What is a renter?

Richard Florida, among others, has suggested that the United States overindulges in homeownership, and that rental housing gives flexibility to people such that they become more creative. I have no quarrel with the idea that homeownership has been oversold. A paper I wrote with Shelley White that showed that owning could be good for children has gotten cited a lot; a paper I wrote with Dean Gatzlaff and David Ling (that I thought was just as good as the paper with Shelley) that suggests owners maintain their homes no better than landlords has barely gotten cited at all.

But a lot of the story about why renting is great involves New York City. There can be no doubt that New York is an innovative and creative place, and that it has a lot of renters by national standards. But about 2/3rds of rental units in New York City are rent controlled or rent stabilized. If one occupies a rent controlled or stabilized apartment, he gets a lot of the benefits of owner-occupancy: reduced housing cost risks, and security of tenure. Renters in New York share far more of the bundle of rights than renters in most parts of the country; they are almost like owners expect for the possibility of capital appreciation. San Francisco, San Jose and Los Angeles, three other cities one might count as innovative, also have some form of rent control (what's more, property tax law in California encourages owners to move less than they otherwise would).

The point is that the owner-renter dichotomy is really a false one, as there are shades of tenure in between. These shades might matter a lot.

Silliness

I keep running across pieces saying that urban farming can "save" Detroit. Agriculture makes up 1.3 percent of GDP for the United States, and there is a reason why it doesn't take place in cities--it is a low intensity land use. If Detroit really reverts to farming, it will only show that its economy really is gone forever.

One reason why Steven Slater might have lost it

I was listening to the inimitable Larry Mantle on KPCC this morning. The topic was spectacular job-quitting moments, and was, of course, inspired by Steve Slater's colorful departure from a jetBlue flight.

Because I fly a fair amount, I chat with flight attendants from time-to-time, and I have a few flight attendant friends who I met through other friends. They have been getting hammered: their wages, which were low before, are even lower, and many of the benefits they were counting on, such as pensions, have been severely reduced. At the same time, airplanes are getting more full, which means that the probability of encountering a rude passenger has gone up. It is no wonder people in the business feel more stress.

But it is not just flight attendants: it is workers in general. No matter how one looks at it, workers' share of the economic pie has been shrinking. The graph below is the ratio of total compensation to national income (data is from the BEA):

 

Note that the ratio peaked in 1980, and has been on a downward trend since.  Even more pronounced is the downward trend in the wage to national income ratio:

For those jobs (such as flight attendant) where benefits have gotten worse over time, the wage-to-national income data may be more relevant. Note that in 2006 this ratio fell to its lowest level in the post-World War II era.

Two stories in this morning's papers and the future of house prices

Firserve says that house prices will not regain their previous peaks in the sand state until 2025, and it will be even longer in places like Stockton.

This could well be right, except that I infer that Fiserv is looking at nominal house prices, whose dynamics are driven in part by the underlying general price level. As the New York Times notes this morning, Jan Hatzius predicts falling general price levels; Richard Berner says they will rise--if Hatzius is correct, it will of course take longer for house prices to return to the past peak; if Berner is right, it will take less time.

Pithiness from Chicago

Diane Swonk is good at summarizing:

Moreover, government interventions (most notably regulation and austerity programs) are more likely to suppress growth than promote financial stability, which means we have learned very little from the crisis itself. The G-20 has been particularly bad at fostering coordination across country borders now that the crisis has passed. Financial reforms, in particular, are being implemented on a piecemeal basis, which could encourage--rather than discourage--the kind of regulatory arbitrage that got us into this mess in the first place.

The last point is important. While we still don't know the most important source of the crisis, regulatory arbitrage between shadow banks and regulated banks was almost surely a major contributor.

David Oser's take on Fannie and Freddie

The opening paragraph and closing paragraphs of his stimulating piece:

Some mistakes are so egregious and yet so uncorrectable that no one is willing to admit them. On Sunday September 7, 2008, US Treasury Secretary, Henry M. Paulson, made just such a mistake. He ordered Fannie Mae and Freddie Mac placed into “conservatorship,” an ambiguous category of quasi-receivership that still defies precise definition. To see why Paulson’ decision was so unwise, we’ll start by deconstructing a financial instrument that most people assume they understand perfectly well: the 30-year home mortgage....

....Here’s the bottom line. Before September 7, 2008, we had a mortgage system that, while rickety and obscured by smoke and mirrors, worked. It worked not because of an effective business model but because everybody—investors, lenders, and borrowers—realized it was in their best interest for it to work. Then Henry Paulson said, “Look, the emperor has no clothes,” as if that were news instead of common knowledge. Paulson chose conservatorship for Fannie and Freddie because it meant the Treasury only owned 79.9% of the two companies. One tenth more and their assets and liabilities would have gone into the federal balance sheet. That would have meant the federal government was explicitly guaranteeing all $5 trillion of Fannie and Freddie’s securitized mortgages and other debt. And that would have meant that the federal government was guaranteeing both sides of the consumer’s balance sheet: her bank accounts through FDIC insurance and now her mortgage.

If we were really Big Boys, we’d say, “Sorry. We messed up. We’re going to try to put it back the way it was.” But we aren’t that big and, as someone said to me recently, “Fannie and Freddie have become the third rail of American politics.” Instead, we’re going to let Fannie and Freddie totter along. In the words of Wall Street Journal editorialist Brian M. Carney, Fannie and Freddie are “money-losing zombie financial companies in the bosom of the federal government.” Maybe that criticism would be fair if Carney had a solution, but he doesn’t and neither does any one else. I don’t know that there is a solution. Fannie Mae, the older of the two companies, was created during the Depression when the typical mortgage had a five-year term with all the principal due at the end. Maybe that’s what we’ll go back to, so that only those who don’t really need a mortgage can get one.

I need to think about this a little. One thing, though, is that the Home Owners Loan Corporation and then Fannie Mae were the entities (along with FHA) that gave us the long-term, fixed rate mortgage. The HOLC mortgages generally had 15 years terms.

Add Metros to the Chinese List

From Planetizan:

With 420km of network, Shanghai's metro overtook the London Underground, which has a total of 402km. But the rate of expansion is more impressive: the first line was constructed in only 1995 and it is still expanding.

By 2020 Shanghai, "intends to have added over 350km in new lines and extensions, almost doubling its network length."

However, "there is no suburban commuter rail system in Shanghai that compares with those in cities like London, Paris and Tokyo, where the railway network is essentially operated as a secondary rapid transit system with longer station intervals than the subway, generally with an interchangeable fare system."

Chinese cities have 8-10 times the density of our densest cities, and so metros make lots of economic sense there.