Financialization of trailer parks and single family houses

Trailer parks.  The New Yorker has an article, "What Happens When Investment Firms Acquire Trailer Parks," about how large property firms and hedge funds are buying trailer parks, typically places of comparatively low cost housing, and significantly raising the cost of living there.

Traditionally, a household owns the trailer but rents the lot.

I've argued that community housing master plans should include trailer parks as a type and aim to put control of these properties into the social housing sector or community land trusts.

But cities, looking for higher revenue streams from property aren't inclined to take much initiative when it comes to this property type, especially when it comes to higher value redevelopment ("Trailer parks moving out of Fayetteville nothing new, officials say," Northwest Arkansas Democrat Gazette, "Centerville residents facing eviction in the middle of a pandemic, but not without a fight," Salt Lake Tribune).

Single family houses.  After the Great Financial Crisis, when hundreds of thousands of houses went into foreclosure, large portfolios of scattered site single family houses were acquired by Wall Street investment firms.  

Over time they made great profits from renting the houses out and property value appreciation ("When Wall Street Is Your Landlord," Atlantic, "A $60 Billion Housing Grab by Wall Street," New York Times).

This also makes it harder for individuals to become homeowners, thereby reducing the quality of their household wealth portfolio.

New construction single family housing subdivisions for rental.  Investment firms are taking this to a new level, by building new subdivisions from the ground up, but only for rental ("Wall Street’s New Suburban Subdivision Is Full of Renters," Bloomberg).  

They're being pushed to do this, because they like the profits from rentals, but as the housing supply tightens it's harder for them to find good deals.

Eviction during pandemic: National Multihousing Council recommends suspending evictions

The Washington Post has an article, "Facing eviction as millions shelter in place," about eviction actions during the pandemic.  Although many communities are mandating a stop to evictions.

(WRT commercial properties in DC, according to the Washington City Paper, in the DC area "Some Landlords Say They'll Help Tenants With Rent. Others Aren't Saying Much.")

There have been cases of severe tone deafness on the part of some landlords ("LANDLORD SAYS RESTAURANT INDUSTRY TENANTS BETTER ASK PARENTS AND RELATIVES TO PAY THEIR RENT OR RISK 'AGGRESSIVE' ACTION," Newsweek).  The opprobrium in response led him to backtrack and resign from his operating responsibilities at his firm.

And an acknowledgement, although not by the Trump Administration, that recently announced HUD initiatives don't pertain to renters ("HUD, Fannie, Freddie suspend foreclosures, evictions during outbreak," Politico).

That being said the National Multifamily Housing Council has recommended to its members to suspend eviction actions that may result from income loss as a result of the pandemic ("Apartment Industry Committed to Supporting Residents Impacted by COVID-19") and they have come out for financial support to renters ("NMHC Calls on Lawmakers to Provide Direct Financial Assistance to Renters").

Yes, you can say it's because of optics or self-interest, but it's important nonetheless.

Should the Federal Reserve purchase bonds of state and local governments during a recession? (Yes)

In a hearing yesterday, Democratic Party Representative Rashida Tlaib asked Federal Reserve Chairman Jerome Powell about extending counter-cyclical anti-Recession responses of purchasing of debt of corporations and the federal government to debt issued by local and state governments ("AOC Is Making Monetary Policy Cool (and Political) Again;," New York Magazine).

Powell responded that it isn't legal, but apparently it is.

A big problem during recessions is that even if there is new federal spending aimed at stoking demand during a recession, along with increases for unemployment funding and sometimes other types of social support payments, states and local governments and related agencies tend to contract significantly for two reasons:

1.  Property, income, and sales tax revenues contract
2.  By law, state and local governments can't run deficits.

This cancels out many of the benefits of increased federal spending during recessions and in fact, extends by multiple years recessionary pressures.

Apparently, the Roosevelt Institute released a report, A NEW DIRECTION FOR THE FEDERAL RESERVE: Expanding the Monetary Policy Toolkit, a couple years ago that included this point:

3. PURCHASING STATE AND LOCAL DEBT
Unlike the federal government, state and local governments do face meaningful financial constraints. Perhaps the single most powerful tool the Fed has to support aggregate demand and direct credit in socially useful directions is to purchase the liabilities of states, cities, and other subnational governments. This would greatly reduce the pressure for pro-cyclical cuts in public spending during recessions.

The balance sheets of state and local governments are complex—unlike the federal government, most have substantial financial assets, as well as liabilities, and the sector as a whole is a net creditor (Mason, Jayadev, and Page Hoongrajok 2017). But many individual governments do face acute limits on their access to credit, and concerns over credit are a constraint on spending and revenue decisions, even if their access to bond markets is currently unimpaired. These concerns become especially serious during downturns—exactly the period when, from a macroeconomic perspective, state and local governments should be increasing spending and avoiding tax increases.

From a social standpoint, public investment is less costly during a downturn, when a larger fraction of labor and other resources are unemployed. So it is perverse that borrowing constraints cause many governments to cut back investment spending in recessions.

Financial constraints on state and local governments impart a substantial pro-cyclical component to their budget positions, acting as a kind of “automatic destabilizer” that offsets countercyclical fiscal policy at the federal level.

Lehman Brothers and the Great Financial Crisis: Ten Years Later

I still don't understand fully "high finance," and so I am not sure about "credit swaps," interest rate swaps, etc., and how they influenced the Real Estate and Finance driven "recession" in the US and Europe.

The New York Times has a very detailed special section, "Crisis and Consequences," and after reading it which I haven't done yet, maybe I'll understand high finance a bit better.

Back in 2008, not unlike John Gapper of the Financial Times ("My naive part in Lehman's downfall"), I too thought it was the right response for the US Government to not bail out Lehman Brothers as it went into bankruptcy. Government officials were hesitant because of all the criticism of their bailout of Bear Stearns a few months before. From the article:

A few hours before Mr Paulson spoke, the Financial Times published a rather jaunty column by me, advising the Treasury secretary to take the weekend off to pursue his hobby of birdwatching. The government should resist the pressure to save Lehman Brothers, as it had Bear Stearns and Fannie Mae and Freddie Mac, the mortgage institutions, I wrote. It had “talked tough about moral hazard . . . but been a soft touch.”

Within days, Mr Paulson took my advice (and that of others) and allowed Lehman to collapse, triggering the worst postwar financial crisis and unleashing economic and social damage that still endures. It is rarely that an article backfires so rapidly and spectacularly, and I have had a decade to reflect on my part in Lehman’s downfall.

Yes, it sucks that excepting a few companies, leaders, and stockholders there wasn't much consequence for the "moral hazards" that financialization of so much of the economy got us into.

A protester in Chicago.  Photo: Keystone.

But I failed to consider  the ramifications of letting such a big actor fail and the mulit-year e negative impact this would have on real estate development -- both office and multifamily residential -- in urban cores.

The market was devastated and took years to recover, although some cities like Washington, Seattle, San Francisco, and "West Los Angeles" managed to recover sooner, although certain types of construction like condominiums, took much longer to recover.

But as we all know, the consequences of the GFC are far greater than the construction meltdown in US cities.

The government response, focused on maintaining financial institutions but not in helping the people, mortgages, and businesses that were "collateral damage," led in the US the rise of the "Tea Party" and rightward "populism" in Europe, including the Brexit vote in the UK.

In the US, the Tea Party furthered the anti-government strains within the Republican Party.  Whereas the Occupy Wall Street movement likely has had some impact on the current move for a more progressive Democratic Party.

I say I am not that good at economics (I do understand microeconomics pretty well in practice), in particular macroeconomics, but I definitely understand the concept of Keynesian economics, and why governments are supposed to be "countercyclical" in fiscal responses to crisis.

To stoke demand in times of recession, they should spend.

Note that what happened in 2008 is also a classic example of what Marxists call a "capitalist crisis," and it was a joke that Tea Partiers complained that the government was taking over the economy, that President Obama was a socialist, etc., as this was a classic example of the government stepping in to bail out capitalism."

-- "The Global Crises of Capitalism: Whose Crises, Who Profits?," Global Research

Also a good example of "neoliberal overreach."

-- "Neoliberalism: The Idea that Changed the World," Guardian

Unfortunately, in Europe definitely and in the US somewhat -- although there was a fiscal response in terms of the ARRA, the American Recovery and Reconstruction Act -- it wasn't enough because of Republican opposition, the response was government fiscal austerity, which New York Times columnist economist Paul Krugman has written about ad nauseam ("A General Theory Of Austerity?"), which extended the recession by many years.

Sadly, that was the time to build big infrastructure projects, when money was cheap and demand was low keeping prices down, but as the Republican response against "high speed rail" showed, the bias against government involvement and investment of almost any kind meant we failed to do any of that.

That's another economic lesson I learned, because I was aware, growing up in Michigan, how much of the state's infrastructure, be it dormitories at colleges or sidewalks, was constructed as part of New Deal projects, and this investment had great impact in later years and continues to do so.

Of course, in the US we've learned that Republican opposition to fiscal spending because of a concern about debt is total b.s. given what's happened to the US government budget after a massive tax cut for corporations and the wealthy ("Republican tax cuts to fuel historic U.S. deficits: CBO," Reuters).

Republicans are fine with debt if it funds tax cuts but otherwise they don't want to support government spending for much other than the military. And even though they produced the "debt crisis" by cutting taxes, they become a-historical and use the debt as the reason for further cuts to social spending.

In the UK, austerity led to the Brexit vote. The Conservative Party shifted "responsibility" for their recession from their choices on austerity, blaming the EU.

In Europe, austerity drives much of the hard right response in many countries, although this is abetted by immigration from Africa, which has been abetted both by the consequences since the US-initiated war in Iraq which destabilized the Mideast as well as drought further south.

========
While yes, it's true that for the most part, no one went to jail and that's probably not good there are a bunch of lessons.

The big problem is that the government response was focused on institutions, not people ruined by the failure of institutions.

The second was the failure to apply Keynesian approaches for substantive fiscal stimulus.

The third is the failure in the adoption of neoliberal approaches to government -- government always bad, market always good, globalization of the economy -- was the failure to build a substantive safety net for people buffeted by the changes, from robust health care access to housing assistance. 

Although this problem has existed since the time of the Reagan Administration.  But as economic shocks become more severe, the need for and the consequences of not having such a safety net become more pronounced.

Discovery Channel to leave Silver Spring, Maryland

Over the past year, Aaron Renn, writing in his Urbanophile blog, had two posts that I found particularly provocative (in a good way) but I haven't gotten around to reacting. 

One was more recent, "St. Louis and the Consequences of Consolidation," discussing corporate "consolidation" and the impact of corporate mergers, distant control of the corporation, and the eventual impact on support services.

His example was Anheuser Busch, the nation's number one beer producer, based in St. Louis, but now owned by an international brewing behemoth based in Europe and South America. 

Historically, companies like A-B or General Motors were large enough to have key services such as advertising development and media buying provided locally, albeit by divisions of larger firms located in the nation's advertising capital--New York City, whereas most other companies would go to New York (or Chicago) more directly for this work.

(St. Louis has lost many locally significant businesses through corporate consolidation, such as Boatman's Bank, now part of Bank of America, May Company department stores, now part of Macy's, and increasingly, Anheuser-Busch, with a major negative impact resulting on the business district in Downtown St. Louis.)

The acquisition of Anheuser-Busch is an example of how business is now organized on international terms without respect to national boundaries, and even companies that are huge within their markets can not avoid or evade the merger and consolidation process as business is reorganized on a global basis.

A-B, acquired in 2008, took until 2017 to shift its advertising accounts to New York City, costing a number of highly paid St. Louis-based jobs as a result. 

Aaron discusses this in terms of consolidation and was reacting to a 2016 Washington Monthly article, "The Real Reason Middle America Should Be Angry," which makes the argument that lack of adequate anti-trust regulation against corporate mergers led to this kind of result.

Personally, I think the WM argument is weak because as long as companies are stock-based, the pressure from investors, especially large institutional investors and hedge funds agitating for maximized returns ("The Effects of Hedge Fund Interventions on Strategic Firm Behavior," Harvard Law School Forum on Corporate Governance and Financial Regulation) is to make more money and that comes from bigness and consolidation.

Although it must be noted that because extranormal business growth is unattainable in mature markets, profit margins are mostly increased by "efficiency gains" that come through layoffs and consolidation of production. This is true especially for businesses in countries like the U.S. where the days of hyper-growth are decades in the past. Moreover, as countries like China accelerate the growth of their economies especially in consumer-focused industries, those firms are now the hyper-growth actors and increasingly operating on an international basis.

In college, I came across a couple books, Human Scale by Kirkpatrick Sale, and The Bigness Complex: Industry, Labor, and Government in the American Economy by Walter Adams which had a lot of influence on my thinking about these issues, but the reality is that the organization of the capitalist system and a focus on "efficiency" leads this process and anti-trust regulation is more likely to result in the crippling of smaller companies.

Being from the Detroit area myself, I had witnessed a similar type of activity dating to the 1970s, in how the control of the city's advertising and media businesses (other than locally focused media) and banks especially, was shifting out of the region, in particular to Chicago, because a primarily one industry town wasn't big enough to generate its own momentum in the support of business-related "service" economy.

So this process isn't new to me.  It's the basis of agglomeration economies and the benefits of clustering.  What has happened is that as businesses grow and operate on a national or global/international basis, where they purchase services changes, from locally-owned or based businesses, to national centers.

This is the same effect as with the difference between locally-owned retail and national chains.  Chains don't purchase products or services locally, so the "multiplier effect" or the economic and business-to-business recirculation benefits from consumer spending are significantly reduced compared to purchases made at locally owned businesses ("The Multiplier Effect of Local Independent Businesses," AMIBA).

This comes up locally with yesterday's announcement ("Discovery Communications to exit Silver Spring," Washington Business Journal) that Discovery Channel, a large cable network, alongside their merger with Scripps Media, owner of channels such as HGTV, Travel Channel, and Food Network, is shifting its corporate headquarters to the nation's media capital--New York City--and most of its back office and production functions to Knoxville, Tennessee, where the Scripps operation is based.

Hurts Montgomery County, especially Silver Spring's office market.  This is a blow to Montgomery County, Maryland and the conurbation of Silver Spring, which loses one of three major business headquarters located there (the others being United Therapeutics and a federal agency, NOAA), 1,500 jobs directly, and likely more than double that in terms of indirect jobs.

It makes the capture of office jobs in Silver Spring even more difficult as suburban office space demand is shrinking ("Report: No Recovery in Sight for Parts of Montgomery County Office Market," Bethesda Magazine).

For whatever reason, Bethesda has been more successful ("Marriott to move headquarters to downtown Bethesda with $62 million in incentives," Washington Post) than Silver Spring in continuing to capture new headquarters, as companies shift to transit-adjacent locations away from the office parks.

Diminishes the DC area's relevance as a media production center, excepting television news.  Interestingly, both Detroit and Washington have functioned as secondary media production centers for a long time.  For Detroit, this came out of the business videos produced for the auto industry.  For Washington, it derived from the various television news operations for national networks and station groups.

And like with how MCI, the long distance telecommunications firm, located in the DC area because of access to regulatory agencies, a handful of television operations (PBS) and cable networks (BET, Discovery Channel, C-SPAN, Learning Channel later acquired by Discovery, etc.) developed here out of a similar proximity, including to the National Cable Television Association and the National Association of Broadcasters, industry trade associations and lobbying organizations.

But as these companies become relevant on a larger scale, nationally and/or internationally, local agglomeration economies are less valuable, and the businesses relocate.  This happened with BET already ("BET Shutters Washington, D.C., Office as Operations Move to New York," Hollywood Reporter) and now Discovery.  Plus, control of the National Geographic Channel shifts to Disney from Fox, etc.

How realistic is it for a ban (anti-trust regulation) of corporate mergers to occur, to staunch this kind of relocation? I'd say, not very.

The "government" and the economy

I am incredulous about the quote from Sen. John Cornyn in yesterday's Post, in the article, "Economy shrinks as federal spending cuts trump private sector’s growth," about negative economic growth in the last quarter of 2012.

But Sen. John Cornyn (Tex.), the No. 2 Republican in the Senate, called the idea that economic growth relies on government spending “a Keynesian pipe dream.” The best thing Washington can do for the economy is to rein in the deficit, GOP leaders said.

The first reality is how much of the US economy is dependent on military spending. Military contractors have been in stasis out of concern that the "fiscal cliff" will be reached triggering sequestership and large cutbacks in military spending ("Joint Chiefs warn Congress that looming defense cuts would 'hollow' military" and "Contractors not fretting as sequestration threat looms" from the Post).

The second has to do with the impact of federal policy on the financial system, and how lack of predictability and stability (way more significantly than the current level of deficit spending) and stability.

Third, droughts and storms couldn't have helped the economy that much either.

Not to mention the ongoing downsizing of local governments. People out of work don't spend money. Etc.

Anyway, how's austerity policy working out for the UK? Also see "America’s fiscal policy is not in crisis: The urgent challenge is to promote economic recovery" from the Financial Times.

From the article:

The US confronts huge challenges, at home and abroad. Its fiscal position is not one of them. This is a highly controversial statement. If one judged by the debate in Washington, one would conclude that the federal government is close to bankruptcy. This view is false. Yes, the US does confront fiscal challenges in the long term. But these are largely caused by the soaring costs of its inefficient healthcare. Yes, the US is engaged in a fierce debate on fiscal policy. But this is due to philosophical disputes over the role of the state. Yes, the US has been running large fiscal deficits in the short run. But these are a result of the financial crisis. ...

This brings us to the philosophical dispute. One side of the political debate is strongly committed to the idea that taxes should fall. Some in this camp argue that all taxation is theft. Others believe taxes destroy incentives. Yet others argue that any state support saps self-reliance. Meanwhile, those on the other side of the debate believe, as strongly, in a safety net that covers risks related to health, ageing and unemployment. President Barack Obama defended this position, to my mind persuasively, in his inaugural speech. ...

In practice, political equilibrium tends to include the commitments to spending, but not the parallel commitments to revenue. In the long run, adjustments must be made. ...

The federal government is not on the verge of bankruptcy. If anything, the tightening has been too much and too fast. The fiscal position is also not the most urgent economic challenge. It is far more important to promote recovery. The challenges in the longer term are to raise revenue while curbing the cost of health. Meanwhile, people, just calm down.

Calm? I wish.

Brilliant piece on Chicago's woes by Aaron Renn

Speaking of why I have so much respect for the Urbanophile blog (I had the privilege of meeting "Chicago" bloggers Aaron Renn and Lynn Stevens of Peopling Places when I attended the Main Street conference there in 2009-- Lynn and I were going to meet anyway and she brought Aaron along), Aaron has a piece in the City Journal (yes, the publication of the "conservative" Manhattan Institute).

It's on how he sees Chicago's situation--a city deeply in debt, with a shrinking population both for the city and regionally, lack of a particularly strong business sector powering claims to being a "global city," comparatively low per-capita GDP, and its role really being the center city (from the standpoint of center-periphery concepts in underdevelopment studies, although he doesn't cite this work) of the still declining Midwest (with the exception of those areas experiencing booms related to oil and natural gas production).

-- The Second-Rate City?:Chicago’s swift, surprising decline presents formidable challenges for new mayor Rahm Emanuel


He also mentions bureaucracy as stultifying local business development (he doesn't mention contracting, my bicycle facilities systems integration firm ran into the buzzsaw of Chicago contracting last fall), and the failure to systematize laws and zoning practices, but instead preferring the very personal practice of law and action according to "aldermanic privilege" -- kind of like so-called "state's rights" arguments to allow states to do mostly really terrible [and yes, occasionally good things, but very rarely] things like discrimination, instead each Aldermanic district does its own thing, mostly badly.  Along with corruption and the power of the political machine, these ways of dysfunction make it hard to re-generate organic growth.

It's kind of a Chicago specific chapter that would be great to include in an update of the book, The Future Once Happened Here, coincidentally authored by a Fellow of the Manhattan Institute, Fred Siegel.

A lot of people criticize Siegel's work, but I think it's not just inciteful but insightful, and if you don't understand what's up, and you're just focused on cheer-leading, you'll never really be able to improve your city and its economic position, in either its metropolitan, regional, or national context.

Likely people will take Aaron's article as personal criticism rather than critical analysis, and the problems present will continue to fester and only get worse.

Why the US, local, and global economic future may be more perilous than we think

In this photo released by Maritime New Zealand, the Rena, grounded on the Astrolabe reef 14 miles (22 kilometers) from Tauranga Harbour on New Zealand's North Island, is seen Thursday, Oct. 20, 2011. After a three-day break due to bad weather and rough seas, the agency Maritime New Zealand says nine salvage workers reboarded the Rena and resumed pumping oil Thursday afternoon. The ship has been stuck on the Astrolabe reef near Tauranga harbor since Oct. 5 and has spilled about 350 tons of oil into the ocean.

-- Chinese TV Host Says Regime Nearly Bankrupt from the Epoch Times

I hadn't really thought of it so much, but the Chinese expansion bubble has been driven by the same kinds of factors that led to an economic bubble in the US--overbuilding, financial engineering, cheap credit, and as a special case, manufacturing expansion driven by selling cheap stuff to North American and European markets.

As the North American and European markets continue to experience recession/depression, demand will continue to drop. Relatedly, increases in cost of energy means that a bit more manufacturing is being relocated back to the US because of rises in transportation costs cancelling some of the cost benefits from lower production costs ("Bringing Manufacturing back to the United States" from Area Development Online).

So if China can't continue to run an export driven economy based on selling stuff to overseas markets, thereby generating massive funds surpluses which have in turn been used to prop up foreign markets through loans and currency purchases, what happens then?