There are many factors and issues that go into winning a political campaign, and the ones swirling about the Texas Republican Primary were numerous. Incumbent governor Rick Perry cruised to an easy victory over sitting U.S. Senator Kay Bailey Hutchison and activist Debra Medina on Tuesday to set up a general election showdown with former Houston mayor Bill White, a Democrat.
It’s worth recalling that last year Perry distinguished himself as the anti-Smart Growth governor, bucking a trend in which political leaders at all levels embrace this command-and-control planning doctrine. In June 2009, Governor Perry vetoed SB 2169 - a bill relating to “the establishment of a smart growth policy work group and the development of a smart growth policy for this state.”
In his veto message, Governor Perry said:
Senate Bill No. 2169 would create a new governmental body that would centralize the decision-making process in Austin for the planning of communities through an interagency work group on “smart growth” policy…. This legislation would promote a one-size-fits-all approach to land use and planning that would not work across a state as large and diverse as Texas.
I’m not sure if this was on many minds as voters headed to the polls, but there does seem to be a strong sentiment among Texans against top-down centralized planning. The recent mayor’s race in Houston grabbed national attention because of the winner’s sexual orientation. But earlier Annise Parker had soundly defeated über-Smart Growth advocate Peter Brown, setting up her run-off with Gene Locke. Brown had made zoning and central planning a centerpiece of his campaign.
Texas has out-performed most other states in terms of economic vitality, housing affordability and other quality of life indicators, and its cities crowd Business Week’s top ten list of metros least touched by the recession.
When it comes to Smart Growth and centralized planning, political leaders at all levels and in all states should embrace the Lone Star attitude: Don’t Mess With Texas!
Thursday a man flew an airplane into the Austin, Texas, IRS Building. The Left claimed he was a “Tea bagger,” their vulgar term for Tea Partiers, apparently because he was anti-government. The Right claimed he was a whacky leftist, apparently because he was critical of Bush. A Muslim group claimed he was a terrorist, apparently because he wasn’t a Muslim.
They all miss the point, and quite frankly, the attempt to make political points out of personal tragedy is pretty disgusting.
Today, there is a report of a Moscow, Ohio, man who bulldozed his home before it was foreclosed. No doubt someone somewhere will try to make political hay out of this man’s misfortune. That will be as misguided as the response to the Texas man’s misfortune.
What these events really do is highlight the human costs of recessions, costs that increase in recession severity and duration. These are the more extreme examples, but the fact is, people’s lives are ruined in recessions. Some working families will suffer a permanent decrease in income. Some of our young people will never recover from a bad start to their working lives. Some families will be destroyed because of financial stress. Some individuals will commit suicide. A few will do things like bulldoze their home or fly into a building.
To ask how big a problem we have is to ask how many are unemployed and how long have they been unemployed. Here are the numbers as of January 2010:
- 14.8 million Americans were out of work and looking for a job.
- 6.3 million Americans had been out of work over six months.
- 9.3 million Americans were underemployed
- Over half of unemployed Americans had been out of work for over 19 weeks.
- The unemployed American’s average unemployment duration was 30 weeks.
- 4.5 million Americans had left the labor force.
All of these people deserve our sympathy. They also deserve more from our society and our leaders. Most of them are in their current circumstances through no fault of their own. Even worse, our political class appears to be far more interested in election, reelection, rewarding supporters, partisanship, and political purity than they are in providing the environment for job creation. They have also failed to provide a humane safety net, one that provides at least a minimum standard of living, maintains dignity, and provides appropriate incentives.
President Obama has announced a special program of assistance for home owners in the five states that have been hit hardest by the housing crisis. The proposed program is targeted at California, Florida, Arizona, Nevada and Michigan, where house price declines are more than 20% from the peak of the bubble.
The greatest losses occurred in California, Florida, Arizona and Nevada (see note), where peak to trough house price loses exceeded 40% in all 12 metropolitan areas over 1,000,000 population except Jacksonville. These markets accounted for 70% of the gross housing value loss in the nation before the Lehman Brothers collapse. House prices were driven to unprecedented levels of up to four times historic norms by overly prescriptive land use regulations (“growth management” or “smart growth”) that makes land unaffordable.
Average losses were more than $175,000 in the markets of these states, more than 10 times those in traditionally regulated markets such as Atlanta, Dallas-Fort Worth, Houston, Indianapolis, Kansas City and Cincinnati. These intense losses were beyond the ability of the mortgage industry to sustain and it is generally acknowledged that this precipitated the Great Recession.
Smart growth had nothing to do with the Michigan price collapse. There, the strong economic downturn pushed prices down even as the state escaped without a housing bubble.
The President’s program means that the nation is now paying twice for smart growth policies. The first payment was, of course larger, which cascaded into the huge household wealth losses in the Great Recession.
Note: While Las Vegas and Phoenix are sometimes perceived as not having prescriptive land use policies, the Brookings Institution ranks both metropolitan areas as toward the more restrictive end of the regulatory spectrum. These overly prescriptive regulatory environments are exacerbated by the fact that in both metropolitan areas much of the developable suburban land is owned by government, and is being auctioned, though at a rate less than demand. These factors combined to drive auction prices per acre up nearly 500% in Phoenix and nearly 400% in Las Vegas during the housing bubble.
The Virginian Pilot reports that the cost of the Hampton Roads (Virginia Beach-Norfolk metropolitan area) “Tide” light rail line has now escalated to nearly $340 million. This is up nearly one-half from the estimates made when the project was approved by the Federal Transit Administration. According to federal documentation, the line will carry 7,100 daily passengers in 2030. This means that the capital cost alone will amount to an annual subsidy of approximately $6,500 per daily passenger (using Office of Management and Budget discount rates), plus an unknown additional operating subsidy. This is enough to lease every daily commuter a new Ford Taurus for the life of the project (assumes a new car every 5 years and includes future car price inflation).
The light rail line cannot be expected to do much for transportation. Even if the line reaches its projected ridership (many do not) by 2030, it will carry only 0.1% of the travel in the metropolitan area (one out of every 1,000 trips).
Warren Buffett, CEO of Berkshire Hathaway (NYSE: BRK), and owner and investor of some very large financial firms including insurance companies, is paying favors backward and forward among the political appointees and politicians that have helped him through the financial crisis. This week, he brought Treasury Secretary Henry “Hank” Paulson to Omaha recently to help tout Paulson’s new book.
He’s also helping out Senator Ben Nelson (D-NE). A year ago, I button-holed Nelson after lunch with the Sarpy County (NE) Chamber of Commerce. He told us in March 2009 that he had discussed the Troubled Asset Relief Program (TARP) with Buffett before voting “yes” on the bailout. Now we are learning that Nelson is discussing other Congressional matters with Buffett – the health insurance bailout.
In October 2009, Bill Moyers investigative reporting gave us a complete outline of just how cozy the insurance industry is with Congress. I said it back then: what they are calling “healthcare reform” is really just “health insurance bailout.” President Barack Obama slipped up in July and called it “health insurance reform” which sent tongues wagging. How soon they forget, really. Seven months later, he’s back to talking about “Health Care Reform” only this time in the context of the possible failure of Congress to pass any legislation.
I doubt it’s necessary to reiterate, but just for the record: Nelson “added a provision (to the legislation) extending federal payment for Nebraska’s new Medicaid enrollees beyond 2017, when the federal share is set to begin to decline” The backlash on the “Kornhusker Kickback” came from a wide array of interests, including. Nebraska Governor Dave Heineman. Heineman appeared on Fox Business setting the record straight: he definitely did not suggest this idea to Nelson and he wanted no special deals for Nebraska.
So, who came galloping to rescue Nelson from the backlash and fallout? None other than Warren Buffett was quoted defending Nelson to the press. And Nelson didn’t let the effort pass unnoticed. Nelson is running television ads in Nebraska quoting Buffett’s comment that “he would have made the same vote” as Nelson on the health insurance bailout. Buffett called Nelson’s vote “courageous”: How much courage did it take for Nelson to vote in favor of legislation that is supported by his largest donor?
Did I mention, again, that Buffett’s BRK holds insurance companies – ten of them according to the 2008 annual report. The holdings include not only property and casualty insurance, but also “reinsurance” (which could include the full spectrum of insurance businesses). Buffett calls this “the core business of Berkshire.” His insurance operations, “an economic powerhouse,” provided $58.5 billion in cash “float” on which they earned $2.8 billion.
Berkshire Hathaway employees and PACS are top contributors to Nelson’s political campaigns. Nelson has a long history with insurance. According the Clean Money Campaign, his pre-politics career was spent as “an insurance executive” and “insurance company lawyer.” His “lifetime campaign contributions from the insurance industry rank him fourth in the Senate,” behind only McCain, Kerry, and Dodd.
Hank Paulson, Warren Buffett, the Financial Crisis Inquiry Commission and now Senator Ben Nelson: part of the problem – not the solution.
Just in time for the winter Olympics, The Economist has rated Vancouver as the world’s most livable city. The Economist rates cities (presumably metropolitan areas or urban areas) “over 30 qualitative and quantitative factors across five broad categories: stability, healthcare, culture and environment, education and infrastructure.” There is no doubt that Vancouver is in a setting that is among the most attractive in the world. It is also clear that the quality of life is good in Vancouver.
Vancouver won another honor in the last month, that of most unaffordable housing market in the six nations surveyed by the Demographia International Housing Affordability Survey (United States, United Kingdom, Canada, Australia, Ireland and New Zealand). In Vancouver, housing costs 9.3 times annual gross household incomes and is rated severely unaffordable. This measure, the Median Multiple, would be 3.0 or less in a properly functioning urban market. The second most expensive major “city” in Canada was Toronto, far behind Vancouver, but still severely unaffordable at a Median Multiple of 5.2.
Meanwhile, Pittsburgh, the ranked highest city in the United States (yes, higher than Portland, Seattle or San Diego) shows that affordability and livability are not incompatible. Pittsburgh has a Median Multiple of 2.6.
Vancouver’s high ranking, however, makes it clear that the cost of housing (and by extension, the cost of living), has little to do with The Economist ratings. As Owen McShane wrote here to commemorate the last release of The Economist ratings, the cities are ranked based upon their attractiveness to expatriate executives. These are not ordinary Canadians. At historic credit underwriting standards, 85% of Canadians households could not qualify for a mortgage on the median priced house in Vancouver.
Vancouver is doubtless among the most livable cities in the world for those for whom money is no object. But for ordinary Canadians, affordability is a prerequisite to livability. This makes Vancouver Canada’s least livable city.
While Houston is not a Silicon Valley, or even an Austin, it has come a long way in cultivating a small but vibrant entrepreneurial scene in the last decade. But there's always room for improvement, and we might be able to learn some lessons from Israel, of all places. First, there is this conclusion from an Economist article on the mostly-sad story of government strategies for cultivating entrepreneurship:
The country that has led the world in promoting entrepreneurship has also done the most to plug itself into global markets. The Israeli government’s venture-capital fund, which was founded in 1992 with $100m of public money, was designed to attract foreign venture capital and, just as importantly, expertise. The government let foreigners decide what to invest in, and then stumped up a hefty share of the money required. Foreign venture capital poured into the country, high-tech companies boomed, domestic venture capitalists learned from their foreign counterparts and the government felt able to sell off the fund after just five years.
Last year Israel, a country of just over 7m people, attracted as much venture capital as France and Germany combined. Israel has more start-ups per head than any other country (a total of 3,850, or one for every 1,844 Israelis), and more companies listed on the NASDAQ exchange, a hub for fledgling technology firms, than China and India combined. It may not have the same comforting ring as “the Swedish model” or “the polder model”, but when it comes to promoting entrepreneurship, “the Israeli model” is the one to emulate.
What's Israel's 'secret sauce'? This book review from Newsweek lays it out:
How does Israel—with fewer people than the state of New Jersey, no natural resources, and hostile nations all around—produce more tech companies listed on the NASDAQ than all of Europe, Japan, South Korea, India, and China combined? How does Israel attract, per person, 30 times as much venture capital as Europe and more than twice the flow to American companies? How does it produce, for its size, the most cutting-edge technology startups in the world?
There are many components to the answer, but one of the most central and surprising is the Israeli military's role in breaking down hierarchies and—serendipitously—becoming a boot camp for new tech entrepreneurs.
While students in other countries are preoccupied with deciding which college to attend, Israeli high-school seniors are readying themselves for military service—three years for men, two for women—and jockeying to be chosen by elite units in the Israeli military, known as the Israel Defense Forces, or IDF.
I goes on to detail the elements of the military culture there that carry over into the entrepreneurial world: innovation, improvisation, flat, anti-hierarchical, informal, flexible, multi-disciplinary, diversity, challenging, meritocratic, and intense 'crucible leadership experiences' to forge deep social bonds and networks that are later leveraged to create startups.
Now obviously Houston (or Texas or the U.S.) won't be instituting mandatory military service anytime soon. But could we form a local civilian corps of high school and pre-college youth to create a similar environment, focused on tough social problems and charitable work. If we modeled the corps on Israel's military culture, and made sure to craft the experience to be very attractive to college admissions departments, there's a lot of potential here to attract youth, work on some of the city's toughest problems, and cultivate a generation of entrepreneurs to add economic vibrancy to our city for decades to come. Oh, and we could match them up with older philanthropists and retirees to provide both funding and mentorship.
Combine that with new sources of local venture capital, and we could really turbocharge the local startup scene. I'd love to hear your thoughts on how we might structure such a corps and the problems it might work on in the comments.
Australia’s Treasurer Wayne Swan called for reducing restrictions on building houses, to improve housing affordability. The Treasurer’s comments came amid growing concern about housing cost escalation that has been highlighted by recent reports, including the 6th Annual Demographia International Housing Affordability Survey (which identified Australia as the most expensive nation surveyed).
Treasurer Swan told the Herald Sun in Melbourne “Unless constraints to the supply side of the market are addressed, our cities will not adapt to meet the needs of a growing population and we will see continued problems of affordability for ordinary Australians.” He continued: “We are not building enough houses and if this continues then we will all be paying increasingly more and more for our housing whether it be in terms of repayments or in terms of rent.”
Australia’s housing affordability crisis, has been the result of overly restrictive land use policies (called “urban consolidation” or “smart growth”), which by intensively controlling the land supply, raise its price and that of housing. This association between prescriptive land use regulations and the loss of housing affordability has been documented by a number of the world’s most eminent economists, such as Kate Barker, a member of the Monetary Policy Committee of the Bank of England and Donald Brash, former Governor of the Reserve Bank of New Zealand. Brash has said that “the affordability of housing is overwhelmingly a function of just one thing, the extent to which governments place artificial restrictions on the supply of residential land.
Indicating the “can do” attitude so typical of Australia, the Treasurer said: “We can and must do better than this.”
Warren Buffet, CEO of Berkshire Hathaway, and Henry “Hank” Paulson, former Treasury Secretary, were guests of honor at the annual meeting of the Omaha Chamber of Commerce this week.
That the two of them are together should be no surprise: Paulson orchestrated the largest bailout of financial institutions in the history of the world – and Buffett is an owner of some of the largest financial institutions. To put it bluntly, Paulson helped bailed out Buffett’s financial institutions and now Buffett is helping Paulson tout his book. It’s not a pretty picture.
Yet, the event sold out well in advance. Granted, Buffett’s contribution to Omaha’s economy cannot be minimized. Warren Buffet keeps Omaha on the global map – travel anywhere in the world, tell them you’re from Omaha and see whose name comes up first. He is also a regular contributor to charitable and social causes throughout the region. Berkshire Hathaway’s (NYSE: BRK) companies employ about 246,000 people – though only 19 of them are at the Omaha headquarters. None of BRK’s companies are among the top 25 employers in greater Omaha. (Nebraska Furniture Mart, with just over 2,700, ranks 32nd and is the only one in the Top 100.)
We all have 20/20 vision in hindsight, including Senator Chuck Grassley (R-IA). In April 2009, seven months after the Bailout passed, Senator Grassley said of Paulson that Congress “was awed by a person who comes off of Wall Street, making tens of millions of dollars. … You think he knows all the answers and when it’s all said and done you realize he didn’t know anything more about it than you did.”
The Troubled Asset Relief Program (TARP) was sold to Congress and the American public as an absolute necessity to save the American Dream of homeownership. It was supposed to be used to help homeowners with mortgages bigger than the market value of their homes. As soon as Paulson’s Treasury got the money they decided to bailout big banks instead. Since then, Paulson, along with current Treasury Secretary Timothy Geithner, and Federal Reserve Chairman Ben Bernanke have refused to comply with demands from Congress to produce documents about the TARP recipients’ use of funds. The legislation was passed and the funds were released, and Treasury gave the money to banks with no restrictions on its use – no monitoring, no reporting requirements, no nothing.
So, why would Warren Buffett look so favorably on Paulson? Warren Buffett – our widely revered Oracle of Omaha – is one of those who built the boom in the capital markets and are benefiting from the bust. No surprise then that Buffett whose primary business vehicle is a financial holding company, supported the bailout of financial institutions. BRK’s businesses include, among others, property and casualty insurance and financial holding companies.
Of course Buffett was in favor of the bailout – his companies directly benefited as did the investments made by his companies. He put $5 billion into Goldman Sachs preferred stock with a 10 percent dividend – a substantially better rate of return than the US government got on our $10 billion bailout. Berkshire Hathaway was the largest shareholder in American Express Co. when they received $3.4 billion from Uncle Sam. Paulson is now insisting that US taxpayers will profit from the TARP bailout – if we do, which I doubt, I’m sure we won’t profit as much as Buffett did.
Paulson claims, in his book, that he turned to Buffett for advice about saving Lehman Brothers from demise. This strikes me as a very odd story, considering that Buffett told the press in March 2009 that he couldn’t understand the financial statements of the banks getting the bailout money. Add to this the fact that Senator Ben Nelson (D-NE) told me that he talked with Warren before voting for the first bailout package. (I button-holed him after lunch with the Sarpy County Chamber of Commerce) and you begin to get the real picture – the government was taking advice from financial institutions about the bailing out financial institutions.
To bring the problem full circle, consider this. In January, a bi-partisan Financial Crisis Inquiry Commission was appointed to find the answers to the causes of the financial crisis. They may not have to look any further than the nearest mirror. USA Today reported earlier this month that the members of the panel “have consulted for legal firms involved in lawsuits over the crisis.” A Commission composed of members who earn their livelihood from financial institutions is unlikely to solve the mystery of the causes of the greatest financial collapse in the history of the world.
Like the Commission, Hank Paulson and Warren Buffett are part of the problem – not the solution.
Darwin, capital of Australia’s Northern Territory is located next to the sea, across from the Indonesian archipelago. Darwin is also located next to a sea of developable land in one of the world’s least developed nations. Only 0.3% of Australia’s land is developed, approximately 1/10th the rate of the United States or Canada (in the agricultural belt) and even less compared to European nations.
Local Officials Report Erroneous Data: Yet, Darwin has severely unaffordable housing in our 6th Annual Demographia International Housing Affordability Survey. Upon initial publication of this year’s report, local officials identified a mistake in the median house price figure that they had made available to the press (and that we had used). Rather than a median house price of $607,000 (US$510,000), they announced that the median house price in September 2009 was $499,000 (US$425,000). Officials also corrected the median house price figure for the previous quarter.
Housing Affordability: Still Dreadful” The result was that the Median Multiple (median house price divided by median household income) fell from 8.6 to 7.1. Affordable markets have a Median Multiple of 3.0 or below. As originally reported Darwin was the 4th least affordable market out of 272. We have revised our report to reflect the newly revised data. Darwin is now rated as 13th least affordable market, which is only marginally less dreadful.
Still As Unaffordable as New York or London: This was cause for celebration by the Chief Minister (Premier) of the Northern Territory, Paul Henderson, who noted that housing was less expensive in Darwin than in Tokyo. We do not know the Median Multiple for the Tokyo metropolitan area, because data is not readily available. However, Darwin is as expensive relative to incomes as New York and London.
Darwin: A Metropolitan Area in Housing Stress: At the median house price, the median household will pay half its income for the mortgage. This is well above the "mortgage stress" level of 30% as defined by government agencies. The overwhelming majority of Darwin’s future households will be faced with housing stress or could be life-long renters. The price for most residential building lots (blocks) in the new suburb of Johnston is approximately the same as the US median house price, even after adjusting for currency differences.
High Demand Markets are More Affordable: Atlanta and Dallas-Fort Worth each have added the equivalent of Darwin’s population annually during the 2000s and have exhibited far higher underlying demand for housing. Yet housing is affordable (Median Multiples under 3.0). If Darwin had the same price to income ratio as Atlanta, the median house price would be little more than $150,000.
Extinguishing the “Great Australian Dream:” It was not always this way. Before the widespread adoption of “urban consolidation” policies (also called growth management, smart growth or compact city policies), sufficient land was always available to build on across Australia. In the last two decades, however, urban consolidation policies have ravaged Australia’s household wealth, driving prices to the highest levels in the English speaking world.
Few places in the world are more unaffordable than Darwin. Few places have more land to grow. Heavy handed and stingy planning has extinguished the Great Australian Dream in Darwin.