London Properties

Real estate property prices in London are astonishing. This is not an atypical “listing” in the centrally located district of Marylebone.

The cost of this flat is 975,000 pounds. At our current rate of approximately $1.50 USD to each GBP, that comes out to about $1,500,000.

The flat is 620 square feet. Let’s repeat that again – 620 square feet. It is possible that there are upscale dorm rooms in the US larger than this for affluent college kids. That works out to about $2400 a square foot.

You also don’t “own” the land underneath your flat. In this area of town the Portman Estate owns land and there are other companies, as well. You buy a “lease” and as your lease gets closer to its termination date the cost to “renew” the lease goes up substantially. “Ground rent” is a pittance (a few hundred dollars a year) but the renewal of the lease can be very costly especially as it nears its term. I am far from an expert and picked up my information from online sources and brief conversations but this article in the Telegraph has additional data if you’d like to research further. On top of the costs to extend the lease which can be as high as $100,000 dollars there are fees for surveyors and others just as in the US when you need to employ various professionals for your mortgage financing.

There are other places in the world where the cost per square foot is $3000 or more – but these are generally penthouses or high profile properties, not a small flat in a great neighborhood in London with likely not much of a view at all. This sort of price, however, is not out of the norm in this neighborhood.

Who can pay these sorts of prices? For the most part, foreigners can. According to this article 60% of the buyers of real estate in central London were from overseas. They were driven by the lower value of the pound (which makes their currency go further), the favorable tax regime, and the security and stability of living in London (compared to their often dodgy governments).

For UK citizens paying tax rates in the 50%+ range (as opposed to wealthy foreigners who pay little as a percent of their income), you would need to make an astonishingly high amount of earnings to pay for a high quality residence in an exclusive part of London. Remember that not only are real estate costs high, personal taxes are high, and everything you buy from cars to furnishings to services such as a nanny are sky-high, as well. I had a discussion where a friend mentioned someone who had to make 2 million pounds / year in order to live at what he considered to be an acceptable level in this part of town.

Cross posted at LITGM

Trying To Sweep Up After the Last Boom…

Recently I saw this sign in River North, indicating the start of another large high rise project, with an optimistic start date of 2016. Apparently there is plenty of money sloshing around to fund the construction of large buildings, because cranes are up in the sky all over the downtown area. I don’t know if lessons have been learned from the last and most recent bust in 2008, where developers who put in only a bit of equity defaulted and handed the projects back to the creditors, who also took big losses. The most obvious lessons would be 1) require developers to put significant equity into the project 2) don’t fund too many projects competing for the same tenants. These projects don’t seem to be condominiums for the most part; I am only speculating but perhaps the failure of so many condominium projects rattled the banks (those that are still standing, at least).

I would consider it a victory if they finished a few of the half-built structures that have stood idle for five or more years without any progress. This hotel in River North is now restarting; I have been looking at this ugly mess for years so it is great to see some sort of actual effort to complete the hotel.

The real issue is whether or not the structures being built right now, at what is likely the apex of the boom, will be seen through to completion. I certainly hope so, because it is depressing to see half-built structures marring the skyline for years. The famous “Chicago Spire” didn’t get far (only a hole in the ground) which is a good thing because it would have been sad to see the “Stub” along the lake shore for years to come.

Cross posted at LITGM

The Many States of America

Recently I was reading how a professor at the University of Illinois at Chicago was arrested for bringing an unloaded handgun to work, and that it made the news media. I reflected briefly on the fact that you can bring a loaded, concealed gun with you in most places in many states in the US and it wouldn’t be news, it would in fact be normal activity, for instance in the adjacent state of Indiana.

Meanwhile, in California, it is common for people to smoke marijuana openly as is discussed here. Needless to say, this behavior would get you immediately arrested in many states particularly in the south and midwest.

Taxation is also highly variable on a state and city basis. New York and California have some of the highest taxes, particularly on income beyond a particular level (progressive taxes). On the other hand, states like Florida and Texas have a much lower level of taxation and a much freer business climate in terms of regulation.

Without getting into the hottest of hot-button issues, clearly there are differences in the types of marriages and reproduction rights / right to life on a state by state basis. These differences are narrowing in some areas and getting wider in others.

Some states have “right to work” laws which massively limit union power, and have flourishing and expanding manufacturing economies as a result. Visit Alabama, South Carolina, and Texas to see where all the former manufacturing might in the midwest and Northeast and West Coast migrated to (if it didn’t go to China or overseas). The enacting of “right to work” laws obviously sends an important signal to business leaders whether or not a state is a friendly place to do business for incremental investment (along with taxation).

The “fracking” revolution has unleashed vast wealth in some states, and in other states it has been banned or severely curtailed. Meanwhile, California is going in on its own with carbon regulations and highly aggressive “green” energy targets, while other states are heavily reliant on traditional (and cost effective) technologies.

The differences on a state-by-state level on these different dimensions seem large and growing. They are much more subtle (though often correlated) with the Red / Blue analysis. An attempt to classify these vectors could be done as follows:
Energy Freedom – the ability to extract and use cost effective technologies (like natural gas, fracking, and coal) and a state’s willingness to invest more for reliability or the requirement to use expensive (green) technologies and curtail energy use even at the expense of industry competitiveness and reliability. California is likely on one end and Texas is on the other side, although many others have large freedom including Pennsylvania.
Safety Freedom – the right to defend yourself at home, in transit, at work and during study or whether that is assumed by the state. Sadly the most restrictive is Illinois and there are many candidates on the other side throughout the south and midwest (Indiana).
Personal Substance Freedom – the right to smoke, the right to drink, and the right to use various drugs or stimulants. Some odd states (like Colorado) are leading the way on this, it isn’t always the traditional Red / Blue divide.
Freedom to Work & Hire – the right to work and not be forced to join a union, and this is also tied with local laws and practices that limit the ability to hire and fire and direct hiring or limit firing in various dimensions.
Freedom to Build / Live / Rent – Houston is famous for having very limited zoning while other states and municipalities have highly restricted zoning practices. The New York co-op concept also severely limits new entrants along with rent control. These laws can also include whether you can work or have a business in your home. While subtle, these practices can have a large impact on prices and how the region functions.
Freedom From Excessive Taxation – Some level of taxation is necessary for government to function but high tax levels have severe intended and unintended consequences of under investment and evasion. Taxation includes state, local, city, sales, estate, property, and “sin” taxes. These vary significantly by area but are highest in California and the East Coast and likely the lowest in the South.
Freedom of Marriage Choice – A larger portion of states are recognizing marriages beyond the traditional marriage, and this varies by state
Freedom of Reproductive Rights – There are a wide variety of approaches and trends on a state level and then there are practical impacts, as well. This is highly variable by state in practice
Freedom on Medical Rights – an emerging model will be how each state approaches new medical practices and funding methodologies, along with the practical availability of doctors that subscribe to the state’s controls and funding methods. This area will grow exponentially in the near future

I believe that these sorts of analyses on a state by state level are much more useful than the traditional Red / Blue view (although they are often correlated) and when you start to dig in to the differences on a state and municipal level they are staggering, particularly when you view the extremes.

It would be interesting and useful to begin to put together the various data sets to analyze states and municipalities along these continuums, and others that I’ve likely missed.

Cross posted at LITGM

Real Estate: Flight Capital and Bigger Government

Miami residential real estate prices are holding firm and even increasing despite the weak economy. The recovery appears to result in significant part from capital inflows from French, Venezuelans and other foreigners whose governments are ramping up their attacks on private wealth. With low interest rates, a weak dollar and relative safety from confiscation, residential property in the more cosmopolitan US cities is a financial haven for Europeans and Latin Americans.

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Reviving the Garden

One of the best things about buying a house and retiring from the military was being able to feel free to actually get serious about a garden. I went through a phase of planting roses many of which have thrived and survived and a long project to rip out the existing lawn, back and front, and put in xerioscape plants. The back yard was the place that I put the most into, though. Because of the layout of the rooms and the windows in them, the back was the part I looked at the most. And because of the peculiar soil composition a foot or so of heavy, dense clay laid down over an impermeable layer of caliche which apparently goes all the way to the core of the earth getting certain things to thrive and grow in it has been a challenge.

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