December 2009


NIMBY’s and BANANA’s and CAVE’S oh my!  (Not In My Backyard, Build Absolutely Nothing Anywhere Near Anything, Citizens Against Virtually Everything)  They are on the loose in the great state of Florida with the proposed Amendment 4 to the Florida constitution – slyly labeled the “Florida Hometown Democracy Land Use Initiative,” this bill is about “democracy” like North Korea is the “People’s Democratic Republic of North Korea.”  I first learned about this initiative in a short piece over at Builder Online, but a little digging brought out the real nasty bits of this legislation.

Basically, acting on the theory that sprawl is bad and we don’t want sprawl, this bill would require public referendums for any changes to local comprehensive land use plans.  One could argue that that type of participation is pure democracy – everyone gets a say!  Balderdash!  That type of participation lends itself to chaos – this is why our Founding Fathers (reverent pause with Bach note strains in the background) developed the type of government we have.   In the words of Benjamin Franklin responding to a woman who asked just that question: “A republic madam if you can keep it.”  Long time readers of my screed know that I would put more faith in a random selection of 435 names from the Nashville phone book than the entire House of Representatives, but land use policy is – ahem – dare I say it, more complex and requires some genuine expertise.  To continue my analogy, the House actually acts like a referendum force…with short terms they have to constantly go back to their constituency and do the will of the people, however passionately misguided that might be.  The Senate is there to temper the passion and provide reason.  In the combination of these two bodies, in theory, good legislation emerges.

Going to a referendum system gets you all the passion that can be whipped up by environmental groups, anti-growthers, population control kooks and the like coupled with the natural disinclination towards change that homeowners (myself included!) feel.  Here’s a partial list of groups that are supporting this thing:

Alliance To Protect Water Resources, Inc. Big Bend Biofuels Clean Water Action Clean Water Network of Florida Coalition of Concerned Citizens Concerned Citizens of Flagler Beach Concerned Citizens of Wakulla Concerned Friends of Fernandina Conservation Alliance of St. Lucie County Control Growth Now Corridor 44 Civic Association Eagle Crest Civic Association East Polk Government Watch Committee, Inc. Eastern Surfing Association – Palm Beach County District Eco-Action, Inc. Environment Florida Environmental Confederation of Southwest Florida, Inc (ECOSWF) Environmental Council of Volusia – Flagler Counties Eric Fricker – (past) Vice Mayor, City of Cocoa Beach EverGreen, the Tree Treasurers of Charlotte County F.E.A.R., Inc. (Floridians for Environmental Accountability and Reform) Flagler Beach Environmental Preservation Council, Inc Florida Bi-Partisan Civic Affairs Group Florida Consumer Action Network Florida Native Plant Society, Pinellas Chapter Florida Open Beaches Foundation,Inc. Florida Panther Society Florida PIRG – Florida Public Interest Research Group
…and a partridge in a pear tree!  The Builder article I referenced earlier identifies some of the creepier supporters of this bill including:
Among Hometown Democracy’s more controversial supporters is the anti-immigrationist Floridians for a Sustainable Population, whose founder, Joyce Tarnow, once operated an abortion clinic. In 2004, Tarnowwas quoted in the Broward Palm Beach News as saying “fertility is an environmental issue. That’s why I try to get as many people sterilized as are in my way.”
Look, Florida real estate is in the tank right now.  Worse than most other locations, especially South Florida.  But this has not been because of poor land planning.  It has been due to the collapse of second home purchases, declining immigration along with all the other suspects that the rest of the nation has been enduring.  This bill will do nothing to prevent this from happening again.  What it will do is drive up the costs of doing business in Florida.
There is this wonderful myth perpetuated by environmentalists and the media that all developers are enormously wealthy, greedy cads who want nothing more than to turn the trees into asphalt.  There are some like that out there to be sure, but the vast majority of the developer population are hard working, decent entrepreneurial types who really want to do the right thing.  I have said many times that I would never want to develop something that I wouldn’t be proud to take my children by in twenty years…that’s a standard that many of my fellow developers share.  Developers take on huge personal risk to achieve their dreams.  This type of legislation will add substantially to that risk and encourage the good guys who don’t have uber-deep pockets to go elsewhere.  The only companies that can survive this process will be the ones that can afford huge legal bills and costly delays.
It’s up to you Floridians!  This turkey is on your ballot for November 2, 2010 – if it passes, God help us.  It will serve as a model for interest groups that want to see us living like the Industrial Revolution never occurred.

No, I am not referring to climate change!  “Green” as in “green back,” is the subject of this post.  I attended the Urban Land Institute’s “Emerging Trends Conference” last week.  As always, it is superlatively well done and the quality of the presenters and information is top shelf.  For us at the M2H Group, the message was clear and not unexpected: “Developers need to go play golf.”  Fair enough, we’ve been living off our consulting practice for over a year now, so we’re prepared to stay hunkered down for awhile.

Here are the key bullet-points of the presentation:

  • Commercial real estate hits bottom in 2010 as writedowns, defaults and workouts mount. The “extend and pretend” relationship between the owners/developers and their lenders is coming to an end.  The banks’ reserves are improving giving them the strength to start disposing of their commercial deals.
  • Cash is king – investors with cash should do well and properties that are flowing cash will stay off the market.  We will not see a return to the RTC 10-cents-on-the-dollar type plays, but we will see writedowns of 30-40% giving investors a chance to re-enter the market at a lower basis.
  • Credit will continue to be extremely tight.  Lending for new construction virtually non-existant.
  • We are in a jobless stabilization – and retail and commercial losses will exacerbate the unemployment situation.  No traction is foreseen until mid-2011 at the earliest.
  • Housing and multi-family will be the strongest sectors in real estate.
  • California, Arizona, Florida and Nevada continue to suffer the most.  Texas, with its business friendly environment is doing well along with “Gateway” cities (New York, DC, San Fran, Chicago) where foreign investors may look to swoop in on lower cost deals.

All of this tracks pretty closely to what we’ve been saying over here.  I would add that Federal policy right now is more of a hindrance than a help.  There is so much uncertainty among small businesses that they are not inclined to start expanding in the face of unknown healthcare and environmental taxes.  The National Federation of Independent Businesses released their December report and it finds entrepreneur’s optimism waning.  Jeff Cornwall, who heads up Belmont University’s Entrepreneurial Center notes in a blog post:

It seems that the most resilient players in our economy may be losing hope.  Entrepreneurs may have stopped digging.

The NFIB Index of Small Business Optimism lost 0.8 points in November, falling to 88.3 (1986=100).

What is particularly worrisome is that even in the depths of the 1981-82 recession, the Index never fell below 90 and quickly surged to a record high early in 1983.  In this recession, the Index has been below 90 for six quarters, indicative of the severity of this downturn and the apparent hopelessness that is creeping across the land.

“The biggest problem continues to be a shortage of customers,” said NFIB Chief Economist William Dunkelberg.  “Apparently, owners can’t find a good reason to be optimistic about the future of the economy or their personal future.  The legislative agenda in Washington is a major factor blunting consumer and owner optimism.”

This kind of pessimism does not bode well for the entrepreneurs (oh wait, that’s all of us!) in real estate.  So, until the clouds start to part, we over here at the M2H Group will keep repeating our mantra: “It will be green in 2013!”

I get the sense sometimes that our national policies are being crafted on the “ready, shoot, aim” principle.  Regardless of where you stand on the health care issue, for example, you cannot be happy with the way this process is being conducted: instead of reasoned analysis of the problem, a careful consideration of the alternatives and an exploration of what has been tried, we’re getting a kielbasi that no one is going to like.

Affordable housing is one of those catch-phrases like “green development” and “smart growth” that we all want to feel good about, and feel we are part of the solution for, but is there really a problem?  Certainly from my perspective as someone that spent a large part of his growing years in the Third World, I can vouch for the depravity of housing conditions in many countries…the worst ghetto in St. Louis would look like luxury housing to a resident in one of Sao Paulo’s favellas (slums).   I’ve done some thinking on what affordable housing is, or should be, and figured out that if I had just started Googling the term, I would have gotten an answer quicker.  Fortunately, where I arrived at upon reflection was pretty close to accepted standards nationally and internationally.  I approached the definition from the perspective of needs and decided that a person’s base needs are food (first), shelter (second), clothing and ancillaries to allow one to be a productive member of society (third).  Thus, I decided that “affordable housing” should comprise no more than one-third of an individual/family’s ability to produce income.

The folks over at demographia.com agree, and it is close to the standard we have used in leasing and selling housing these past twenty years. Here’s their formula – they call it the “Median Multiple,” and base it off of median income:

Now, with that as a standard, the folks at Demographia take a look at housing markets in the United States, Canada, Ireland, the United Kingdom, Australia and New Zealand and come up with some pretty interesting stats:

By this measure, ONLY Canada and the United States have affordable housing markets!  Fully 44% of our markets that were surveyed are “Affordable,” 78% are “Affordable” or “Moderately Unaffordable.”  Our median affordability at 3.2 is a full two points below the next most affordable, the UK.  This data reflects survey results from the 3rd Quarter of 2008 to boot, which means that the average 25-30% declines are not priced into these numbers.

Demographia’s agenda is to promote free market economy and to get rid of land restrictions and such…they are opposed to “smart growth” tagging that pattern of development with less affordable housing.  Here’s a chart they present on housing affordability versus land rationing which is interesting:

But that’s not my fight.  (To download the whole report, go to Demographia.com.)I lean towards the pattern of smart growth development as a means of being good stewards of the land although the data provided does indicate that we need to be smarter about our smart growth.  No my fight is with policy folks at the national scale that got us into the financial mess we are struggling through.  A big part of the push for exotic lending instruments came from the Federal Government under the premise that housing was unaffordable.  The inconvenience of facts is that this premise was false.  And if we apply our old syllogistic logic skills, where A=B, B=C, Therefore A=C…if A does NOT equal B, it cannot equal C and all the measures that were put in place.  Initiatives like the Community Reinvestment Act of 1977 and it’s expansion in 1999 along with the pressure put on Fannie Mae and Freddie Mac to purchase subprime loans all under the rubric of “doing good,” has led to this disaster.

We have nurtured the belief that the American dream is for everyone to own their own home.  We have structured our tax policy around this belief and now we are paying the price for the mistaken belief that housing should be made affordable to EVERYONE, and that the U.S. taxpayer would subsidize any shortfall or failure.  It is time to push for a more sane housing policy.  One that acknowledges that renting is an extraordinarily good option.  We have culturally gotten away from the notion that you have to save up to buy the house with the white picket fence on the edge of town; we have made it a right, an entitlement. If we are going to recover with a robust economy, we had better get back to the basics and acknowledge that housing is not a “crisis” that needs intervention.  Housing is a matter of local preference, let’s get back to the place where each municipality determines their own housing policies and needs.

Here’s Ellen Greene in the 1986 movie, “Little Shop of Horrors,” to take us out with “Somewhere that’s Green:”

Here’s some spectacular video from the top of the world’s tallest building, the Burj Dubai:

Here it is from the ground:

I am fascinated by buildings like this although I question their wisdom…think about this, the Empire State Building was delivered in 1931 – the low point of the Great Depression.

A tad bit of real work on a consulting gig and Thanksgiving has kept me away from the grill for a couple of weeks, but this weekend, I am going to brave the forecasted -30 degree weather and fire up the Weber!  I am feeling some separation anxiety for fire scorched meat – we were away for Thanksgiving, so my traditional smoked turkey extravaganza did not occur.  We’ll make up for it this weekend and over the Christmas/New Years festivities…I’m thinking Cajun pork loin, roast lamb and maybe we’ll just pull the Fat Man look alike smoking device out for a turkey.  In the interim, while you wipe the saliva from your chins over thoughts of such delicacies, here are some electronic links to keep your mind fresh:

1. Nokia – the future of phones: I don’t see a Blackberry or iPhone killer in there yet, but take a look at what the folks at Nokia see as the future of communication.

2. Microvision – here’s a technology that is already here.  Imagine being able to project your Powerpoint presentation onto the back of an aircraft seat with your Blackberry?  (With the radio off, of course!)

3. The Power of Dreams – this is a series of short films by Honda on innovation and success.  They are very instructive, especially for the entrepreneur.

4. The World – I stumbled on this concept channel surfing a few nights ago.  It is a luxury second residence at sea.  Truly a unique way of life!  I don’t know how they are doing in the current downturn, but I guess you could always sail your ship to a location where the economy is better.

5. Singularity – I heard Ray Kurzweil speak at ULI a couple of years ago (he invented the fax machine and numerous other technologies) and became a regular follower of his weekly (or daily if you have the time) newsletter.  Here’s a link to his Singularity resources which will whet your appetite.

Have a great weekend!

I use the Readitlaterlist application on my browser (and on the Blackberry), and some down time over Thanksgiving gave me a chance to get caught up on a few items.  Here are a few articles that might be of interest to those of you in the real estate biz:

1. “The Architect as Totalitarian” –  a stinging indictment of Le Corbusier.  Cleverly written, the author equates the architecture of the “great” Le Corbusier with Pol Pot.

2. “Why This Real Estate Bust is Different” – a thorough analysis by the folks over at Investor’s Insight, “Real Estate Bust 2.0” paints a pretty sobering picture of where we may be heading.  I can’t decide if I am becoming a cynical pessimist or a pessimistic cynic.

3. “The Limits of Transit” –  the good folks over at New Geography are taking the proponents of mass transit to task on the cost/benefit of mass transit.  Bottom line it is not a panacea and should be approached by each municipality with caution.

4. “Let’s Handcuff the Property Cops” – a short missive against over-bearing HOA’s from the stable of good writers over at the Land Institute.  This one from a green perspective, takes to task the nosy neighbor’s harmful intrusions into private affairs.

5. An Interview with Wendell Berry – I have always been a big Wendell Berry fan – I think it’s my inner Agrarian surfacing from time to time – this is a nice interview with the writer on his views of  local farming, greed, the consumer society etc.

There were a few others, but honestly some of the stuff I had tagged to read later I was scratching my head about – does that ever happen to you?  Set an article aside to read later and then wonder why you clipped it in the first place?  Thought so.

Enjoy!