Harvard economist Ed Glaeser recently blogged about the Obama administration’s efforts to develop a Bureau of Consumer Financial Protection and asked: How much consumer regulation is appropriate given that regulators, just like the average consumer, make mistakes too?
The impetus for a consumer protection agency, of course, is largely because of a perceived failure, on the part of the private sector. Glaeser uses the example of home owners and lenders:
“The more obvious consumer error — made by home buyers and lenders alike — was to have wildly unrealistic expectations about housing prices. Karl Case and Robert Shiller surveyed recent home buyers in four cities in 2003. They found that, on average, home buyers in Boston, Los Angeles, Milwaukee and San Francisco thought that over the next 10 years prices would rise each year by 14.6, 13.1, 11.7 and 15.6 percent, respectively. These price expectations certainly seem wrong after the fact — prices are lower today in Boston and San Francisco than they were at the end of 2003 (see chart below) — but economists typically thought that these expectations were exaggerated and unrealistic in 2003, as well.”
Hence, the birth of a consumer protection agency. But determining the appropriate amount of regulation is key, argues Glaeser:
“A consumer protection agency, however, is based on the view that a regulator can help offset the errors made by private individuals. In some cases, regulatory agencies really do make things better; I treasure the caloric information available in supermarket aisles. But history has seen plenty of bad regulation, whether in railroads or financial markets, that privileges insiders and restricts innovation. The best way to avoid these missteps is for the Bureau of Consumer Financial Protection to have modest, well-defined goals, like providing clear information to borrowers. Clear, limited objectives will reduce administrative overreach and respect the fact that politicians and regulators are people, too, and make the same kinds of mistakes as lenders and home buyers.”
Image: Flickr
Is and has the U.S. been over-celebrating homeownership? A recent piece from the WSJ has raised this question once again here. Since 1918 with the “Own Your Own Home” campaign, the U.S. has long promoted the virtues of homeownership. But as evidenced by the last recession, perhaps some people should just rent.
The above diagram shows the peak ownership rate in each city followed by the current homeownership rate (it has fallen in every city shown) and then the percentage of those owners who actually have positive equity (that is, their home is worth more than the mortgage they’re paying on it). The most alarming city – although maybe not – is Las Vegas. Only about a quarter of the homeowners are in the favorable position of not drowning in debt.
Image: WSJ
There’s a real value to having lots of smart people clustered together, this is well known. But there’s a number of different ways of measuring “human capital.” Here’s an interesting study that uses Bachelor & Graduate degrees per square mile to measure smart people density, rather than just population numbers. Which cities come out on top? San Francisco and New York.
Image: Flickr
Urban gentrification requires a catalyst; something to kick-start the transformation from undesirable to desirable. Gays, artists and bars are often cited examples, with case studies ranging from San Francisco’s Castro neighbourhood to, most recently, Toronto’s Ossington strip.
Formerly an area filled with used appliance shops and wanderers from the nearby CAMH (Centre for Addiction and Mental Health), the Ossington area exploded over the past few years with trendy restos and bars thanks to entrepreneurs like Michael King. The area had found its catalysts and change was underway.
But the transformation was so dramatic that the city – namely uptight City Councilor Joe Pantalone – got scared. They wanted a time-out from the rapid march of gentrification. A 1-year moratorium on liquor licenses was put in place so that the city could determine what direction the area should take. The result: momentum lost.
Now I don’t know if Joe Pantalone secretly wants to return to the prohibition era or if he simply wants to appease his constituents worried about drunken debauchery in their area, but the city now also plans to implement a ban on backyard patios, limit restaurant sizes and – get ready for this — mandate parking for all restaurants on the Ossington strip. Why have patios when you can have parking spots? I thought we were supposed to be encouraging the use of alternative forms of transportation.
What happened (past tense) was an organic urban process. The rapid proliferation of bars and restaurants occurred because there was a market for them. The same goes for patios. In return they brought vibrancy and people to a previously neglected portion of the city. So why stifle it? Change, growth and intense activity are all indications of a city with a pulse.
The overnight success of Ossington should have been celebrated. It was a testament to the abilities of our entrepreneurs and the health of our city. But due to recent events, it looks like gentrification is going to need to find a new place to play.
Image: Flickr
An annual survey by real estate firm Coldwell Banker looked at the cost of a 2,200 square foot single-family home in various cities across the world. The survey looked at what they call an “aspirational home.” A home suitable for a family and/or for a middle-management executive intent on “moving up” in the world.
These are the most expensive markets in Canada:
- Vancouver: $1.26-million
- Toronto: $824,347
- Victoria: $663,000
- Burnaby, B.C.: $657,000
- Fort McMurray, Alta.: $638,000
- Calgary: $525,525
- Scarborough, Ont.: $481,750
- Oakville, Ont.: $469,500
- Montreal: $469,250
- Burlington, Ont.: $464,025
In North America as a whole, California dominates the top 10 list along with historic Boston and Vancouver:
- La Jolla, Calif.: $2.12-million (U.S.)
- Beverly Hills: $1.98-million
- Greenwich, Conn: $1.52-million
- Palo Alto, Calif.: $1.49-million
- Santa Monica, Calif.: $1.46-million
- San Francisco: $1.36-million
- Boston: $1.34-million
- Newport Beach, Calif: $1.3-million
- Palos Verdes, Calif.: $1.24-million
- Vancouver, B.C.: $1.17-million
Globally, Asia-Pacific holds the title of one of the most expensive real estate markets in the world with Singapore at the top:
- Singapore: $1.89-million (U.S.)
- Milan: $1.64-million
- Florence: $1.61-million
- Shanghai: $1.38-million
- Bucharest: $1.37-million
- Hamilton, Bermuda: $1.35-million
- Rome: $1.26-million
- Dublin: $1.13-million
While it’s certainly not surprising to see Vancouver at the top in Canada and La Jolla at the top for North America, it is interesting to ask yourself how these markets become so expensive. I mean, neither Vancouver nor La Jolla are the economic engines of their respective countries. But they’re desirable places with a limited supply of properties and so prices are high.
Every real estate market, in a way, has a story. A reason for being. Fort McMuray, Alberta, which is number 5 in Canada, is expensive because of oil. The oil and gas industry in Alberta creates six-figure jobs for folks with little to no education. As a result of this, home prices are high. They’re more expensive, on average, than Montreal, which has a diverse employment base.
But regardless of what fuels the market, real estate still comes down to supply and demand. If you look at the above lists you’ll notice that the top cities — Vancouver, La Jolla and Singapore — are all supply constrained markets. Singapore is a tiny city-state that has undergone massive amounts of land reclamation and Vancouver and La Jolla are majestic locales where people fight over views of the ocean and mountains.
Image: Flickr
“The pioneers always had big plans for San Francisco – but it turned out to be a city of neighborhoods built around a downtown core. There were four reasons for this: geography, changing housing patterns, transit lines and disasters like the 1906 earthquake and fire.”
Here is an interesting piece from the San Francisco Chronicle on the growth of San Francisco’s neighbourhoods and the history of its urban form.
Image: Flickr
While the U.S. residential real estate market has shown signs of recovery this summer, the word on the street is that there’s still significant pain to be felt on the commercial side. According to Bloomberg, U.S. commercial real estate sales this year are expected to fall to the lowest in 18 years.
Transactions are an important part of a real estate market. The lack of activity makes it more difficult to value properties and so buyers and sellers stop agreeing on prices. The lack of comps also makes lenders tighten up because they, too, begin to feel insecure about property values.
What’s the value of an asset? It’s what the market will pay. And if the market has been paying, how do you know what it’s worth?
All of this just delays recovery.
Image: Flickr
Globizen Property is on a quest to find the world’s top design oriented real estate developers. We’re looking for developers from across the globe that understand the value of superb architecture, quality craftsmanship, and business innovation.
Candidates will be assessed based on a number of criteria, including, but not exclusively:
- Commitment to outstanding design and environmental sustainability
- Ability to respect urban context
- Development track record
- Ability to push the boundaries of the industry
- Overall creativity of the firm
If you’re an outstanding real estate/property developer, or know of some, we’d like to hear from you. Shoot us an email at info (@) globizenproperty.com with Design Oriented Developer as the subject.
Image from Flickr by Scarletgreen
A San Francisco warehouse turned chic modern office/residence.
Architects: Fougeron Architecture
Location: San Francisco, USA
Size: 418 sqm
Completed: 2007
Tehama Grasshopper / Fougeron Architecture [ArchDaily]
Photographs by Richard Barnes & Rien Van Rijthoven via ArchDaily
Richard Florida — who famously published the “Bohemian-Gay Index” — tenaciously continues to argue, here, that concentrations of bohemians (artists, musicians, designers, etc…) and gays have a significant impact on housing values:
“Why would this be? Our theory is that bohemian and gay populations capitalize on two distinct factors of high-value housing. The first is an aesthetic–amenity premium. Artists and bohemians not only produce amenities but are attracted to places that have them. As selective buyers with eyes for amenity, authenticity, and aesthetics, they tend to concentrate in places where these things abound. The second is a tolerance or open-culture premium. Regions with large bohemian and gay populations possess low cultural barriers to entry, allowing them to attract talent and human capital across racial, ethnic, and other lines. Artistic and gay populations also cluster in communities that value open-mindedness and self-expression.”
The field of urban economics is an interesting one — particularly because our world is becoming increasingly more urban and the global economy appears to be consolidating itself into a select number of global cities. Here is another article by Richard Florida that discusses this dramatic migration of talented and highly paid individuals to a relatively small number of urban areas, which he calls “mean migration.”
“The physical proximity of talented, highly educated people has a powerful effect on innovation and economic growth. Places that bring together diverse talent accelerate the local rate of economic evolution. When large numbers of entrepreneurs, financiers, engineers, designers, and other smart, creative people are constantly bumping into one another inside and outside of work, business ideas are formed, sharpened, executed, and—if successful—expanded. The more smart people, and the denser the connections between them, the faster it all goes. It is the multiplier effect of the clustering force at work.”
A New Kind of Economic Indicator [McKinsey & Company]
Talentopolis [McKinsey & Company]
Image from Flickr by Lsk208
Toronto Pride 2009
Since 2003 when the Ontario Court of Appeal decided that excluding same-sex couples from civil marriage violated the constitution, Toronto has become known to many as the “gay marriage capital of the world.” As of last month, Toronto’s same-sex marriage records indicate over 11,128 individuals.
The Toronto Star, here, wanted to know which were the most popular gay neighbourhoods and ended up uncovering some interesting bits of information.
While the Church & Wellesley Village remains the centre of gay culture in Toronto, there are a number of other pockets:
“Gay couples are most common in the Gay Village around Church and Wellesley Sts. and in east downtown, with clusters in Rosedale and the University of Toronto area.
Lesbians are also prominent downtown, with clusters in east-end neighbourhoods such as Riverdale, South Riverdale, Leslieville, the Beach and east Danforth. Rates are also high in the U of T area, Cabbagetown and Roncesvalles.”
Another tidbit:
“Generally, socioeconomic factors explain why lesbian and gay enclaves form in different areas, says sociologist Adam Green, an assistant professor at the University of Toronto. Because women typically earn less, lesbian enclaves appear in less wealthy areas and farther from main streets. Gay men, who are bigger earners, are traditionally more visible downtown, says Green.”
This is an interesting branch of sociology that is perhaps most famously demonstrated by Richard Florida’s controversial “Gay-Bohemian Index” and his work on the “Creative Class.” He essentially argues that gay-friendly cities are more prosperous economically because they’re tolerant (think San Francisco, New York, Toronto). Not surprisingly, he received a lot of criticism from “the right” in the US.
But many others have also espoused similar arguments saying that DINKs (dual-income-no-kids) — which describes many same-sex couples — are good for property values because they have more disposable income.
How Gay Is Your Neighbourhood [Toronto Star]
Photo from Flickr by Commodore Gandalf Cunningham
San Francisco at Night
Here is an article from the US News titled “10 Pricey [US] Cities That Pay Off.” It’s based on the work of David Albouy, a University of Michigan economist, who examines “amenity value” and quality of life. Not surprising there is a reason San Francisco has the highest real estate values in the United States, everybody wants to be there:
“With the fourth-highest quality of life and the highest trade productivity on Albouy’s list, the San Francisco area—which includes Silicon Valley—comes in first on the list of most valuable cities. There are high wages, but even higher housing costs. Albouy found that housing costs are pushed so much above the wage level because San Francisco residents enjoy a premium beyond income, such as great weather, a thriving local arts community, and lively neighborhoods. But the business aspects of San Francisco outshine even the quality of life.”
In general, the list appears to champion California cities, citing the great weather as a big plus and a considerable negative for other cities on the list such as New York and Boston.
Photo from Flickr by Franco Folini.
Perhaps in celebration of New York’s recent subway fare increase, Treehugger has looked at the price of subway fares for some of the major cities in the world. In their study, Mexico City came out as the cheapest ($0.15) and, not surprising, London came out as the most expensive ($4.41). Of course, London also charges a variable fare depending on how far you’re traveling; unlike New York which is a flat fee. Click here for the Treehugger article.
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Duncan Street, San Francisco
Bay Area home prices have now risen for two consecutive months. The SF Gate speculates that this may, in fact, mean the bottom for the real estate cycle. Does it? Below are the Bay Area Median Resale Home Prices for May 2009. What’s interesting is how well Napa and San Francisco held their property values from last year.
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