NewGeography.com blogs

Mega-builder Larry Murren, whose company (MGM Mirage) opened the "largest privately funded construction project in U.S. history" told WSJ (the Wall Street Journal Magazine) that if he had to do it all over again, he would reconsider the condo-residential component of the project. “We would have built about half of those units” at the new $8.5 billion "City Center" development.

The less than stellar performance condominium sales in the project was reported by the Las Vegas Review Journal, which indicated that only 78 of the project's approximately 675 condominium units have sold. MGM Mirage is not alone in this plight. The Review Journal further notes that Las Vegas has a reports a 250 month or nearly 21 year supply of unsold condominium units. This means that some of today's unsold units could still be on the market for parents in a suburban Las Vegas house to move to when their newborn heads off to college. These numbers qualify Las Vegas for finals of the Condo Bust World Cup, against other strong competitors Miami and Dubai.

Murren credits a mixed-use symposium as the inspiration for City Center. Murren would not be the first developer to have been smitten by over-promotion of condominium market prospects. However the balance of Center City (shopping, entertainment, hotels and casinos) appears to be doing far better than the condominium element.

Second thoughts have been occuring to a number of additional central city condominium developers around the nation as the central city condominium market continues its meltdown. The most recent evidence comes with condo auctions in the cores of Baltimore, St. Petersburg and Boston.

In Baltimore, Pier Homes at Harborview has scheduled an auction of new units with minimum bids discounted from 55% to 75% below list prices. This means that the minimum bid, the Baltimore Sun indicates that only half of the units (completed two years ago) have been sold.

In St. Petersburg, units in the 36-story Signature Place condominium tower were auctioned last month, with average bid prices 50% off the previous list prices. The Boston Globe indicates that "another" condo/loft auction is to occur in that city on June 26, with minimum bid prices up to 60% off list.

The extraordinary risk of the central city condominium market was summarized by Larry Murphy, a Las Vegas real estate analyst: "It takes two to three years to build a high-rise project, and it can't be done in phases like a new-home subdivision. All of the units have to be built at once." He further noted that "Most of the units are sold within the first three months of completion. After that, sales drop off dramatically." These inherent complexities of the condominium market will not be solved by mixed use seminars.

Times are tough in the newspaper business. For example, The New York Times used to have a robust fact-checking department. Either the staff has been laid off or maybe they can't keep up with the errors, either of which could explain the op-ed piece "Europe Energized."

Hill's piece is classic cheerleading. He would have us believe that Europe has significantly reduced its reliance on oil, as its governments have enticed the citizenry out of cars and into mass transit and planes. Starting with the contention that Europe has the same standard of living as the United States, he indicates that Europe has made much greater progress in reducing energy use and carbon emissions.

In fact, Europe does not enjoy the same standard of living as the United States. In 2009, the gross domestic product (purchasing power parity) was approximately one-third less ($14,000 less). For most households in Europe and the United States, that is a not an inconsequential amount of money. One reason for Europe's lower rates of energy consumption is its historically lower income levels.

Hill claims substantial reductions in oil consumption relative to the United States. However, Europe has not sworn off oil. Indeed, according to International Energy Agency (IEA) data, Europe's oil consumption per capita dropped only marginally more than that of the United States between 1980 and 2006. Nor has Europe done a better job of becoming more energy efficient. Measured in tons of oil equivalence, the United States has reduced its per capita energy consumption more than Europe since 1980, again based upon IEA data. It is, of course, easier to reduce oil consumption with near static population growth.

EU data indicates that mass transit's market share in Europe has been declining for decades (like in the United States). Further, despite all the new high speed rail lines, cars and airplanes have accounted for the greatest travel increases. In 1995, airplanes carried a slightly smaller volume (passenger kilometers) than passenger railways, including high speed rail. By 2008, airlines were carrying 37% more passenger kilometers than rail, despite a huge expansion of high speed rail. Since 1995, at least 15 passenger kilometers have been traveled by car for every additional passenger kilometer traveled by rail, high speed or not. Meanwhile, Europe's truck dependent freight system is less fuel efficient than America's, which relies to a greater degree on freight railroads.

None of this is to suggest that Europe does not lead the United States in some fields. There is no question that cars get much better mileage in Europe. By 2020, new cars are scheduled to achieve more than 60 miles per gallon, which is near double the US expectation. Europe is leading the way in automobile fuel efficiency and is demonstrating the massive extent to which improved fuel efficiency can accomplish tough environmental goals.

Yet, curiously, no interest has been expressed by the Euro-Envious to implement European highway speed limits. Recently, Italy raised maximum speeds on some roads to 93 miles per hour, France, Austria, Denmark, Slovenia and others have 81 mile per hour limits and there are no speed limits on much of the German autobahn system. No US speed limits are this high.

Having happily lived both within the pre-1200 (AD) boundaries of Paris and the urban fringes of four major US urban areas, it seems that both sides of the Atlantic have their strengths and weaknesses. Detailing them requires getting the facts right.

As noted by Wendell Cox, commuting and congestion have a large economic cost. Time spent behind the wheel, slowed by traffic, is time that could otherwise be put to more productive economic pursuits. Commuting and congestion also have social costs. Every minute lost trapped in snarled traffic is time that might have been spent with family, friends, relaxing, or getting involved in community building activities. Commuting can also lead to elevated stress levels, with studies showing finding that “greater exposure to congestion is related to elevated psycho-physiological stress among automobile commuters.”

One proposed solution to the challenges presented by commuting and congestion is an enhanced embrace of telecommuting. Proponents argue that businesses looking to increase productivity, burnish their “green” credibility and reduce fuel use, and allow workers to strike a better balance between life and work should offer employees the option to work from home. Whatever the motivation, it does appear that there has been a rise in the adoption of telecommuting. According to varying estimates, somewhere between 20 and 35 million individuals telecommute occasionally. Numbers appear to be on the rise, with projections showing up to 63 million workers will be making use of some form of telecommuting by 2016.

As businesses increase their adoption of telecommuting, they may also want to provide workers with increased schedule flexibility. A recent study conducted by BYU finds that workers given the option to make use of telecommuting and flex-scheduling had a much higher “breaking point” at which family life and work begin to interfere with one another. According to the study, “for office workers on a regular schedule, the breaking point was 38 hours per week. Given a flexible schedule and the option to telecommute, employees were able to clock 57 hours per week before experiencing such conflict.” As the study points out, this added flexibility allows workers to potentially make use of the equivalent of an “Extra Day or Two” in each work week, adding to productivity. According to the lead researcher, E. Jeffery Hill, the use of flexible scheduling can also contribute to greater worker satisfaction and morale. In challenging economic times the promise of increased worker productivity, improved worker happiness, and potential cost savings realized through reduced office space and facilities should be an attractive spur to increased corporate adoption of telecommuting.

It has been a horrendous week in Dhaka, the capital of Bangladesh and the world's most dense urban area (104,000 population per square mile/40,000 per square kilometer). On Tuesday, a five story residential building collapsed, killing 23 people in the building and in other structures in the path of the collapse. Then, on Thursday evening, a fire started on the lower floors of an 8-story residential building in the old town section of Dhaka. By the time it was controlled, 117 people had died and 8 buildings had been destroyed (link to Daily Star photo).

Disastrous fires are an unfortunate fact of life in the hyper-dense informal settlements (shantytowns) that pervade large urban areas in developing countries. In April, 7,000 people were left homeless in a Manila shantytown fire (photo), while the homes of 4,000 families were destroyed in another Manila fire just three weeks later.

While Dhaka has no shortage of shantytowns, this was not a shantytown fire. The bigger risk is the sprawl of high rise buildings (5 stories to 20 or more), which are home to most of the people who do not live in shantytowns. The Daily Star now reports in an article entitled, "Filled-up, Full of Risk" that much of the land is "reclaimed" and "marshy" in Dhaka and not suitable for multi-story buildings. Recent heavy rains have made the situation worse, and at least three additional buildings have begun to tilt since Tuesday's collapse.

Dhaka is built on one of the most challenging sites for an urban area. It sits on one of the world's largest river deltas (the Ganges-Brahmaputra). The combined river course (called the Padma) is only miles to the west. Only 200 years ago, the Brahmaputra itself ran to the east of Dhaka and then changed course. This illustrates the instability of the riverine system, which completely surrounds the urban area with tributaries and river channels.

A map produced in the Daily Star, illustrates the problem. The red areas are considered safe for building multi-story buildings. Virtually all of these areas are now developed. However, large sections of high rise buildings have been developed outside the red areas (see photo), especially between Mirpur and Gulshan. Virtually all of the areas that can be developed are unsuitable for high rises. With a population expected to rise from the current 10 million to 16 million by 2025, Dhaka needs room to grow. It will not be easy.

Photo: Multi-story buildings between Mirpur and Gulshan

Much has been written in recent years about the costs of congestion, with ground breaking research by academics such as Prud'homme & Chang-Wong and Hartgen & Fields showing that the more jobs that can be accessed in a particular period of time, the greater the economic output of a metropolitan area. Greater access to jobs not only improves economic growth, but it also opens greater opportunities for people and households to fulfill their aspirations for a better quality of living.

Congestion costs are principally the cost of wasted time, which the most recent Texas Transportation Institute (TTI) Annual Mobility Report places at $15.47 per hour. It is important to understand that much of this cost is not because the car is not moving. It is rather because time that could be used more productively is being consumed.

Steve Polzin of the University of South Florida has raised a related issue that has been virtually absent from urban planning discussions in a Planetizen blog entitled "The Cost of Slow Travel." Noting that transit travel time is considerably slower than auto travel times, Polzin broadly estimates that slower travel on transit costs the nation $44 billion, which is two-thirds the $66 billion. Polzin does not suggest that this is a final, "take to the bank" lost productivity number, but does suggest attention to the issue.

Such thinking is long overdue. Wasted time is wasted time. Most wasted time occurs with respect to travel during peak periods, when most people are commuting to or from work. The $66 billion in wasted time by automobile translates into $550 per commuter per year in the United States (Based upon 2007 commuting data from the American Community Survey). The cost of wasted time for transit is 12 times as high, at $6,500 per commuter, using Polzin's estimate. Of course, as Polzin is quick to point out, these are not final figures. However, they are a starting point for important (and perhaps "inconvenient") economic research that has been largely kept off the agenda up until now.

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.