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The Great Capital Strike The growth of the market for residential mortgage-backed securities in the United States has been spectacular: from zero in the early 1980s to multi-trillion annual originations by 2006. Residential mortgage underwriting standards declined for a variety of reasons, including incentives created by the Federal Reserve. This led to the creation of nontransparent mortgage products, many of which were loans to speculative "flipper" homebuyers. The future of securitization remains murky, but will include simpler and more transparent instruments. A necessary condition for a sustainable securitization system is the existence of an "investment community" filled with seasoned and informed investors equipped with proper tools for measuring, managing and trading underlying mortgage risks.
Bad and Good Securitization This article describes the causes of the boom and bust in the U.S. housing market that brought down not just the U.S. financial system but the global economy. How did this vicious cycle begin? How did home prices appreciate so far and so fast? Why did rational investors not recognize and stop mispricing and investing in these loans on Wall Street? The authors find that at the root of the subprime problem was a new class of specialized mortgage lenders and securitizers unrestricted by regulations governing traditional lending and securitization. Aggressive lenders piled in by offering loans with low upfront costs, attracting first-time homebuyers previously unable to afford houses, repeat buyers buying pricier homes and second homes, and speculators. These practices drove prices particularly high in Arizona, California, Florida, and Nevada, which had significant land-use regulations and environmental controls that reduced supply elasticity, leading increases in demand to trigger mostly higher prices instead of a greater supply of housing.
Resort Development The second-home resort property market is in the midst of a severe downturn. The prospects for a turnaround are not immediate, and even the most optimistic investors feel that there may be multiple quarters ahead before an uptick in activity. As a result, resort developers are embarking on strategies to minimize capital while maximizing value. Resort developers will need to focus on: lowering risk by lowering upfront investment in infrastructure, high-rise construction, and operations; increasing and maintaining more flexibility and responsiveness to local conditions and the environment; making projects more adaptable so they can be used in multiple ways and for different purposes in the future; remembering that buyers want to feel good about their investment; and bearing in mind that scarcity and differentiation still drive value, more so now than in the past. Truly unique environments, where the experience is defined by the natural setting creating distinctive places with a strong sense of community, still command premiums.
Unraveling Housing Price Inflation Housing prices increased at a historic pace from 2002 to 2006 in most developed nations, puzzling many observers. Was this a "bubble" or merely supply and demand at work? The aim of this paper is to uncover the dynamics of housing prices from 2002 to 2006. In order to understand this remarkable phenomenon, economic fundamentals for different markets are investigated, including new residents per housing start, the availability of subprime mortgages, and the degree of regulatory constraint. We find the some countries and some areas of the United States experienced little appreciation in real housing prices from 2002 to 2006, and that extreme housing price run-ups were a highly localized phenomenon with huge variance.
Anatomy of a Crisis The financial crisis was a systemic breakdown caused by fraudulent mortgage brokers, fraudulent borrowers, uninformed homebuyers, speculative buyers who owned as many as a dozen homes with no equity and who counted on continually rising prices, overly aggressive Wall Street firms, undisciplined conduits, politically motivated legislators and regulators, politically induced relaxation of mortgage lending standards, overwhelmed and often conflicted rating agencies, and buyers of securitized mortgage debt who did not perform adequate due diligence. The key to a smoothly operating global financial market is trust in the system. The author argues that the current economic crisis is a basic principal/agency problem. When trust evaporates overnight, significant if notmajor financial firms find it impossible to fund their operations, and are exposed to insolvency.
Sustainability Assessment in a Global Market Over the past fifteen years, the construction industry has mobilized a serious response to the global sustainability challenge. This has led to diversity of efforts across the globe to develop building environmental assessment systems (BEAs), and many home-grown systems are in use today. There are currently more than forty BEA systems in use around the world. This paper examines the six best-known: BREEAM (UK), CASBEE (Japan), CEPAS (Hong Kong), Green Globes (Canada), LEED (USA), and SBTool (international). The authors also discuss two new systems, GBAS (China) and QSAS (Qatar), which attempt to adapt the lessons of these systems to local conditions.
Traditional Architecture and Urbanism The author describes New Urbanism and argues that traditional architecture is an important part of its approach to planning. Traditional architecture is described as a common language of the American middle class. Although the middle class is the social group that really matters, it is the only consumer of architecture not addressed by the modernist schools and the professional periodicals. The middle class, unlike the poor, has choices in the market—and they have chosen tradition. The best proof that traditional architecture has been well and truly revived is that it can be dependably taught. It is the rigor of the classical canon that enables this instruction. But in teaching the canon, care should be taken that students not become overly dependent on bookish authority. They must not fear to be "incorrect."The author concludes with examples of twentieth-century architects who have contributed to the classical canon.
New Urbanism and Sprawl This article looks at the net effect of adopting New Urbanist principles on urban density and thereby on the spread of the city. It considers the case of Cornell, a large New Urbanist development in suburban Toronto. The study determines the extent to which Cornell changed the demand for higher density housing, through survey research that explores the housing decisions of the project's occupants. A survey examined the complex decision process that people engage in before moving to their homes. The views of the households' decision sequences developed through the analysis of the survey data sheds light on several more general questions: Did residents willingly trade away lot size for the valued neighborhood attributes that can be attained only through higher density development? Did households reduce the amount of land they occupied relative to the amount they would have occupied had it not been for the New Urbanist option? How replicable is the Cornell plan? To what extent can New Urbanism replace the conventional suburb?
Ceiling Heights in Homes and Offices Certain domestic features are taken for granted in today's new home market: granite countertops in kitchens, separate glass-walled showers in bathrooms, walk-in closets in bedrooms. Another feature that has become common in new production houses is the high ceiling. According to the National Building Code, the standard ceiling height is ninety-six inches, or eight feet; for suspended ceilings, the minimum height is ninety inches, or seven and a half feet. But nine- and ten-foot ceilings are now common, not only in living rooms and kitchens, but also in bedrooms. Even taller ceilings are appearing in custom homes. Yet, not so long ago, eight-foot ceilings were the norm. The reason for the change is a renewed appreciation of taller rooms, thanks to the conservation and secondary use of older buildings. An increased use of daylighting also explains taller ceilings of ten to eleven feet in office buildings.
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