Urbanexus Update - Issue #130
This selection of economic, real estate, and community development news and information comes to you via H. Pike Oliver. Some items are behind a paywall.
The economy
The Fed and politicians play with fire — scottgrannis.blogspot.com
Beware the monetary and fiscal misunderstandings that proliferate these days. The Calafia Beach Pundit (Scott Grannis) notes that the huge increases in the M2 supply that we saw in the late 2000s and early 2010s were not inflationary because the Fed was essentially converting notes and bonds into cash equivalents, which in turn was necessary to avoid a shortage of money. When the Fed adds money to match an increase in money demand, it is not inflationary; inflation only happens when the supply of money exceeds the demand for it.
Mr. Grannis now believes that we are in the early stages of a monetary policy mistake that the Fed is committing. Last year the Fed boosted M2 by over $4 trillion in response to the unprecedented, catastrophic and extremely costly shutdown of the US economy. He says, "that was fine then, but it's not fine now."
What inflation means for real assets
It is back on the agenda, but what would it mean for real assets?
Non-residential construction spending lags
By end of 2021, Construction Analytics anticipates that spending on non-residential construction will be 20% lower than Q1 2020.
Household debt in the USA — www.visualcapitalist.com
Since 2003, U.S. household debt has doubled to over $14.5 trillion. And mortgage debt represents 69% of the total.
Mixed-use
Macy’s proposes overhaul of Herald Square in Manhattan
Macy’s Inc. (NYSE: M) has unveiled preliminary plans to overhaul its flagship Herald Square store at the corner of 34th Street and Seventh Avenue in Midtown Manhattan. The plan would add a commercial office tower atop the store. The size and design features of the office component were not disclosed.
Master-planned communities
Brookfield Residential acquires Newland
Brookfield Residential has acquired master-planned community developer Newland. The transaction includes Newland’s management company, as well as the (5%) general partner’s equity interest in 15 out of the 20 master-planned communities Newland is developing.
Residential
Update on US housing prices — www.calculatedriskblog.com
S&P/Case-Shiller released the monthly Home Price Indices for March ("March" is a 3 month average of January, February and March prices). This release includes prices for 20 individual metropolitan area and the mouthing National Index for the US, which was showed a 13.2% annual gain as of March 2021.
The 20-City Composite posted a 13.3% year-over-year gain, up from 12.0% in the previous month. Phoenix, San Diego and Seattle reported the highest gains among the 20 metropolitan areas. Phoenix led the way with a 20% year-over-year increase. followed by San Diego at 19.1% and Seattle at 18.3%.
House hunters leaving the city, and builders can’t keep up For years, people most wanted to live in places where it was the hardest to build. Now, with a rise in remote work, exurban areas look more appealing.
14k people are interested in 200 new San Diego homes
3Roots in Mira Mesa plans to build 1,800 homes by 2025 to 2026. Just 200 homes are anticipated to open this year, but the interest list is at more than 14,000 people and expected to keep growing before pre-sales start in June.
The developers have a gold-plated problem — who gets to buy? At the moment, they say they are still trying to figure that out. New home builders across San Diego County have relied on lotteries or very long wait times for a home after an initial deposit to select residents. Would-be buyers at 3Roots don’t seem concerned about the development’s prices, which start around $600,000 for townhouses and into the millions for single-family homes.
Real estate analysts say housing shortages throughout the region mean even the simplest housing project will sell very well.
New home lot inventory drops dramatically in the USA
New-home lot supply has tightened considerably across the U.S., according to Zonda. Its latest New Home Lot Supply Index came in at 49 for the first quarter of 2021, down 10.1% from the fourth quarter of 2020 and 24.2% from the first quarter of 2020.
Condos only 4% of new USA starts — eyeonhousing.org
According to the National Association of Home Builders analysis of quarterly Census data, the market share of rental units of multifamily construction starts remained elevated at 96% during the first quarter of 2021. In contrast, the historical low share of 47% was set during the third quarter of 2005, during the condo building boom.
Rental home owners face financial stress
According to the National Rental Home Council, single-family rental homes currently account for more than half of the nation’s total rental housing. Of the survey’s respondents, half of the individual rental home owners had residents who had missed payments since March 2020. As a result, more than one-third of the owners had to dip into their own savings to cover rental shortfalls and costs of ownership, and one in five had taken out additional loans.
A majority of owners said they’ve been negatively impacted by the eviction moratorium, in particular. Thirty percent said they will be forced to tighten future rental application evaluation standards, while 11% said they were forced to sell at least one property and 12% forced to sell all their properties. While the nationwide eviction moratorium was set to expire March 31, it was extended through the end of June. With the extension, one in five respondents said they “will have no remaining financial options to cover costs related to their rental property.”
Regional and metropolitan dynamics
Pandemic population change across metro America
William Frey provides a comprehensive assessment of how domestic migration, international migration, and natural increase (the excess of births over deaths) impacted area population change during the year that the pandemic hit. Overall, there was accelerated migration to smaller metropolitan areas, less immigration from everywhere, fewer births and more deaths. Everything was down, except for domestic migration out of major metropolitan areas.
America's dispersing metros The big story among the nation’s major metropolitan areas (the now 51 of 55 over one million with more than one county) over the past decade has been the persistence of urban core out-migration and suburban in-migration.
Demographic dispersal in the San Francisco Bay Area
As the San Francisco Bay Area (combined statistical area, or CSA, as defined by the Office of Management and Budget) has sprawled into the San Joaquin Valley, all population growth has been in the three Valley metros for two years. This article describes population trends over the last 10 years in the CSA, which includes the six tidewater (adjacent to the ocean or the Bay) metropolitan areas, traditionally thought of as the Bay Area, including core San Francisco and San Jose as well as Santa Rosa, Napa, Vallejo and Santa Cruz. The CSA also includes San Joaquin (Central) Valley metros of Stockton, Modesto, and Merced, added to the area within the last decade or so in response to the large number of additional commuters from these areas.
Construction
Blockchain and property title verification Blockchain could eventually replace many of the core functions of title companies, but the real estate sector still needs to actually adopt the technology.
Transportation
Per Randal O'Toole, the Antiplanner, the future of public transit is nearly empty buses and railcars. Yet President Biden’s American Jobs Plan calls for spending $85 billion on transit. Although transit carries less than 1 percent of passenger travel in the United States, and no freight, this represents 28 percent of the funds Biden proposes to spend on transportation.
The Antiplanner argues that transit is fundamentally inferior to the alternatives because:
It’s slow: According to the American Public Transpor- tation Association, transit averages 15 miles per hour, while driving in many American cities averages 30 miles per hour or more.
It’s inconvenient: While people can drive door-to- door on their own schedules, transit riders are limit- ed to traveling on transit agency timetables and must usually first walk or drive to a transit stop, then walk to their final destination.
It’s expensive: Counting subsidies to both highways and transit, American transit agencies spend more than five times as much moving people per passenger mile as Americans spend driving their cars.
It doesn’t reach many jobs: The University of Minnesota’s Accessibility Observatoryestimates that a typical resident of the nation’s 50 largest urban areas can reach more than twice as many jobs in a 20-minute auto drive than a 60-minute transit ride. Auto users can reach 12 times as many jobs in 60 minutes up to 67 times as many jobs in 10 minutes as transit users.
Transit can’t even compete with bicycles: The Accessibility Observatory also calculates that people can reach more jobs in bike rides of 50 minutes or less than in same time spent on transit.
Spending more money on transit doesn’t solve the problem: The New York urban area has by far the best transit system in America and one of the best in the world, yet residents can still reach four times as many jobs in 60 minutes and 12 times as many in 10 minutes by car as by transit and can reach more jobs by bicycle than by transit on trips of 30 minutes or less. In 2019, nearly 96 percent of working Americans lived in a household with at least one motor vehicle. Of the 4.3 percent who did not, most didn’t take transit to work. We should be happy that fewer people have to depend on third-class transportation.
Community planning and development
Efficient delivery of housing in Germany
“The German system [of housing] is the best in Europe,” says Paul Cheshire, emeritus professor at the London School of Economics and a leading housing scholar. Housing is dramatically more affordable in Germany than in hot housing markets elsewhere in Europe or North America. It’s more like Houston than in the high-priced metropolitan areas of the USA.
Beyond its modest price and rent levels, Germany also stands out for the stability of its housing costs: they’re uncannily, freakishly stable. As illustrated in the figure below, residential prices in Germany have changed little in the last 45 years, never varying by more than 21 percent from their 1995 level. Straight through German reunification, European Union expansion, and the 2008 global financial crisis, German home prices stayed the same. Germany’s housing economy is the most stable around, rivaled only by Japan. Germany’s housing prices are more stable than any other country in the Dallas Federal Reserve Bank’s dataset (from which the figure is drawn), or the Economist’s larger dataset, or the International Monetary Fund’s even larger one.
Urban planning and design + architecture
Long-term Impact of the pandemic is unknown
In March 2020 Planetizen (an independent resource for people passionate about planning and related fields) started gathering articles attempting to predict the post-pandemic future. The work goes on, with many questions left still to be answered.
Fast food and urban design don't affect weight gain
People don’t gain or lose weight because they live near a fast-food restaurant or supermarket or inhabit a more walkable environment, according to a new study led by the University of Washington.
Refreshed Oakland Museum of California
With its landmark multi-terraced campus originally designed by Kevin Roche now freshly renovated and ready to be enjoyed, the Oakland Museum of California has announced it will soon reopen (images not shown here due to copyright restriction--click through to the article to view them.)
On May 10, 2021, the namesake founder of the world’s largest architecture firm, Art Gensler, FAIA, passed away at his home in Mill Valley, CA, at the age of 85. During his 65-year career, Gensler was distinguished by a belief in collaboration, design education, career advancement, and a dedication to clients, which formed the unique and lasting culture he established at his firm. Though he had stepped down as the CEO of Gensler (the firm) in 2005 and as the chairman in 2010, he continued to serve as an adviser until his death on May 10.
Helmut Jahn killed in a bicycle crash
German-born, Chicago-based architect Helmut Jahn, FAIA, was killed in a bicycle accident on Saturday, May 8, about 40 miles west of the city where he first made his name. He most recently worked at his eponymous firm Jahn. Previously he was the executive vice president and director of planning and design of the venerable firm C.F. Murphy Associates, which Jahn renamed Murphy/Jahn in 1981, and then simply Jahn in 2012.
Construction
Over the past year, a lack of available building materials and skilled labor contributed to sizable surge in prices and delayed or canceled the completion of some residential and commercial real estate projects. Year over year, the cost of lumber has jumped 90 percent and steel prices rose 67 percent, while gypsum used to make drywall is up 12 percent and concrete rose 3 percent. Labor costs are also escalating. Hiring in the construction sector as of April was within 3 percent of the pre-pandemic level. This is creating a shortage of skilled laborers in some areas of the county and pushing wages up. Meanwhile, the historically low cost of financing, increased level of savings, and the need for more people to work and school online has generated demand for home remodeling and larger residences. The surge in home improvement and new construction has increased the demand for building supplies while many factories that supply these materials were working at diminish capacity, disrupting supply chains.
Rising costs may also have a chilling effect on commercial construction as more planned or proposed projects are no longer economically viable and are canceled or delayed. As some lower-margin projects are shelved, inventory additions may be limited to higher-end developments in sectors that were more prosperous during the pandemic, concentrating deliveries in industrial, medical office and single-tenant net lease segments during the next few years. Inconsistent supply chains may cause construction companies to stockpile building materials as they become available, which may generate a rise in short-term industrial and self-storage demand. Meanwhile, the increased costs and tight labor supply may affect the bottom line of office and retail owners as the price and time frame of tenant improvements escalate.
Visualizing the explosion in lumber prices Lumber prices in the U.S. continue to break records as pressure from both the supply and demand sides of the market collide.
Katerra shuts down — www.enr.com
Katerra, the Menlo Park, Calif.-based startup that sought to bring the myriad aspects of design, manufacturing and construction under one roof, is reportedly shutting down, according to media reports on June 1. The company had shown signs of trouble in 2020, when the U.S. Securities and Exchange Commission began an investigation into its accounting practices. Projects that Katerra still has underway either as designer, builder or supplier are now in a state of uncertainty as project team members and owners make other arrangements.
A Warren Buffett backed variation on Katerra starts up The multibillionaire investor has partnered with Danny Forster & Architecture to clear away obstacles to widespread modular construction