April 25th, 2010

Buying, Renting and What a Place to Live "Should" Cost

One of the basic ideas of economics is that if something is in high demand and the price is rising, someone will figure out how to make more of it, thus applying some downward pressure on price. Variations on this include: if there is a huge amount of stuff out there not being used, someone will figure out something it is good for and that will apply some upward pressure on price. You know, supply, demand, everything is a bleeping commodity. Blah, blah, bleeping, blah.

When there was debate about whether we had a housing bubble several years ago, one of the arguments that we had a bubble was based about historical housing prices, but I'm going to ignore that here. Another of the arguments involved what it cost to build houses. The price of adding a new element of supply is an important part of valuation, but the way people were calculating the price of adding a new element of supply was incredibly stupid: they were doing square foot to-build costs plus lot cost (if that), and rarely including things like the cost of getting permission to build -- or, for that matter, finding a buildable lot. This is an important distinction between the Zoned Zone and Flatland: Flatland is surrounded by agricultural land, and includes communities still stupid enough to extend community services like water, power, education, roads and so forth at a discount to the builder (that is, the community as a whole bears some or all of the cost of extending services to new subdivisions). The Zoned Zone may not be surrounded by cheap land and it has definitely gotten a lot smarter about whether it will extend services and, if it does, what it will charge for them.

There are a whole lot of complicated interactions in real estate, which is one of the reasons it is tremendously difficult to really demonstrate a bubble has gotten going: maybe there really is a lot more demand driving prices up (altho demographic analyses and indications that many sales are of second, third and so forth homes countered that argument handily in this most recent instance). Maybe prices are going up because a particular neighborhood/city/region is newly desirable (altho the fact that prices were going up everywhere countered that argument handily in this most recent instance). Maybe prices are going up because supply has stopped expanding for some reason -- houses are harder to build or whatever (but _that_ sure wasn't the case).

But I think the thing we should really try hard to remember as individuals who don't want to get caught next time is this distinction between Flatland -- where prices go up comparatively slowly, but sprawl is like late-stage cancer -- and Zoned Zone. It is a good distinction. When prices go up in a space-constrained place (which with increasing fuel costs, everywhere will one day be), you can't miss it. But in Flatland, prices go up some, but if you just drive a little bit further, things are cheap again.

And _that_ distorts our ideas of what a place to live "should" cost like nothing else in the world.

It's worth noticing that a lot of the people who sold at the top and rebought recently are busy pointing out that they shortened their commute by 30 minutes.

Sensible People saying Sensible Things, redux

In this case, one particular sensible person is summarizing a whole lot of other sensible people saying sensible things.


A regular contributor to Nate Silver's blog summarizes the SEC complaint against Goldman and Tourre. He says the case is very straightforward: it's a civil case against Goldman (and Tourre) for lying. Period. Further, the expectation if the SEC prevails is that there will be more cases like this (possibly against Goldman) -- and Wall Street in general will behave a lot better if they know there is someone watching them when they behave badly.

A _really_ good article.

Not So Sensible

I dearly want to love Frank Rich. He's funny. He has a way with words. Our values have substantial overlap. And then he says stuff like this:



“At least in an actual casino, the damage is contained to gamblers,” wrote the financial journalist Roger Lowenstein in The Times Magazine last month.

Did you _have_ to pull a Stupid Quote like that? Really, Mr. Rich? You were on _such_ a roll: you delineated clearly the sea change of the last week in terms of financial reform and whether it might actually happen. Along with the FT article I blogged about earlier, you pointed out that some of these innovations "have no redeeming social value". If you are going to use gambling as your metaphor (and it is definitely the right one to use), then _why_ would you want to hamstring it before it gets out of the gate? To mix, er, well, never mind.

People who gamble in actual casinos frequently are doing so with money that was supposed to pay the rent, buy food for the kids, make a payment on the credit card, whatever. In the small town of Mayberry that I used to live in (not its actual name) in southern New Hampshire, one of the local school teachers took to bank robbery to fund her gambling problem. Really. I'm not making this up.

If things like synthetic CDOs and other exotic financial instruments are really just gambling, are really just betting -- they don't transfer risk, they create it out of, well, whatever synthetic CDOS are made out of -- then let's be honest about why that's bad. That's bad because a lot of the time, gamblers cannot afford to lose the money they've put on the table. And that's _exactly_ what's wrong with banks participating in this nonsense. They lose a bet. Their capital structure goes way past creaky and into total collapse and the next thing that happens is some jackass pulls a piece of scratch paper out of his back pocket and says give us a whole lot of money and all the power imaginable. And we have to say yes, because the alternative is entirely terrifying.

Let's not do that again.

But unfortunately, Mr. Rich follows up his disabled metaphor with a distraction in which he compares what Magnetar did to betting against the American Dream.

It might take us a while yet to get a handle on what happened and what we can do to prevent it from happening again.

it's not that _no one_ is covering the story...

It's just that not very many people are covering it.


_Is going to_? Hey, the latest Dresden, _Changes_ was supposed to be out on the 6th. Of April. I've been trying to buy it on the kindle for close to three weeks now. Now, I _could_ do a sneaky and change my address to pretend I live in the UK, buy it, and then switch it back. At least, it sounds like that worked for people posting on Butcher's website.

Short form: Penguin and Amazon have been engaged in a pricing battle of epic proportions for the better part of a month. Unlike the battle involving Macmillan, however, this one isn't getting any coverage outside of blogs. And very little coverage inside of blogs.

Maybe it's too dark in there to read.

ETA: BW had a single paragraph on it and no follow-up.


ETA: WSJ covered the non-agreement at the beginning of the month. I can't find followup. Their URL is too unattractive to post here. SlashGear covered it, too: