America’s latest bout of realty mania may finally be dying down, as home prices and particularly sales volumes decline after a rise of interest rates. With mortgage payments more costly, and expectations of equity appreciation diminishing, the fees charged by brokers may become a rub again. Five percent off the top, a typical full transaction commission, shouldn’t escape so much notice when prices aren’t rising by double digits each year.
This brings us to one of America’s biggest and most Apple Pie guilds, the residential real-estate sales trade. A few friends or family members may be part of it. The common term is Realtor, although as the capital letter suggests, that is a membership subset of the 3 million Americans who hold state-issued licenses to sell homes. But the Realtors are a big enough subset—roughly half, and likely the most active–to provide a data window into a field that otherwise might be difficult to track.
And the National Association of Realtors latest survey finds that 2021 was a banner year, with median gross income rising 25% (off a lesser dip in 2020, when Covid lockdowns hit early in the year). If $54,430 was the midway point among the 9,220 who self-reported to the questionnaire randomly sent to 176,494 Realtors, one might guess that the better sellers skewed well north of that. And the Realtors said they could have done even better with more to sell.
What if, instead, there were more realty agents competing to do the selling? Does the supply and price of brokerage help shape the real-estate market, or is that market (as this realty consultant and surely many Realtors believe) determined solely by buyers and sellers, leaving the sales professionals simply (and fairly!) to divide a fixed pie?
Occupational licensing covers a quarter of the American workforce. Such a barrier to entry is justified as a protection against physical or financial hazard to others. In residential real estate, the handling of what is usually the biggest household investment would seem to call for a professional floor. Unclear, however, is how high that training and testing standard needs to be, and how much consumers effectively must pay for it. To put the previous paragraph’s question another way: Was the 2021 bounty a notorious rent capture, or just a cyclical blowout?
State licensure data over recent years paints a general picture of a market calling the shots: In the 22 jurisdictions I could see, the salesperson ranks varied widely and in tandem with the economy (big drops around the 2008-09 financial crash, for instance). Brokers, a more credentialed and usually senior status, show less variance and, even in the most recent bullish years, less growth. This may be related to changes in the selling-firm organizations, to “teams” built around one or two notable brokers. Overall, there’s considerable apparent capacity for expansion—Realtor membership in fact was up 50% over the 8 latest years.
Sure, obtaining a license requires instructional time, and renewing that license every couple of years or so can be an administrative chore, but so many people manage this—even part-timers who may not sell anything in a given year—that it’s hard to argue that transactions are being lost for want of agents.
Yet that is what a recent academic paper does, with respect to at least one state. Bobby W. Chung, economist at St. Bonaventure University in New York, found in a paper published this spring in Labour Economics that a tightening of Illinois’ license requirements in 2011 decidedly cut into sales. And, perhaps more significant to the core justification for licensure, his data suggest that more “qualified” sales personnel did not lead to fewer reported abuses of consumers.
Chung noted that the 2011 Illinois revision “was a rare occasion both new entrants and existing practitioners” by ending the salesperson classification and requiring broker license as a first step, while also specifying that no broker could work independently without upgrading to a “managing broker” classification. As a result, after a grace period, salespeople declined from 50,000 to zero, while the broker licenses rose by only 10,000 and managing brokers amounted to 20,000. Hence, a net loss of 20,000 in real-estate sales.
Building on a 1979 study that linked restrictive licensing to property-vacancy durations, Chung concluded, “There was a significant reduction in home sales on average, implying that the decreased agent availability had an immediate consequence on consumers.” And, there was this labor-market effect: “I find that female and novice agents are more likely not to renew the license after the policy.” The new strictures required fees and doubled the training time, some of it at inflexible hours of the day.
Chung’s analysis of disciplinary actions in Illinois real-estate sales, extending five years beyond the reforms, “does not indicate strong evidence of reducing misconduct,” although he cautions that because of statistical challenges in building a multi-state comparison set, “the quality effect warrants further discussions.” This and other work does suggest that factors other than simply adding more training time are more critical to shaping broker ethics.
A minimal competency in transaction procedure and law is desirable in housing sales. The state can certify this, as of course can employment by a brokerage or mentoring in the now-popular sales teams.. Just as is true with a paralegal or physician’s assistant, however, there are many tasks vital to sales that could be performed by someone short of full professional licensure. (Indeed, in states like New York, it is rare for a home deal to close without buyer and seller having a full-fledged lawyer present, on top of the broker and with a separate escrow officer.)
At bottom, does it matter to homebuyers (and sellers) how constrained the supply of sales agents is? Yes, it is possible for abrupt and onerous legislation to affect a state’s experience. But, over a national range, the “heat” of property markets themselves seems to regulate the sales ranks pretty well. And the mixed record so far of discount- brokerage options—some involving algorithmic transaction models, such as Opendoor—leads to doubt about how many consumers cared about breaking the 5% commission mold anyway.
But most of America has had successive generations of barely-interrupted home price appreciation. A sustained bear market might change this picture, and give regulation scholars like Bobby Chung more to reckon with.
In his appraisal of the war between Iraq and Iran, Henry Kissinger famously remarked that “it’s a pity both sides can’t lose.” Increasingly that’s how the upcoming battle between the Trumpian GOP and the woke Democrats seems to many Americans, whose faith the political system, notes Gallup, is at a nadir. Only 7%, for example, express a great deal of confidence in Congress and barely a quarter in the Presidency.
A solid majority of Americans dislike both parties. No surprise here as they continue to alienate all voters outside their base constituency. Under such conditions, a victory by either will simply serve to confirm their political direction ever further from the mainstream and set the conditions for a thumping in 2024.
Instead, it may also be better for each party to take a hit this November. Losing, it turns out, can be the precondition for winning big. Republicans, for example, took to heart the lessons of the Goldwater rout in 1964 and embraced a more moderate, pragmatic Richard Nixon who then won two consecutive elections. Democrats did the same after the 1972 McGovern disaster, shifting closer to the centre and winning big with the original New Democrat, Bill Clinton.
Big victories, sadly, don’t teach anything but hubris. Many Republicans would take a big win — meaning control of the Senate and a big House majority — as a vindication for both their policy agenda and their insane Duce, Donald Trump. Yet the elevation of the widely unpopular Trump, with barely 40% support, may be the best weapon the Democrats have, and is perhaps the one candidate that even the hapless Joe Biden, or even the pathetically ill-suited Kamala Harris, could possibly beat.
On this episode of Feudal Future, hosts Joel Kotkin and Marshall Toplansky are joined by Ashwin Rangan, CIO of ICANN, and Rand Simberg, aerospace engineer to discuss the future of space.
On this episode of Feudal Future, hosts Joel Kotkin and Marshall Toplansky are joined by Robert Casanova, director of industry and economic policy at the Semiconductor Industry Association, and Bill Amelio, CEO of DoubleCheck Solutions, to discuss America’s need to reshore the semiconductor industry.
The latest California corporate headquarters move is to the cloud. Venture capital firm Andreeson Horowitz made the July 21 announcement, which was also reported by the Wall Street Journal. According to the Journal: “…its new headquarters would be in the cloud after a pandemic driven shift to remote work changed the need to be concentrated in one geographic region.”
In the announcement, co-founder Ben Horowitz noted that “Silicon Valley became the place that attracted most of the great national and international talent,” but that the adoption of remote work during the pandemic proved have substantial advantages:
“It turns out that running a technology company remotely works pretty darned well. It’s not perfect, but mitigating the cultural issues associated with remote work turns out to be easier than mitigating the employee satisfaction issues associated with forcing everyone into the office 5 days/week. As a result, nearly every technology company has moved to a remote or hybrid approach to work and this change is profoundly weakening the Silicon Valley network effect.”
For Andreeson Horowitz, the answer is principally a remote work model:
“Concentrating all of those companies into one or two geographies cuts off great opportunities from anyone who can contribute, but cannot easily move. Remote work is opening up many new locations for entrepreneurs and technology workers. We embrace that by changing our own operating model.”
Horowitz added: “headquarters will be in the cloud and we will continue to create physical offices globally where needed to support our teams and partners.”
New York. Los Angeles. Boston. San Francisco. Call them America's "superstars." With mega populations, these urban hubs have long reigned as the nation's economic, social, and cultural capitals. But big cities have also been the hardest hit by the pandemic. "Zoom towns" are springing up across the country as professionals leave the city in droves. Even more, the pandemic has brought economic and social inequality into sharp focus for the nation's lawmakers. And some, particularly in large cities that boast the most obvious cases of such inequality, are enacting new progressive policies and laws that seek to combat inequality. For some, this means a new financial structure that makes city life less compelling for those in higher income brackets. Will megacities keep their magnetism in the wake of Covid-19? Or are their best days behind them?
Scholar & Author Joel Kotkin joins Jennifer Hernandez, Attorney & Environmental Advocate, along with Historian & Professor Margaret O'Mara and Ed Glaeser, Economist & Author, to debate the topic.
Recently, the high density of Los Angeles became an issue in a proposed city of Vancouver high rise development project (six buildings of from 12 to 40 stories). A July 4 Vancouver Sun article, by Susan Lazarak (“Vancouver proposes huge housing development at north end of Granville Bridge”) cited University of British Columbia regional planning professor Michael Hooper to the effect that concentrating tall towers but allowing lower density elsewhere doesn’t necessarily translate into a high overall density. In particular, he noted that Los Angeles has higher overall density than New York City because L.A. has “vast swaths of middle-density buildings” throughout the city.
Professor Hooper makes a valid and often misunderstood point on tall towers. Indeed, the Corbusian towers, which have been built in many cities, and famously rejected in Paris, are not required to achieve higher densities.
But first, some background…
This article clarifies often misunderstood urban density issues.
First of all, the city (municipality) of Los Angeles is not denser than the city of New York.
However, the Los Angeles urban area is considerably denser than the New York urban area. The urban area is the area of continuous development, and excludes all rural land (by definition, all land that is not urban is rural, according to both Statistics Canada and the US Census Bureau).
For example, the Vancouver urban area (the Statistics Canada term for urban area is “population centre”), stretches from Horseshoe Bay to Langley and Richmond to Maple Ridge and Port Coquitlam (Figure 1, Statistics Canada map of the Vancouver population centre).
Urban areas/population centres are defined by Statistics Canada and the US Census Bureau based on data from small census enumeration zones, without regard to municipal limits or even provincial or state boundaries (such as Ottawa-Gatineau, ON-QC, or Philadelphia, PA-NJ-DE-MD).
Moreover, the suburbs of Los Angeles (the part of the urban area outside the city), are about twice as dense as those of New York. This more than compensates for the higher municipal density in New York.
Urban areas are not metropolitan areas (census metropolitan areas). Population centres/urban areas are the highest geographical level at which urban density can be measured, because any higher level is at least partially rural. Metropolitan area densities are combined urban and rural densities.
In the United States, 81% of the land in metropolitan areas with more than 1,000,000 residents was rural in 2010 (see: Rural Character in America’s Metropolitan Areas). The 2021 census indicates that the Vancouver population centre comprises only 32% of the land in the Vancouver census metropolitan area.
Back to Los Angeles and New York…
The United States Census Bureau delineates the land area of urban areas in its census. The current release is based on the 2010 census. The Los Angeles urban area had a population density of 2,702 per square kilometer, more than 30% higher than New York’s 2,054. The Toronto population centre had a density of 3,088 according to the 2021 census, nearly 15% higher than Los Angeles (Figure 2).
The latest data from the American Community Survey (see Note 1) shows that the largest difference in housing types between the Los Angeles and New York urban areas is among single-family detached houses (Figure 3, see Note 2). In Los Angeles, 40% more of the housing stock is detached than in New York (48.4% compared to 34.0%).
The higher density, detached housing suburbs of Los Angeles are contrasted photographically with those of New York, at distances of 24 kilometers/15 miles and 56 kilometers/35 miles from the urban cores (Figures 4 and 5).
Even the San Francisco (2,249) and San Jose (2,267) urban areas have higher urban densities than New York. Like Los Angeles, San Francisco and San Jose have a larger share of single-family housing and a lower share of multi-family housing than New York — the opposite of what would be expected. As with Los Angeles, the higher densities of the San Francisco and San Jose urban areas compared to New York are driven by their detached housing on smaller lots (Figure 6).
Ironically, Los Angeles has long been considered the epitome of urban sprawl — probably more than any other urban area. If this perception were true, then every large population centre/urban area in Canada and the United States would be denser than Los Angeles. The reality? Only Toronto is denser (Figure 2).
Note 1: The later American Community Survey data for urban areas is based on the land area as defined by the Census Bureau in 2010.
Note 2: The factors contributing to urban density in this article relate only to residential densities. There is no readily available source for the extent of land use by non-residential functions, such as commercial, industrial and public facilities.
These are strange times in American politics. Slowly but surely, the Democrats have been losing their historically working class and multi-racial base, with Hispanics in particular drifting Right. This shift was starkly evident in the recent New York Times/Siena poll which showed that, for the first time ever, Democrats had a larger share of support among white graduates than among non-white voters, achieving effective parity with Republicans over the Hispanic vote.
The shift has unsettled each party in less than attractive ways. The Democrats’ growing reliance on college-educated affluent white people reflects the policies pursued by the Biden Administration, which is both inept and widely unpopular. Although there are the de rigeur calls to help the middle class, the President has identified himself with the issues that animate the activist element in the upper classes. These include aggressive climate change policies, near limitless abortion access, lax immigration controls (opposed by two-thirds of Americans) and the implementation of critical race theory in schools. Amid soaring inflation, working class voters have been worst affected, many of which include the increasingly influential Latino voter as well small business owners, whose confidence is at a near half-century low.
The Census Bureau has released an ”America Counts: Stories Behind the Numbers” issue entitled: “Fewer Younger Adults Drives Population Loss in Some U.S. Cities.” According to the Census Bureau, “Previously released population estimates for counties showed core counties of many large metro areas experienced large declines in their population from July 1, 2020-2021.” The net domestic migration dimension of this was the subject of our article Huge Spike in Domestic Migration from Urban Cores, which documented a 1.1 million net domestic migration loss by urban core counties of the major metropolitan areas (those over 1,000,000 population in the single year of 2021. By contrast, suburban counties gained about 400,000.
The new Census Bureau analysis shows, in the urban core counties covered, a disproportionate share of the 2021 population loss was “due largely to a loss of population in one specific group — younger adults in their early 20s to mid-30s.”
The article focuses on New York, San Francisco, where particularly large declines occurred among younger adults. This is an ominous trend for large core municipalities with the largest central business districts (downtowns), which have been particularly attractive in the past to this younger demographic and are most at risk of reduced office occupancy as a result of remote working. New York has by far the largest central business district in the United States, while San Francisco and Boston are among the top five.
On June 19th Douglas Newby’s opinion piece titled, “Democracy Needs to Replace City Manager Ward System” was published with the assertion that the council-manager form of government (under which the City of Dallas, Texas is currently formed), is undemocratic. As the CEO of the International City/County Management Association (ICMA), the former City Manager of Austin, Texas, and a city administrator who served under a strong mayor system like the one proposed by Mr. Newby, I’d like to address a couple of critical points and bring clarity to the ways in which the forms of government actually operate.
First, I’d like to address the idea that the council-manager form of government is somehow less democratic than the strong mayor system recommended by Mr. Newby. Understand that neither system is a pure democracy. That is, neither system allows residents to have a direct vote on all matters before the government. Certainly, there are certain issues that require a voter referendum, but most policy decisions are made through a representative democracy where the residents elect individuals to speak and act on their behalf.
The primary argument given to support the claim that the council-manager form is less democratic is that the City Manager is not elected by the people and therefore is not accountable to the people. However, the City Manager is appointed by the people’s representatives to Council and can be fired by the people through their elected representatives. Mr. Newby’s frustration seems to be that the mayor was not permitted to unilaterally fire the City Manager. And herein is the critical distinction that makes the council-manager form more democratic than the strong mayor system. Specifically, the council-manager form of government requires all elected officials (who represent the actual voices of the people) to work together, collaborate, and come to consensus on the best path forward for the city. No single official, not even the mayor, may act unilaterally against the will of the people – a will that can only be formulated through the collective voice of the people’s duly elected representatives.
The second issue I’d like to address is Mr. Newby’s argument for a strong mayor system, which is predicated, largely, upon a mischaracterization of the role of the City Manager and Council. First, is the claim that “each district is controlled by its City Councilperson and the City Manager.” The reality is that no policy may be advanced without the majority consent of the Council. Certainly, the council member in whose district a particular zoning decision is based will be given some deference considering that council member was elected by the people in the district who are most directly affected by the decision. However, that council member must convince a majority of the council to affirm their position. This is the case in both council-manager and strong mayor systems. However, in a council-manager system, the mayor has no authority to unilaterally veto council decisions or deny the will of the people. That power is, however, granted to the mayor in a strong mayor system.
The final issue is the claim that the City Manager controls the City Council. The ICMA Code of Ethics explicitly prohibits city managers from engaging in political activities or elections. While elected Council members and mayors rely on support from like-minded organizations and residents to support their campaign, these are areas of influence where the City Manager should not engage. Instead, the City Manager is a public servant employed by the people’s elected representatives. City Managers only hold their position if the democratically elected representatives of the people agree that the manager is running the city and implementing their policies effectively. Contrary to Mr. Newby’s assertion, the City Manager has no power to “defiantly refuse to pursue the priorities of the mayor and the City Council.” And recent actions taken by the Dallas City Council and the Mayor demonstrate this very issue.
The Mayor and members of City Council raised concerns regarding specific process improvements they’d like to see implemented by the City Manager. Yet, they also recognize the progress made to advance many of their goals and policies. And so, through a professional performance evaluation process, the Mayor and City Council clarified specific process improvements they’d like to see in the city. The City Manager now must deliver on those improvements. This is how any effective organization is managed. The governing body establishes policies and sets expectations for the organization, and their employee (in this case the City Manager) is held accountable for achieving those goals and expectations. In well-run cities, elected officials, the city manager, and staff all work collaboratively to strengthen the city. Yet, Mr. Newby’s solution is to advocate for a strong mayor system in the hopes that a like-minded mayor will be elected in order to “do more to push [his] ideas further forward.”
At ICMA, we recognize that local governments are essential to meeting the needs of the people. Public servants in local government deliver programs and services to assure public safety, provide public amenities, build essential infrastructure, and deliver quality public utilities. They do this to enhance the quality of life for all people and businesses within their jurisdiction.
Certainly, there will be disagreements on how best to move forward. That is why strong democracies encourage robust debate and public engagement. The ability to cast a ballot to be heard is an important aspect of democratic societies. Yet, the real power of democracy is only realized when we value diverse views and opinions in making decisions that affect our communities. In the council-manager form of government that includes granting the Council the power to hire and fire a manager based on their proven ability to carry out their vision of the future and assuring all the people’s representatives have an equal voice in determining how government serves the people.
Marc Ott is CEO/Executive Director of the International City/County Management Association.
Infinite Suburbia is the culmination of the MIT Norman B. Leventhal Center for Advanced Urbanism's yearlong study of the future of suburban development. Find out more.
Authored by Aaron Renn, The Urban State of Mind: Meditations on the City is the first Urbanophile e-book, featuring provocative essays on the key issues facing our cities, including innovation, talent attraction and brain drain, global soft power, sustainability, economic development, and localism.
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