patrick.net

This is off-topic, but I recall someone (Astrid?) discussing zoning restrictions a while back, and the peverse effects thereof. Apparently this trend is reversing somewhat. Perhaps there is hope for this in the Bay Area as well?

http://www.boston.com/realestate/news/articles/2007/01/21/upstairs_downtown/

---------------

Upstairs, downtown
Apartments, condos are once again appearing above main street stores

By Ron DePasquale, Globe Correspondent | January 21, 2007

It's the classic New England main street look: small businesses, retail shops at street level, with apartments above. And in many places in the region, it's illegal.

But "top of shop" housing, as it is sometimes called, is going legit. Several communities in Massachusetts have loosened zoning rules to allow more housing in their downtowns...

astrid Says:

> Section 8 is a federal housing program that gives
> vouchers to people making less than a certain amount
> of money. This effectively guarantees a baseline in
> certain slummy neighborhoods and incentives some
> people to work less for fear of losing their Section
> 8 vouchers.

The Section 8 program is run by the US department of Housing and Urban Development AKA “HUD” and the day to day operations are handled by local county housing authorities. Of the small amount of government money left every month (after paying the friends and relatives of politicians salaries to do almost nothing and paying the contractor friends, relatives and campaign donors of local politicians huge amounts of money to maintain the housing projects that the tenants tear apart every month) the housing authorities fund the Section 8 program.

There are two types of Section 8 payments (they call it a “certificate program” and “voucher program”) one limits the rent of the place you can live to your total monthly income and makes you pay 1/3 of your income to rent (the housing authority mails a check for 2/3 of the rent directly to the owner). The other program gives a flat subsidy and lets you live anywhere and pay any rent.

The primary job of the friends, lazy cousins, ex-girlfriends and current girlfriends of politicians is to get as many Section 8 vouchers as they can to people who helped them get elected or will help them get re-elected. In San Francisco about half the people getting Section 8 have some connection to a “Community Leader” (e.g. Black Community Leader, Chinese Community Leader, etc.).

To add a little clarification Section 8 vouchers only go away if the tenant gets a better job and “REPORTS” the income (when was the last time someone sent a 1099 for payment maid to a cleaning lady?). I have a current Section 8 tenant who runs a small business on the side and I know DS will be absolute “shocked” to her this, but Section 8 tenants have been making money on the side for years and in college (when I managed a lot of them) almost every one made more than they were allowed to make (often more than the other tenants in the buildings paying full rent).

astrid Says:

> Overall, I’m not convinced that the housing
> market fundamentally changed to eat up a
> bigger part of income…

The market has changed to eat up a bigger part of income that is why we have a bubble.

Most of the run up in Bay Area housing prices over the past 30 years was due to first woman getting part time jobs, then full time jobs and now high paying full time jobs (there is a big difference in home prices in areas where most women didn’t go to college and areas where most women went to grad school).

Most people buying today are smart people that make a lot of money and almost all of them plan on big appreciation in the next few years. This big appreciation can not happen since in nicer parts of the Bay Area the average home is sold to a husband and wife who’s individual salary puts them in the top 1% (and have a combined “household income” the puts them in the top .001%).

Back from 1996 to 2005 when houses went up $100K to $1mm a year it made a lot of sense (to the large majority of people that thought that this hyper appreciation would continue since according to their REALTOR they are not making any more land) to eat up a bigger part of your income since real estate always goes up (again according to the REALTOR)…

FAB,

I'm not denying the possibility of high rent in the near term, I'm just saying that if housing takes up 50% or more of average income permanently, we'll be looking at a runaway peacock tail problem for the economy.

(Also ref. Hitchhiker's Guide to the Galaxy's Dolmansaxlil Shoe Shop Intensifier Ray/Shoe Event Horizon.)

FAB,

Thanks for a great explanation of Sec. 8. Many of us probably suspected but weren't exactly sure of the inner workings. It's 2007, can we be done w/this already?

Muggy,

Randy H asserts that "things are not binary" and by and large I'll agree. However, early on we here leaned very heavily on median prices. Peter P ultimately explained that they are not nearly as important as many here (myself included) originally thought.

Due in large part to the fact there are SO MANY piker LL's with their "nay nays" swinging in the breeze this is going to get VERY personal! True, "average rents" (as determined by 2 minutes worth of "research") will be charted, graphed, discussed, negotiated and debated at great length. If you're the guy with an empty, cash eating alligator chowing down on what was supposed to have been a "great investment" none of the debate will matter. You're screwed and let the inevitable march toward default begin. I imagine that many multiple home owners have been able to keep somewhat solvent through MEW and plastic but as per the article linked on Friday, even that has it's limits. The financial planner's calculations gave them exactly 5 months to "D-Day".

Can I suggest it is now time to turn the tables and describe Frustrated Sellers (TM) as "renters"? Meaning..... they're stuck with this "2nd home" and are now left to their own devices as to how the hell they're going to rent it?

44% of the homes for sale in Las Vegas are vacant. Do I really need permission here?

DS,

It's Sunday here in the States and I was just about willing to let it go..... but can't. I served w/many of Her Majesty's sailors and soldiers and most of them were pretty sharp guys. Many had (or were working) on their Associates and ALL of the officers had higher degrees.

HMAS Adelaide, Long Beach, CA 1982.

And what's w/the "trophy girlfriend" thing already? They're YOUNG GUYS for crissakes! Sailors are SUPPOSED to have fun!

DS,

Don't be hate'n!

I'm trying to come to terms with the concept of "landlord need-based pricing".

I think a reason the simple supply-and-demand model is deemed inadequate by Randy is because landlords can always choose to make the (suboptimal) decision to leave their rents high and their unit empty.

So would DinOr's example of 44% vacant units be an example of "landlord need-based pricing"? (I guess in this case it would be "seller need-based pricing".)

And this need-based pricing will manifest itself as price stickiness, because the landlords/sellers won't lower their price until their backs are really up against the wall, and this could take a while. Right?

Which leads me to think the simple mental model I have of supply and demand will be correct in the long-term, but in the short-term stickiness will affect prices until landlords/sellers capital runs out.

And this would explain why prices are stickier in prime areas, because the sellers/landlords probably have more capital to play with, so it takes longer for things to shake out.

Boston Transplant,

I've really wrestled w/that myself. When I see C/L post after post of homes that are "for sale" ALSO listed under the "For Rent" category as well what are we supposed to think?

The ones I love are the "lease2own" listings with a very specific dollar amount like "$4,382.22 moves you in!" Let me guess, this is the precise amount YOU are in arrears?!?

Let's all agree NOT to bail these @ssclowns out! (There's that "price fixing" for ya'!) and in ways it's what we really represent:

A Buyer's Strike!

LLNBP (TM)

Credit to Boston Transplant!

(It just saves so much more time than having to spell it all out every time)

Housing Crash/Buyer's Strike.net!

In 1987 I rented a nice 2 BR 2 BA apartment in SJ in a nice complex for 750/mo.
A colleague had a similar rental in Sunnyvale, similarly nice complex, also 750/mo.
I think those places would be about 2K now. I think that's between about 4 to 5 % annualized increase.
Not exactly what I'd call runaway inflation in the cost of housing around here.

Spike66,

New York has its own eco-system. :-) I'm afraid that I'm not a fan of New York - too claustrophobic and urine smelling (even the post Guiliani visits). If I was ever forced to live there, I'd definitely be looking in the Upper East Side.

Boston Transplant,

You have my opinion/theory about rental & housing prices right. These are inefficient markets in which price is set only by sellers asking prices and imperfect historical information. Buyers have no direct pricing power; at least not yet. There is not yet a standard, accepted, reliable way for buyers to communicate bid (offer) prices to the market.

Therefore we see not-so-sticky on the way up, much-more-sticky on the way down.

I wrote about this, and the behavioral-economics related factors, in my blog here. Although, I now think I portrayed the price-increase side as more sticky than it really is.

In more simple economics speak, and avoiding all the (I think probably more correct) behavioral economics stuff, we could say: Sellers may indeed be rational decision makers, it is simply that they are misreading their true marginal costs.

Even in econ-101 perfect-market style supply and demand, a seller will chose to walk away or go bankrupt rather than sell below marginal cost. The "needs based pricing" could be looked at as a seller thinking that he *must* rent or sell for $X, or else it's just better to walk away altogether. That is irrational to anyone using common sense. But it isn't from a simplified economics analysis.

Restating my position on household income as a share of housing costs: I still maintain that it is relatively impossible to find any direct data supporting *cause and effect* related to the number of earners per household. There is a correlation, but what's to say this isn't an effect of increased money supply and thus monetary inflation effectively reducing the overall household real-purchasing power? In fact, what's to say that 2nd earners aren't a _reaction_ to a larger force that's not only forced women into the workforce, but also is responsible for reducing per-household share of GDP, and therefore pushing up the share of housing costs?

Maybe it's just the way I look at the whole, but blaming this-on-that is pretty much *always* wrong. If it were only really that simple...

DinOR says:

I served w/many of Her Majesty’s sailors and soldiers and most of them were pretty sharp guys. Many had (or were working) on their Associates and ALL of the officers had higher degrees.

I know a few myself, having worked on a military basis in a civvy contract, and know some of the lore from the old hands. I'm even looking at enlistment as a way of paying for med school myself right now ($30K per year salary + bills, textbooks and tuition fees paid while you study full-time). Of course the officers don't buy V8 supercars as a rule. And infantry are different from air force and navy in certain material respects. I'm not saying they ALL do that, just that an appreciable amount of them don't save as well as they could... And I would only ever enlist if I came out with a VERY useful civilian qualification as part of the deal...

although I might buy a Peugeot 407 with all the extra moolah ;)

DS,

The guys I spoke with said they generally encourage the guys to stay single and as a result offer retirement as early as 12 years service. That and we got to have a beer w/dinner! When we went on board "she" was almost brand spanking new so I'm sure they probably got the best and brightest for the commissioning crew. Some "pre-com" crews can be downright arrogant!

New York has its own eco-system. :-) I’m afraid that I’m not a fan of New York - too claustrophobic and urine smelling (even the post Guiliani visits).

The urine smell aspect is FAR FAR worse in SF than in NY.

I'm not sure where in NY you've been going.

Either that, or I spend way too much time in SOMA and Market St.

Yeah, Navy would be particularly hard, as spending a lot of time away at sea. I think that would be the hardest gig, and I'm really not sure how it sets you up for a long-term career (not that it's intended to), plus putting family on hold. The forces are struggling with recruitment right now, with unemployment rates low, and they are prepared to accept one-eyed pirates with wooden legs at the moment (not too far from the truth). Speaking of arrogance, it was always a little scary having lunch at the mess when the SAS or Navy divers were visiting, as superfit guys who don't take crap from anyone... I would look first at air force or army, my sis happened to be a doc in the air force...

Could some current NYers e-mail me: burbed @ burbed.com

Thanks!

This sounds surprisingly similar to DS's proposal from a couple threads back...

http://www.forbes.com/personalfinance/taxesestates/2007/01/21/china-real-estate-markets-emerge-cx_vk_0120markets01.html

Tax Fears Roil China Developers' Stocks
Vivian Wai-yin Kwok, 01.21.07, 6:00 PM ET

Hong Kong -

Shares of Mainland Chinese developers fell nearly 20% at the end of last week in Shanghai, Shenzhen and Hong Kong, as investors fled the sector in a panic over an upcoming land appreciation tax...

Off topic but - I say the more information the better!

http://tinyurl.com/yueymc

I just showed this blockshopper web site to my wife. She said "we'll never buy around here again!" Maybe I should take back my previous comment.

DS,

You asked about eligibility for rent control in SF a bit ago. FAB might know the exact year, but I believe it is based on the building's age, and has absolutely nothing to do with the tenant's income.

I have a friend (a money manager), she has a low seven figure income, her husband a mid six figure income, they sold a house on Broadway Street about three years ago for close to $8 million (losing a small amount in the three years they had held it), and then renovated an apartment in the most beautiful rental building in the city and moved in. I believe she has a ten year lease. She was so excited, because her monthly rent is not that much higher than her property taxes were and she has no maintenance issues. For about a year she kept trying to convince me to do the same. (My property taxes are absolutely nowhere as high as hers were, the numbers wouldn't pencil out for me). Her apartment is under rent control.

Paul,

BlockShopper is hysterical. The photos! I can picture some of the write-ups I'd have in my neighborhood:

"Slightly trampy second wife forces dotcom millionaire to upgrade to Broadway house at $4.95 million"

"CFO buys house he can't afford on outer Vallejo Street."

"Wife who signed prenup forced to move to the Avenues, husband upgrades wife and house."

These would, of course, be accompagnied by photos from the society pages.
Did they take photos from corporate websites to use on the BlockShopper site? It is so weird.

SFWoman Says:

> DS, You asked about eligibility for rent control in
> SF a bit ago. FAB might know the exact year, but
> I believe it is based on the building’s age, and has
> absolutely nothing to do with the tenant’s income.

All residential rental property in SF built before June 1979 is covered by rent control except single family homes (SFHs) and individually owned condos with a tenant that moved in after 1996 (homes and condos with a tenant who has been since before 1996 are still under rent control). Anyone that adds an illegal unit to a SFH makes the property (in the eyes of the Rent Board) a multi unit building and both units will be under full rent control.

Interesting comments on rent control and S.8. Rent control was originally envisaged to obviously help out people on 'lower' incomes get a place in the city, etc, a la 'inclusive zoning' -- the practice of tying it to a building and then not vetting new arrivals on income level makes it a little pointless further down the track.

The unanticipated consequence of Sect 8 seems to be to disincentivise workers from earning more, also a problem. It's the same here, where you can get unemployment benefits for life (or find a way to get classified as 'disabled') and get your public housing -- there's a point where you don't want to earn to much to lose your benefits, or not find work at all. There's a threshhold band where any 'rational actor' would actually be committing economic suicide by finding a job, it would make life altogether too hard.

However, I both think these systems could be managed better and made to work better. The housing dept here should definitely be looking at the people driving Beamers and Mercs in public housing, as well as the others I heard about with boats and SUVs outside their places.

lots of typos. both think = think both; to = too; etc

FAB,

Thanks for those details about Section 8.

I don't think I like either of those mechanisms you describe, too easy for both tenants and landlords to game them.

Though I'm not seeing the note of desperation Muggy noted above in local rental ads, it seems to me there are an unusual - and growing - number which claim 'never lived in' or 'new everything'. Clicking on the pictorial ads produces pdfs of pergo and those tiny hanging Murano lights.

Weirdly, we still have the 'fire your LL' and '$197/mo 3/2/2' negAM ads mixed in with rentals. After something of a dip during the hols, the number of entries is swelling again - nearly double the volume of Sept '06.

Tangentially, I wonder who'll buy all the KingCab Dodge Ram V10 duallies which subcontractors seem to favor here...

Spike66,

I'm sure the firm both securitizes its own and deals in other's MBS. The unloading probably applies to both and may have to do with buy-back provisions of loans themselves. Here's an interesting article...

http://tinyurl.com/28xy5x

spike66 says:
"I’ve cashed out of the market, and switched mmarket funds at Vanguard just to make sure there were no MBS or agency bonds in its holdings."

spike66, did you switch bond funds at vanguard too? my bond fund there has MBS in it and I'd like to find a different fund...

SJ,

I believe Obama attended the Punahou School in Hawaii.

He did go to the Punahou school (Christian school). He was known as 'Barry Obama' while there.

http://www.punahou.edu/

I don't know about his politics, but spreading rumors that make him look like some sort of radical Muslim is a Rovian tactic if I've ever seen one. I'd like to see people elect someone based on their worthiness and on actual character this time around, not based on rumor and innuendo. His middle name is Hussein - big deal.

ajh Says:

> FAB, Thanks for those details about Section 8.
> I don’t think I like either of those mechanisms
> you describe, too easy for both tenants and
> landlords to game them.

A couple reasons that landlords like Section 8 are:
The rent goes up EVERY year (even if rents in the market are dropping). I have seen some rent rolls where older Section 8 tenants who have been in the building for a long time are paying 50% more than the other tenants…

Section 8 tenants don’t pay a security deposit but since the units are inspected at move in (and once a year) the landlord will get paid for damage if the tenant thrashes the place. Many landlords do the work for next to nothing then submit a bill from a company they own and make thousands extra on most Section 8 move outs…

FAB,

That explains why there are a few section 8 buildings on the outskirts of Russian Hill and Pac Heights. If you've held a building for a while and don't want to put in upgrades you are guarenteed to get your rent from the tenants. There is a section 8 building on the corner of Vallejo and Van Ness. The building looks maintained, but there is always discarded furniture from someone moving out and a couple of people in the building are always feeding pigeons. Nobody has curtains, everyone has a different blanket as window covering. As I was walking by once I actually asked someone in the building why noone had curtains. She said "We're all section 8!". I went home and looked it up, and that's how I learned about it.

Nigel Swaby,

Thanks for the update! You just had to know that guy was full of it. Near as I could tell he was w/3 or 4 different mortgage firms in under 2 years? (His record was so spotty it was hard to tell). He boasted a pretty decent income for a guy w/basically NO experience, contacts or connections.

I'm not sure how or even IF RESPA regulates these issues but it sounds to me like this clown was his "own" best customer? The NASD has a formula for just how much a stockbroker can generate in comm. for his/her own account. It's been awhile since I took the "65" but it seems to me it's around 5%? Well if this guy had 15 props. in Phoenix and another 7 in NM and made them nice "thick" deals with a great payout to himself that accounts for quite a bit of his purported income.

A question to all.

What is a good way to play oil ? I believe we are near bottom and I am curious as to how I can bet on the price increasing from this point.

I have XLE which doesn't correlate one to one with oil price. Last year I looked at DBC and USO, but wasn't clear on how well they will track the price of oil. I do not have any account where I can trade futures.

USO sounded very promising. Does anyone know more about it ? Will it track the increase/decrease in crude oil by the same % points ?

Thanks.