Gordon Campbell | Parliament TV | Parliament Today | News Video | Crime | Employers | Housing | Immigration | Legal | Local Govt. | Maori | Welfare | Unions | Youth | Search

 


Housing Bubbles: Learning From Houston

Housing Bubbles: Learning From Houston


Hugh Pavletich
Performance Urban Planning
Christchurch
New Zealand

February 24, 2009

Mid last year, the satirical website, The Onion, pleaded for “just one more bubble” in "Recession-Plagued Nation Demands New Bubble To Invest In'’.

A vain hope…………

Recently Mr Koyo Oseki, executive vice president and head of Asian credit research of Pimco, wrote a most informative article Outlook for Global Finance where he discusses the Japanese Bubble of 1989 and the lessons that can be learnt from that experience.

Mr Oseki is very clear in explaining the behavior of housing bubbles and the limited ability of governments to arrest the inevitable process of bubbles deflating. He states –

“The only cures for asset deflation (mainly real estate assets) are a recovery in property demand via expectations of economic growth and improvement in asset operating profitability. This may sound like a tautology, but in a situation where the economy continues to retreat amid a financial crisis, demand for real estate will not recover until a severe enough drop in prices significantly reduces the downside risk of holding property. In Japans case it took 15 years for real estate prices to hit bottom, and it is unlikely that earlier government action might have halted the slide at a higher level. Even if it could have shortened the process and duration of the crisis, the government probably could not have prevented the drop in prices. That is, while government and central bank initiatives, such as liquidity provisions and outright purchases of securitized product, can help temper the disarray in financial markets, there are limits to government’s ability to prevent deterioration in the real estate market.”

The 2009 5th edition Demographia International Housing Affordability Survey, which surveys the 6 countries and 265 major urban markets of the English speaking world, is a useful guide in assessing the extent of the housing bubbles of specific urban markets.

Housing should not exceed three times gross annual household incomes.

If this does occur - it is a sure sign that there are governance and regulatory failures at the local level - that must be dealt with.

This years Demographia Survey identified 87 affordable markets – 77 of them in the United States and 10 in Canada. Currently – there are none in the United Kingdom, Republic of Ireland, Australia and New Zealand.

One of the major affordable urban markets is Greater Houston, an economic powerhouse with near 5.8 million people. This year’s Demographia Survey (September quarter 2008 data) found the median house price was $US160,200 with a median gross annual household income of $US55,000, so housing was 2.9 times household income at this time.

The September Quarter median house price was a peak as illustrated by the latest Houston Association of Realtors (HAR) Monthly Report , noting that in January 2008, single family homes were $US139,720 and January 2009 $US127,850. Houston has not been immune to the “sub prime slime” – and as the latest HAR Report states - it is this factor that’s pulling the medians down as the foreclosure stock is being cleared.

Houston cannot avoid the fallout from the sheer destruction created by the bubble markets, both within the United States and elsewhere – but is in a strong position to withstand the worst of it, as illustrated within this Dallas Federal Reserve Reports of January 2008 and May 2008 .

Understandably - conditions have eased as outlined within Dallas Fed Houston Update December 2008 .

US Builder magazine in conjunction with the construction industry researchers Hanley Wood – rate Houston the healthiest residential construction market within a recent EcoHome magazine article The Healthiest Housing Markets for 2009.

In assessing housing markets the magazine states –
“To compile these lists, we analyzed the top 75 housing markets in the country. We ranked them based on population trends and job growth, perennial drivers of housing demand. We also examined what’s happened with house prices, many of the healthiest markets have managed to hold the line on home values. And finally we considered the rate of building permits, which may be the single best ongoing indicator of builder confidence in a market”.

The article states that Houston is the “largest home building market in the country” with 42,697 building permits through 2008. The US National Association of Home Builders January 2009 Report State and Local Data: Housing Starts and Building Permits provides detailed data of permitting activity throughout the United States.

In assessing permitting activity – the best measure is permits per 1000 population. This would suggest that Houston with a population approaching 5.8 million and 42,697 permits had 7.36 permits / 1000 population through 2008.

A remarkable achievement, with US bubble markets collapsing.

To illustrate – if the US overall with its population of 305 million achieved Houston’s permitting rate of 7.36 / 1000 – 2.244 million new residential permits would have been issued nationally through 2008.

At the other end of the spectrum is the “epicenter of the global financial crisis” – California – where, with a population of 37 million, just 61,220 new residential permits were issued through 2008 – a permitting rate of 1.65 / 1000.

That’s just 22% of the Houston rate on a per thousand population basis.

If the United States was issuing new residential permits at the California rate of 1.65 / 1000 – just 503,250 permits would have been issued throughout 2008 Throughout 2008 there were 893,000 permits issued and for 2007 - 1.380, 000 permits issued . The latest report from the US Department of Commerce as reported by Bloomberg indicates that permits across the country have nearly reached 2008 California levels at 521,000 on an annual basis.

Recently – Metrostudy, a leading US construction industry researcher expressed the view that government projections on residential permits were too high (refer Metrostudy Calls Housing Starts Forecasts Too High).

For Australia to be permitting at the Houston rate of 7.36 / 1000 at its 2008 rate – it would need to reach 154,560; New Zealand 31,648; United Kingdom 448,960; Canada 242,880 and the Republic of Ireland 32,384 residential building permits annually.

Policymakers in bubble markets only have too choices –

Either – negligently stand idly by, allowing their construction industries and general employment to collapse – and with it – tax revenues.

Or - learn from Houston and Texas – fast.

ENDS

© Scoop Media

 
 
 
 
 
Parliament Headlines | Politics Headlines | Regional Headlines

Gordon Campbell: On The Farcical Elevation Of David Seymour

With the election won, it’s time to find jobs for the boy. David Seymour is the Act Party’s latest scrounger to be rewarded by the National Party, and not only with a seat in Parliament. This time around, a couple of parliamentary Undersecretary posts in education and regulatory reform have been thrown in, plus an annual salary of $175,000 while he learns the ropes. Shouldn’t Seymour at least be put on a 90 day trial before he gets his hands on that sort of serious moolah?

It would be for his own good, really. At this rate, Act is never going to learn how to make its own way in the world More>>

 

As Key Mulls Joining ISIS Fighting: McCully Speech To UN Backs Security Council Bid

It is an honour to address you today on behalf of the Prime Minister and Government of New Zealand. Our General Election took place last week - our Prime Minister Rt Hon John Key is engaged in forming a government and that is why he is unable to be here in New York... More>>

ALSO:

Labour: Cunliffe Triggers Party Wide Leadership Contest

David Cunliffe has resigned as Labour Leader, but says he will seek re-election... If there is any contest the election will have to go through a process involving the party membership and union affiliates. More>>

ALSO:

Flyover Appeal: Progress And Certainty, Or Confusion And More Delays?

Lindsay Shelton: The Transport Agency, embarrassed by the rejection of its flyover alongside the Basin Reserve, says it’s appealing because the decision could “constrain progress.” Yet for most clear-sighted Wellingtonians a 300-metre-long concrete structure above Kent and Cambridge Terraces would in no way be seen as progress… More>>

ALSO:

Gordon Campbell: On Cunliffe’s Last Stand

Right now, embattled Labour leader David Cunliffe has three options. None of them are particularly attractive for him personally, or for the Labour Party... More>>

ALSO:

Key Seeking 'New Ideas': Look To Children’s Commissioner On Poverty - Greens

John Key should not reinvent the wheel when it comes to ideas for tackling child poverty, and instead look to the recommendations of the Children’s Commissioner’s Expert Group on Child Poverty, Green Party co-leader Metiria Turei says. More>>

ALSO:

'Safe To Re-Enter' - OIA Docs: Safety Is Absolute Priority At Pike River Mine

“We understand that the time it is taking to complete our evaluation of the risks is frustrating for the family members and we are trying to complete this work as quickly as we can,” Ms Dunphy says. “It is Solid Energy’s responsibility to make this decision and we will do so, once we have all the information required to make a fully-informed decision.” More>>

ALSO:

Images & Report: Mihi To Welcome Newly-Elected MPs To Parliament

The 29 newly elected MPs were welcomed into Parliament with a Mihi. Parliament’s current Speaker David Carter offered advice from his experience working in Parliament advising the MPs to work collaboratively. More>>

Gordon Campbell: On Labour’s Very Bad Year

While Labour leader David Cunliffe still appears to be in denial about the extent of Saturday night’s debacle, there was hardly a single redeeming feature about the election results for the centre-left... More>>

ALSO:

General Election NZ: National Win

Election Night: With almost all votes counted National and John Key have won a third term and are close to being able to govern alone if they so choose. Key has indicated he will still reach out to form a Government with ACT, United Future and Maori Party. More>>

ALSO:

Perfectly-Timed Anniversaries: Suffrage Day Is Last Chance To Enrol

“The last chance to enrol is Friday 19 September. You can’t enrol on election day.” More>>

ALSO:

Get More From Scoop

 

LATEST HEADLINES

 
 
 
 
More RSS  RSS
 
 
 
 
Politics
Search Scoop  
 
 
Powered by Vodafone
NZ independent news