Sunday, February 14, 2010

Real Estate Stories in the Sunday Papers

I was quoted in real estate stories in both the Sacramento Bee and Stockton Record. I wasn't misquoted, but I think it is useful to add a little context to the quotes.

The Sacramento Bee ran a good story (and interesting interactive map) about the exceptionally high level of commercial real estate vacancies in the Sacramento area. This is true, Sacramento (both the county and suburbs like Placer County) has the biggest excess of commercial space in a state full of excess shopping centers and office buildings. That was true before the recession hit, and it has just gotten worse. The reporter noticed that we had featured this same postal service data in our January forecast and called me for some quotes. This part was a bit out of context,
In fact, he (Michael) said, the commercial real estate market in Sacramento isn't even as healthy as the housing market,

By itself, that must sound borderline insane to anyone living in Sacramento. The missing context is that I was talking about the extent of overbuilding, and the prospects for construction activity picking back up in the next 2-5 years. The housing market is more unhealthy overall, but it is a price bubble, foreclosure, market coordination problem, whereas the commercial slump has more to do with excess supply.

The second story is in the Stockton Record where I expressed skepticism about proposals that temporary homebuyer tax credits will increase jobs. I have blogged about this before. I think the research report the Building Industry is pushing as support is this one by the Center for Strategic Research in Sacramento. I agree with the facts in the report, 407,000 jobs lost from the construction collapse statewide, and that a recovery in homebuilding is key to the economic recovery. I think the author of this report, Ryan Sharp, is credible and don't have a problem with the numbers.

However, the need or effectiveness of $200 million in new home buyer tax credits does not follow from these findings. To his credit, Mr. Sharp does not say this in the report, it is a implication that CBIA is making on its own. In fact, the report documents how homebuilding was even worse than expected in 2009, hardly an endorsement of the stimulative effect of the $100 million in 2009 tax credits. Somewhat like cash for clunkers, these will quickly run out, and do nothing more than shift home purchases around a few months in time. They are little more than a windfall payment from taxpayers to homebuilders and their customers. After the funds run out, the home purchases will slow down again while buyers wait to see if the building industry is successful in lobbying for yet another round of temporary tax breaks. As much as I sympathize with the construction industry depression, I don't think transferring public money to the very people who are benefitting most from the real estate bust (current buyers at the bottom) is fair or effective as stimulus.

I completely agree with the builders complaints about excessive impact fees from local governments and excessive regulations that drive up their costs. Those are long-run issues that need addressed, but their latest campaign is just another example of a special interest lobbying for a handout in the name of "job creation."

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