Friday, May 07, 2010

cows bring in da dough$$

In this article, found in the Colorado Springs Business Journal, the author claims that cows bring in lots of money for local economies. In California, however, cattle farms and dairies are being pushed away. The farmers claim that the state regulations are making it hard for them to conduct business. So, places like Texas and Colorado look more enticing to the farmers because of the offer of less regulations. Farmers also claim that they were pushed away from the where they started due to urban sprawl. Can sprawl be to blame for the regulations and dairy farms leaving California?

It is true that more people usually mean that the city will have more regulations. This is because when there is a more dense population the government thinks that they need to keep a firm grip on it. They are afraid to let go of any power, so they instate more force among the citizens in the form of regulations. These regulations would make it harder to be a farmer, and thus I do believe that it would force them out, and even force them to leave California for a different state.
Also urban sprawl might be a cause for farmers needing move. If a city began to sprawl then there would be higher demand upon farm land. This could make the highest valued use of the land change which would force the farmers to move away, or further out of the city. And, as reviewed earlier more people makes for more regulations so the dairies are being hit from every angle. It would seem like moving away from California would be in the farmers benefit, but is it in the states? The obvious answer is no, it is not in the interest to push away these farms. If the facts of a cow's revenue building power are correct, then each cow is very valuable to the state and should be protected as an asset. The fact that regulations and sprawl are making these assets leave for different states is not good at all for California's economy.

So, wouldn't it be worth a little extra work (or a little less rules) to keep some cows around? I think yes.

Wednesday, May 05, 2010

Could it be? So close...

While this article is not the most current it’s about a year old, I found it rather interesting. It doesn’t go into all of the details of the planning organization but it has some. It is based off of the Open Space Committee in Guilford county, North Carolina. The committee began as an unofficial forum. Overtime it became a part of the Parks and Recreation Commission and would buy land using bonds. This is like music. Since the land is bought rather than taken, it is presumably going to the highest bidder. And people buying bonds to fund this means that people who believe in this cause are providing the money. Admittedly, it sounds as though some taxes are going to this cause, which is a bit of a downer, but two things in life are certain, death and taxes. Also, it sounds like the county is heading in the wrong direction, and will attribute more taxes to the project over time. For now, at least they’re buying up the land rather than simply taking it, or restricting the space that people can live one. According the John D. Young, chairman of the Guilford Open Space Committee there was little to no cost to the county to create Haw River State Park.

If it was moving towards using bond money rather than tax money to buy land rather than simply taking it that would be nice, however the trend across the states still appears to be the other way around. Perhaps if things such as the Haw River State Park being bought using bond money were better advertised then people would realize that all the rules and restrictions are unnecessary. This does not seem likely at least for some time since neither this nor the New Urbanism movements seem to take top priority among the news. However, Haw River State Park is a good example of the market working on its own.

Saturday, May 01, 2010

Times goes on and things change, they just do...

Housing downturns, reasons why? What happens when a parcel of land gets to it's highest valued use? Let's assume for a moment that the housing market and the transfer of parcels of land follows what we've been talking about in class. Over time the parcels of land will transfer from one user to another based on their highest and most valued use. This is represented by the sales price between two parties. In our modern land transfer system this is skewed by governmental policies such as zoning however we may assume that the transfer is the highest and most valued land use under the existing rules and regulations.

So why do house prices ever go down? It's because of the dynamic nature of people and the decisions they make and the trial and error nature of people's decisions. We've been talking about this in class and here is an example of it. What if you buy a parcel of land and the attached improvements (real estate speak for buildings) and you pay more for it then anyone else has and maybe ever will. Maybe you didn't get what you expected out of the land parcel and it's improvements. Maybe if it was a business it didn't turn the profit that you expected and the sales price you paid was a 'mistake' in that it wasn't worth the return it provided. Many of these factors transform themselves into some degree of risk and uncertainty. They may also be further exacerbated by risk from outside parties regarding financing and fund availability. When their value on the parcel changes and goes down another steps up to take place as it's owner.

So what does this have to do with Urban Economics? It's a manifestation of how the decisions of previous land owners and their actions may change the opportunity costs of current or future owners. Which do some degree may change specific uses of land parcels, how they are valued and how other uses change around them. We've talked about how business and residential parcels develop simultaneously and prices change dynamically. This I believe is a contribute to the way communities develop and are shaped. A misconception is that real estate always goes up in value but here is one reason and I think a baseline reason why this may not always be the case.

Friday, April 30, 2010

Sprawllywood, California

Hugh Hefner is being credited far and wide as a "winner" in the battle against sprawl in Hollywood. It isn't mentioned that he used traditional market forces to do it.

The land parcel on which the sign is located was owned by Howard Hughes, and after his death the land was sold by his estate to land devleopers out of Chicago. The famous and infamous "HOLLYWOOD" sign was under attack from these developers who wanted raze the sign down and build luxury homes. California quickly mobilized, and donations poured in from all sides.

Nearly every studio and network in the area, and many of the big names in the business like Steven Spielberg, Tom Hanks and of course, Hugh Hefner, donated substantial sums to the conservation group, "The Trust for Public Land", in order to purchase the parcel around the sign. Donations to save the sign came from all 50 states and 10 different countries.

This is a VERY clear example of the land being purchased for its most highly valued use. The stars were able to show the value of the parcel to the developers by delivering the appropriate dollar price within the timeframe they were given. This to me is also a very clear example of the correct way to address problems of "sprawl". Rather than public indignation and outrage (which Hef also dished out in large portions), interested parties can either show that they value the land more highly as a landmark/open space/historic district, or the land would actually have a more highly valued use in development.

Tuesday, April 27, 2010

Another Government Policy Coming our way!?

My dad being the crazy transportation nut that has him searching day-in and day-out for information that could aid him in implementing a Personal Rapid Transit (PRT) system. In his searches he has come across this news article related to legislation this is claimed to be seeking at facilitating livable communities. Finally my dad found something interesting and potentially useful, but is this likely to happen and is the legislation truly as good (can government force ever be good?) as the Denver Daily News, Congressman Ed Perlmutter and Mayor John Hickenlooper say it is?
My focus is to simply bring awareness to one topic of many that could be coming to Colorado, more specifically Denver. I know not the truth, severity, or timing of what the exact legislation is that’s aiming at creating these said “livable communities”. With this being said I am blogging in response to the Denver Daily News article in their Wednesday, March 31, 2010 edition called Planning livable communities. I bring this article to every ones attention for the mere fact that we have politicians claiming that they are promoting legislation that “would not legislate mandates or directives, but instead offer opportunity to local governments, whether regional or hyper-local.” The article went further on to explain ‘“The beauty of what Congressman Perlmutter’s created is that it’s not prescriptive, it’s not government coming in and saying, ‘You must do this,’” said Hickenlooper. “It’s facilitating what’s a good idea and it’s already beginning to happen and it’s actually allowing that to spread like wildfire, which I think is the real beauty — it’s creating a context where it’s going to happen naturally and organically, but much, much more rapidly.”
The legislation is called The Livable Communities Act which would aim at creating communities that have a balance of transportation, housing, retail, and community (whatever they mean by this general term… oh wait confusing political catch-all term, that’s what they mean). The article makes the claim that they will accomplish this by ‘breaking down barriers among regions, among cities, and among federal departments’. (sounds like they’re aiming at decreasing transaction costs amongst government entities in order to increase efficiency). Is this what we (the general public0 want or is this just Another Government Policy Coming our Way!?

Sunday, April 25, 2010

Unintended Consequences

This semester we have talked and read extensively about the state of Oregon and its anti-sprawl policies. We have read the pros and the cons as the "experts" see them (which really differs by the value judgments of each expert). I admit that after all the reading and discussions, I plan to never move to Oregon. I am not fond of being told what I can and cannot do. While reading an article in the Wall Street Journal, my notion that government laws and regulations are meant for a static rather than dynamic world were reaffirmed. The government intervenes to improve social welfare or at least that is their intention. But the unintended consequences of that intervention often out weighs any possible positive outcomes.

The article is about pear growers in Oregon. Like many businesses, the current economic downturn (or down slide because downturn just doesn't express the extent of this recession) has affected the pear business. And because of Oregon Senate Bill 100 of 1973, these pear growers are unable to take advantage of business opportunities that would help their businesses out. David D. Lowry an executive for Associated Fruit Co (one of the big three pear growers in Medford, Oregon) said, "It's the worst case of unintended consequences you can image." His company has "plenty of land to sell, but no one willing to buy [it] as long as it is zoned for farming only." Selling this land and buying other land further away from the city would help get the pear companies out seriously financial trouble.

For instance, by selling 70-acre orchard Associated Fruit Co could raise $7 million ($100,000 per acre) if they could sell to a housing developer which would be enough to refinance the company's debt and plant new orchards on land further from the city core. Instead, because of the strict zoning laws created in 1973, "the land is valued at just $10,000 per acre, [Lowry] says, a moot point since there are no takers."

The zoning laws of Oregon are intended to prevent sprawl. The unintended consequences is that it limits economic growth and liberty.

Wednesday, March 31, 2010

Am I Holding Out, or Just Sentimental?

We all know one of THOSE people. The aunt who wears the same hat every day, even if it is threadbare. The brother who is still holding a grudge about the time you took the last corn muffin at Thanksgiving. Sometimes we are the ones who keep boxes of the past piled up around our ears, unwilling to let go of the 3rd grade report card when we got an "A" in art class. Whoever they are, they impede progress, they get in the way, they slow everything down. Can this kind of mentality be the caues of a market failure in land-use?

Thomas J. Miceli and C.F. Sirmans wrote an article in the Journal of Housing Economics in 2007 where they argue that the "hold-out" problem is a contributor to urban sprawl. At this point, it would be beneficial to mention that while the authors seem to believe that sprawl leads to many other negative social and economic problems, they are using a definition of sprawl for the purposes of their paper that involves lower density development on the outskirts of a city that is somehow less effecient thanit would be to develop further in.

Miceli and Sirmans argue that when developers need to purchase a parcel of land that is currently in the hands of several different and dispersed users, the costs increase because one or more of the current owners could try to "hold-out". Essentially, for either sentimental reasons or to try to steal profit/surplus from the developer, some of the current owners will hold themselves out from selling when the rest of the group does. These increased costs, and the risk of losing the entire development if even one current owner refuses to sell at any price, push developers of larger projects to bid for parcels at the outskirts of a city. (The typical monocentric city model indicates that lot sizes grow smaller toward the center of the city because of increases in price)

Because of these stubborn codgers holding out, we find ourselves forced into a position of sprawl. Developers must move outward if they want to build for a profit, because the true costs are not captured when there is a "hold-out". Now, is this a market failure? I believe it is more likely not a market failure, but an unfortunate risk of doing business. If we believe that the land will go to it's most highly valued use, it is clear that the current owner, however much a stick in the mud, values the land more highly than the developer is willing to pay. Just because you neglect to factor for a risk of doing business, it is not an automatic failure of the market.

Other classes talking about Economics...

Not to long ago in an geography class I took at the university we read and article on how cities developed because of the automobile and that the automobile was not the original preferred form of transportation but was developed because of payoffs or financial incentives that were being paid to cities by automanufacturers to develop infrastructure that supported and to promote the use of the automobile. We then discussed in the class how the modern day cities have developed based on this form of technology and how our modern living style is different form what it might have been had these payments never occured. The class alluded to the fact that the reason why cities are the way today is strongly attributed to this influence and felt that it wasn't 'natural'. Oh if only I had taken Urban Economics prior to this class. Although in reality the points that I made were clearly rooted in basic Economic theory and didn't necessarly require our Urban Economics studies to made.

This is something of a 'reverse' situation to the paper we discussed in class, where the idea that the government subsized roadways and the automobile industry was discussed and analyzed. The argument that was being made in class is only partially right, it begins in this analysis with the idea that even if automobile manufacturers did have some influence on the development of cities and their infrastructure that this was 'unnatural'. I agree that it is unnatural but not because the incentives were made, that is probably the most 'natural' or market based portion of the scenario (I know I know it's not a true market transaction because of the governments involvement but the motivations behind it were market based on the side of the automobile industry thus my use of the term 'natural'). The fact that the city and it's planners were involved at all with the process should be the percieved failure. The automobile industry was making a calculated transaction that was driven by market forces even though one end of the deal was not an ordinary market participant. Their funds were derived form market interests and the desired outcome was to remain competitive in the marketplace. Had a private infrastructure been established then they would have most likely attempt a similar market based transaction, the factors and it's success may have differed but the motivation behind the attempt would have been the same. We might also assume that the trolley and rail car industry who was described as being the major competitor at the time would have made similar attempts had they had the financial resources and business acumen from their market transactions to do so.

Even despite the automobile industries exertion of these forces the idea that this was the 'moment' that created the market for cars and developed the modern city system is somewhat far fetched. It leaves out the idea of trial and error we've discussed and totally neglects to consider the fact that the consumer, the market participants will ultimately decide through their market transactions what industries will succeed and which will fail.

Public pools

I was browsing articles on Colorado connection to see what our city has been up to lately. The latest breaking news...all but one publicly funded pool in Colorado Springs is going to be closed down due to inability to self sustain. The solution that they have come up with....sell the pools to the private sector and let them be privately run. This of course has raised all kinds of chaos amongst certain private lobbying groups who do not want the pools to privatized due to the expense that will prevent low income families from being able to afford membership fees. This does not directly relate to sprawl, but I think it indicates an important flaw in city planning. The pools were originally built by the city in an attempt to increase community involvement in certain areas of the city. By attempting to cater to the income needs of these areas they have priced themselves well below the price of the market and have effectively run out of public funding to make up for the shortfall. If the pools were so greatly desired by the community to begin with, it stands to reason that some enterprising person would have built and provided a pool in order to earn a profit. Instead, the city decided that the pools were a necessity and placed them, most likely in places where profits could not be realized.

The result of this is that, now, the people in those communities no longer have an amenity which they did not seem to particularly desire to begin with, but have now grown accustomed to. The result--further dependence on the government to provide you with what you can't afford and therefore probably shouldn't have to begin with (similar to the poor incentives that allowed too many low income families to purchase homes). In an interesting twist, the private sector is now being asked to purchase and privatize these pools. I suspect however that if the pools have not turned a profit to this point due to too many subsidized members, that the communities in which they have been placed are not profitable for a market priced pool to attempt to operate within.

If community pools are a hot commodity these days, perhaps the city would have been wiser to let the communities sponsor and build them. Perhaps then they would be poised for profit in areas where the members can afford to pay for the privilege, rather than simply creating another drain on tax dollars. Private pools are a popular addition in many communities where the members pay certain fees in order to have them, use them, and keep them maintained. It seems sensible that if they are paying for their own pools and usage, then they shouldn't have to pay for someone else's a concept that could be applied to all city planning and ventures.

Oh Portland, you've done it again.

This article explains that Metro in Portland have divvied up the land in Clackamas, Multnomah, and Washington counties in Oregon. They have urban reserves, rural reserves, and some areas that haven’t been designated yet due to disagreements. They have allocated 27,000 acres to urban reserves, and 270,000 acres to rural reserves. This will be an 11% increase in urban reserves, and it is supposed to sustain for the next 40 to 50 years. Unfortunately, the population of the region is expected to grow 60 to 70% in the same time. Those numbers don’t quite add up very well, even if all they build is big apartment buildings. However it is believed that this will create “compact, vibrant communities”. Meanwhile conservation groups are asking for more rural reserves, and the people of Portland are trying to convince Metro that it didn’t work the first time and they don’t want to wait another 50 years to find out it didn’t work the second time.

What was more entertaining than the article were the comments made on the article. While not quite credible there were some good points made, along with some crazy points made. One woman talked about how they owned land that had been in her husband’s family for over 100 years. Oregon put a highway through the middle of it and a section was reduced to 18 acres and didn’t have a ‘legal dwelling’ on it. Her family rents the land out to a farmer for $800 a year, which doesn’t quite cover the $80,000 that they have to make off the land to live there. Interestingly enough, if they set such high amounts as the requirement, perhaps not in this woman’s case but in other farmers, it may cause them to raise the prices on renting the land out, or raise the prices of the crops the farmers grow, obviously raising the prices of food. Good job Portland! This article, along with the comments indirectly shows how really the only thing that these urban growth boundaries are doing is raising prices. The prices of housing, land, and food are rising because of planning taking place.

Another person made a pretty valid comment. He was at first saying how people being condensed caused crime, unhappiness, and that this was just the government trying to tell people how to live. What I felt to be the most valid point he made was why are we preventing urban sprawl rather than preventing urban decay. If you make a city a place where people want to live they will. Instead of pumping money into planning and restrictions why not pump it into things like schools, or amenities to attract people?

On a side note, it was also said that economists are fanatics of our religion (economics), and we’re out to destroy all other. This was after this person compared economists (really free-market capitalists, but I think this person saw those as the exact same thing, though they said that free-market capitalists use force) to Christians. I have yet to see the church of economics though.

Tuesday, March 30, 2010

Ecological Economics

In another of my classes, thinking about natural resources and how they are allocated efficiently in the past is very different from today. Natural resources, both stocks (like fossil fuels and minerals) and services (like the hydrologic cycle and solar energy), are becoming more and more scarce and/or depleted and thus need to be looked at in a different economic light. Many natural resources, especially services, are public goods and are hard to distribute efficiently, especially because there are so many externalities that break them down without an associated user cost. With this, there are market failures. However, these market failures are hard to correct for a few different reasons. With our discussion of Coase's Theorm that can solve the issue of externalities, we cannot because these issues occur all around the world and the financial status of most countries are not equal. But on a national level, the same thing occurs. For example, water is a very valuable resource that is essential and cannot be substituted for. But with the increasing development and spacial expansion of the urban areas, there is less and less clean fresh water to go around. While the model land use patterns may still hold, the bid rent curves for these areas will change drastically as a result of the water use for residential, commercial, and agricultural use of the land, regardless of what zoning is in place for the area. Logically, the externalities of the growing urban areas will flow over into the way water is allocated and become an increasingly scarce good with higher user costs associated with this change. But what happens when these costs are too great that most citizens are unable to pay these costs? When all the ground water from tables under ground are contaminated and purification plants aren't enough to fix the problem, what will user costs be able to pay for? The water problem is just an example of different ecological factors that are taken for granted. But even if they aren't currently being ignored, natural resources should be a larger driving factor in the way we think about sprawl and the policies formed around it. In order to look at the way a city can be run efficiently, we need to find "efficient" levels of pollution that we can put up with in order to prevent a serious market failure due to the collapse of our natural resources we depend on.

Monday, March 29, 2010

Urban Sprawl Around the World?

Looking at all the developed nations around the world, there is at least one major city in each of these countries that is experiencing rapid, uncontrollable growth. This growth follows the usual patterns of city development, which thus takes on similar characteristics of what we call sprawl. However, examining the parts of the cities that are growing and how the city is expanding, and in which directions, takes on an interesting view of what we see here at home. The differences in the economic status of most of these countries and their citizens plays a role, but none less valuable, and perhaps learn from it.
The patterns of growth in major cities of the developing world take on predictable characteristics, but an underlying factor that contributes to the effects of sprawl around these cities is money. Those who have no money moved near these major, international cities because of the opportunity to make money, just as we all move closer to the city in which we obtain a job. However, the poorest do not have high means of transportation and thus live very near to the city. Just on the outer skirts of the main city, large slums are found. But the wealthier live further and further away from these slums, but not too far from the city center, because they still work there and transportation too far from the city becomes limited. What about the very rich citizens? They are able to own cars, which as we know is the major contributor to sprawl, and move the furthest away from the poverty stricken lower classes. This type of growth pattern can be seen in major cities such as Delhi and Cairo, where there are VERY poor people living in the same area as some of the richest people in the world, but in different locations around the same city. But how are the rich able to move so far away from the city without the proper infrastructure? This is where I think our discussion of private roads would begin.
In other countries where they don't have very developed tax structures and ways of collecting money from even the poorest of their citizens, where do they get the money to expand transportation infrastructure? And if the rich prefer not to live close to their poor counterpart, how do they get roads out to where they want to live? The answer to the first question is to reurbanize. Many of the slums near these large cities get overridden, too dirty to live in, and then abandoned, and naturally the people that live in them move further down the river. But they can only move so far as to not have to have a means of transportation like a car, so in order to correct this, they start over in the old slum, thus reurbanizing on their own.
As for the second, the rich want to live the furthest from the slums and live in the pristine beauty of the landscape their country has to offer. But, in order to do so, they need a road to get to their house. But for the government to build them a private road to their house, this would seem absurd. For them to be able to live out there, they would need to build their own road and maintain it themselves. The privatization of roads would seem the most efficient.
With these two discussions, we can see how government intervention inhibits urban sprawl. Even though these countries are still developing, they have room for change and to learn how their practices now can save them in the future.

Sunday, March 28, 2010


I read an article that makes the statement that urban sprawl is and will continue to lead to mega-cities and mega-regions. The author states that these mega-cities will lead to decreased wealth over the course of the next fifty years. The author is not a economist but rather an environmentalist. Which, in my opinion, means he has different value judgements about wealth than an economists does.

This trend toward mega-cities has "helped the world pass a tipping point in the last year, with more than half the world's people now living in cities." The main concerns the article cites is that "the growth of mega-regions and cities is also leading to unprecedented urban sprawl, new slums, unbalanced development and income inequalities as more and more people move to satellite or dormitory cities." The author fails to explain how this will "significantly affect...wealth in the next 50 years." He did say that it leads to an increase inequality between the rich and the poor. But isn't it possible for the gap to increase but for both the rich and the poor to be better off? I think it is. Rich and poor are subjective terms and both parties could experience increase in personal wealth even while the gap increases.

The article reminded me of the "The World is Spiky" article and the chapter on why firms cluster (economies of agglomeration) we read for class several weeks ago. As mega cities emerge, people benefit from the clustering of firms and economies of scale. Choices for goods and services and where to purchase these goods and services increases making people better off. I fail to see why mega-cities such as Hong Kong-Shenhzen-Guangzhou (the world's first mega-city) are a bad thing. I do not see this new type of cities as they do. I do not see rampant uncontrollable urban sprawl that as "not only wasteful" but also adding "to transport costs, increase energy consumption, requires more resource, and causes the loss of prime farmland." Allow the market to function and an efficient allocation of all resources will emerge.

Wednesday, March 24, 2010

Open Space

I recently found a document online that is interesting to me because it might have an effect on my "horse showing way of life" directly; along with any eventers (type of horse showing that I do), this plan might effect people living in this area of Highlands Ranch. This document was created for a public meeting, which was to address several issues that are in the planning stages at the equestrian park. These issues include the development of a new fence around the park, and new service center yard lights; along with these issues the document highlights some overall concerns of the plan with Spring Gulch Equestrian Area.

I found the concerns to be the most interesting part of this document. The document claims that there was at least one concern, issued by homeowners in the Highlands Ranch area, about "Residential property was purchased because it faced open space [and] loss of property value due to development of the open space behind home."

These concerns are similar to some of what we have talked about in class these past weeks; the idea of open space causes an externality. That is, the people who buy the houses are usually willing to pay more money to have access/view/closeness to open space. This extra money paid for the property backing the open space is the market responding to this externality. So because people are willing to pay more for land near open space, they believe that their property is more valuable because of the open space. I think that the land is more valuable in the eyes of the particular land owners, but not more valuable to the market in general; I also think that their property value will not go down because the open space is being developed or changed in some way. So, if a resident purchased property because it faced open space and at some point this open space is different or changed in some way then this person should move to somewhere else, maybe somewhere where there is more "satisfactory" open space. The fact that some people believe that their property value will go down, or that they will be unhappy because their property no longer faces the open space they "fell in love with" is a reason to stop the Spring Gulch Equestrian Area plan is just crazy.

Monday, March 01, 2010

Local Knowledge and Intervention: Real Life Example

My professional life revolves around real estate. And although I am dually licensed as an agent and as a real estate appraiser my appraisal business accounts for 80-90% of my income and for all intensive purposes I consider myself a real estate appraiser. The real estate appraiser is purported to be the local market expert for real estate in his area. Even more so then the real estate agents the appraiser studies trends, news, data and keeps up to date with what is going on in their local real estate market. They are supposed to be an impartial entity that has no direct interest in any given transaction. It is their local knowledge that is supposed to contribute heavily to their expertise requiring them to be geographically competent in the areas they are appraising and familiar with the markets that service the property types they are appraising.

In the real estate purchasing process there are several professionals involved in the process. For this post there are three that we’re going to focus on, the buyer, their lender and/or loan originator and the real estate appraiser. The appraiser is hired as a third party unbiased professional to provide an opinion of value of the home to help assure the lender that the home which is the collateral for the loan is worth a certain amount in respect to the loan. The key here is the third party unbiased opinion of value the appraiser provides. Their impartiality and being free of influence is the key to the profession and their involvement. Until recently the appraiser was hired by the broker who originated the loan directly with that contact. In this manner the appraiser was able to build a working relationship with their clients and compete for their business. Now as I mentioned this was until recently. Thanks to a lawsuit from the Attorney General of New York regarding Fannie Mae’s appraisal quality assurance guidelines, a trend which was initially agreed upon by Fannie Mae (the largest purchaser of mortgages on the secondary market) has been forcefully adopted by the majority of the industry and is now being taken fully into the system through FHA loans. This trend is that appraisals have to be ordered with no contact from the mortgage originator to the appraiser, meaning that the originator has no contact, knowledge, choice in or otherwise influence on the appraiser that is going to be utilized. This comes from the fact that prior to these regulations forms of collusion existed in the marketplace between some appraisers and some loan originators. The concept is by removing the contact between appraiser’s and originators collusion on values and appraiser pressure to omit and overlook negative factors of a home will be eliminated. And this is all well and good but it comes with a tradeoff. It assumes to negate risk on the part of the lenders through regulation (which is another discussion for another post – think... no bail out, let them fail and they’ll wise up. Moral hazards anyone?).

So what has happened as an offspring of this is the rise of AMCs (Appraisal Management Companies). These are third parties that the loan originators order appraisals from. These AMCs and have a roster of appraiser’s from across the country. The benefits are negligible but do include the desired erection of a barrier of communication between the loan originators and the appraisers. This has, definitely reduced the influence and pressures on the appraisers. I can testify to that from firsthand knowledge and it is the surface reason for this legislation. However the true intention of the legislation is to provide more accurate and honest appraisal products. That is where the failure of the industry standard which was born out of government force or threat of force comes in. AMCs are little more than order shuffling and processing companies who hire appraisers with minimal vetting. There incentives and business volume are almost exclusively based on turn time of the appraisal product and competitive pricing which in and of itself is not an issue if that is what the market demands. However at least initially the lack of vetting has changed the structure of the product received by the lender and has been a serious dampener on competition for appraisers. How good an appraiser is how knowledgeable they are and how it contributes to the accuracy range of their valuation have now become non-competing factors. The market showed that until the new regulations were introduced these were important to lenders (this was derived from the fact that these are what lenders were rostering appraisers for during the free market competition era of appraisers). Now several appraisers have left the industry due to regulation after years of being in the same business losing most of their clients overnight. Furthermore appraisers with a smaller skill set and less experience are being employed as they will often compete on price and speed while producing a product of what has in the past been lower quality. If this was a result of a shift in the industry based on a calculated trade off of accuracy vs. time and speed on the part of the clients and appraisers then that would be fine, and in the future the market will most likely adjust to accommodate that. However this has arisen from intervention politics and is resulting in a government failure of policy trumping local knowledge. So this legislation has ‘solved’ a surface issue and in doing so created a new face for the same core problem and most likely in a proportion of risk that the market would not normally produce. They have forced a regulation that squashes the benefits of local knowledge and market competition and created the growth of something else.

Sunday, February 28, 2010

Would High-Speed Rail Affect Urban Sprawl?

When you are sitting in your car in a parking lot on the insterstate, staring out the windows and hoping for a better song on the radio, lots of ideas can sound like good ones. The highway and road systems are often chastised by policy makers, city planners and environmental activists as a cause of negative sprawl, and many different problems in our urban and suburban areas. In fact, President Obama is interested in pursuing a plan to develop more high-speed rail systems across the United States in order to eliminate many of these challenges.

The President's vision for the rail system involves several components that he believes will be a marked improvement from our current situation. He argues that the rail system will be able to pull Americans off of highways, which should lower our dependence on foreign oil, as well as lower our gas bill from filling tanks. He argues that there will be increased labor productivity in the areas serviced by the rail, by decreasing the amount of congestion that travels in and out of the city. Most impressively, he argues that there will be a great environmental impact, a lessening of damage to the planet.

Edward Glaeser, an economist at Harvard, would disagree with this assessment from an economic perspective. He has been attempting to run a cost-benefit analysis over several weeks to develop an evaluation of the effects of a single rail-connection between Dallas and Houston. His estimates for this area specifically would seem to indicate that the costs would exceed the benefits (including estimates for environmental and social benefits) by $524 million dollars per year, if the ridership of the rail was equal to the air traffic between the two cities. Clearly this is a simplified and fairly estimated argument, but it presents a huge difference between an investment in America that will successfully save us money from reliance on fossil fuels and an expenditure that is unsustainable. As long as Glaeser's assumptions hold reasonably well to reality, he paints a very convincing argument that a high-speed rail system would do very little to change the existing situations in metropolitan areas for the better.

Do Government Polices Increase or Decrease Efficiency?

Through the first couple of weeks during class we have been discussing different aspects of Urban Economics, more specifically
government policies related to the issues that come with urban sprawl. From these early discussions many economic topics have
come up.
The main economic topic that comes up in discussions is the topic of efficiency. What I've been noticing is that there has been
some debate about whether there is such a thing as efficient when it relates to urban sprawl. The main problem as I see it is that we
are searching for a way to define efficient urban sprawl. This is our mistake because instead of trying to define per se in stone what
is efficient sprawl versus what isn't efficient sprawl, we should be observing the market for symptoms of inefficiency. If we can find
even one economic symptom of inefficiency, we can observe this inefficiency to determine what its cause is in order to fix it. As a
classical economist, I believe that if there is signs of government intervention or other outside intervention there has been or still is
a market failure present which relates to market inefficiency.
I believe that the presence of government policies is the sign of government intervention, but my economist side wants to call
it government interference. The reason I call it government interference is because I believe that there are signs that the government
implements policies that cause market failure instead of solving market failures; one such instance is the policies that either permit
or restrict building additions onto one's own personal property. This is a caused market failure that we have been referring to in
class as a government failure, because the government has increased the transactions cost for increasing the utility of one's
personal property.
To conclude, we can find proof of both, government intervention, in the policies they implement, and that there are market
failures that relate to urban sprawl and urban development. Thus, what we should do is examine the policies that we have
currently implemented and determine whether they are there to solve a market failure or if the policies are whats causing the
market failures.

Wait, it didn't really work? You're kidding!

Not that this comes as a surprise but the tax credit offered for buying a new house, didn’t really work according to Alejandro Lazo. It is simply putting off dealing with the housing market. One of the main problems currently is that there too much supply for the demand. The housing market was down in January from December, and had been down in December from November. We all keep hearing that it’s a great time to buy a house, foreclosures are making them cheaper AND you get a tax credit? Well that certainly spells a good deal! Once the tax credit started, people got really excited and went ‘yeah I can afford one of the foreclosure houses, like that house across town that I’ve always liked’, and bought houses. And then the excitement kind of wore off, and then the housing market decreases. This somehow came as a shock from my understanding, which why it was a shock is beyond my understanding. Isn’t this basic supply and demand? I mean really make something cheaper, more people buy the good, then when prices rise back up they buy less of the good? Making the good cheaper in the first place when it’s not actually cheaper is a great way to get screw up demand in the first place.

So what’s the solution? Extend the tax credit. Of course, that will make this whole problem go away. Temporarily. And the temporarily part is the worrisome part really. There’s been this lovely little history where when something is meant to be temporary, and is ‘helpful’ depending on how you look at it, it is no longer temporary. At some point in time the housing market is going to have to start wearing big kids pants and fend for itself. Sadly the extension of the tax credit makes that a little more unlikely. Somewhere down the road I’m sure our children will pay for this, until then it’s all just hoping that this is a one-time extension, not a lifetime extension.

"A New Goal"

In his State of the Union address in January, President Obama said:

...we need to export more of our goods. Because the more products we make and sell to other countries, the more jobs we support right here in America. So tonight, we set a new goal. We will double our exports over the next five years, an increase that will support tow million jobs in America. To help meet this goal, we're launching a National Export Initiative that will help farmers and small businesses increase their exports, and reform export controls consistence with national security.

When I heard this I thought that it's a nice thought but how you get people to other countries to buy our goods and services if they are not already doing it? You cannot increase demand for products that is just not there.

I decided to do a little more research into how the administration is expecting to accomplish this task. The articles I read where not clear on how they expect to do this. One article said the plan is to have "tougher enforcement of trade pacts, strong government advocacy to US Exporters and increased export financing." It sounds more like a plan to come up with a plan.

Both articles stated that the administration is going to create an export promotion cabinet. Because we all know that bureaucrats are the most effective and efficient way to get nothing done. In fact an article from the New York Times quoted Sidley Austin, a lawyer, who commented about this new cabinet. Austin said "rearranging chairs around a table, or changing the name of the table, seldom charges results."

I still think it is theoretically possible but unlikely for the US to double exports in the next five years given what I have read about the Obama administration's plan.

Thursday, February 25, 2010

Is this a dream?

There are some people who have a dream to make Colorado Springs into a Utopian city. In the vision statements of this dream, there are a few things that I would like to point out. First has to do you transportation: "We embrace a culture of a highly-mobile community through viable alternative transportation options (e.g., buses, light rail, shuttles, bicycles) to reduce road congestion and automobile-generated pollution." This statement is repeated throughout the country in one way or another; that is, the sentiment that there is too much pollution and too much congestion is a widely discussed topic. People blame the congestion (and pollution) on sprawl and thus encourage government to develop public policies to diminish this "problem". But as we have discussed in class, bad public policy usually is followed by bad public policy.

The second part of the vision statement that I would like to point out has to do with public safety: "
Parks, public spaces, and streets are family friendly and safe to enjoy free of crime and drugs 24/7." Now, I understand that this is a vision, but if you don't explain how you are going to achieve this safe environment then I don't see how it would be possible. The government currently offers what it sees as the best option for the public's safety, and in general I think the public is safe. However, would I let me (theoretical) children go play alone in a park, or street? Heck no! So this vision, while it sounds nice is not something that is actually probable in the next ten years (especially when there is no indication how these dreamers plan on making it so).

The next bit of the statement of vision that I would like to draw your attention to is about a planned environment: "
A vital downtown Colorado Springs is a focal point of the greater Pikes Peak area preserving, creating, and promoting a safe and vibrant hub for business, family entertainment, culture, arts and educational activity. Downtown will be a destination for local residents and area visitors. Downtown Colorado Springs incorporates mixed use development creating a high density area that is walkable, bikeable and pet friendly." Is it just me, or does this statement seem to be totally about stopping sprawl? They say that we need to concentrate our efforts into the growth of the downtown area (growth going up), not in growth outwards. They seem to believe that it is vital that we (the general public) live in a high density area. Personal preference aside, this is still only a vision. People must live where they find the highest utility, not where some dreamer tells them is best for society.

The final aspect I would like to point out of this vision statement has to do with the economy of this dream city: "
Our employers attract the Nation’s best talent for quality jobs and have a commitment to community." This goes into what we talked about in class one day, a city government basically bribing employees (or entrepreneurs) to come to their city. One reason this might be seen as desirable is that is might bring the "local knowledge" up within that society. However, doesn't new business and new people in a city mean that there might be more opportunity for sprawl? What if this dream city does not "agree" with these entrepreneurs and they decide to leave the city for a different one? There are simply too many maybe's to be worried about to believe that this concept of "Attracting the Nation's best talent" will actually work. How do you plan on attracting these people to your city anyways?

According to The Gazette, '
“We’ve got a lot of vision out there,” said David Menter, the Transit Planning Supervisor for the Mountain Metropolitan Transit the agency that runs the region’s public bus service, “but vision hits reality in the annual budgeting cycle.”' I think that if they did not rely on a budget, and just let the city run on its trial and error there would be an even better result than these dreamers are dreaming about.