Category Archives: Real estate

Nominee for Year’s Silliest Statistic: USGBC’s “square feet of LEED-certified space per capita”

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We’re not even one month into the year and we already have a nominee for the Year’s Silliest Statistic.

In a press release, the U.S. Green Building Council announced its 2011 list of top 10 states for LEED-certified commercial and institutional green buildings per capita.

The press release notes that the District of Columbia leads the nation, with more than 31 square feet of LEED-certified space per person in 2011. This caused one LEED-accredited architect on USGBC’s mailing list to remark:

Oh, and since I’m in a quibbling kind of mood, considering this organization is entirely based on the accuracy of its metrics, someone needs to remind them that DC is not a state. The disparity in its score alone should be an alarm that this is not an apples to apples comparison.

Per capita?

As far as useless statistics go, “square feet of LEED-certified space per capita” is right up there with “strip clubs per capita.”

No, I take that back.  ”Strip clubs per capita” is a useful statistic for some people.  It signals the opportunities a tourist might have to visit an adult entertainment establishment, if that’s his or her thing.

But “square feet of LEED-certified space per capita?” I am willing to bet you’ll never hear a tourist say, “A few friends and I are going to Washington, DC next weekend, and I hear that the nation’s capital has the most square feet of LEED-certified space per capita in the US. I can’t wait to check out some green buildings while I’m in town.”

Rick Fedrizzi, President, CEO & Founding Chair of the USGBC provides his explanation for one of the year’s silliest statistics: “Looking past the bricks and mortar, people are at the heart of what buildings are all about. Examining the per capita value of LEED square footage in these states allows us to focus on what matters most—the human element of green buildings.”

And, with that bit of bafflegab, we present the first nominee for the Year’s Silliest Statistic.

 

Sq. ft. of space to earn
LEED-certification in 2011		 Per capita
District of Columbia 18,954,022 31.50
Colorado 13,803,113 2.74
Illinois 34,567,585 2.69
Virginia 19,358,193 2.42
Washington 14,667,558 2.18
Maryland 11,970,869 2.07
Massachusetts 13,087,625 2.00
Texas 50,001,476 1.99
California 71,551,296 1.92
New York 36,538,981 1.89
Minnesota 9,591,445 1.81

Bernanke’s Magic Eight Ball broke in early 2006

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This quote from Fed Chairman Ben Bernanke might be right up there with, “This ship is unsinkable.”

On the other hand, in Oregon, the state economist laid out some optimistic and pessimistic scenarios.  Here’s the pessimistic scenario (which, to be fair to Bernanke, the Oregon state economist did not think would be the most likely outcome):

At the same time, the housing market experiences a more severe correction with prices falling more than 20 percent by early 2007 and larger drops in housing starts and related residential consumption (construction, building materials, home furnishings, etc.). With foreign demand weaker, exports are also softer. Businesses react by slowing investments and consumers pull back spending. Both profits and the stock market soften in 2005 and further in 2006. Oregon businesses follow suit and slow down hiring to reflect the slower economic activity. The scenario does not result in a recession.

Two out of three ain’t bad.

New York Fed: Flippers fed the housing boom and fostered the housing bust

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A recent New York Fed study suggests that real estate “investors” (a/k/a “flippers”) played a big role in the enormous increase and subsequent collapse in housing prices during the 2000s.

The study notes that these investors used financial leverage in the form of mortgage credit to purchase multiple residential properties. As down payments on the properties are reduced, the upside benefits accrue to the investor/flipper, but the downside risks increase for the lender.

The study concludes that real estate investors likely helped push prices up during 2004-06. Then, when prices turned down in early 2006, investors defaulted in large numbers and thereby contributed importantly to the intensity of the housing cycle’s downward leg.

The study is Haughwout, A., Lee, D., Tracy, J., and van der Klaauw, W. Real estate investors, the leverage cycle, and the housing market crisis. Staff Report No. 514, Federal Reserve Bank of New York.

A summary/press release of the study is available from the New York Fed.

Factors contributing to a sticky housing market

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Labor mobility is a key condition for a well-functioning labor market. If workers can’t move from place to place, then they can’t adequately respond to changes in the job market. Some observers have been concerned that homeownership can be a drag on a worker’s ability to respond to changes in the job market. At the same time, reduced mobility can contribute to a sticky housing market with reduced turnover and the potential for depressed prices.

A staff report from the New York Fed takes a look at how three issues facing homeowners affect the ability of homeowners to move as economic conditions change.

  • Being “underwater” reduces household mobility. Negative equity reduces household mobility by 30 percent
  • Property tax increases and/or increased mortgage costs reduce mobility.  The study finds that $1,000 of additional mortgage or property tax costs reduces household mobility by 10 to 16 percent.

For the complete study, see Ferreira, F., Gyourko, J., and Tracy, J. (2011) Housing busts and household mobility: An update. Staff Report No. 526, Federal Reserve Bank of New York.

Jaw dropping construction costs seem to be the norm for Portland’s public sector

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The Oregon Sustainability Center is just one piece of Portland’s plan to become the sustainability capital of the world.  Building backers hope it will be a jewel in the crown of a sustainability showpiece.  Critics fear it will be more famous for its jaw-dropping construction costs and the inflated rents necessary to make the project break even.

Enter Tom Kelly.  Mr. Kelly knows buildings and building costs. He is president of Neil Kelly & Sons, which is one of Portland’s top remodeling firms. This year he was named Remodeling Entrepreneur of the Year, a national award.

Today’s Oregonian gave Mr. Kelly a featured letter to the editor as a follow-up to its own editorial.

Mr. Kelly’s letter addresses the costs of building the Oregon Sustainability Center by pointing to other Portland projects that also have jaw-dropping construction costs.

Each of the projects mentioned are in the public sector. One is the Port of Portland’s new headquarters and the other is Oregon Health and Science University’s Life Sciences building.

With the economic downturn, office construction in downtown Portland has been at much of a standstill.  The most recent private sector office building completed is called First and Main, a class A building with LEED Platinum certification.  Although construction cost have not been made publicly available, the building recently changed hands at a price per square foot that is 26 percent lower than the costs of constructing the public buildings.

Case-Shiller: Portland home prices drop in October 2011

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The Standard & Poor’s/Case-Shiller index released today showed prices dropped in October from September in 19 of the 20 cities tracked by the index.

In Portland, the home price index fell one-half percent between September and October. Prices were 4.7 percent lower than October 2010 and down 27.7 percent from their peak in April 2007.

Real estate economists have a rule of thumb that on average, over the long-run, home prices have appreciated at approximately 6 percent a year. From 1987, the first year of the Case-Shiller Index, through 2003 Portland home prices roughly followed that trend. Beginning in 2004, home prices saw a steep climb and even steeper fall. The most recent data show that the index is approximately 34 percent lower than if the index had followed the rule of thumb since 2003.