News

Landmark Links December 5th – Plant Lives Matter

 

Lead Story… Every now and then I come an article that perfectly encapsulates the absurdity of today’s land use politics – especially in California – and their toxic influence on the housing affordability crisis.  Conor Dougherty of the New York Times wrote one such article last week (h/t Senet Bischoff).  The story was about an old abandoned home in Berkeley (aka NIMBY Mecca), on a large lot that was purchased by a developer a couple of years back.  The developer wanted to knock down the dilapidated old house and build three new ones on the site.  Such a re-development was 100% in compliance with existing zoning and would have been rubber stamped in any sane jurisdiction located within a state with rational land use practices.  Then again, this is Berkeley we are talking about so that obviously didn’t happen and the following – which frankly borders on NIMBY self-parody ensued (emphasis mine):

On paper, at least, there was nothing wrong with the proposal. The city’s zoning code designates the area as “R2-A,” or a mixed-density area with apartments as well as houses.

Berkeley’s planning staff recommended approval. But as neighbors wrote letters, called the city and showed up at meetings holding signs that said “Protect Our Community” and “Reject 1310 Haskell Permit!,” the project quickly became politicized.

One focal point was Kurt Caudle’s garden. Mr. Caudle is a brewpub manager who lives in a small house on the back side of Ms. Trew’s property (that lot has two homes, or one fewer than was proposed next door). Just outside his back door sits an oasis from the city: a quiet garden where he has a small Buddha statue and grows tomatoes, squash and greens in raised beds that he built.

In letters and at city meetings, Mr. Caudle complained that the homes would obstruct sunlight and imperil the garden “on which I and my neighbors depend for food.” Sophie Hahn, a member of the city’s Zoning Adjustments Board who now sits on the City Council, was sympathetic.

“When you completely shadow all of the open space,” Ms. Hahn said during a hearing, “you really impact the ability for anybody to possibly grow food in this community.”

To recap, the project was shot down after neighboring NIMBYs threw a hissy fit over the loss of a small vegetable garden.  However, it was litigated over the course of two years and eventually approved – likely at an incredibly high cost especially when you consider that there were only three units being built.  I’ll be the first to admit that this story is completely anecdotal and the vegetable garden objection is sort of funny (unless of course you are the developer, investor, or lender in which case it isn’t funny at all).  The fact that some Berkely hipster neighbor claimed that he and his neighbors forage for sustenance in a community garden rather than cruising down the road to Whole Foods when they need a zucchini is almost too much to bear.  However, this entertaining anecdote is emblematic of a much larger issue that I’ve talked about regularly on the blog: the lack of development is leaving people with few desirable places to go.  Today, I present you with Exhibit A: Stockton, CA where prices have nearly doubled over the past 5 years.  Yes, THAT StocktonFrom Marisa Kendall at the Mercury News (emphasis mine):

As home prices skyrocket across the state, there’s one California city where they’ve shot up more than anywhere else in the U.S. — nearly doubling in the past five years.

No, it’s not San Francisco, San Jose or Oakland. It’s not even in the Bay Area.
It’s Stockton, the Central Valley community twice dubbed America’s “most miserable” city by Forbes Magazine because of its high rates of housing foreclosures, unemployment and violent crime.

The jump in home prices in Stockton and neighboring Lodi — up about 92 percent over the past five years — is dramatic evidence of the ripple effects of the Bay Area’s tight housing market and the increasingly out-of-reach cost of living here. As people flee San Francisco and Silicon Valley in search of cheaper housing — heading to places like Stockton, Oakland and Sacramento — prices in those second-tier markets are rising.

“There’s flight away from areas where it’s expensive, to areas where it’s relatively cheap,” said Andrew Leventis, deputy chief economist at the Federal Housing Finance Agency, which first noted Stockton’s dramatic rise. “It would be just incredibly improbable if that wasn’t driving up prices in the west by some magnitude.”

The federal agency analyzed housing markets in the country’s 100 largest metropolitan areas. Oakland came in second, boasting an 86 percent jump in prices, according to the report released this week. Sacramento, also a major destination for Bay Area expatriates, is number six, seeing its home prices climb 74 percent.

The San Francisco/South Bay area is high on the list too, coming in at number four with a 77 percent increase — far above the national average of 35 percent.

 Lance McHan, a real estate agent in the Stockton area, said Silicon Valley transplants are eating up homes. About half of the 18 homes he sold this year went to buyers from the Bay Area — many of them making the long commute to their Bay Area jobs. That increased demand is changing the area.

Let’s make something clear upfront, especially for those of you who don’t live on the west coast:  No one – and I do mean NO ONE actually wants to live in Stockton (perhaps someone stuck their may claim otherwise but they know deep down that the previous statement is true).  For one thing, it’s in the heart of the Central Valley and at least a 1.5 hour long commute to major employment nodes in the Bay Area and Silicon Valley, as well as Sacramento.  It’s also brutally hot in the summer, completely flat, has major violent crime issues and massively underfunded government services.  I almost forgot: it was also basically ground zero for foreclosures in California during the bust.  Other than that though, its a wonderful, charming place.

So why are people moving there in large enough numbers to drive home values to double in 5 years? The best way to understand Stockton is that it acts as a pressure valve for desirable markets in the Bay Area and to a lesser extent Sacramento.  When the market corrects and things are affordable elsewhere, almost no one buys there.  However, when markets closer to employment, amenities or pretty much anything else desirable to live near get un-affordable, people move to Stockton as a place of last resort, often causing wild swings in home values.  As a result, one can actually make a ton of money there if they time the market right.  If not, good luck getting out whole.  Make no mistake: the spike in Stockton values is 100% tied to the insanity going on in places like Berkeley that I highlighted earlier in this post.  The boom in places like Stockton is very real and will likely continue until a lot more product gets built in more desirable areas or the next recession.  I know which one my money is on.

Economy

Just Doesn’t Buy What It Used To: This is just so incredibly depressing:

A cool $1 million has long been considered the gold standard of retirement savings. These days, it’s only a fraction of what you will really need.

For instance, a 67-year-old baby boomer retiring now with $1 million in the bank will generate $40,000 a year to live on adjusted for inflation and assuming a sustainable withdrawal rate of 4 percent, said Mark Avallone, president of Potomac Wealth Advisors and author of “Countdown to Financial Freedom.”

It’s worse for a 42-year-old Gen Xer, whose $1 million at retirement will only generate an inflation-adjusted $19,000 a year when all is said and done. And a 32-year-old millennial planning to retire at 67 with $1 million would live below the poverty line.

That’s what Avallone, a certified financial planner, calls “million-dollar poverty.”

Game Changer: Amazon is so good at keeping prices low that it’s changed how economists think about inflation.

Commercial

Moo: Sand Hill Road in Menlo Park is ground zero for the top tier of venture capital companies and home to some of the most valuable real estate in the world.  However, some of the land surrounding it it is still being used as grazing land for cattle thanks to land use regulations.

Residential

The Next Big Thing: John Burns thinks that buy-to-let is becoming a “huge” investment opportunity in the US as single family rentals become more mainstream.

Profiles

Score One for the Underdog: The Winklevii are best known as the identical trust fund twins who got a $65MM settlement from Mark Zuckerberg after they took him to court, alleging that he stole the idea of Facebook from them while all three were undergrads at Harvard.  During that dispute they also had the dubious honor of being called assholes by former US Treasury Secretary and then Harvard president Larry Summers.  Well, they just became the world’s first Bitcoin billionaires.  Remember that the next time someone tells you that the little guy never wins anymore.

Toxic Brew: Someday people will hopefully realize that mixing politics and investing is an incredibly bad idea.  Sadly, that day has not come.  Here’s the latest example of stupidity.

Welcome to the Big Leagues: CBOE and CME are in a heated battle to be the first to launch bitcoin futures trading.  See Also: Venezuela is trying to create it’s own cryptocurrency amid the bolivar’s free fall.

Chart of the Day

This chart is slightly misleading since it doesn’t take market cap into account – Bitcoin’s market cap at the beginning of the run was minuscule next to the four other asset classes, meaning that it’s far more likely to exhibit high volatility since it takes less capital to drive big moves.  Still, damn.

Source: The Daily Shot

WTF

Spirit Animal: I’ve always assumed that if Florida had a mascot that it would be an alligator living in a trailer bathtub.  However, this story about an opossum that broke into a liquor store, got wasted on bourbon and ended up in detox has me rethinking that assumption.

What Gave it Away? Man suspected of stealing $300,000 Ferrari arrested after asking for gas money.

Hard Weapon: Police arrested a man wanted on trespassing charges who tried to attack them with a large sex toy because, Florida.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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