the worst house on the best block is always a good investment

A developer’s $1.97m cash offer for the 2,158 sq ft (200 sq metre) property in the Noe Valley neighborhood was finalized last week. On the social media page Zillow Gone Wild, some commenters marveled at the price while others questioned the value of a house with boarded-up windows, peeling paint and an unstable foundation.

Oh, you sweet summer children…the house isn’t the play. The developer just bought a lot in Noe Valley, not a house. The house can be torn down and something can be built there that will now be the newest and perhaps most expensive house on the block, raising the value of the other houses (and the wealth of their owners) and it will meet its asking price, have no fear.

The comments on Twitter are on point.

Henry George would marvel at the dollar values involved but the underlying ideas — With the growth of population, land grows in value, and the men who work it must pay more for the privilege — hold up.

when I hear “they descended” I think of locusts…I don’t think I am wrong

Because they are parasites, pure and simple…

Multifamily investors descended on the Puget Sound region at the end of last year, snapping up $477.5 million of large assets in King County alone in December.

“For many of (the sellers) it’s time to cash in the chips, and Seattle is always a very popular region to buy in,” said Brian O’Connor, principal at O’Connor Consulting Group in Seattle.

The flurry of year-end activity is typical and this time comes against a backdrop of rising rents due to a lack of supply.

“We’re doing our latest studies, and oh man, we are undersupplied everywhere. I mean, like really undersupplied. Rents are really going to go up,” he said.

Large institutional investors are among the buyers.

This is what you get when you put something as essential — and scarce — as land and, by extension, housing in the market as a tradable commodity.

[F]easibility studies showed that a lot of new construction jobs were only around break-even propositions. “I’m telling people that I don’t believe the rents have gone up enough yet to find that equilibrium between cost and rents,” he said.

Of course, those costs would be lower if the price to acquire land was lower, if instead of paying millions of dollars for land, you could acquire it under a lease for a fraction of that cost, lowering the need to charge high rents or develop properties only investors can afford. Ground rents aren’t new…Seattle has many examples, from disused school sites that are now commercial properties to other commercial real estate where the land is leased, not sold. If it’s a good play for business, it’s probably a good play for the city or county as well. Where are all my “let’s run government like a business” types now? They should be all about holding the land and recapturing the value through ground rents, but for their allergy to anything that improves life for people they don’t know.

is the solution to homelessness as simple as homes?

This could work elsewhere too…

Helsinki owns 60,000 social housing units; one in seven residents live in city-owned housing. It also owns 70% of the land within the city limits, runs its own construction company, and has a current target of building 7,000 more new homes – of all categories – a year.

In each new district, the city maintains a strict housing mix to limit social segregation: 25% social housing, 30% subsidised purchase, and 45% private sector. Helsinki also insists on no visible external differences between private and public housing stock, and sets no maximum income ceiling on its social housing tenants.

It has invested heavily, too, in homelessness prevention, setting up special teams to advise and help tenants in danger of losing their homes and halving the number of evictions from city-owned and social housing from 2008 to 2016.

“We own much of the land, we have a zoning monopoly, we run our own construction company,” says Riikka Karjalainen, senior planning officer. “That helped a lot with Housing First because simply, there is no way you will eradicate homelessness without a serious, big-picture housing policy.”

But of course, you can see the problem. Unlike most cities elsewhere, Helsinki hasn’t sold off the land under it. It shouldn’t be necessary to own it: controlling the zoning/land-use process and assessing taxes on land as its more remunerative use rather than as vacant land, would get us most of the way there.

Housing First’s early goal was to create 2,500 new homes. It has created 3,500.

How many homes could have been built on the site of the old SPD headquarters, revitalizing that part of town? Since it’s demolition in the mid-oughts, it remains a hole in the ground across from city hall, paying the barest minimum of property tax assessed against a vacant parcel. Or the slowly evolving Northgate mall site, 55 acres that could have been a small town of its own, with access to the light rail network, the bus lines, and the freeway, if you ever needed anything you couldn’t get right there. But the idea of putting land — and housing — in the market, making an essential commodity like housing a speculative asset, means we can’t get there.

The biggest failure is a failure of imagination and we see it all the time.

some unsurprising findings that could do with more analysis

Currently, the majority of Seattle’s residential areas are zoned for single-family homes and “accessory units” like backyard cottages, but do not allow for larger apartment buildings and condos.

Because what every city needs is more landlords extracting unearned wealth, be it through backyard cottages or parking lots downtown…

Many homeowners have fought proposals to allow denser development in their neighborhoods because they feel it will change the area’s character and cause parking headaches.

I wonder what they mean by “change the area’s character?” And of course parking comes into it…this is a city built for cars, so their servants are at the ready.

While the survey shows a majority of King County residents want to see single-family home areas opened up to apartments and condos, there’s an interesting twist: Most of them would rather not live in those types of housing units themselves.

I appreciate that King County’s largely exurban/rural residents are willing to see Those People in Seattle take one for the team…I would remind them that the King County property tax database that could allow all property to be taxed separately on land and improvements is county-wide, not just for Seattle. Maybe some of those big parcels Out There have more remunerative uses…

It’s clear from the survey that King County residents see more development as one way to help make homes more affordable.

Is it though? Do the good people of North Bend care about that? Or are they willing to see development Somewhere Else? No shade on those folks but this attributes some intention they may not actually feel.

A solid majority — around 63% — wants to see more housing allowed on underdeveloped land, which could mean anything from unused vacant lots to low-rise buildings in upzoned areas. Another change that appeals to the majority of county residents is to open up public golf courses to housing development, supported by 53%.

That makes sense but still…Seattle residents defended their golf courses so I’m still wondering if this glosses over some antipathy for Seattle from the rest of King County. After all, it’s Seattle’s growth that has made everything worse and more expensive.

The survey’s crosstabs show the elimination of single-family home zoning in the city of Seattle is favored by more men than women. There is particularly strong support among people who live in South Seattle (67% approve). Also, people who have recently moved within Seattle, and those who have been struggling with rent or mortgage payments, show a higher-than-average level of support for ending single-family home zoning.

That tracks…I continue to think that South Seattle has a more realistic set of expectations about the city than the north end, which seems more and more like any well-off bedroom community, on the outskirts of Atlanta or Plano. The topography of Seattle doesn’t help here, with the narrow waist and no good ways to get through to join north and south. But that was always here: Forward Thrust tried to get past that with a transit system for a future version of Seattle that the voters rejected. Maybe a bifurcation of N and S Seattle should have been the other choice: either connect these parts or let them go their own way. In the ensuing 50 years, maybe the inequities we see today could have been addressed by the people affected by them. The Metro King County idea was not to have Seattle vs the rest of the county but the voters didn’t really buy into that.

same old story: cities and towns that eat their seed corn then wonder why they are hungry

Seems like these resort towns need to get control of their land as a common resource.

Residents in Jackson Hole say that many of the houses in the 10,000 population town that had been rentals for service industry workers and ski bums have been bought to be torn down for new construction. The average price of a house in Jackson Hole is $2.5m, more than double what it was a decade ago, and rent for housing set aside for service industry workers over the summer started at $3,000 a month for a 400 sq ft apartment.

The result is an inflated housing market that’s priced out longtime residents. “Tourism drives interest in Jackson Hole, and that interest drives real estate investment, which then raises the cost of living and changes the labor market entirely,” says Chris Dickey, who has lived in Jackson Hole for 17 years and owns a digital marketing agency. “People visit the area a few times and then decide they want to move here. There are plenty of people out there willing to pay $3m to $5m for a home in Jackson Hole, but the problem is that’s not a price locals can afford.”

We used to see bumper stickers — “if we keep buying imports, where will our children work?” — touting domestic industry. No one sees land the same way, that if we sell it to investor/speculators, we will have no place for our children to live or the other folks we need to make sure the work gets done. We can’t keep expecting people to commute further and further for low wage jobs nor should any town take local wages and send them to be spent in some other city or county.

I wonder what the breakdown is of land vs house in a $3-5M home in Jackson Hole. The house won’t be a middle class tract home, of course, so it will all luxe finishes and big spaces, but that’s driven by the land: you’re not putting a 1000 sq foot rambler or bungalow on a piece of view property adjacent to national park. So what if the cost of the land came down, if the speculative value was recaptured through taxes, and houses could be sized more realistically?

Seems like there is a need for some social housing for the “service industry workers and ski bums” who make a place like that work. People visit or settle in those places for the local color but what’s the first thing to go, to be priced out? The Main St diner, the dive bar, the local gear shop (tack or skiing), and with that. All of that is what makes those places what they are. And all just so some hedge-fund plutocrat can flex on his business school friends…

Alexa, what’s an even money bet?

Everyone made the same bet on inexorably rising property prices, especially the developers, who levered to the hilt, overpaid for land at auctions, and scooped up as much real estate risk as they could take on,” [Michael Pettis, professor of finance at Peking University] said.

Because of course they did.

I know Mao didn’t actually kill the landlords but whatever happened to this? Why, in a country ruled by an actual communist party, is land ownership by anyone but the commons a thing?

The three step plan: buy land, do as little as possible with it (parking is always good), profit.

Nothing I can add to this story…the writer has covered it all. But it’s always worth fossicking around in the property database to see how that parcel has progressed.

If there is a clearer illustration of how land increases in value with no effort on the part of the owner, I can’t imagine it — a 10 fold increase in value over 20 years for a parking lot.

It’s only 1/6 of an acre…if we apply the Mercer metric™ of $1M/acre per year, that’s about $160,000/year in ground rent/land value tax…as of 2021, that parcel only generates $38,190.82/year. If the parking racket doesn’t generate $160k/year, maybe it’s time to develop the land into something more remunerative — you know, the highest and best use. All I see now is someone making a 10x gain for nothing, while that land is wasted on car storage. That looks like a 12% annual return over 20 years: not bad for no effort or as the man said “Landlords grow rich in their sleep.”

What’s especially frustrating is that everyone in the real estate game, from developers to the local school district, understands the value of land, as an asset to hold onto or to develop under a ground lease — except the city of Seattle itself. It sells surplus land that investors add to their portfolios with no incentive to develop it. The city has even turned down lucrative lease offers, opting for a fee simple sale that represented a fraction (15%, in the case of the Mercer life sciences campus) of the offered revenue for that project. That left almost $1B on the table, a revenue stream that could have been used to borrow against (does no one in the city’s finance office know the future value function in Excel?): $1B over 99 years annualizes to $12 million per year. And that’s for one property, one development, one acre of the almost 500 Seattle has set aside as downtown/commercial real estate.

The Dawn of Everything

The authors are doing a lot of work for me, exploring ideas I have been thinking about but with much more skill…a couple of passages I found interesting:

[I]t was only at this point, in the mid to late eighteenth century, that European philosophers first came up with the idea of ranking human societies according to their means of subsistence, and therefore that hunter-gatherers should be treated as a distinct variety of human being. As we’ve also seen, this idea is very much still with us. But so is Rousseau’s argument that it was only the invention of agriculture that introduced genuine inequality, since it allowed for the emergence of landed property.

Rousseau had something to say about the first person to erect a fence and claim land as theirs but the authors explore this in much more depth, citing his quote that “people ran to their chains” instead of staying free of the system we see today. So much of the book so far has been about reading more deeply and getting the facts behind simplistic takes we have already heard.

Let’s first ask why even some experts apparently find it so difficult to shake off the idea of the carefree, idle forager band; and the twin assumption that civilization properly so called – towns, specialized craftspeople, specialists in esoteric knowledge – would be impossible without agriculture. Why would anyone continue to write history as if places like Poverty Point could never have existed? It can’t just be the whimsical result of airy academic terminologies (‘Archaic’, ‘Jömon’and so on). The real answer, we suggest, has more to do with the legacy of European colonial expansion; and in particular its impact on both indigenous and European systems of thought, especially with regard to the expression of rights of property in land. P 148

It seems that idea of land as shared commodity, owned by none but used by any, was so obvious no one knew it was a thing — not unlike how we see the ownership of land, as it underpins everything we rely on, include the unequality the authors are unpacking and what actually looks like autonomy — the power to own your own life, to say no, to avoid being dependent on anyone or having anyone dependent on you.

Central to all of this is the idea that the Americas are the birthplace of democracy but the europeans rejected it, saw it as a threat to their hierarchical society of churches and monarchs. It was already here — the idea of “governing” with the consent of the governed, representation, even the ability to opt out, to say no, as there was no government monopoly on force. There were times when discipline and hierarchy were needed but these were based on events/seasons or locations (a chief’s court, in one example). It was neither hereditary nor universal.

Not even 1/3 through and it’s simultaneously overturning old ideas and vindicating my own suspicions and doubts.

23 could just as easily be 25…or 10.

Some of these quotes hit pretty close to home…never read any of her stuff but I will have to fix that.

I write entirely to find out what I’m thinking, what I’m looking at, what I see and what it means. What I want and what I fear.

You get the sense that it’s possible simply to go through life noticing things and writing them down and that this is OK, it’s worth doing. That the seemingly insignificant things that most of us spend our days noticing are really significant, have meaning, and tell us something.

This is something I have realized also, though not expressed nearly as well: we don’t teach grammar anymore anyway, we simply correct usage.

Grammar is a piano I play by ear, since I seem to have been out of school the year the rules were mentioned. All I know about grammar is its infinite power. To shift the structure of a sentence alters the meaning of that sentence, as definitely and inflexibly as the position of a camera alters the meaning of the object photographed.

no one is making any more RF spectrum either…it’s not just land that is finite (and valuable)

I don’t care so much about connected cars but rather than auction off spectrum, capturing the value through a rent — value that we create by using it in new ways — would be better.

The 3G network has to go away because the electromagnetic spectrum has a limited number of frequencies, and those frequencies are like real estate: you can’t really create new ones, and what’s there is very valuable.

Just look at this chart of how the RF spectrum was divided up in the United States around 2016:

And if we the people retained ownership, we might have more control over how it’s used. But mostly, I’m about the $ we should be collecting.