Wednesday, November 11, 2009

They're Back

They're back:
From the gang that brought you the economic collapse of 2008.

The building and allied trades, has been the most successful economic enterprise in human history. They formed a perfect alliance with government at all levels, becoming the largest donor in most campaigns. The result has been the pairing of interests so that government revenue is tied to developer success in bringing tax generating projects to ground.

The fact is that to develop, the building industry needs land. In the past they supported planning and development boards that ripped out entire neighborhoods in all of our major metropolises, giving them the space they needed to construct new projects. They created language,"highest and best use", that sanctified the process. They determined what the half life of a building was and if creative destruction wasn't rapid enough, they destabilized entire neighborhoods by red-lining, lax policing, or finding some other incentive (removal of politically weak minorities). In one of the more amazing acts of political manipulation the building industry got tax payers to foot the bill for the Impacts, (costs of schools, water treatment, public safety) of their developments.

They supported "white flight" and built the suburbs that sprawled across the countryside. When the price of gas rose, and it appeared there might be advantages to inner city living, they stimulated gentrification and created new "workforce" housing near the plants that hired the former inner city resident they displaced. They got highways and ramps built to facilitate access to their projects again at tax payer expense.

This kind of manipulation is not easy and they need the appearance of independent thinkers to rationalize their behavior. For example, when an argument is needed to support the myth that more building will create a bigger tax base, it helps to have a think tank to create the story.

To that end the industry created the Urban Land Institute (ULI). This group includes every major mortgage bank, builder, developer, real estate sales firm, and even many government agencies send representatives as members. They publish, hold conferences, train youth, and steer development by creating trend analysis.

Some of their hits include urging the FED to support the idea that everyone deserves to own a home, and deregulating the banking practices that stood in the way of loans for people who couldn't afford them. They got the right of eminent domain to include taking private land for the benefit of private developers. They made it illegal to have more than one head of household in a residence, and saw to it that there was a strict separation of work and living spaces. They define what space is, what building material can be used to create it, and who can build the space, all in an attempt to suggest a shortage of available space, creating the opportunity for yet more building.

Every effective monopoly overreaches and in this case they created a doozy. In the wake of the disaster of their overbuilding, over leveraging, and over lending, they have created the greatest economic debacle in the history of mankind.

They have an enormous problem. After transferring the blame for the collapse on the hapless home owner, they have to concoct another scheme to keep their engine going. They count for over half of the national economy. Talk about "too big to fail". They use other people's money and even the average citizen is starting to get the fact that if they fail, we pick up the tab.

Opportunities are being created as I write this. They are creating new wastelands,
taking down structures they couldn't sell and turning their backs on the suburbs they created.
The effect of this on the individual is to wipe out a lifetime of saving, belie the myth the real estate is a good investment, and that home ownership, as defined by the industry, is a noble objective. The industry needs a new set of suckers, and it is setting about creating them.

The ULI concluded their annual conference in San Francisco last week and their proceedings are fascinating. Here are some highlights:
ULI "Icons" have advice they share with attendees.

Emerging Trends in Real Estate®, released this week at ULI’s Annual Fall Meeting in San Francisco.
Emerging Trends predicts that investment and development will start to pick up steam in a couple of years. In the meantime, those who are in a position to do so should buy or hold multifamily; buy hotels; buy distressed condos and second homes; buy land; buy or hold industrial; hold office; and apply a "triage" approach to retail.
Looking past the recession, "The future is about green development, infill, and transit-oriented development."

The panel discussed two main demographic groups that will drive the next decade’s housing market: Generation Y and their parents (the aging baby boomers). Looking past the recession, "The future is about green development, infill, and transit-oriented development."

In other words: If they play their cards right, they can get a whole new generation of people with no experience to buy the idea that they are going to build them the green future we demand. As for their parents, who they just wiped out, and the brown and black immigrants who barely speak the language, they will validate new multiple family dwellings.

And they concluded: "The bad news is that it is unlikely that enough new housing can be built in urban areas to meet this growing demand. The result is likely to be rising urban housing costs--good for developers and owners and bad for homebuyers and renters with limited funds."

Let me tell you what that means in plain english. When a developer applies to the commission of a "built out" city for permission to build yet more, higher, denser property for which he is not willing to contribute additional costs of operating the services that are necessary to sustain it, and is requesting public money and tax forgiveness, he will use the argument that the new young workers need these places if they are to move here, and it will increase the tax base.

The city will fall deeper in debt, the tax burden will increase, and a new class of home buyers will suffer the ravages of the second wave of housing destruction.

The reality as reported by Fortune Magazine is more realistic.

1 comment:

  1. Truly amazing...

    Not sure where they think the money will come from this time around, though.