Tag Archives: land use

Storm-Induced Delinquencies

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The Urban Institute’s Housing Finance Policy Center has released its November 2017 Housing Finance at a Glance Chartbook. The Introduction looks out how this summer’s big storms have pushed up delinquency rates:

The Mortgage Bankers Association recently released the results of its National Delinquency Survey (NDS) for Q3 2017. The non-seasonally adjusted NDS data for Q3 2017 showed a significant increase in delinquency rates across all past due categories (30-59 days, 60-89 days and 90 days and over). The increase was largest–and most noteworthy–for the 30-59 day category, spiking by 57 basis points from 2.27 percent in Q2 2017 to 2.84 percent in Q3. The D60 rate increased by a much smaller 12 basis points, from 0.74 to 0.86 percent, while the D90 rate increased the least, by 9 basis points, from 1.20 to 1.29 percent. The rise in delinquencies was broad based, affecting FHA, VA and Conventional channels with FHA D30 seeing the largest increase (4.57 to 5.92 percent).
While early payment delinquency rates were expected to increase in the wake of the storms Harvey, Irma and Maria for the affected states, the magnitude of increase in the D30 rate is quite remarkable. The reported Q3 2017 D30 rate is the highest in nearly four years. The 57 basis points increase in a single quarter was also the largest in recent history. The last time D30 rate increased by more than 50 bps in one quarter was in Q4 2000, when it rose by 61 bps. In comparison, both D60 and D90 rates, while slightly higher in Q3, are well within their recent range.
MBA’s state level NDS data confirms that storms were a major driver behind the increase. For Florida, the non-seasonally adjusted D30 rate more than doubled from 2.12 to 4.64 percent, the highest ever D30 rate recorded. The D30 rate for Puerto Rico also nearly doubled from 4.98 to 9.12 percent, while Texas D30 rate increased from 5.05 to 7.38 percent. The increase in FL and PR was larger than in TX because of the statewide impact of hurricanes Irma and Maria. In contrast Harvey’s impact was limited to Houston and surrounding areas. The increase in the D90 rate is not storm-related as not enough time has elapsed since the storms made landfall (Harvey made landfall in Houston on August 25, Irma made landfall in Florida on September 9, and Maria made landfall in Puerto Rico on September 20).
Besides storms, there are other factors that are driving the D30 rate higher. As the figure shows, there is a very strong seasonal pattern associated with 30 day delinquencies. The D30 rate typically witnesses an uptick in the second half of each calendar year after declining in the first half because of tax refunds. Another reason for the Q3 increase is that the last day of September was a Saturday, which means that payments received on this day were not processed until Monday Oct 2nd and were identified as past due (mortgage payments are due on the 1st of the month; D30 rate is based on mortgages unpaid as of 30th of the month).
There is one more thing worth pointing out. Many borrowers affected by recent storms have received forbearance plans that allow them to defer mortgage payments for a few months. Under the NDS methodology, these borrowers are considered delinquent. Many will likely resume making monthly payments once they regain their financial footing or after forbearance ends. Others unable to afford payments could get a loan modification. Therefore, although it will take several quarters before the eventual impact of storms on delinquency rates becomes clear, many borrowers who are currently 30-days delinquent might not enter D60 or D90 status.
While the Chartbook does not look at the longer term impact of climate change on mortgage markets, it is clear that policy makers need to account for it in terms of mortgage servicing, flood insurance, land use and building code regulation.

Delaying Trump’s Wall

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photo by Jimmysalv

USA Today cited me in No, Cards Against Humanity Can’t Delay Trump’s Border Wall. It opens,

By now you’ve played a rousing game of Cards Against Humanity or at least heard the game makers want to buy land to block the construction of President Trump’s proposed border wall between the U.S. and Mexico.

The raunchy game, where people fill in the blank or complete sentences with terrible — but funny — things, pulls a holiday marketing stunt every year. Last year, Cards Against Humanity raised money to dig a hole. Before that, they mailed people boxes filled with actual bulls–t.

This year, they asked for $15 from customers to buy a large plot of land along the U.S./Mexico border for their “Cards Against Humanity Saves America” campaign. The promotion already sold out.

A marketing video implies they would separate acres of land into tiny pieces for each participant, in order to hold the government up in court for years. They want to make the push to build a wall time-consuming and expensive by hiring lawyers to keep the land tied up in court, according to the website.

The only problem is, that’s not how eminent domain works.

“This is a way for them to utilize their popularity with an audience most people assume are either indifferent toward political issues or at the very least unsophisticated about how things get done,” said Steve Silva, an eminent domain and land use attorney for Fennemore Craig law group in Reno. Silva has literally used eminent domain to build a wall.

“It’s got a lot of people literally buying into this issue of significant public importance,” he said.

The Fifth Amendment to the U.S. Constitution allows the Federal Government to take property from people for “just compensation.” The amendment favors the government’s ability to take while also protecting an owner’s right to make money. Meaning, property owners must be paid fair-market value for the land.

Determining value is what usually ends up taking years in court, Silva said. TheCongre actual taking of the property takes very little time.

“It’s a two-step process: First thing is that the government has to prove it has the right to take the property,” he said. “Once it establishes that, it can take it immediately.”

The federal government need only establish the land will be used for the public, such as for a large wall owned by the government. Then it can basically take that acreage and start building the wall while fighting out the value in court.

“Congress can also just pass a special bill to take land,” Silva said. “They’ve done that for national parks before. Finally, the U.S. Supreme Court has noted that the U.S. can just seize land summarily by occupying it and ousting the former owner.

“I suspect this sort of move would be really unpopular,” he added.

So, Cards Against Humanity may end up fighting the government for years after the wall is finished.

Even if Cards Against Humanity spreads the ownership of the land out to lots of people — say, thousands of them — the Federal Government can still take the land all at once. But now those individual owners will need to fight each other, Cards Against Humanity and the government for their just compensation.

Since people paid $15 for land, it’s likely they would establish land value and get that $15 back unless Cards Against Humanity somehow improves the land or plans to build a museum, monument or even a parking lot on that space.

But again, that would only increase its value, not slow down the wall’s construction.

In an interview on Mashable.com, law professors David Reiss and Richard Epstein argued the court would reject Cards Against Humanity’ claim over the land because they’re using it for political purposes. But attorneys Silva and Lynn Blais disagree. The game makers are using land as a protest, which should be respected by the court, so their protest shouldn’t matter in eminent domain proceedings.

The Economics of Housing Supply

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chart by Smallman12q

Housing economists Edward L. Glaeser and Joseph Gyourko have posted The Economic Implications of Housing Supply to SSRN (behind a paywall but you can find a slightly older version of the paper here). The abstract reads,

In this essay, we review the basic economics of housing supply and the functioning of US housing markets to better understand the distribution of home prices, household wealth and the spatial distribution of people across markets. We employ a cost-based approach to gauge whether a housing market is delivering appropriately priced units. Specifically, we investigate whether market prices (roughly) equal the costs of producing the housing unit. If so, the market is well-functioning in the sense that it efficiently delivers housing units at their production cost. Of course, poorer households still may have very high housing cost burdens that society may wish to address via transfers. But if housing prices are above this cost in a given area, then the housing market is not functioning well – and housing is too expensive for all households in the market, not just for poorer ones. The gap between price and production cost can be understood as a regulatory tax, which might be efficiently incorporating the negative externalities of new production, but typical estimates find that the implicit tax is far higher than most reasonable estimates of those externalities.

The paper’s conclusions, while a bit technical for a lay audience, are worth highlighting:

When housing supply is highly regulated in a certain area, housing prices are higher and population growth is smaller relative to the level of demand. While most of America has experienced little growth in housing wealth over the past 30 years, the older, richer buyers in America’s most regulated areas have experienced significant increases in housing equity. The regulation of America’s most productive places seems to have led labor to locate in places where wages and prices are lower, reducing America’s overall economic output in the process.

Advocates of land use restrictions emphasize the negative externalities of building. Certainly, new construction can lead to more crowded schools and roads, and it is costly to create new infrastructure to lower congestion. Hence, the optimal tax on new building is positive, not zero. However, there is as yet no consensus about the overall welfare implications of heightened land use controls. Any model-based assessment inevitably relies on various assumptions about the different aspects of regulation and how they are valued in agents’ utility functions.

Empirical investigations of the local costs and benefits of restricting building generally conclude that the negative externalities are not nearly large enough to justify the costs of regulation. Adding the costs from substitute building in other markets generally strengthens this conclusion, as Glaeser and Kahn (2010) show that America restricts building more in places that have lower carbon emissions per household. If California’s restrictions induce more building in Texas and Arizona, then their net environmental could be negative in aggregate. If restrictions on building limit an efficient geographical reallocation of labor, then estimates based on local externalities would miss this effect, too.

If the welfare and output gains from reducing regulation of housing construction are large, then why don’t we see more policy interventions to permit more building in markets such as San Francisco? The great challenge facing attempts to loosen local housing restrictions is that existing homeowners do not want more affordable homes: they want the value of their asset to cost more, not less. They also may not like the idea that new housing will bring in more people, including those from different socio-economic groups.

There have been some attempts at the state level to soften severe local land use restrictions, but they have not been successful. Massachusetts is particularly instructive because it has used both top-down regulatory reform and incentives to encourage local building. Massachusetts Chapter 40B provides builders with a tool to bypass local rules. If developers are building enough formally-defined affordable units in unaffordable areas, they can bypass local zoning rules. Yet localities still are able to find tools to limit local construction, and the cost of providing price-controlled affordable units lowers the incentive for developers to build. It is difficult to assess the overall impact of 40B, especially since both builder and community often face incentives to avoid building “affordable” units. Standard game theoretic arguments suggest that 40B should never itself be used, but rather work primarily by changing the fallback option of the developer. Massachusetts has also tried to create stronger incentives for local building with Chapters 40R and 40S. These parts of their law allow for transfers to the localities themselves, so builders are not capturing all the benefits. Even so, the Boston market and other high cost areas in the state have not seen meaningful surges in new housing development.

This suggests that more fiscal resources will be needed to convince local residents to bear the costs arising from new development. On purely efficiency grounds, one could argue that the federal government provide sufficient resources, but the political economy of the median taxpayer in the nation effectively transferring resources to much wealthier residents of metropolitan areas like San Francisco seems challenging to say the least. However daunting the task, the potential benefits look to be large enough that economists and policymakers should keep trying to devise a workable policy intervention. (19-20)

High Rents and Land Use Regulation

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photo by cincy Project

The Federal Reserve’s Devin Bunten has posted Is the Rent Too High? Aggregate Implications of Local Land-Use Regulation. It is a technical paper about an important subject. It has implications for those who are concerned about the lack of affordable housing in high-growth areas. The abstract reads,

Highly productive U.S. cities are characterized by high housing prices, low housing stock growth, and restrictive land-use regulations (e.g., San Francisco). While new residents would benefit from housing stock growth in cities with highly productive firms, existing residents justify strict local land-use regulations on the grounds of congestion and other costs of further development. This paper assesses the welfare implications of these local regulations for income, congestion, and urban sprawl within a general-equilibrium model with endogenous regulation. In the model, households choose from locations that vary exogenously by productivity and endogenously according to local externalities of congestion and sharing. Existing residents address these externalities by voting for regulations that limit local housing density. In equilibrium, these regulations bind and house prices compensate for differences across locations. Relative to the planner’s optimum, the decentralized model generates spatial misallocation whereby high-productivity locations are settled at too-low densities. The model admits a straightforward calibration based on observed population density, expenditure shares on consumption and local services, and local incomes. Welfare and output would be 1.4% and 2.1% higher, respectively, under the planner’s allocation. Abolishing zoning regulations entirely would increase GDP by 6%, but lower welfare by 5.9% because of greater congestion.

The important sentence from the abstract is that “Welfare and output would be 1.4% and 2.1% higher, respectively, under the planner’s allocation.” Those are significant effects when we are talking about  real people and real places. The introduction provides a bit more context for the study:

Neighborhoods in productive, high-rent regions have very strict controls on housing development and very limited new housing construction. Home to Silicon Valley, the San Francisco Bay Area is the most productive and most expensive metropolitan region in the country, and yet new housing construction has been very slow, especially in contrast to less-productive large cities like Houston, Texas. The evidence suggests that this slow-growth environment results from locally determined regulatory constraints. Existing residents justify these constraints by appealing to the costs of new development, including increased vehicle traffic and other types of congestion, and claim that they see few, if any, of the benefits from new development. However, the effects of local regulation extend beyond the local regulating authorities: regions with highly regulated municipalities experience less-elastic housing supply. (2, footnotes omitted)

The bottom line, as far as I am concerned, is that localities that are attempting to deal with their affordable housing problems have to directly address how they go about their zoning. If the zoning does not support housing construction, then no amount of affordable housing incentives will address the demand for housing in high growth places like NYC and San Francisco.

The Economic Implications of the Housing Supply

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Ed Glaeser and Joe Gyourko posted The Economic Implications of the Housing Supply which is forthcoming in The Journal of Economic Perspectives. In it, they

review the basic economics of housing supply and the functioning of U.S. housing markets to better understand the impacts on home prices, household wealth and the spatial distribution of people across markets. Section II documents the state of housing affordability in the U.S., and begins with three core facts about housing supply. First, when building is unrestricted by regulation or geography, housing supply curves seem relatively flat, meaning that we can approximate reality by referring to a single production cost. Second, both geography and regulation severely restrict the ease of building in some parts of the country. These constraints raise building costs both directly, by increasing time delays and reducing the amount of available land, and indirectly, by ensuring the homes are produced more on a one-by-one basis rather than in bulk. Third, the supply of housing is kinked and vertical downwards because housing is durable. (2, citation omitted)

These are themes that Glaeser and Gyourko have touched on before, but this essay does a service by updating them ten years after the financial crisis.

Glaeser and Gyourko have consistently hit on some important points that can garner attention at the national level , but there has been no real action on them as of yet:

  • where supply is regulated, housing costs more;
  • heavy land use regulation in places like NYC and SF reduces the nation’s overall economic output; and
  • existing homeowners tend to oppose new projects, which is consistent with their financial self-interest.

Glaeser and Gyourko do not give up hope that policymakers can craft solutions that deal with the political economy of housing construction. One first step would be to develop a toolkit of carrots and sticks that can be employed at the national and state level to incentivize local governments to take actions that are in the interest of their broader communities and the nation as a whole.

We know we need more housing in highly productive regions. We just need to figure out how to build it.

Good Fence Negotiations Make Good Neighbors

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Realtor.com quoted me in How to Build a Fence Without Ending Up in a Feud With Your Neighbors. It opens,

Good fences make good neighbors, but how do you make a good fence, exactly? After all, it’s not just a question of marking the division between two pieces of property. Do you and your neighbor both have a say on the height, style, and color—and should you split the costs evenly?

If you’re facing any of these questions as you contemplate some fence work, read on.

Does your neighbor have a say on your fence?

Whether your neighbor can weigh in depends largely on where you live, according to Marc Markel of Roberts Markel Weinberg Butler Hailey in Texas. Laws and regulations vary by state: In California, for instance, the “good neighbor fence” law requires neighbors to split the cost evenly.

To find your own local regulations, search online for “fence permit” along with your county and/or state. You can also visit statelocalgov.net: Click on your state and county to get to your local government’s website, where you can find info on fence permits or a phone number under “planning and zoning” to get your questions answered.

Fences may also be regulated by a homeowners association and/or your home’s restrictive covenant, which is typically found in your property deed and states how your land can be used.

For example, the height limit for fences is typically 6 feet for back and side fences and 4 feet for front-yard fences. Some covenants will spell out how repairs and new fences should be handled between neighbors—even if you build the fence entirely on your own property—while others will not. If there are no stated restrictions, then it’s basically up to you and your neighbor to work it out together, hopefully in a friendly manner.

David Reiss, a professor at Brooklyn Law School, says it’s always best to get your neighbor’s input rather than just forging ahead. In the best-case scenario, “they may volunteer to share the cost 50-50,” he points out. Plus, there may be aesthetic issues to discuss: “Do you save money by installing a cheaper fence with a front and a back, or do you spend more money and get a fence that looks good on both sides?”

Your neighbors may have strong feelings about these issues. It’s better to hear them out sooner rather than later.

Two Cheers for Obama’s Housing Development Toolkit

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photo by Daniel Schwen

As the Obama Administration nears the end, the White House released a Housing Development Toolkit. It opens,

Over the past three decades, local barriers to housing development have intensified, particularly in the high-growth metropolitan areas increasingly fueling the national economy. The accumulation of such barriers – including zoning, other land use regulations, and lengthy development approval processes – has reduced the ability of many housing markets to respond to growing demand. The growing severity of undersupplied housing markets is jeopardizing housing affordability for working families, increasing income inequality by reducing less-skilled workers’ access to high-wage labor markets, and stifling GDP growth by driving labor migration away from the most productive regions. By modernizing their approaches to housing development regulation, states and localities can restrain unchecked housing cost growth, protect homeowners, and strengthen their economies.

Locally-constructed barriers to new housing development include beneficial environmental protections, but also laws plainly designed to exclude multifamily or affordable housing. Local policies acting as barriers to housing supply include land use restrictions that make developable land much more costly than it is inherently, zoning restrictions, off-street parking requirements, arbitrary or antiquated preservation regulations, residential conversion restrictions, and unnecessarily slow permitting processes. The accumulation of these barriers has reduced the ability of many housing markets to respond to growing demand.

Accumulated barriers to housing development can result in significant costs to households, local economies, and the environment. (2, emphasis in original)

Glaeser & Gyourko identified the tension between local land use policies and federal affordable housing policies a long time ago, but the federal government has never really done much about it. To its credit, the Obama Administration had touched on it recently, but never in this much depth. So one cheer for the toolkit’s focus on local land use policy as an issue of national concern.

And a second cheer for highlighting actions that states and local governments can take to promote more dynamic housing markets. They include,

  • Establishing by-right development
  • Taxing vacant land or donate it to non-profit developers
  • Streamlining or shortening permitting processes and timelines
  • Eliminate off-street parking requirements
  • Allowing accessory dwelling units
  • Establishing density bonuses
  • Enacting high-density and multifamily zoning
  • Employing inclusionary zoning
  • Establishing development tax or value capture incentives
  • Using property tax abatements (3)

I withhold the last cheer because the toolkit spends no time discussing how the federal government could use its immense set of incentives to encourage state and local governments to take steps to increase the housing supply in high-growth areas. The federal government used such incentives to raise the drinking age and it did it to lower the speed limit. Isn’t the nation’s affordable housing crisis important enough that we should use incentives (such as preferred access to HUD funds) to spur development that is good for Americans collectively as well as for so many Americans individually?