News

Landmark Links February 21st – As Stupid Does

 

Lead Story… I am often reminded that perception can be at least as important as reality if not more so.  This occurred to me over the weekend as I was reading an article from Laura Kusisto of the Wall Street Journal entitled Los Angeles Looks to Ban Major Real-Estate DevelopmentThe article is about the backlash against a so-called development boom in the form of a voter referendum called Measure S.  As proposed, Measure S would slow development in Los Angeles by imposing a two-year moratorium on real estate projects that require special planning approvals, such as increases in height or density.  As a point of reference, at least 19,000 units currently making their way through the the approval process would be blocked by this measure if it were to pass.  Some people who apparently inhabit an alternate reality actually seem to believe that this will bring housing costs down because less “luxury” units will be built.  Apparently these folks believe that real estate is immune to the laws of supply and demand.  Perhaps a bigger problem is that the entire movement is built on a false premise: that development in Los Angeles is booming.  From the WSJ (emphasis mine):

Despite complaints in Los Angeles about a deluge of development, housing construction now is at only a fraction of the rate of the mid-20th century, before strict zoning rules were put in place. From 1950 through 1959, about 250,000 units of new housing were added in the city of Los Angeles, according to an analysis of census data by advocacy group Abundant Housing LA. From 2010 to 2015, the figure was 25,000, though the city issued permits for about 50,000 units in roughly the same period.

Permits tend to lag behind completed units by a couple of years, and not all permitted units end up getting built.

In the middle of the last century, zoning regulations were such that there was enough capacity in the city to build housing for 10 million residents, according to David Waite, a local planning lawyer.

The adoption of “community plans” in the 1970s and a ballot initiative in the mid-1980s knocked that down to 4.5 million people, meaning Los Angeles is now almost at full capacity.

LA is building around 10% of the units that they were in the 1950s yet somehow that constitutes a boom to the residents who are pushing this ballot initiative.  But it’s actually so much worse than that.  LA only had around 1.9MM people back then.  Today it has a population of over 4MM, meaning that it’s pretty much built-out based on the restrictive zoning changes referenced above.  LA was a quickly growing city in the 1950s and added approximately 500k population over the course of that decade.  Population growth in LA has slowed down and the city only added around 177k residents in the 10 years ended 2015.  However, the city has been running a massive housing deficit for years and would need a lot more units than what is currently being built to get anywhere close to meeting it’s massive housing demand.  Ironically, many of the developments that Measure S would stop are nothing more than attempts to claw back some of the 5.5 million potential units that were lost to restrictive zoning since the 1970s.

Sadly, both opponents and proponents of the measure believe that there is a good chance that it will pass, despite strong opposition from Mayor Eric Garcetti among others. Today’s reality is that LA to build a lot more housing, not pass a moratorium that will result in a lot less.  Somehow NIMBYs, who are primarily motivated by their property value and reducing traffic have created a powerful coalition by convincing so-called tenants rights groups – the very people who would benefit from more development – that new units will increase prices more.  If you think that LA is an un-affordable mess now, just wait until you see what happens if this moratorium passes.

Economy

About to Get Real: Shipping industry data suggests that reflation is for real.

Unpredictable: The fact that the price of gold has been on the rise of late despite rising interest rates is the latest reminder that what works for gold in practice rarely works in theory.

Commercial

Back to School: It’s getting more difficult to obtain construction financing to build new student housing as the white hot sector becomes saturated with new product.

Residential

Way Back Machine: It’s incredible how prescient this Calculated Risk post from February 2005 about ballooning mortgage debt has been.

Profiles

Welcome to Jurassic Park: Harvard scientists are on the verge of bringing the Woolly Mammoth back from extinction.  No word yet on the Velociraptor.

Rock Bottom: Once the industry leader in the world of smartphones, Blackberry’s market share has officially hit 0%, eh.

Safety School: Ivy League Columbia University mistakenly sent acceptance letters to 200 applicants…..who didn’t actually get in. Proof reading apparently isn’t a thing in their Admissions Department.

Chart of the Day

Flashback:

Charts 1 & 2 are from 2005.  Chart 3 is from the end of 2016.  Residential real estate may or may not be overvalued in some markets but it’s a far cry from the bubble of the mid-2000s. Source: Calculated Risk

WTF

South of the Border: A Florida woman was arrested last Thursday after she offered an undercover police officer oral sex in exchange for Taco Bell.  The asking price? two soft tacos — an order which would have cost $2.14. I wonder what one gets for a Gordita Supreme these days. (h/t Henry Baskerville)

Forever Alone: There is now a company making wine for cats.  Let me assure you that this is every bit as sad and depressing as it sounds.

Headline of the Year Nominee: 13 pounds of horse genitals concealed in woman’s luggage; claimed it was for medicinal purposes

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

Visit us at Landmarkcapitaladvisors.com