Loft Living and Office Conversions?

 Some discussion in media about conversions of office towers into residential space. 

Back in the day, 1960s or so, converting warehouse loft space into residences for the arty crowd was a thing.

Before that converting urban houses to commercial uses was a thing.  I remember in Greene NY in the 1940s we patronized 2 groceries, 1 hardware store, and a movie theater all converted from houses.

Our Limited Vision

Marginal Revolution pointed to this Ezra Klein piece on housing for the homeless in LA. Interesting, encapsulated for me in this quote from one of the mayoral candidates.:

Funders don’t want to give you general operating costs. They want you to solve their pet issue. What I always wanted was money for general operating costs.”

She's talking about her experience as an NGO exec, but the problem is universal. Every problem which Klein identifies, and there are so many neither he nor his readers will come away optimistic, is the result of proponents having tunnel vision, pushing a good idea into law or the courts without reckoning for the effects.  

Liberals criticize capitalism for ignoring exogenous effects of the market economy.  We also need to recognize that our good ideas will also have exogenous effects.

Housing Codes--Needed or Not?

Some bloggers, maybe all bloggers, have a hobbyhorse.  Matt Yglesias fights against zoning codes, arguing that home prices would be lower if anyone could build anything on any land they own. [In fairness to him, I'm sure I'm exaggerating his position. 

Meanwhile FCW has a post praising the "faceless bureaucrats", which is my hobbyhorse, for their work in enforcing housing codes.  Matt hasn't commented on that.  I suppose he'd probably argue that building codes are essential,  that when he writes "build anything" he doesn't really mean "anything", but buildings built to fulfill their purpose.  That may be a slippery slope, however.

Did the End of the Draft Spur the Big Sort?

 The "big sort" is the label applied to the increasing polarization between Democrats and Republicans, where the differences within the party have diminished over the last 50 years and the differences between the parties have increased.

I've read theories about the sort, most of which I've forgotten by now.  I've likely posted before on it before. A couple speculations:

1. one of the integrating forces in American history has been war. The necessity of mobilizing armed forces to fight Native Americans, the French, the British, the Spanish, the Germans,the Koreans, the Chinese, the Soviets, the Vietnamese, etc. consistently brings together men and now women from different places and different social groups and strata and gives them a common experience with a common foe.  When civilian society supports their sons and daughters in a war it brings people together.  I think this has been especially true in the 20th century when the draft was in effect.  With the ending of the draft that integrating force has weakened.
2. While real estate development is perhaps the most characteristic American occupation, and doing subdivisions which cater to a relatively uniform clientele (in terms of race, salary, life style) has been going on since early days in New England, it seems to be massive developments, the Levittown type projects, really got going in the 1950's.  That geographic separation must have contributed to polarization.

Sources of Sorting--1968 Act?

 "The Big Sort" is the idea that Americans are sorting themselves into two separate camps--based on politics, education, etc. factors., which can be seen geographically--the red and blue areas on the map.

Supposedly this is a new phenomenon.  If so, I wonder why it started?  It's easy enough to see why the sorting might continue, if people make decisions on where to live, where to buy, depending on economics and the importance of schools, etc. But why would it start?

It struck me yesterday that I should look at myself--why did I buy in Reston, in an area where today about 90 percent of my neighbors vote Democratic (per a NYTimes interactive feature)?  The answer is relatively simple.   When I decided to buy in the suburbs in late 1975 I focused on Reston.  Why? Because Robert Simon, who initiated the project, sold it as an equal opportunity town back in 1964-5.  That was when I first became aware of it, as I was stationed at Ft. Belvoir. I even visited during an early open house on a weekend. 

Simon was in advance of the Fair Housing Act of 1968, LBJ/s final achievement, which mandated equal opportunity. I can't believe EEO was a big factor in decisions by many, but it might have been just enough for some to start the snowball rolling down the hill. 

Missing Somethings in Schelling: Reston Verus Prince George

Thomas Schelling was a great economist, who won the Nobel.  One book had this: In 1969 and 1971, Schelling published widely cited articles dealing with racial dynamics and what he termed "a general theory of tipping."^[21] In these papers he showed that a preference that one's neighbors be of the same color, or even a preference for a mixture "up to some limit," could lead to total segregation,

I think generally it was taken as explaining why "block-busting" in the 60's led to a change from lily-white ownership to all-black ownership--whites had a preference for living among whites. But when you look at what he said, at least as summarized in Wikipedia, it's race-blind.  In other words, blacks could have a preference for living among blacks, which could also affect housing patterns.  That point was, I think, missed because we didn't have a real world example. 

One factor in the discussion is the starting point.  In the 1960's you had areas which were inhabited by one race. Another factor is whether you think it's a "preference", or whether it's an emergent property from network effects: you buy where a friend has bought first, "Networks" has become a new buzzword for analysis.  And these days we're more familiar with "chain" immigration, where a neighborhood in the US is peopled mostly by immigrants from one town in Mexico, or wherever. .  

I bought in Reston in the mid-70's, partly because it was founded from the beginning as equal opportunity housing.  I was part of an outflow of people from DC moving out to the suburbs.  As it turned out, despite Reston's open appeal, it didn't attract a lot of blacks--I don't think it's ever gotten much over 10 percent blacks--; most blacks moving from the District went to Prince George County, which is now majority black.  These patterns fit Schelling's analysis, but how much of the underlying cause is preference, and how much is network effects is still unknown. 

The Federal Government and Racism in Housing.

I think one general pattern in the development of government is evolution from the bottom, consolidation from the top.  British history has the problem of over-mighty subjects I think they're called--nobles who have their own entourages wearing their own livery carrying weapons and posing a threat to the monarchy.  Gradually their power is whittled away and the state assumes a monopoly of violence.  In the South especially there's a pattern of private and quasi-public enforcement of laws and mores, which shows most clearly in lynchings and jury nullifications.  That's been changed.  In the North roads were often developed as private enterprises, eventually to be taken over by the state. 

I could go on, but let me get to the subject: the New Deal and the federal housing agencies are commonly blamed for establishing red lines and refusing to finance housing loans in areas of the city.  IMO it's true that's what they did, but it's not true it was dreamed up in the pointy heads of Washington bureaucrats and New Dealers.  I've held that opinion all along, but it doesn't fit with the  way I see the world operating.

Now my opinion, which was based only on feelings and not on facts, is reinforce by a scholarly article in the Journal of American History.  Unfortunately it's paywalled but it includes a discussion of the development of the real estate industry. I'll quote a paragraph:

" Fisher emphasized the importance of NAREB's Code of Ethics, first created in 1913. He summarized the code and the commonsense nature of advising clients and customers on matters of value. However, he failed to mention its soon-to-be-finalized Article 34, which became one of the organization's most controversial statements: “A Realtor should never be instrumental in introducing into a neighborhood a character of property or occupancy, members of any race or nationality, or any individuals whose presence will clearly be detrimental to property values in that neighborhood.” Thus racism was already well established in NAREB by the time that Ely and Fisher reached out."

"Ely" is Richard Ely, the founder of the American Economics Association, and Fisher is one of his students who worked for what became the National Association of Real Estate Boards, now the National Association of Realtors.

The article's theme can be summarized here:

?The Federal Home Loan Bank, the Home Owners' Loan Corporation, the Federal Housing Administration, and their restructuring of the real estate sector were outgrowths of the network of academics, private sector professionals, trade organizations, and lobbyists that Ely assembled in the 1920s. "

To paraphrase the now deceased Rumsfeld, "you write the laws with the society you've got".  The New Deal solidified and rationalized racism in housing, racism that pre-existed the New Deal.

The Pull of the Familiar, the Push of the Foreign

Both the Post and Times  had Sunday articles discussing the Asian American community in Atlanta. The Post had a map showing its recent growth, which was concentrated in certain areas.

What struck me was the likelihood that the concentration mostly reflected the choice of the immigrants, the desire to live in areas with people with whom you might share something.  (Since "Asian-American" covers some 20 countries or so, you might not be able to speak your neighbor's language, but presumably you might have neighbors more accepting of you than in a 95 percent white, or 95 percent black, community.)  

It's always hard to untangle the factors behind residential concentrations (I almost wrote "segregation" but concentration is the better term.)  All other things being equal, a person might decide where to live based on the likelihood of finding people with similar backgrounds, tastes, opinions, values, or based on the fear of having to deal with strangers. 

Then moving from the viewpoint of the person moving into a residence to the viewpoints of the potential neighbors you bring up other factors.  I'd venture that in most cases in today's America the weight of the emotion involved is heavier on the side of the mover, than on the side of the neighbors.

Back in the day we had "lily-white" areas, so someone moving in of a different race could cause the potential neighbors to have a lot of emotion.  I don't think we have "lily-white" areas much these days, so there's less emotion.  Where you get emotion is NIMBYism, questions of zoning in particular.

Smaller Houses

 According to a memoir by my grandfather, his family occupied a house in frontier Illinois of about 450 square feet on the first floor, not clear whether there was a second floor, but probably.  In that house there were my great great grandmother, my great grandfather and grandmother, and 4 children.  

One of my gripes with modern times is the evergrowing size of American houses--new houses are somewhere in the 2000+ range.  Back when I was looking for a house in Reston, I was aware the developers had built some smaller houses, trying to lower the cost of entering the market.  IIRC houses in my townhouse development ranged from $45K to 55K for 1,000 to 1250 sq. ft.  The smaller separate houses were about 950 sq. ft.  and cost roughly $45K. 

Just checked prices on Zillow--now the small house is $450K or so, while in my development houses are running about $100-125K lower.

Apparently Americans put a premium on detached housing.

Time for Higher Real Estate Tax Rates

 Megan McArdle and this Post analysis both describe a booming real estate market in the suburbs, as the "professional" (AKA "upper middle class") take advantage of cheap money and flee the crowded cities. I can see that in my own neighborhood: in the last year or so there have been several townhouses change hands in my cluster.  These would likely be entry-level houses, currently selling in the $350K range.  By the old standards of 2.5 times yearly income that means household income of $140K--not likely. A two income family would, I'd assume, come close to $90-100 K (say two school teachers)

IMO the country needs some way to counter such trends. We don't need McMansions, we don't need everyone having their own private bathroom, we don't need 2.4 rooms per person,  2,700 square feet in a house, much less more than that.  I write this knowing my wife and I occupy a house with 2 baths, 2 half baths.  But it's less than 1500 square feet.  I didn't need that big of a house when I bought; we don't use the whole house now.

When I bought I found the biggest house I thought I could afford because I figured it was a good investment. I assume that parents would buy the biggest house they can afford in the best school district they can find for similar reasons: their kids are good investments; their house is a good investment, or so they think.

The only current way of countering ever more investment in housing is real estate taxes. 

Progress Being Made?

Back in the 50's and 60's whites were fighting to keep their neighborhoods white.  "White flight" was the predominant tactic, but rougher ones were used against the first one or two black families.

I'm often otpmistic, sometimes too much so, but I read this NY Times article  as saying those days are mostly behind us.  That's good.  Some thought we'd never get here.

I can read articles on gentrification as the market working as it did in white flight.  To do this I need to suggest that many whites fleeing from a block where blacks were buying were concerned more with their pocketbook than race.  The working of the market meant that if someone feared blacks, they would sell their house at a discount, especially if their fears were exploited, as they usually were, by the unscrupulous realtors.  One below-market sale could persuade market-oriented owners that to preserve their wealth they needed to sell, which of course started to destroy the value of their homes.

I think it's true that often the switching from all-white to all-black blocks meant property values ended up going way down, partly because people over-extended themselves, because they had to take in renters and subdivide the structure, and because they didn't have the money for maintenance.

Gentrification works through the market as well.  The first white pioneer who has no problems with blacks finds a bargain.  The owner, who may be black, sells at a profit, at least compared to prior years. So both white home buyers and existing home owners can see financial gains over what they had before gentrification started.  However, as property values increase taxes increase and the owners can have problems keeping their property.

It seems to me the key variable in inner-city blocks being gentrified is: who owns the property?  Do we think the owners are mostly the heirs of those who originally bought from the white flight?  Or are they the heirs of the exploiters, white and black, who profited by the white flight? Or has the property changed hands multiple times?  If the heirs of the original buyers there's a chance that what they lost by the block turning black is being made up through gains in value as gentrification increases.  More likely the score card over time shows red ink for blacks, black ink for whites.

My thoughts have now dimmed my pleasure at the message of the article, but we've still progressed  from 1968.

Show Me a Hero

That's the name of David Simon's last TV series,covering a few years in Yonkers, NY fight over the location of public housing. It's a tragedy.  In a related development, the Trump administration has abandoned a long-running dispute with Westchester County, which includes Yonkers, over the same issue.

Housing Segregation: Is Government Tail or Dog?

TaNehisi Coates has popularized some academic research showing how geographically segregated America is.  Sometimes the assertion is that white-dominated government programs have enforced and propagated segregated housing. 

The assertion is true.  But it's also incomplete.

Emily Badger in the Post reports on"...new research,[studying]  how the arrival of blacks in 10 northern cities at the time influenced white behavior. Over the course of the first three decades after the turn of the century, coinciding with the start of the Great Migration of blacks out of the South, this pattern accelerated: As blacks arrived in northern neighborhoods, more whites left. By the 1920s, there were more than three white departures for every black arrival."

These patterns mostly preceded formal and legal patterns (restrictive covenants, redlining).

The Post article doesn't mention it, but there's also the phenomena of chain migration leading to ethnic neighborhoods.  We can see that in American history as Irish, Italians, East European Jews,  Germans, each settled in distinct neighborhoods.  I suspect that's the result of mixed forces: the comfort and familiarity of living close to others from the same country, sometimes the same town and the economics of buying and selling--the newcomer is willing to pay higher prices (usually in the form of crowding) for housing than other potential buyers, so you get a force which leads to segregation.  (See Schelling and his general theory of tipping.) 

What the economist doesn't throw into the mix, at least as I remember the essay which is 45 years old now, is the emotions generated by attachments to home and fear of the "other".  Nor does he address the effects of a general level of bias.   

So, in my mind, we have a vicious circle which can start relatively innocently, is propelled by economic logic, and becomes intermixed with emotion and bias, leading finally to the erection of legal and formal barriers.  We saw the extreme case of that in South Africa in the days of apartheid, and in Nazi Germany.

So my answer to the question asked in the title: government is often, at least in the US, more the tail than the dog.  

The next question is: can you make government the dog and reverse the vicious circle? That's what we've been trying, fitfully, off and on since the New Deal.

The Housing Market Has Recovered?

Back in January 2008 I wrote about the pricing  history of a neighboring townhouse in the context of  the housing bubble.  Early in my blogging days I called the bursting of the bubble in October 2005 based on the prices in my townhouse cluster.  (A pause while I admire my foresight.)

The townhouse is up for sale again.  It went on the market the end of April and is now under contract.  According to Zillow, it's going for $50,000 more than its price in 2009, which in turn was $80,000 above its low in 2008. 

But the bottomline is it's still $50,000 below the peak price.

Reston and Tall Buildings

Matt Yglesias dislikes DC's low buildings--says true urban advantages come from high density and tall buildings.  Along those lines, the father of Reston is interviewed here and says:

"Tall buildings are good because they preserve open space. If you take a tall building and take it all down to two, three or four stories, you use up all the grass and use up all the open space. So if you have a tall building, you are helping the community."

 The original plans for Reston had more townhouses and fewer single-family houses, but that mix didn't sell well in the 1960's and 1970's.  Times have changed.  The Post had an article today on the redevelopment near Mount Vernon square, which is the location of the original main DC library.  Apparently there's now good demand for downtown apartments from people like Mr. Yglesias.

A Look Back at the Housing Bubble

Happened to use Zillow to check some housing prices. As we can see, in this area in Manassas Park, VA the housing bubble collapsed and has not recovered.

I think it's a true fact Manassas Park was home to a concentration of Latino immigrants, many in construction.  So when the bubble popped, along with a hostile political climate in the county (Prince William), lots left, and prices fell accordingly.

Moving Day

One thing which always startles me is the concept of "moving day", the various laws which set a specific date for real estate leases to expire.  Apparently there are such laws in some states, pertaining to farmland at least.  And in France according to the estimable Dirk Beauregard it's illegal between November and late March to expel tenants. It's part of an article on French housing, including the imposition of rent controls in Paris. 

Great Recession: It Was All Reagan's Fault

Long time readers of this blog may have noticed I've certain people whom I'm prejudiced against: Michael Pollan, John Hinderaker, and Ronald Reagan being 3 of them.  So I was very happy yesterday to discover the true cause of the Great Recession: Ronald Reagan.

I'm reading, sporadically, a book called Reforms at Risk, partly because one of its chapters deals with Freedom to Farm. Another chapter deals with the 1986 tax reform act, the best achievement of Reagan's second term.  To describe the logic which connects the tax reform act to the Great Recession:

• in the old days, before the reform act, a taxpayer could include interest on personal loans when she itemized her expenses.  
• the tax experts in the Treasury wanted to end itemizing all interest (and to include fringe benefits like employer-paid health insurance in income, but that's a story for another day)
• the experts got shot down before Reagan submitted his proposal to Congress, but the 86 act did end the itemizing of interest on personal loans.
• so one effect of the act was people reduced their personal loans, and increased their loans secured by real estate, because that interest was still deductible.  This meant not only reducing the amount of down payments (fewer 20 percent down loans) but also taking out second mortgages, and taking equity out of the house by refinancing for higher amounts.
• so the effect of the 1986 tax reform act was turn up the heat under the housing market by increasing the relative advantage of housing loans. Where once the housing market was just simmering away, over 15 years it came to a rapid boil, and then popped.

So, as I say tongue in cheek, it's all Reagan's fault.

Those Overpaid Federal Bureaucrats, and a Certain House

There's a house on sale for $800,000.  I got to thinking about whether the price was too high (the answer: not if the seller can find a buyer at that price. :-), a thought triggered by the note on zillow.com of the down payment and mortgage payment required.

Let me wing a few figures, based on the conventional wisdom back when I first bought a house (1976): a 20 percent down payment means a buyer needs $160,000 in cash.  I guess that's probably not a problem, at least usually, because any buyer is going to be selling their current home. Although these days there's many fewer owners who have that much equity in their homes; many owners are under water.

The principal and interest with a 30-year mortgage is roughly $3,500, or $42,000 a year. Property taxes, at $12 per 1,000 assessed valuation, might be $9,000 or so.  Add insurance of maybe a couple thousand, so you're talking PITI of around $53,000.  Call it $50,000, because I like round figures, and figure what it's 30 percent of and you come out to about $170,000 a year.

Yes, when I bought my first house, the conventional wisdom was PITI shouldn't be more than 30 percent of gross income, at least that's what I remember.  So, what's the bottom line?

Almost no federal employee could afford that $800,000 house within the constraints of 1976 wisdom.  I don't know how many houses in the U.S. would go for more than $800,000, but lots.  It's just another confirmation that high ranking federal employees are not overpaid, whatever may be true of lower ranking employees.

Kinsley Calls Me a Fine Person

That's Michael Kinsley in his Politico column suggesting we shouldn't want housing prices to rise.  He suggests the lower housing prices, the easier for people to buy.  Current homeowners who are looking to upgrade should also like lower prices.  Only those current homeowners who aren't looking to upgrade really benefit from high prices. 

I think he's right, at least about my being a fine person, and probably about housing prices. Certainly reading the narrative in All the Devils Are Here, which is a fine book BTW, suggests the housing bubble was a disaster for everyone.