NewGeography.com blogs

It is extremely difficult to find reliable reporting on the intensity of the housing bubbles across China, but this article from the China Post of June 1, 2010 "Economist sees housing market bubble", appears to be realistic.

It states that in 2009 the average house price to average annual household income in China was 9.1 times earnings and that it rose to 11.15 during the first two months of 2010. Beijing and Shanghai are reported to have exceeded 20 times average household earnings during early 2010. These figures are from Yao Shujie, head of the School of Contemporary Chinese Studies at the University of Nottingham.

The article noted that last week, Chinese real estate services company E House China released figures suggesting that house prices to incomes nationwide in 2009 were 8.03 times incomes, but those in Beijing, Shanghai, Hangzhou and Shenzhen were over 14 times household incomes.

Recently, Wendell Cox of Demographia, working with the South China Post, estimated that the Median Multiple (median house price divided by median household income) for Hong Kong was 10.4 – as reported in this New Geography article Unaffordable Housing in Hong Kong. Because sufficiently reliable data is now available from Hong Kong, it will be included within the Annual Demographia International Housing Affordability Surveys going forward.

As the Annual Demographia International Housing Affordability Surveys clearly illustrate, house prices do not exceed three times gross annual household incomes in normal markets.

Rather remarkably, in researching and reporting on the China Housing Bubble, there has been no discussion of the land ownership differences of China and western countries.

Freehold land is not available in China. The land is leased for a remarkably short term of 70 years. Instead of conventional ground leases in the west where ground rentals are paid, Chinese Local Governments demand an upfront payment of capitalized rental. On this basis, the land interest should be a wasting asset over the term of the lease.

Rather remarkably – this appears not to be the case in China, where the buying public have convinced themselves (no doubt with encouragement from real estate agents and developers) that at the end of the term of the ground lease, Local Government will simply “gift” the land to home owners!

On the sound income to house price measure, China’s housing bubble is clearly the worst in the world. When the unsatisfactory and uncertain land ownership issue is factored in as well, it is particularly concerning.

The Kauffman Index of Entrepreneurial Activity produced good news for the year 2009: Americans have created businesses at its fastest rate in 14 years. This past year, 558,000 businesses were created each month, marking a 4% increase from 2008. Though this comes in the midst of economic recession, president and CEO of the Kauffman foundation Carl Schramm seems to think the unsavory results of massive layoffs have fostered these higher rates of entrepreneurship, serving as “a motivational boost” for the newly unemployed to become their own boss. He sees the recent rates in business startups as a favorable sign for economic recovery.

Using the monthly Current Population Survey from the US Census Bureau and US Bureau of Labor Statistics, the Kauffman index has tracked the demographic makeup of business creators, as well as their location. Though African Americans lag behind other groups in terms of the number of entrepreneurs, they saw the largest increase from 2008 to 2009 from an index of .22 to an index of .27. Both the 35-44 and 55-64-year-old groups have increased to an index of .40 percent, also the greatest of their demographic category.

The index followed predictable trends in terms of location of entrepreneurial activity, showing that the largest rate increases occurred in the south and west in states like Oklahoma, Montana, Texas, and Arizona while Mississippi, Nebraska, and Pennsylvania floundered. However, business creation rates in the Midwest and South outdid those of the west, which actually declined from 0.42 to 0.38 percent from 2008 to 2009.

You can find interactive data on entrepreneurial activity for the period spanning 1996-2009 on the Kauffman Foundation’s website at www.kauffman.org/kiea.

Kirsten Moore is an undergraduate at Chapman University majoring in US history and screenwriting.

Matt Yglesias has been making the case recently that zoning and land use laws encourage suburban sprawl, and if we did away with them we'd have a greater number of dense, walkable neighborhoods. Cato's Randall O'Toole took exception, so Matt condensed his argument into PowerPoint form:

There's a lot I could say about this, but that's a mistake in a blog post. So I'll stick to one main point: these regulations aren't something that's been imposed by "government." They exist because people really, really, really want them.

I need to be clear here: I'm neither praising nor condemning this, just describing how things are. To get an idea of how strongly people feel about this, you really need to come live in a suburb for a while. But failing that, consider the balance of power here. Corporations would like to be able to build wherever and whatever they want. Wealthy land developers would like to be able to build wherever and whatever they want. And local governments hate single-family neighborhoods because they're a net tax loss: they cost more in services than they return in property tax remittances. And yet, even with corporations, wealthy developers, and local governments all on one side, suburban zoning is ubiquitous. This is a triumvirate that, under normal circumstances, could get practically anything they wanted, but in this case it's not even a close fight. Suburban residents have them completely overwhelmed. That's how strong the desire is for suburban sprawl. Read more

More than two years ago we suggested in these pages that the era of multi-billion dollar system-building investments in urban rail transit is coming to an end. We wrote: "The 30-year effort to retrofit American cities with rail infrastructure, begun back in the Nixon Administration, appears to be just about over. The New Starts program is running out of cities that can afford or justify cost-effective rail transit investment. To be sure, federal capital assistance to transit will continue, but its function will shift to incrementally expanding existing rail networks and commuter rail services rather than embarking on construction of brand new rail systems." ("Urban Rail Transit and Freight Railroads: A Study in Contrast," February 18 2008).

Now comes a startling new revelation from a senior U.S. DOT official that even rail extensions may be at risk. Speaking at a National Summit on the Future of Transit before an audience of leading transit General Managers on May 18, Federal Transit Administrator Peter Rogoff questioned the wisdom of expanding rail networks when money is badly needed to maintain and modernize existing facilities:

"At times like these, it's more important than ever to have the courage to ask a hard question: if you can't afford to operate the system you have, why does it make sense for us to partner in your expansion? If you can't afford your current footprint, does expanding that underfunded footprint really advance the President's goal for cutting oil use and greenhouse gases... Or are we at risk of just helping communities dig a deeper hole for our children and our grandchildren?"

In Rogoff's judgment, the first priority for the transit industry is to follow the precept "fix it first." "Put down the glossy brochures, roll up our sleeves, and target our resources on repairing the system we have," he told the assembled transit officials. Transit systems that don't maintain their assets in a state of good repair risk losing riders, he warned. The Administrator cited the preliminary results of an FTA study of the financial needs of 690 public transit systems across America that show a $78 billion backlog of deferred maintenance. Fully 29 percent of all transit assets are "in poor or marginal condition." The challenge facing transit managers is to resist the siren call of new construction and devote money to the "unglamorous but absolutely vital work of repairing and improving our current systems."

At first blush Rogoff's position would appear to go counter to the Administration's announced policy of favoring public transit. Hasn’t Transportation Secretary Ray LaHood repeatedly championed public transit as an alternative to highway expansion? Hasn’t the Administration’s proposed Fiscal Year 2011 budget include major commitments to funding new rail lines in Denver, Honolulu, Minneapolis and San Francisco? Hasn’t the Federal Transit Administration dropped the former emphasis on cost-effectiveness as an evaluation factor in rail project selection in favor of a broader range of factors? All true.

But fiscal realities can do wonders to bring federal officials down to earth. The Transit Account of the Highway Trust Fund is barely solvent. The U.S. DOT budget will grow by only one percent in 2011. With commendable consistency and fairness, the Administration seems to have decided to apply the same investment standard to transit as it has preached and laid down for highways: Forget about massive capacity expansion; focus on getting the most out of the assets already in place by maintaining them in a state of good repair. To critics of the DOT's new posture – and there will be some – a good answer could be: It’s just a different way of looking at what it means to be pro-transit.

Seattle's tony Belltown condo neighborhood hardly needs more bad news. Like many other similar areas in central city cores, the supply of new high rise condominiums has far outstripped the demand. Over the past year, the downtown area condominium market has experienced a median price decline of 35%. Units in at least three downtown buildings have been auctioned off at prices from 30% to 50% below the latest, already discounted prices.

Yet things have gotten even worse. A 25 story apartment building, only 9 years old, will be demolished due to substandard construction. Owners of the McGuire Apartments (photo on web here), Carpenters Union Local 131 and the Multi-Employer Property Trust issued a letter recently announced saying that "Since the necessary repairs are impractical, the decision ... is to dismantle the building.” The letter also indicated that tenants would be assisted in finding new housing.

A local blogger (Hideous Belltown) has provided a more than one-year long chronicle of the building, since scaffolding was erected, and concluding with two "death-watch" entries.

The Seattle tower may be the newest and tallest building to ever be demolished, especially in the United States.