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November 2007
Wharton News
Paying for Great Weather
In an article "A Force of Nature" in the Newsweek Web edition (8/21), Joe Contreras wrote, " . . . residential-property prices in highly coveted cities like San Francisco, Seattle and New York are rising once again. Todd Sinai thinks he knows why." In the interview between Contreras and Sinai, Sinai agrees wealthier people are willing to pay a premium for living in places with great weather and/or resources (like San Francisco, Portland, or London; "As there's a larger, wealthier clientele of people who can live in [superstar cities], they outbid all those other people and they crowd them out."). But there is no more space for building or there are prohibitive growth controls in those cities, so real estate prices have nowhere to go but up. The service sector will probably earn a premium for working in such cities, even if they have to travel 90 minutes to get to work.
Summers Addresses Land Use Regulation
Real estate professor emerita Anita Summers addressed the Home Builders' Association of Bucks/Montgomery and Chester/Delaware Counties on Wednesday, November 7 on "Residential Land Use Regulation in the Philadelphia MSA."
"Do Political Parties Matter?"
When Wharton real estate professors Fernando Ferreira and Joseph Gyourko ask "Do Political Parties Matter?," they are not talking about national political parties, wrote Freakonomics author Stephen J. Dubner in The New York Times (Oct. 29). Ferreira and Gyourko are interested in whether party affiliation matters on the local level-and their answer, essentially, is no. Dubner cites the pair's findings: "[W]e find that party labels do not affect the size of government, the allocation of spending or crime rates, even though there is a large political advantage to incumbency in terms of the probability of winning the next election …In particular, there is a relatively high degree of household homogeneity at the local level that appears to provide the proper incentives for local politicians to be able to credibly commit to moderation and discourages strategic extremism."
Ferreira presented his paper, "Do Political Parties Matter? Evidence from U.S. Cities," written with Joseph Gyourko, at the University of California at Berkeley, Carnegie Mellon University, and the University of Southern California.
Zoning Restricts Affordable Housing
"Bay Area needs to rethink rules on land use, zoning," read the headline of Joseph Perkins' article in the Sunday, October 21, 2007 San Francisco Chronicle. The nine-county Bay Area region will add nearly 1.5 million residents by 2030, much of it homegrown—the children (and grandchildren) of people who already live there. Where will they live? When it comes to affordable housing, officials say barriers are lack of available land and high construction costs. However, according to Joseph Gyourko and Edward Glaeser, the real culprit is restrictive zoning and excessive land-use regulations, making construction prohibitively expensive in attractive cities. Perkins writes that Gyourko and Glaeser "made the convincing case that 'if policy advocates are interested in reducing housing costs,' and thereby making housing more affordable, 'they would do well to start with zoning reform,'" reducing "the implied zoning tax on new construction" rather than mandating so many "affordable requirements upon home builders."
The High Price of "Superstar Cities"
In "A Tale of Two Town Houses" in the November Atlantic Monthly, Virginia Postrel analyzes the costs of building houses in Los Angeles vs. Dallas, citing research by Joe Gyourko on "superstar cities." These places, Gyourko says, "just control the heck out of land use." Referring to Gyourko's research, Postrel wrote, "the lowest-density areas around expensive cities tend to have the least new construction and the most land-use restrictions. It's actually somewhat easier to build in more densely populated towns and neighborhoods—the opposite of what you'd expect if a shortage of empty land were the problem." In superstar city Los Angeles, "L.A. home buyers paid for local land-use controls in bureaucratic delays, density restrictions, fees, political contributions. That's the cost of the right to build." And if you're in the middle class, says Gyourko, " . . . your basic $85,000-a-year person can't own in Los Angeles. You can't do it."
Student Real Estate Club Events
Asuka Nakahara hosted a brown bag lunch for the MBA Real Estate Club on November 5. He moderated a discussion a finance panel on November 15. This year's panel included Jackie Hamilton, managing director, Lehman Brothers Investment Banking; John Klopp, CEO, Capital Trust; Devin Aronstam, vice president, Lubert Adler Partners; and Dave Congdon, senior vice president, Hines.
Rybczynski on Architecture, Development and Frederick Law Olmsted
Witold Rybczynski, Martin & Margy Meyerson Professor of Urbanism at the University of Pennsylvania's School of Design and Wharton professor, lectured on real estate development at the Indianapolis Museum of Art, and the Westport Art Center, in Westport, Conn. He also spoke on Frederick Law Olmsted to the Cadwalader Park Conservancy in Trenton, N.J. His articles on architecture continue to attract a wide readership on Slate.com.
Wachter on Real Estate Markets
Real estate professor Susan Wachter addressed the Emerging Trends in Real Estate 2008, 8th Annual Capital Markets Trends Forum of the Urban Land Institute in Philadelphia on November 8. Dr. Andrey Pavlov and Dr. Wachter presented their paper, "Underpriced Lending and Real Estate Markets," at the Maastricht-Cambridge MIT Conference, in Cambridge, Mass. on October 13. Her work was cited in the September 2 New York Times article, "Replacing Neglect with Peach Trees;" in a September 26 Business Week article "Traders Betting on Home Price Declines;" on NPR and in many newspapers, concerning her 2007 third quarter U.S. Mortgage Payment Index, showing the increasing divergence in mortgage rates for jumbo and subprime versus conforming loans.
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