Tuesday, July 07, 2015

Buy some dirt

The dirt ain't cheap, though.
A statistical analysis of the 79 properties sold in the auction shows many were significantly undervalued by the Orleans Assessor's Office. About 28 percent went for more than twice their value as estimated by the assessor.

Investors bought two properties, a 7th Ward double and vacant lot in English Turn, for more than 10 times their assessed value.
People keep saying the real estate market in New Orleans is a "bubble." I don't think that's true.  At least, it isn't true in the sense that one day it will "crash" and suddenly there will be affordable housing everywhere. We're a resort city now. And our most "desirable" neighborhoods are being sacrificed to prop up the luxury market.

In theory, this is the sort of thing that exposes a city to the structural adjustment happening in cities all over the world where formerly modest assets are concentrated in the hands of the international investor class.
A handful of elite cities around the world have increasingly become magnets for residential investments from super-rich foreigners looking for safe places to park their fortunes.

They invested approximately $25 billion in cross-border residential real estate in 2014, according to Chicago-based Jones Lang LaSalle, an investment management company that specializes in property.

Living in the world's most desirable cities has long been associated with exorbitant housing prices for a multitude of reasons, ranging from high infrastructure costs to demand that far outstrips the supply. Yet this vast injection of wealth is increasingly contributing to soaring home prices in places as far flung as London, Vancouver, Miami, New York, Panama City, Istanbul and Sydney.

It has also distorted home prices in some city centers beyond the reach of all but the world's wealthiest individuals at a time when 330 million urban households worldwide live in substandard housing, the McKinsey Global Institute estimates. For millions of middle-class — and even upper-middle-class families — urban life in these cities is out of the question.
New Orleans isn't listed among the cities treated in that study. But it's worth noting the trend as our real estate market becomes shaped more and more by luxury and tourism. It also suggests that.. no.. "NIMBYism" is not the real problem
Cities need to relax density and height restrictions so developers are encouraged to build more housing, Estes writes.

"Cities must adopt inclusive zoning policies that incentivize or require affordable housing to be built in opportunity-rich neighborhoods, particularly when they are rezoned for greater housing or commercial development, and dedicate significant funding for the development of housing affordable to low-income residents who are entirely unserved by the market."

Mayor Mitch Landrieu inserted such rules into New Orleans' recently adopted Comprehensive Zoning Ordinance over the vocal complaints of residents who said he was ruining the unique character of historic neighborhoods.

The newly created Riverfront Overlay District, which runs across the waterfront downriver from the French Quarter, included such "inclusive zoning" provisions. They allow developers to build larger, denser buildings in exchange for the inclusion of low-income and middle-income housing units.

If 10 percent of the units go to low or middle income tenants, developers who invest in the overlay district can build up to 80 feet high and 75 percent more densely than they otherwise would be able to, according to the new zoning rules.
But reserving just 10 percent of new construction for "low and middle income tenants" is nowhere near sufficient and everyone involved in this scam knows it.  If the new theoretical "denser" developments were not sufficiently nice things for rich people, they wouldn't be financed in the first place.

More importantly, as we've already pointed out above, local supply and demand isn't even the primary problem
A problem defined locally ("zoning rules") is applied generically ("big cities"). The same pattern of gentrification in London and Berlin (as well as Raleigh-Durham) does not suggest a local real estate market distortion that can be addressed locally. It's like blaming unions for the economic convergence of manufacturing. Upzoning will be about as useful policy tool as right-to-work legislation. Manufacturing jobs as a share of regional employment will continue to shrink. It's a global trend. The same thing is happening in regions with low (or no) union participation.
I have sympathy with the argument that neighborhood associations and historic preservation do, in fact, contribute to the gentrification problem in their own right. But this is different. Scolding locals as NIMBYs, really only leaves them a choice between gentrifying neighborhoods where the rent is too damn high or luxury towers where nobody actually lives.  Either way it's a hell of a way to run a city.

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