Morning Ed: Housing {2018.04.02.M}


Will Truman

Will Truman is the Editor-in-Chief of Ordinary Times. He is also on Twitter.

Related Post Roulette

38 Responses

  1. Avatar Oscar Gordon says:

    Ho2; They’re all better ideas than government imposed rent control.Report

    • Avatar Saul Degraw says:

      I think that the biggest problem that no one knows how to solve is equity problem. A huge number of Americans (possibly a majority) have most of their equity in their home values. In order to get rid of this as an issue, we need to find a way to convert this equity into another form of saving. Just radically lowering housing prices is going to be financially disastorous for many Americans and this will lead to real political chaos.

      Or we can just screw over a generation and wait until the Boomers and what remains of the silent generation dies.Report

      • Avatar Jaybird says:

        I’d also say that student debt plays a role.

        Back in the days when you could pay off your college loans by the end of the summer after you got your diploma, it made sense to start pouring money into a house.

        When you owe… how much? Well, might as well live at home for a while, if Mom and/or Dad are cool. If they’re not cool, get an apartment in the crappy part of town (you won’t believe the rent!) and then move into a nicer part of town soon thereafter (you won’t believe the neighbors who got evicted for not being able to make rent!) or, if you’re really lucky, gentrify the community.

        If you’ve got to pay a mortgage payment to the college degree folks, it makes sense that you’d not get a second mortgage payment unless you have a job that would pay for two mortgages… and there are degrees that do a good job of getting you a job that would pay for two mortgages and degrees that do less good of a job of getting you such a job.

        The people who have the degrees that do less good of a job of getting you such a job are the ones who ain’t gonna get that second mortgage payment.Report

  2. fillyjonk fillyjonk says:

    Ho0: what I find interesting is how closely my generation (X) and the Silents (actually my parents’ generation, though I know a lot of Xers who have Boomer parents) track with each other. (And I admit to prematurely having some of the crochety tendencies my parents have).

    I wonder if older Xers, growing up during the crappy 1970s, have similar mindset to the Depression Babies. Am I on track to have a drawerful of bits of string “in case it comes in handy some day”? (And yes, I get that UK=/= US but I am assuming the 1970s downturn didn’t just hit us)Report

  3. Avatar Oscar Gordon says:

    Ho4: Good, Seattle City Council needs a regular kick in the teeth every now and then.Report

  4. Avatar Michael Cain says:

    Ho7: I have been to, at least in the sense of driving through, almost all of the places mentioned by name in the article.Report

    • Avatar Aaron David says:

      In my mother’s quest to see every piece of kitsch in the world*, I too have been to many of these places. I immediately scanned the article for THE corn palace.

      *You can take the girl out of Berkeley, but you can’t take Berkeley out of the girl.Report

  5. Avatar Kolohe says:

    Ho0 – I’d be interested to know how different the US chart would be from the UK chart pictured, as I got to think the state of housing infrastructure in the two decades following WW2 in Britain was far different than that of the US. (and not only due to the war itself, but also with far more legacy housing stock in the UK (even given the war’s destruction, plus the massive internal migration that the US saw to the South and West)Report

  6. Avatar Richard Hershberger says:

    Ho3: What a dreary worldview the writer of the linked article has! It is a classic case of “knows the price of everything and the value of nothing”. In this world view the proper use of any asset is that which produces the greatest direct return on investment. The irony is that he recognizes that the reason the property is valuable as flats is the premium that can be charged for living in “a picture postcard village” while not understanding that the pub is part of that value. I get the feeling that this guy looks at kids playing in a park and grumbles about how the community should be getting a higher return on that property.

    Getting to the bottom of the article, I see that this guy “works at the Adam Smith Institute…” This is as unsurprising as the sun rising in the east.Report

    • Avatar Oscar Gordon says:

      I found it interesting that he correctly identified the etymology of the word ‘pub’, but seemed to fail to recognize that the actions of the people of the town was returning the building to that original purpose.Report

      • Avatar Kolohe says:

        So corporate welfare is great as long as it’s stuff we like?Report

        • Avatar Kolohe says:

          Volunteers spent an estimated 1,000 hours sorting out the pub’s garden and 25 skips of rubbish were removed from inside the pub during renovations – and 15 tons of earth shifted by hand.

          Unpaid labor is awesome too!Report

          • Avatar Richard Hershberger says:

            Speaking of dreary world views, people working together to accomplish a common goal: unpaid labor!

            In related news, I sometimes help at my church packing lunches we give out to the homeless. Should I be demanding a paycheck?Report

            • Avatar Kolohe says:

              Providing charity to the not-well-off is to me a different thing than providing it to the well-off, but I’m also fluxomed by people that give to the gofundme for Andrew McCabe, so what do I know.Report

            • Avatar Michael Cain says:

              Most days I at least open a window into a Linux system (a real Linux system, not Android). Linux wouldn’t exist without billions of dollars worth of unpaid skilled labor. (A few of them mine, back in the very early days.)Report

        • Avatar Kolohe says:

          Nothing says ‘quaint community gathering place’ like a 14 dollar burger.Report

        • Avatar Oscar Gordon says:

          Corporate welfare requires that the original owner is given a bailout or golden parachute. If the city did not offer a grant or below market loan (or other exceptionally favorable terms) to the business to keep operating under the current owner, or if the city paid well above market rates for the property, then you can level a charge for corporate welfare.

          However, a community/government buying up a business and operating it as a non-profit is a different thing.Report

          • Avatar Kolohe says:

            Profit never has a distracted boyfriend.Report

            • Avatar Oscar Gordon says:

              Perhaps, but this still isn’t a case of corporate welfare. At the absolute worst, one might call it eminent domain.

              All of that is separate from whether or not the community can operate the public house such that it stays out of the red.Report

          • Avatar DavidTC says:

            Yeah, this is literally the opposite of corporate welfare, and something we need to see more of, honestly.

            All too often, when something is important or instrumental to the community, and it’s failing, the urge is for the government to just hand it money. I can see that solution when it’s some sort of _short-term_ problem, in theory. A loan.

            But when it’s a systematic problem…no.

            If it can’t be operated as a profitable business but the government feels it’s needed or even just desire to have it continue to operate…the government should buy the damn thing and either operate it itself, or form a non-profit to do so. (With optional government subsidies if the non-profit cannot stand on its own)Report

    • Avatar Doctor Jay says:

      This statement:

      if the villagers had been going to the pub for a drink more often then no one would have wanted to turn it into a block of flats.

      is almost certainly false. There’s a cap on the revenue stream for a pub, which is determined by the reasonable price of a drink times the number of patrons who can fit in the place. A building with several flats is almost certain to have a larger revenue stream, and perhaps the same rate of return baked in. Maybe even a bit smaller, but the few people in the world with cash to burn don’t care about that, they want to find an investment that does better than a CD paying a microscopic interest rate.Report

      • Avatar Kazzy says:

        It is never discussed in the article if the pub was actually struggling and needed to sell to avoid going out of business OR if the owner just saw a windfall.

        There is an argument to be made that he should be free to pursue that windfall. But that argument isn’t the one you quoted.

        To @richard-hershberger ‘s point, does the village maintain a “postcard atmosphere” with a new block of flats? Again, not necessarily reason to stop the sale but a potential cost this guy ignores.Report

      • Avatar Brandon Berg says:

        A building with several flats is almost certain to have a larger revenue stream, and perhaps the same rate of return baked in.

        So why do so many bars exist? Why do people keep building them, if using the same space for homes is much more profitable?

        That aside, let’s do the math. From Google Maps, it looks to be two full floors 100 square meters, plus a partial third floor. Let’s say we partition it into five 50-square-meter apartments. Even if they rent for $3,000 per month, we’re looking at $15,000 per month.

        Given that the town’s population is only 500 and they’re not all going to be there at the same time, the 200-square-meter size of the building is not a meaningful constraint. Google, CPA says that a 50% gross profit margin is reasonable. Then we have to pay wages—let’s say 10 full-time equivalent workers earning $2500 per month. So to beat the $15,000 per month from apartment rentals, we need 2 * ($25,000 + $15,000), or $80,000 in monthly revenue, or $2,667 per day. That comes to $5 and change per resident, per day. If everyone in town has 2-3 meals or drinking sessions there per week, that should about cover it.

        Maybe my assumptions are a bit off, but it seems pretty clear to me that Worstall is correct: If the residents of the town had patronized it more often, it would have been more profitable as a pub than as apartments. Maybe that would require patronizing it more than is reasonable, but that just tells us that maybe that’s too big a building to use as a pub for a town that small.Report

        • Avatar DavidTC says:

          Your employee math seems way too high. You said 10 employees at 40 hours each, so a total of 400 employee hours a week. And let’s assume that it’s open 10 hours a day, so with a standing amount of 2 kitchen people (Cook and dishwasher, or whatever.) so that’s an estimated 320 wait-staff hours.

          That’s averaging 4.5 server at a time.

          And using the wildly inaccurate estimations 500 tying up an hour of time each visit (Which seems too long, but whatever) and going there trice a week, that would add up to a total of 1500 customer hours a week.

          That’s averaging 21.4 customers there at a time. Or one server per 4.75 customers.

          That ratio is very silly. While I have never worked in the food service industry, in every establishment I have patronized, the ratio really seems closer to 20 per server. I then went and googled that and found a claim that…in low end places, the lowest ratio is usually 24-32, next level is 16-24, and the upper level is 12-15. So my eyeballing seems right. (And it also seems I don’t visit dive bars or fancy places.)

          So it seems like, in a hypothetical universe where all customers distributed themselves evenly across time, that bar would only need one server on duty at all times to basically have average service levels. (Plus two kitchen staff.)

          Now, obviously, customers won’t space themselves evenly, but four hours (lunch and diner) of two wait staff, and six hours of one, plus the two kitchen people there all the time, would come to a much more reasonable 238 employee hours per week, or 6 full time employees.

          However, I was about to point out that I didn’t include a manager, but only because you didn’t include one for the apartments, when I discovered a more fundamental problem of your comparison:

          You forgot to compare it to apartment revenue.

          Obviously, in reality, someone renting out a set of apartments for $15,000 a month does not make $15,000 in profit.Report

          • Avatar Brandon Berg says:

            Yeah, I wasn’t sure about labor, so I erred on the side of overestimating labor expenses.

            What should I have subtracted out from the rental revenue? The cost of the mortgage and/or opportunity cost of equity, building and grounds maintenance, and property taxes would be included on both sides of the equation, so those cancel out. We’re not estimating actual profit, just trying to figure out which option is more profitable.

            What expenses are associated with running it as an apartment building that aren’t associated with running it as a pub?Report

            • Avatar DavidTC says:

              What expenses are associated with running it as an apartment building that aren’t associated with running it as a pub?

              Well, the first place to look is what rental property management companies charge…which tends to be about 5%-10%. And that cost basically just includes some basic marketing, processing rent checks and deposits, and inspecting property.

              That cost might not (Or might, it varies) include setting up new tenants and probably doesn’t include evicting tenants. It won’t include repair costs, both general ones and fixing up vacated apartments. (The management company does the repairs, but then they charge the owner for them.)

              And before you say ‘Pubs need repair also’…rental law has all sorts of requirements and penalties and whatnot for repairs and how long they take, and violating them is a good way to be sued.

              If a pub’s AC is broken, OTOH…well, just set out some fans. There are only a few things that pubs _must_ keep working, mostly to do with food prep…and if those things aren’t working, the pub can just close for a few days.

              Additionally, apartments need _more_ repairs. Weirdly, people almost never put nails in walls of pubs to hang pictures, or tear up the pub’s washing machine, or put a fork in the garbage disposal. Or spend a month as a drug addict literally crapping all over the carpets until they get evicted.

              Let’s see, what else…property insurance is higher on a rental property, because approximately 2% of people are total morons who will attempt to wash their floor by clogging up their bathtub’s drain and covering the floor in two inches of water. Or operate space heaters off three extension cords….probably laying in the aforementioned two inches of water.

              So, yeah, apartments have more expenses in some areas than pubs.

              This is not to say it’s not more profitable for that to be apartments, clearly someone figured that it would be more profitable here and I have no evidence to argue with them…in fact, as the pub closed, we have pretty strong circumstantial evidence the pub wasn’t literally making enough money to cover expenses, so if they could make _any_ net profit with apartments, it would be more than the pub did. (How long it would take them to recover the cost of the building and any modifications to make it apartments is another issue, but, again, obviously they thought it would be profitable.)

              It’s just that apartments do have costs. In addition to the obvious ones, there are a lot of very little piddly ones, so much so that companies exist to manage the things.

              And luckily, a lot of that scales pretty well. J. Random Property-Owner is not going to want to have to figure out how to run credit checks or prospective tenants or set that up, but once a management company does set that up, it’s pretty much a fixed cost regardless of how many tenants they have to check.

              However, there’s another weird, and perhaps more relevant, problem with the math that I didn’t notice: $3000 a month for a 538 square foot apartment? Huh?

              The average studio apartment in Manhattan only costs $2947 a month, although admittedly that’s only 457 square feet. However, I suspect that the same amount of money spent in Slightly-Past-Suburbia, England should get an apartment that’s a bit more than 18% larger than it would get in Most-Expensive-Place-to-Live, New York.

              In my neck of the woods, in a city that is ten times the population of South Stoke (And is roughly the same distance from Atlanta as it is from London.), you can rent an entire standalone house with 1000 square feet and a yard, for $1000 a month.

              Granted, I have no idea of the property situation in that part of England, so perhaps it’s higher, and London is slightly larger than Atlanta so maybe that factors in, but it would be weird for rents to be functionally be six times higher.Report

    • Avatar Brandon Berg says:

      Quick refresher here, since it’s getting hard to keep things straight: Libertarians are the ones who hate the poor.Report

      • Avatar Road Scholar says:

        Not really. Right-leaning libertarians simply don’t give a rip about the poor. Centrist, orthodox libertarians are all happy-clappy about free-market capitalism solving every problem in the world, including poverty. Left-leaning libertarians are… actually pretty decent on the subject.Report

        • Avatar Jaybird says:

          “I weep for you,” the Walrus said:
          “I deeply sympathize.”
          With sobs and tears he sorted out
          Those of the largest size,
          Holding his pocket-handkerchief
          Before his streaming eyes.Report

  7. Avatar Chip Daniels says:

    Ho3 Doesn’t really identify a victim of any harm so much as it demonstrates that the actions of the townspeople offend the writer’s sense of the right ordering of the world.

    On one hand, demanding that return to capital be the primary ordering principle of land use decisions is foolish because it ignores the essentially socialized nature of land and how it is used.
    But on the other, the desire to keep land uses fixed can be dangerous as well by ignoring how cities are living things, constantly evolving and changing over time.

    But ultimately since the townspeople put their “time, talent and treasure” where their interests were, I don’t see any harm done.
    And if their real desire is the preservation of a pub as a community gathering place and venue for civic engagement and relationship, the act of preserving it itself may have been a catalyst for that.Report

  8. Avatar Chip Daniels says:

    Everything old is new again.
    Functional zoning that organizes a city by land use is a relatively newfangled product of late 19th century early modernist thinking.Report

  9. Avatar Brandon Berg says:

    Ho3: Unless I’m misunderstanding, the issue here is not that the people decided to outbid the developer, but that they got the government to bar the conversion of the pub into apartments and force the developer to sell it to them. If what they actually paid had been more than the building was worth as apartments, then they could have skipped the whole crying-to-mommy step and just bought it in a fair market transaction.Report

    • Avatar DavidTC says:

      Unless I’m misunderstanding, the issue here is not that the people decided to outbid the developer, but that they got the government to bar the conversion of the pub into apartments and force the developer to sell it to them. If what they actually paid had been more than the building was worth as apartments, then they could have skipped the whole crying-to-mommy step and just bought it in a fair market transaction.

      There is a rather large difference between ‘Someone is buying the pub to continue to operate as a pub’, and ‘Someone is buying the pub and will be no longer be a pub’.

      And, frankly, what happened _here_ is a better outcome than what would have happened without a law allowing this: The city would have denied rezoning, the pub would have closed, and the town would end up without either the pub or apartments.

      Because that situation is _literally_ happening in my town. A much-loathed developer purchased a building next to her already-owned building (In the specially-zoned historic district!) with the intent of tearing them both down, and making a hotel from the block. The community realized it was the oldest building in town and fought her, and she in theory ‘won’ the right to tear it down but that much opposition has resulted in the city refusing to allow her _new_ building design (Although admittedly she changed it to a much uglier one.), so currently the two properties still sit abandoned.

      We’d be a lot better if the city could just say ‘Everyone in town apparently hates that idea, and the proper solution under the law is for us to _buy_ the damn buildings ourselves’.

      I know it offends free-market sensibilities, but local zoning is already pretty non-free-market to start with, and if instead of using this sort of extremely-local building-specific zoning denial nonsense, the only option was ‘If we, the city, hate what you’re doing, the correct way for us to stop you is buying the entire damn thing for what you paid for it’, the outcomes seem a lot fairer. (At least for newly purchased property.)

      And note under the law, the local governments only have six months to do that anyway. The thing going on in my town is in the second year.Report

      • Avatar Chip Daniels says:

        Land use and city growth can never be “free market” because a building is, quite literally, networked into a vast organism in a symbiotic whole.

        The change from pub to apartments means an increase in sewer output; it changes the flow of stormwater; it requires more policing, more fire protection; it consumes more water, more electricity, more natural gas.
        It changes the tax base, it changes the employment base, it changes the transportation patterns.
        A building generates both costs and benefits to a community.

        As a result, the legitimate stakeholders to this land use decision are the entire community, not just a buyer and seller.
        Like I mentioned above, I’m having a hard time identifying a victim here, or some injustice which was created.Report

        • Avatar DavidTC says:

          Like I mentioned above, I’m having a hard time identifying a victim here, or some injustice which was created.

          This is one of those ideal ‘silly libertarian arguments’ situations…where someone’s private property rights are slightly impaired by the government, and libertarians compare that situation to their ideal hypothetical universe where property rights are absolute and that sort thing can’t happen, and they are outraged.

          And they ignore the fact that, honestly, the developer was basically made whole and it could have turned out much worse for him in the actual universe we live in, thanks to the concept of ‘zoning’. They ignore the fact ‘The government can forcibly buy your property if they don’t like what you want to do with it’ is probably a better law, property-wise, than ‘The government can just order you to not use your property how you want it used if they feel like it, with very little recourse or compensation possible’.

          It’s better both for the owner and for the community. I’d like to see that sort of thing happen more often, where instead of the government meddling in private property, it just said ‘Yeah, we are really against that happening, so we’re buying it from you’.

          I mean, think about other things: For example, imagine if there was no such thing as rent-control apartments…if the government wanted cheap apartments, instead of requiring property owners to do that, it had to force the rental company to rent the apartments to them at market price, and they then sub-let them at rent-control rates.(1)

          That actually seems a lot fairer to property owners.

          But I am forced to assume it would result in gasps of outrage as the government unfairly someone to forced a lease to them at market value. Better keep rent control going instead, I’m sure that’s no harm to property owners at all!

          1) Please note I’m not in favor of rent control as a solution to housing problems in the first place. I am just pointing out that if there is rent control happening, doing it that way is much fairer to property owners.Report

      • Avatar Brandon Berg says:

        As I understand it, the pub in question was closed for six years.Report

        • Avatar DavidTC says:

          Well, yeah, but it sounds like the law only kicks in when they say ‘We have sold this for it to be turned this into something else’, not ‘We have closed the doors’. (I am not sure if ‘selling’ was the trigger, or attempted rezoning. I don’t know what would have happened if the original owner had tried to change to apartments.)

          Of course, we have no idea of the stated situation during the closure. Was he trying to find a buyer to keep operating it as a pub? Was he trying to find a buyer at all? Or di the place close and the guy keep it closed with dreams of reopening…until a very good offer came in and changed his mind?

          So it is indeed possible the town should have gotten off their ass and made an offer sooner. It’s also possible they had no idea anything was changing, or that they could do anything besides wait for the pub to reopen. We really can’t know. (Heck, even if he was soliciting buyers, we couldn’t really tell if the town generally ‘knew’ this or not.)

          But in a way, that sorta makes my point, too.

          See, right now, we have people in this country who legally cannot stop operating their business. Granted, they are not barkeepers, they are landlords who have rent controlled apartments, but my point remains that such a precedent exists.

          And it also exists in phone companies, that for example cannot legally stop providing services to areas, and all sorts of things.

          And on top of those fairly obscure examples, we have, of course, zoning, which can’t make people do anything with their property, but certainly can make them _not_ do things.

          Call it my libertarian side, but I don’t really approve of that. (In addition to me not believing in rent control solving anything anyway, but I don’t approve of it even if it was doing something useful.)

          Which is is why it’s surreal to see libertarians disapproving of what happened here. The government said ‘This pub needs to reopen for the good of the town’, and _bought the thing_ instead of saying ‘Thus you are required to operate this as a pub’.

          In my book, the government saying ‘Hey, we don’t like what you are doing with your property, we want you to do something else, so we will eminent domain your property and pay you fair market value for it’ is much better than ‘…so we will require you to stop and have no use for the property’ or ‘…so we will make you do that something else’.

          Wow, just imagine if the government had to _buy your real estate_ if it didn’t like what you wanted to do with it. Instead of just, you know, forbidding you from doing it, and you were SOL.

          But the libertarian perfect is the enemy of the libertarian good, I guess.Report