these imbalances grow. The gap between the rent that is charged, and the rent that could be charged in a competitive market, widens. Deprived of the ability to make a profit, landlords skimp on maintenance and refuse to build new housing. If you loosen the law to incentivize renovation, or new building, this only creates new forms of dysfunction: discrimination against tenants who might stay longer than a few years (limiting the ability to raise rents); a decontrolled market that has to absorb all of the excess demand created by locking up so much of the housing market in rent-controlled leases that rarely turn over; even landlords who renovate too often, the better to raise the rent. This arrangement is very good for the people who happen to have gotten their hands on a rent-controlled apartment, and very bad for everyone else, especially newcomers to the city.

January 27, 2018

Econ Duel: Rent or Buy?

Filed under: Economics — Tags: , , , — Nicholas @ 02:00

Marginal Revolution University
Published on 13 Sep 2016

Owning a home is a huge part of the American Dream. But is the dream of home ownership really all it’s cracked up to be?

In this new Econ Duel from Marginal Revolution University, Professors Tyler Cowen and Alex Tabarrok weigh in on the issue. Each representing a side of the home ownership debate, the two professors ask what’s smarter — to rent, or to buy?

On the “buy” side, Tyler Cowen shares the tax advantages of buying a home as well as the effect home ownership has on one’s stability and savings regimen. Does buying a home force us into better savings habits?

Against those arguments, we have Alex Tabarrok, coming down on the “rent” side of the equation.

Among other points, he talks about the real beneficiary of tax breaks (hint: It may not be you!). Along with that, Alex tackles the trials and tribulations of home-buying, in places like San Francisco, New York, or Boston, where a combination of scarce building permits and increased demand drive up home prices. Plus, doesn’t owning a home — and committing a 20% down payment — break the diversification rule of good investing?

All that said, though, here’s the real question that matters — which side are YOU on? Watch and let us know in the comments!

November 16, 2017

Housing woes in the downtown core

Filed under: Britain, Humour — Tags: , , — Nicholas @ 03:00

A timely and clearly heartfelt plea by Eleanor Shaw that only needs a brief preface from Colby Cosh:

All I want are the same things my parents wanted – a good job, a loving partner and a two-bedroom live/work space with balcony in a nice area of the world’s third-richest city.

It’s easy for the Gen Xers and Baby Boomers. To them, with low property prices in areas considered ‘undesirable’ at the time and interest rates between five and 15 per cent, getting a mortgage was easy.

But for us, those opportunities have gone. To live anywhere in London, even somewhere unsexy, is prohibitively expensive. All the nice houses are already owned by older people with better jobs, a situation surely unique in the history of the world.

And it’s not just London. In all the other cool cities around the UK – Edinburgh, Bristol, Manchester – stylish city-centre properties suitable for fashionable twentysomethings are priced far, far beyond our reach.

[…]

The government must act now to build affordable properties for millennials, and support us during our tough first decade in the capital as we work our way up in our careers until we have cleared our debts and are pulling in seven figures.

Then, and only then, can we sell our London homes to developers and move to massive houses in the country.

November 7, 2017

Le Corbusier

Filed under: Books, France, History — Tags: , , , , — Nicholas @ 03:00

Theodore Dalrymple could never be called a fan of Le Corbusier’s architecture:

The French fascist architect Charles-Édouard Jeanneret, better known as Le Corbusier, was another of this charmless ilk, though cleaner than Brecht (a Marxist, the latter’s decision not to wash was his tribute, albeit not a very flattering one, to the proletariat). Jeanneret’s inhumanity, his rage against humans, is evident in his architecture and in his writings. He felt the level of affection and concern for them that most people feel for cockroaches.

Like Hitler, Jeanneret wanted to be an artist, and, as with Hitler, the world would have been a better place if he had achieved his ambition. Had he been merely an artist, one could have avoided his productions if one so wished; but the buildings that he and his myriad acolytes have built unavoidably scour the retina of the viewer and cause a decline in the pleasure of his existence.

One of Jeanneret’s buildings can devastate a landscape or destroy an ancient townscape once and for all, with a finality that is quite without appeal; as for his city planning, it was of a childish inhumanity and rank amateurism that would have been mildly amusing had it remained purely theoretical and had no one taken it seriously.

A book has just been published — Le Corbusier: The Dishonest Architect, by Malcolm Millais — that reads like the indictment of a serial killer who can offer no defense (except, possibly, a psychiatric one). The author shares with me an aesthetic detestation of Jeanneret, and also of his casual but deeply vicious totalitarianism; but, unlike me, the author both has a scholarly knowledge of his subject’s life and writings, of which the perusal of only a few has more than sufficed for me, and is a highly qualified structural engineer. Mr. Millais is able to prove not only that Jeanneret was a liar, cheat, thief, and plagiarist in the most literal sense of the words, a criminal as well as being personally unpleasant on many occasions, but that he was technically grossly ignorant and incompetent, indeed laughably so. His roofs leaked, his materials deteriorated. He never grasped the elementary principles of engineering. All his ideas were gimcrack at best, and often far worse than merely bad. To commission a building from Jeanneret was to tie a ball and chain around one’s own ankle, committing oneself to endless, Sisyphean bills for alteration and maintenance, as well as to a dishonest estimate of what the building would cost to build in the first place. A house by Jeanneret was not so much a machine for living in (to quote the most famous of his many fatuous dicta) as a machine for generating costs and for moving out of. In the name of functionality, Jeanneret built what did not work; in the name of mass production, everything he used had to be individually fashioned. Having no human qualities himself, and lacking all imagination, he did not even understand that shade in a hot climate was desirable, indeed essential.

October 23, 2017

QotD: Cargo cult economics

Filed under: Economics, Quotations, USA — Tags: , , , — Nicholas @ 01:00

Once upon a time, government officials decided it would help them keep their jobs if they could claim they had expanded the middle class. Unfortunately, none of them really understood economics or even the historical factors that led to the emergence of the middle class in the first place. But they did know two things: middle class people tended to own their own homes, and they sent their kids to college.

So in true cargo cult fashion, they decided to increase the middle class by promoting these markers of being middle class. They threw the Federal government strongly behind promoting home ownership and college education. A large part of this effort entailed offering easy debt financing for housing and education. Because the whole point was to add poorer people to the middle class, there was a strong push to strip away traditional underwriting criteria for these loans (e.g., down payments, credit history, actual income to pay debt, etc.)

We know what happened in the housing market. The government promoted home ownership with easy loans, and made these loans a favorite investment by giving them a preferential treatment in the capital requirements for banks. And then the bubble burst, with the government taking the blame for the bubble. Just kidding, the government blamed private lenders for their lax underwriting standards, conveniently forgetting that every President since Reagan had encouraged such laxity (they called it something else, like “giving access to the poor”, but it means the same thing).

Warren Meyer, “Cargo Cult Social Engineering”, Coyote Blog, 2012-11-28.

October 19, 2017

Richard Florida oversold his “creative class”

Filed under: Cancon, Economics, Media — Tags: — Nicholas @ 03:00

Rick McGinnis reviews the latest book by the much-celebrated Richard Florida … which walks back a lot of what his last book pushed:

With his new book, The New Urban Crisis, Florida concedes that he might – just might – have overstated his case. The gaps between the rich and poor have increased, particularly in the case study cities that Florida described and, later, championed as an advocate of his pet theory. The so-called creative class has transformed cities, mostly by colonizing the most attractive districts, aggregating most of the wealth around them, and increasing house prices exponentially, driving the less fortunate classes – Florida’s “service class” and an equally distinct and diminishing working class – into insalubrious neighbourhoods, often at the city’s fringes.

To be fair, it was a case well sold, and it made Florida a star in his field, ultimately landing him at the head of something called the Martin Prosperity Institute at the Rotman School of Management at the University of Toronto. The idea of some sort of vaguely defined creative class as a benign invasion, reviving run-down areas once home to workers or industry with their peculiar and mysterious social, cultural and economic alchemy, had a lot of appeal to the sorts of people who run cities – politicians, developers and realtors, mostly.

The vagueness of what constituted the “creative class” no doubt helped sell Florida as an urban visionary – it could be stretched to include everyone from gallery owners, photographers, and art directors to claims adjusters, funeral directors, and tax collectors. In Florida’s theory, as one critic noted, “distinctive spatial and political proclivities are bunched together, purely on the basis of educational attainment, and with little demonstrable relationship to creativity.” Much of the good press was probably helped by the fact that journalists had pride of place in the creative class.

[…]

There’s a sleight of hand at work with Florida’s theory, as the middle class that he bemoans as disappearing has actually been largely absorbed by him into the very elastic borders of the creative class, where vast armies of white collar workers find their home alongside tiny numbers of arts bureaucrats and musicians. His fetish for IT workers in particular seems curious, since many of the jobs being done in vast, architecturally praised tech campuses are, in basic function indistinguishable from the sort of grinding desk labour done on vast office floors in skyscrapers by men in gray flannel suits, 60 years ago.

October 11, 2017

The Great Recession

Filed under: Economics, Government, USA — Tags: , , , , — Nicholas @ 04:00

Marginal Revolution University
Published on 9 Aug 2016

There’s already been much discussion over what fueled the Great Recession of 2008. In this video, Tyler Cowen focuses on a central theme of the crisis: the failure of financial intermediaries.

By 2008, the economy was in a very fragile state, with both homeowners and banks taking on greater leverage, many ending up “underwater.” Why did managers at financial institutions take on greater and greater risk? We’ll discuss a couple of key reasons, including the role of excess confidence and incentives.

In addition to homeowners’ leverage and bank leverage, a third factor played a major role in tipping the scale toward crisis: securitization. Mortgage securities during this time were very hard to value, riskier than advertised, and filled to the brim with high risk loans. Cowen discusses several reasons this happened, including downright fraud, failure of credit rating agencies, and overconfidence in the American housing market.

Finally, a fourth factor joins homeowners’ leverage, bank leverage, and securitization to inch the economy closer to the edge: the shadow banking system. On the whole, the shadow banking system is made up of investment banks and various other complex financial intermediaries, highly dependent on short term loans.

When housing prices started to fall in 2007, it was the final nudge that pushed the economy over the cliff. There was a run on the shadow banking system. Financial intermediaries came crashing down. We faced a credit crunch, and many businesses stopped growing. Layoffs ensued, increasing unemployment.

What could have been done to prevent all of this? You’ll have to watch the video to find out.

September 16, 2017

QotD: The US housing market

Filed under: Economics, History, Quotations, USA — Tags: , , , — Nicholas @ 01:00

… up until fairly recently, the home mortgage market was the most conservative financial market out there. The market was not a big money maker because risks were very low and the money was steady. The home mortgage market was the realm of community banks who held the mortgages as assets for the life of the loan. It was the 3-6-3 lifestyle. Borrow from the financial markets at three percent, make home mortgages at six percent and hit the links at 3:00 PM. That all changed in the early 1990’s when Democrat policymakers passed the Community Reinvestment Act and then forced banks to make loans that were far more risky in areas that the banks, for good reasons traditionally stayed away from. Then through Fannie Mae and Freddie Mac the “policymakers” bundled the good and bad paper and sold it on the financial markets creating the current mess. What I don’t understand is how increased home ownership was supposed to increase rents.

Home ownership has been a policy of multiple administrations since WW2, as has suburbanization. There are a bunch of reasons for this. One big one was that the policymakers were, for a bunch of reasons, not fond of urban life. It was considered dirty, old fashioned and perhaps most importantly a big target. This was not a small consideration to people coming back from all those ruined cities overseas.

John C. Carlton, “Who ‘Stole’ The Country’s Wealth, The Rich, Or Government ‘Policy Makers?'”, The Arts Mechanical, 2015-10-16.

August 2, 2017

Ontario has scared off foreign home-buyers, but bureaucratic delays still make housing more expensive

Filed under: Bureaucracy, Business, Cancon, Economics — Tags: , , , , — Nicholas @ 04:00

Josef Filipowicz and Steve Lafleur explain why Ontario’s recent crack-down on foreign home-buyers in the Greater Toronto Area still leaves one of the biggest barriers to affordable housing untouched:

The Ontario Legislature in Queen’s Park, Toronto. (via Wikimedia)

According to a recent announcement from Queen’s Park, 4.7 per cent of properties purchased in Ontario’s Greater Golden Horseshoe (between April 24 and May 26) were acquired by foreign individuals or corporations. This in the wake of the raft of measures announced in April including a 15 per cent “Non-Resident Speculation Tax” ostensibly aimed at improving housing affordability.

It’s difficult to say how this portion of the housing market — foreign buyers — ultimately impacts the cost of buying or renting in Canada’s biggest urban region, and it’s far too soon to estimate the effects of the myriad of policy changes the Ontario government is introducing. But what we do know is that the laws of supply and demand apply to housing, and it’s hard to believe that a small percentage of buyers are responsible for the massive appreciation of housing prices in the GTA over the past decade. Rather than focus on a small tranche of buyers, we should focus on ensuring that regulations don’t prevent the supply of new housing from meeting demand.

[…]

So what’s preventing cities in the Greater Golden Horseshoe from issuing more building permits?

In short, red tape at city hall. Between 2014 and 2016, Fraser Institute researchers surveyed hundreds of homebuilders across Canada to better understand how government regulation affects their ability to obtain permits. In the Greater Golden Horseshoe, it typically takes one-and-a-half years to obtain a permit in this region, and per-unit costs to comply with regulation amount to almost $50,000. Approval timelines can also be affected by the need to rezone property. Approximately two-thirds of new homes in the region require this procedure, which adds 4.3 months (on average) before builders can obtain permits.

Another deterrent to more supply is local opposition to new homes. Survey results show that council and community groups in Toronto, King Township and Oakville are more likely to resist the addition of new units in their neighbourhoods, effectively preventing newcomers from moving in.

Update, 3 August: Mission accomplished. Toronto home sales plummeted 40 percent in July.

May 22, 2017

Why Do We Have Grass Lawns

Filed under: Economics, Environment, History, USA — Tags: — Nicholas @ 04:00

Published on 17 Apr 2017

In this video:

Maintaining the perfect lawn takes a lot of work. There’s mowing, fertilizing, aerating, and watering. Having a trimmed green field leading up to your front door is something of a status symbol, and in some cases having a messy front lawn can get you into trouble with your more obsessive neighbours.

Want the text version?: http://www.todayifoundout.com/index.php/2014/03/grass-lawns-2/

May 9, 2017

QotD: Wage floors and rent ceilings

Filed under: Economics, Government, Quotations, USA — Tags: , , , , — Nicholas @ 01:00

[Progressives] tend to favor policies such as New York City’s rent controls, and the new $15 minimum wage being gradually phased in in some western cities. I like to think of these policies as engines of meanness. They are constructed in such a way that they almost guarantee that Americans will become less polite to each other.

In New York City, landlords with rent controlled units know that the rent is being artificially held far below market, and thus that they would have no trouble finding new tenants if the existing tenant is unhappy. So then have no incentive to upgrade the quality of the apartment, or to quickly fix problems. They do have an incentive to discriminate against minorities that, on average, are more likely to become unemployed, and hence unable to pay the rent. Or young people, who might damage the unit with wild parties.

Wage floors present the same sort of problem as rent ceilings, except that now it’s the demanders who become meaner, not the supplier. Firms that demand labor in Los Angeles in the year 2020 will be able to treat their employees very poorly, and still find lots of people willing to work for $15/hour.

Scott Sumner, “How bad government policies make us meaner”, Library of Economics and Liberty, 2015-08-25.

April 27, 2017

“Richard Florida has a new book [that] advises cities on what to do about problems that result from advice he gave them in his previous books”

Filed under: Cancon, Economics, Media — Tags: , , , , — Nicholas @ 03:00

Chris Selley hits this one out of the ballpark:

Gadabout urbanist Richard Florida has a new book: The New Urban Crisis. It advises cities on what to do about problems that result from advice he gave them in his previous books, notably The Rise of the Creative Class. Stuff your downtown core full of creative types and you shall prosper, the University of Toronto professor advised, and many cities listened. Now some face a “crisis of their own success,” he told a Toronto breakfast crowd at the Urban Land Institute’s Electric Cities Symposium: the blue-collar types who make the creative class’s artisanal baked goods and mind their children have been “pushed” ever further into the suburbs. Economic and geographic inequality results, and Rob Ford/Donald Trump/Brexit-style resentment can build.

Florida’s many critics have long warned this was a flaw in his vision. But now Florida says he finds it “terrifying,” so he’s off on another book tour.

If I sound a bit peevish, it’s because I find him rather insufferable. Critics have poked holes in much of his research, but much more of it strikes me as overly complex analysis and measurement of fairly basic, intuitive phenomena that are common to dynamic and not-so-dynamic cities. While the remarkable urban revivals in recent decades in New York and Pittsburgh, and nascent ones in Detroit and Newark, are all very interesting, I’ve never understood what they have to teach us about Canadian cities. Their cores never “hollowed out” in the first place, necessitating wholesale renewal. When I listen to Florida talk, I hear Lyle Lanley trying to sell Springfield a monorail.

In any event, his prescriptions for the GTA are not exactly visionary: more transit, more affordable housing, densification over NIMBYism and more decision-making autonomy for cities. “The key today is shifting power from provinces to cities,” Florida writes in a Canadian-focused paper linked to the new book. That made it all the more galling to watch his post-speech “fireside chat” with Ontario Premier Kathleen Wynne, whose tires he pumped well beyond their recommended PSI.

“You know this. It’s in your blood,” Florida gushed of her urbanist bona fides.

Well, let’s see. Wynne can certainly claim to have committed many billions in taxpayer money to transit projects. But if there were awards for NIMBYism, Wynne would have one for the nine-figure cancellation of two unpopular gas-fired power plants, during an election campaign of which she was co-chair; and perhaps another for her party’s shameless politicking on transit in Scarborough.

April 25, 2017

Cultural appropriation of “poverty culture” in the Tiny House Movement

Filed under: Media, Randomness, USA — Tags: , , , , , — Nicholas @ 03:00

Ann Althouse linked to this older article by July Westhale on “Poverty Appropriation”:

How many folks, I wonder, who have engaged in the Tiny House Movement have ever actually lived in a tiny, mobile place? Because what those who can afford homes call “living light,” poor folks call “gratitude for what we’ve got.”

And it’s not just the Tiny House Movement that incites my discontent. From dumpster diving to trailer-themed bars to haute cuisine in the form of poor-household staples, it’s become trendy for those with money to appropriate the poverty lifestyle — and it troubles me for one simple reason. Choice.

The Tiny House Movement began in the ’90s, but has only been rising in popularity since the recession. And to be fair, it’s rooted in a very real problem: more and more people being displaced as a result of soaring housing costs, especially in tech-boom areas like the Bay Area.

[…]

It’s likely, from where I sit, that this back-to-nature and boxed-up simplicity is not being marketed to people like me, who come from simplicity and heightened knowledge of poverty, but to people who have not wanted for creature comforts. For them to try on, glamorize, identify with.

Such appropriation isn’t limited to the Tiny House trend, or even to the idea of simplicity. In major cities, people who come from high-income backgrounds flock to bars and restaurants that both appropriate, and mock, low-income communities. Perhaps the most egregious example is San Francisco’s Butter Bar, a trendy outpost that prides itself on being a true-blue, trailer park-themed bar, serving up the best in “trashy” cuisine and cocktails. With tater tots, microwaved food, and deep-fried Twinkies on the menu, the bar also serves cocktails that contain cheap ingredients, such as Welch’s grape soda. The bar has an actual trailer inside, and serves cans in paper bags, so that bar flies can have a paid-for experience of being what the owners of this bar think of when they think of trailer trash.

Butter Bar in San Francisco (Credit: Facebook)

It’s but one example of an entire hipster movement — can it be called a movement when it’s a subculture rooted not in political consciousness, but in capitalism? — that has brought with it an ethos of poor-culture appropriation and the “re-invention” of things that have largely been tools of survival for poor, disabled, working class, and/or communities of color for decades.

April 18, 2017

QotD: Rent control

Filed under: Business, Economics, Government, Quotations — Tags: , , , , — Nicholas @ 01:00

To someone ignorant of economic reasoning, rent control seems like a great policy. It appears instantly to provide “affordable housing” to poor tenants, while the only apparent downside is a reduction in the income flowing to the fat-cat landlords, people who literally own buildings in major cities and who thus aren’t going to miss that money much. Who could object to such a policy?

First, we should define our terms. When a city government imposes rent control, it means the city makes it illegal for landlords to charge tenants rent above a ceiling price. Sometimes that price can vary, but only on specified factors. For the law to have any teeth — and for the politicians who passed it to curry favor with the public — the maximum rent-controlled price will be significantly lower than the free-market price.

The most obvious problem is that rent control immediately leads to a shortage of apartments, meaning that there are potential tenants who would love to move into a new place at the going (rent-controlled) rate, but they can’t find any vacancies. At a lower rental price, more tenants will try to rent apartment units, and at a higher rental price, landlords will try to rent out more apartment units. These two claims are specific instances of the law of demand and law of supply, respectively.

[…]

In the long run, a permanent policy of rent control restricts the construction of new apartment buildings, because potential investors realize that their revenues on such projects will be artificially capped. Building a movie theater or shopping center is more attractive on the margin.

There are further, more insidious problems with rent control. With a long line of potential tenants eager to move in at the official ceiling price, landlords do not have much incentive to maintain the building. They don’t need to put on new coats of paint, change the light bulbs in the hallways, keep the elevator in working order, or get out of bed at 5:00 a.m. when a tenant complains that the water heater is busted. If there is a rash of robberies in and around the building, the owner won’t feel a financial motivation to install lights, cameras, buzz-in gates, a guard, or other (costly) measures to protect his customers. Furthermore, if a tenant falls behind on the rent, there is less incentive for the landlord to cut her some slack, because he knows he can replace her right away after eviction. In other words, all of the behavior we associate with the term “slumlord” is due to the government’s policy of rent control; it is not the “free market in action.”

Robert P. Murphy, “The Case Against Rent Control: Bad housing policy harms lower-income people most”, The Freeman, 2014-11-12

April 5, 2017

If Walls Could Talk The History of the Home Episode 2: The Bathroom

Filed under: Britain, Health, History — Tags: , , , — Nicholas @ 02:00

Published on 31 Jan 2017

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