Apartment nation: Multi-unit housing starts up 416 percent from 2010 low. Builders preparing for a nation with high rental demand.

There is a simple bet to take if you believe housing is going to lead this nation into a next wave of prosperity. Take a bet on home builders. The argument is that the U.S. population continues to grow so therefore, prices on homes will simply continue to go up. But what if the growth is coming to households with lower wages? The iShares U.S. Home Construction ETF is down over 6 percent for the year while the S&P 500 is up 1 percent. What gives? Isn’t the housing market recovering? Prices are up because of constrained inventory (now slowly picking up), investor demand (starting to wane), and artificially low interest rates. You’ll notice that few of the major reasons for higher home prices have to do with household balance sheets improving. If you truly believe housing has healthy demographics ahead you would bet on home building. This index is moving in the opposite direction of prices. The place where we do see home building is with multi-family building permits. Builders are gearing up for a nation of renters. In fact, multi-family housing starts are up a massive 416 percent since their low in 2010. Apparently builders are realizing that with incomes so low and weak household formation that when these households begin to form, the first step will be in a rental. Many in the Millennial cohort live at home while house horny parents try their best to out-bid investors.

Multi-family housing starts up 400+ percent

There is a simple bet to take if you really think the housing market is going to take the lead in a new recovery. Bet on U.S. Home Construction. Simple enough. You can purchase the ETF tracking the sector. As I mentioned before, this ETF is down over 6 percent for the year. Why? Because when it comes to supply and demand, you actually need the right supply and the right demand. You don’t see Ferrari setting up shops on every corner in Detroit. I’m sure people would love a Ferrari but simply put, they don’t have the income for this. Similar to housing in places like California, current residents do not have the income to buy even with artificially low interest rates and paltry down payment requirements. This trend has actually caused an out migration of domestic Californians out of the state for over a decade.

One sure bet however is the need for rental housing. Builders are ahead of the game on this one:

multi-family starts

Housing starts for multi-unit buildings are up 416 percent from 2010. As the nation becomes one of more renters, this is a good bet to make. At some point, many younger American adults will set out to form their own households. Given their weak balance sheets, the first step is likely to be in a rental. In the past, this was the traditional route. First you move out into a rental, save for a down payment, then bought a home. That part of the market has been stunted in this recovery because first-time buyers make a pathetic amount of all current home sales.

A nation of renters

The trend is very favorable to multi-family building:

renter nation

Since 2005 we have added 7 million rental households (no coincidence that we have witnessed 7 million foreclosures as well). During this same time, owner occupied housing has actually fallen. This is a trend that is fully in place. In more expensive markets, the rental share of the market is growing at a quicker pace. For example, in California you have 2.3 million adults living at home. Why? They either have no job, a job with low wages, or are financially struggling. These are the main culprits. This group is struggling to enter into a rental let alone buy a home. That is why in some areas investors make up the bulk of all home sales.

And the political winds are shifting. For example, the untouchable Prop 13 looks to be on the table for changes:

“(LA Times) I think that the withdrawal of our opposition, at least for now, suggests that we don’t see this as a direct threat to Prop. 13,” said Jon Coupal, president of the Jarvis group, whose crusade for the law sparked a nationwide tax revolt.”

This is to close a loophole on commercial properties. This loophole has been around for ages. Why be open to this change now especially from such a staunch opponent? Because California is building a bigger renting majority. Now just think when more and more of the population is renting and has little at stake in the property market. This is the trend.

Slow household formation

One of the more startling trends is in light of population growth, household formation has hit a wall:

US Households

This trend has been in place for over a generation and suddenly has stopped. What we will see however is more demand for rentals. As we have previously noted, we have added 7 million rental households in the last 10 years. With more rental housing on the market at some point you will see young adults moving out and getting their own place to live. In most areas of the country, housing is still affordable. Yet in many large metro areas this is simply not the case.

There are simple bets to make if you feel housing will continue to go up. Put your money on the line and buy. No one will stop you. Be an investor and purchase a home to rent out or flip. Prices only go up right? It is amazing how some people think that once you buy, you suddenly “own” the place when in fact, you have a 30 year locked in commitment. Similar to renting, you have to pay someone for a very long-time regardless of your path. In California house horny buyers would plunk down money they don’t even have to squeeze into a house to be an owner but at least we are still checking incomes for loans. We already have stats showing that usage of ARMs is at multi-year highs highlighting that people need every gimmick to squeeze the monthly payment down to as low as possible just so they can compete with investors. However, inventory is rising and in non-prime areas, the fever of house lusting lemmings is slowly cooling off. As it turns out when we look at the bigger picture, we truly are becoming a nation largely made up of renters.

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123 Responses to “Apartment nation: Multi-unit housing starts up 416 percent from 2010 low. Builders preparing for a nation with high rental demand.”

  • Get the serfs to overpay for housing, pop the bubble and take all the real assets, then make the serfs rent (often the houses they once owned).

    Almost seems like it was planned…

  • “With more rental housing on the market at some point you will see young adults moving out and getting their own place to live.”

    I wouldn’t bet on it. You need a yob if you are gonna pay rent…

    I will put my money on the CRMB’s (“Red” Chinese, Russian “Mob”, “Illegal” Mexicans and “Mysterious” Belgians) holding up our housing market way before the boomerang generation…

    “Be an investor and purchase a home to rent out or flip. Prices only go up right?”

    Yes! I am so tired of paying that monthly “opportunity cost” bill.

    • This article isn’t up to the Doc’s standards. Where’s the regional breakdown for Multi-family? Better yet where’s the growth by metro region chart?

      I would bet dimes to donuts that the growth is VERY concentrated to the major Metros and maybe even only a few of those. The US is the only first world nation that is fundamentally “For Sale”. The ability to repatriate dollars into US assets can and will continue to make the largest metro and financial centers an international destination. The bulls (as they do with much data) take this as bullish-everything and ignore the bifurcation of the market. If you want to live in certain metro areas and are waiting for a severe correction you are likely to be disappointed. it’s not a matter of it being “different this time” as much as it is “same as it ever was”. When the beneficiaries of inflationary monetary policy are chasing an asset if you aren’t “in the club” you don’t stand a chance. That being said, gravity is going to hit areas outside of the metros hard.

      In Santa Monica income stats may not matter to the median housing price as their are so many ancillary factors in play with foreign money and others whose income is not documented, not to mention supply constraints. Now does this apply to Rancho Cucamonga or Upland? I think not. The international Oligarchy isn’t rushing to buy your stucco shack in the 909. Same probably goes for Van Nuys and other places in the 818.

      The bottom line is we are coming to the end of an expansionary credit cycle that has put much money and power in the hands of a select few. The math is different in the markets they participate in because their personal wealth dictates it is. However we are talking about a VERY small group of people looking at VERY specific assets of quality. The bubbles that arise around them are collateral inflation born by market psychology and credit availability. Both of these factors are about to be reversed.

      Anyone willing to make an EMPIRICAL argument otherwise please do.

      • Tired of the BS

        “I would bet dimes to donuts that the growth is VERY concentrated to the major Metros and maybe even only a few of those.”

        I think this is spot on. The question I have is how sustainable an engine is when over half of its parts aren’t working well? I get the feeling that some folks think as long as they are making out okay in these few hot spots that it will simply be too bad for everyone else. I’m not so sure about that. I’ve got no empirical evidence to support this doubt, only experience to draw upon.

    • What? Not everyone can live at home with parents like you…

      • That is the best you got? Pretty weak…

      • What?

        You were a better poster when you stuck to sarcasm. Fits your mind perfectly.

      • Christie…I suspect that this What character is under 21. No adult post silly comments, well maybe I take that back ZerO is a very close call.

        Keep posting!

      • Kinda funny when the shills are the one’s giving me “advice” on how to post on a housing bubble blog. I guess I need to work much harder to become a “true shill”…

        Troll on brothers and sisters, troll on!

  • Actually what is happening is that the new economy, because of globalization, demands workers be more mobile. Hence, greater demand for rentals, to go where the jobs are. Plus, plenty of high paying entry level jobs where home prices are reasonable, because of the energy boom.

    Any slow demand for single family homes now just means the overall economic boom has further to go.

    • “Any slow demand for single family homes now just means the overall economic boom has further to go.”

      Joseph Openheimer – stick with nuclear fission. Economics is NOT your forte!

    • where'd my username go?

      The fracking boom is not sustainable. They’re picking off all the low hanging fruit right now and even part 1 of the US fracking story has been about irrational exuberance catalysed by Wall St. creating a bubble rife with profit loss.

      I did a back of the envelope calculation after examining a Haynesville well decline curve, using a first order related function to roughly model the decline curve, in order to put it into the perspective of multiple well starts versus production over time. From my original comment on climate crock’s blog:

      ‘Just examining the graph above, it’s declining a bit slower than if it were obeying a first order decay, but since i’m too lazy to try to roughly model multiple wells coming online in a spread sheet program, I’ll pretend its decline has some elegance to it:

      the elimination rate constant of one well looks to me to be about [ln7500 – ln3750]/8months or 0.086units/month.

      So if in a hypothetical situation where they drilled a new well every 1 month then their maximum productivity would be 7500/[1-e^(-0.086*1)] = around 91,000 units of production and the minimum production would be 7500*[e^(-0.086*1)]/(1 – e^(-0.086*1)) = around 84,000 units of production.

      So imagine a curve that has a shark’s teeth effect where the points of the teeth are 91k and the troughs between the teeth are 84k.

      If they drilled a new one every 15 days, then their max production is 178,000 units of production and the troughs are 170,000 units of production. And if they did it every 2 months their max is 47,000 and min is 40,000. So you can see how significantly the rate in which they start a new well effects their production max and minimums.

      All these numbers are on the low end because the decline is actually slower than a simple math formula can model it.’


      ‘1) if they are making new wells at a steady rate then there is a defined maximum in productivity. The only way to continuously increase production after a steady state is reached is to accelerate new drilling: a new well every 30 days, 25 days, 20 days,…,1 day, 1/2 day, 1/4th day…

      2) this implies an accelerated capital expenditure. The companies will have to reinvest revenue at an accelerated rate or suffer lack of organic revenue growth. In the end they’re going to have a lot of drill rigs, a bunch of torn up earth, and a need to sell those rigs off to another company in a game of musical chairs (or musical drill rigs). I’m sure they have lots of smart folks that know how to chase the curve back down so I’m hyperbolizing the situation with a simple summary, but someone in the future will eventually get stuck with having to sell that equipment at a loss.

      No matter what angle you look at it from, it’s not a very good investment unless we get into a situation where an acute finiteness is universally recognized whilst no alternative is readily available, and the price of gas steadily marches upward, predictably. I would avoid it as an investment. You just can’t defeat the finiteness of the situation…’


      • You’re way off topic, but I’ll bite.

        1) The idea that fracking is totally uneconomic is a position pitched by Moscow. It’s on the record, Beijing is ALREADY using American fracking as negotiating lever against Moscow INRE the latest natural gas mega-deal. This is the TRUE source of your analytical ‘insight.’

        2) Your discovery is apparently opaque to the players in the field. They’ve managed to fake out themselves, their bankers, their investors and the wider capitalist world. Everyone on the planet is trying to line up to make their same mistakes.

        3) The decay curves that you’re describing don’t address the ‘tail’ end of the production curve. The oil industry has a pretty good idea of how that plays out: Kern County California. It’s been pumping oil for a century. (!)

        4) All of the insiders can see that by the very nature of the deposit (ultra-huge and tight) that light, sweet crude figures to weep into production over the course of decades.

        5) Nicely, the first surge in production is so great, and so pricy, that the initial drilling outlays can be recovered in the first twelve-months. (!) This is the primary reason why the drilling tempo has been exponential. The players don’t need to seek all that much outside capital.

        6) At this time, the drillers are paying supra-normal wages and fees for just about everything. This boom time situation will fade. It always does. This will cause the price of drilling to pull back — probably quite a bit. At the present time the drillers are paying for instant housing and instant pipelines. They are very pricy stuff.


        A century ago, the flotation-cell was brand new. It took a full generation — and then some — to reach extremely broad application. (It’s usage is still being expanded.)

        If you don’t know what a flotation-cell is — you’re not alone. It’s strictly a mining industry device. It works on pretty counter-intuitive principles.

        1) That one can ultra-pulverize even the hardest rocks known — yet economically and in scale.

        2) That the mother rocks are composed of gangue and minerals, with the minerals existing as crystals of tiny size. They are so small that they can be floated on water using surface tension IF they are ‘soaped’ with surfactants that bond to water and mineral — both. (The brew required is constantly tweaked by mine site chemists.)

        3) That such a blend can be separated by gravity — totally against the density of the minerals (very heavy) because of surface tension effects. (Hence the need for ultra-grinding) So air bubbles are injected into the broth to float the mineral as a scum off the top. The gangue settles to the bottom — to be discarded en masse.

        4) That the resulting concentrates are so enriched that they are commonly shipped away from the mine — just as is — to be processed elsewhere.


        Oyu tolgoi ^^^ is a world scale mine built towards this standard.

        What was the result of this process?

        It has transformed EVERYTHING. It’s the reason you can afford the metal in your life. The flotation cell process caused the price of all metals to drop something amazing — when you adjust for the fact that all of the old high grade deposits are gone.

        The old high grade ores = conventional oil drilling.

        New low grade ores = fracking.

        Flotation cells made economic VAST deposits that were previously totally uneconomic. It’s now possible to go after lodes containing 10,000 times as much metal as found in a 19th century high grade deposit.

        Likewise, fracking is opening up oil bearing strata (not known in the public domain) that hold 10,000 times as much crude oil previously thought economic. (!)

        The Russians, themselves, admit that most of the land east of the Urals sits on top of a super-scale tight, thin, oil deposit. It’s considered to be many orders of magnitude larger than Saudi Arabia’s. It had been kept a (Communist) state secret for decades.

        This deposit, and others, are why Putin EVER bet on being a massive oil exporter. Russia has far larger oil reserves than Saudi Arabia. It’s totally against his economic interest for anyone else to realize how much he’s sitting on.

        Beijing has figured it out. Their own experts figure that it’s only a matter of time before Red China is able to tap a tight deposit of natural gas large enough to make the Middle East irrelevant.

        You can’t trust the oil industry to even proffer good statistics: the biggest players are lying national governments.

        The Oil Drum had to shut down. Their drum had burst. That ended their drum roll.

      • I'm Not POTUS

        Wow that is a lot of fancy words and numbers, you two are tossing around but I’ve got a real simple explanation for the current state of Fracking in the USofA.

        I regularly hear adds on AM radio advertising “investment opportunities in Shale drilling”. So if they are advertising to the sheeple about how to get rich investing, then the ship has already sailed. The sheeple are never given the opportunity to get rich investing. So therefore Shale has had it day in the sunshine.

      • where'd my username go?

        Heh – I knew blert would like that one –

        I’m not saying don’t invest in KMI for now. I’m saying don’t hold KMI for 20 years. I’ve been doing ok with NOV and QRE (a non-fracking MLP), but made a bad bet with REGI (biodiesel) when I thought they had the system gamed on account of the ethanol blend wall (then news leaked that biofuel standards wouldn’t be as strict -because of the blend wall- the next year; and then a new study was published showing an even more horrid EROEI for biofuels than that 2:1 ratio or whatever it was thought to be).

        Here’s my experience with fracking: For a given area of interest they only need to secure something like 40 to 60% of the area by means of leases in order to drill. Once they get enough locals on board they stop trying to contact others; happened to my folks – they had mineral rights on some property we’ve never seen, out in Tucker, WV, and were being ignored inside the 30 day window period that these companies give for anybody with a parcel to sign a lease. The secretary in the office is overburdened with work as they try to minimize cost of operations. It’s only when you send a certified letter with a follow up email tellin’ ’em your gonna have to drive down to the office, etc. do they finally send you a contract.

        Some of these rural farmers are getting screwed out of royalties too on account of accounting tricks. It’s as you said: stage 1 is expensive – thank goodness for all the tax breaks – but they still feel the need to screw landowners over. My take is that if they had a healthy margin they wouldn’t risk bad PR by screwing people over.

        Anyway, so the Chesapeake Energy accounting scandal was a Russian plot? I think even Rex Tillarson said something about that they were ‘eating their shirts’ when the price of gas plummeted a while back.


        Putting aside technological breakthroughs for a second:

        “Oakland, California (May 20, 2014) — In an article released this evening, the Los Angeles Times reports that the U.S. Energy Information Administration (EIA) has drastically reduced its estimate of recoverable oil in California’s Monterey shale formation from 13.7 billion barrels to just 0.6 billion barrels—a reduction of over 95%.

        The downgrade has major implications for California’s energy and economic future, as well as the debate over hydraulic fracturing (“fracking”) and other forms of well stimulation-enabled oil development. The perception of an impending oil boom has dominated energy policy discussions in California since the release of a 2011 report by the EIA which had estimated up to 15.4 billion barrels of recoverable tight oil—64% of the nation’s total—in the state’s Monterey shale formation. The estimate was widely cited by drilling proponents, and economic forecasts based on it projected millions of new jobs and billions in new tax revenue….”



        As far as technological breakthroughs go:

        Isn’t it just as likely that in 15 to 20 years we’ll have electric vehicles in the equiv. $12 to 25k price range that can go 250 to 500 miles on a charge, and that EV’s when hooked up to the grid (most of the day when not in use) will be used as storage to smooth wind and solar variability, whilst their owners get paid by the utility for letting them borrow a few electrons?

        Here’s a U of Delaware study that shows we could run a large, 72GW east coast grid on mostly wind and solar (and some storage) at around today’s energy prices by 2030 (the trick is that you have to overbuild wind nameplate by 3 times the demand curve – that way the wind will always be blowing somewhere on the grid and will be able to chase load properly):


        ► We modeled wind, solar, and storage to meet demand for 1/5 of the USA electric grid. ► 28 billion combinations of wind, solar and storage were run, seeking least-cost. ► Least-cost combinations have excess generation (3× load), thus require less storage. ► 99.9% of hours of load can be met by renewables with only 9–72 h of storage. ► At 2030 technology costs, 90% of load hours are met at electric costs below today’s.



        I appreciate the details of your comments blert – keep ’em coming!

  • we are turning into a turd world nation like mexico. 95% in poverty 4.99% comfortable and the .01% ruling class

    • SoCal is Mexico. In NorCal there is not many Mexicans there. L.A. is Mexico. In time, the Peoples Republic of Santa Monica will also be ours. It is only a question of time. We are patient people. Soon Immigration Reform will pass then there will be millions of more voters in SoCal.

      • Except their voting numbers are pathetic, legal or otherwise.

      • son of a landlord

        There really aren’t all that many Mexicans in SoCal. Plenty of former Mexicans. But not too many Mexicans.

        America is like the Borg. It sucks in hard-working, family-oriented, Spansh-speaking Mexicans — and spits out boob tube-watching, meth-addled, junk food eating, couch potatoes who are illiterate in two languages.

        Second generation Mexicans are useless to La Raza revolutionaries.

  • Tired of the BS

    “It is amazing how some people think that once you buy, you suddenly “own” the place when in fact, you have a 30 year locked in commitment.”

    You got it all wrong, Doc. It’s all about the “intangibles” of “owning!”

    You know, being able to freely deconstruct and construct things such as walls. Because that’s a really important component to the equation of happiness and it never has anything to do with trying to win the approval of other people. And besides, my kids and family need these things to happen.

    But wait, structures and their finishings are tangible. Oh that’s right, the “intangible” part is really about emotions and feelings I’ve conjured up.

    Sarcasm aside… been a home and RE property “owner” for going on two decades and I have news for folks who are aspiring.

    You always answer to someone else. You want to make changes – your government, taxing authorities, insurance company, other third parties, and even utility providers are going to have a say in it – and their hand out. You’re not at the top of the org chart on every decision to be made on “your” home.

    Neighbors can still be annoying. If you want to take measures to mitigate, see the above point. There are limits placed on what you will be able to do to avoid the actions of others. I suppose if you live in the middle of nowhere surrounded by enough acres of “your” property, then that might be the closest exception. And to front-run the inevitable “but my neighbors are wonderful” response, save it, your wonderful neighbors are great until they move and somebody else takes their place.

    It’s always about the money. Anyone who has convinced themselves otherwise – see emotions and feelings, above.

    “In California house horny buyers would plunk down money they don’t even have to squeeze into a house to be an owner but at least we are still checking incomes for loans. ”

    My conclusion is that it’s more about wanting to be a member of a club than most people are willing to admit. When pressed on that point, they’ll talk about “intangibles” out of one side of the mouth while talking dollars and cents out of the other side. Renting and “owning” are really two sides of the same coin and that’s a truth that an entire industry doesn’t want you to figure out.

    • Sensitivity to appearances and reputations (i.e., what other people think of you) is embedded into our DNA. Zillow or some sort RE outfit came out with a survey that showed that of all the undesirable aspects one could ask of a neighbor that a “renter” was the least desirable. It doesn’t matter if you’re cool, quiet, compliant, etc., the “owners” in the hood (middle class and up) will always consider the “renters down the block” with a certain level of contempt. That’s some of shadow “rationale” of some to “own.”

      • son of a landlord

        That’s true in my condo building. Condo owners disdain condo renters.

        So much so that my HOA changed the CCR’s to limit the number of units that can be rented at any one time. So if you buy a condo in this building, you can NOT rent it UNLESS the total number of rented units is below that magic number. Otherwise, you must put your unit on a rental waiting list, waiting for the other rented units to decrease in number before you can rent yours.

        The HOA’s reason was that rentals decrease property values.

        Under California law, this change in the CCR’s cannot apply to people who bought their units before the change went into effect. Only units bought after this CCR change are affected.

        As for short-term rentals, a Santa Monica city ordinance forbids ANYONE — owners or tenants — from renting or subletting their houses, condos, or apartments for less than a 30 day period. If you try to do that, you’re acting as a “hotel”, and that is illegal.

        Santa Monica has an official whose staff polices this ordinance. He was profiled in the local press. His office trolls Airbnb.com and similar sites, looking for people offering short-term rentals in Santa Monica.

        So if anyone wants to buy a condo or house for rental purposes, you’d best check all the HOA rules and local ordinances beforehand.

  • The end of Prop 13 protection for commercial property means dire results for employment.

    As Detroit shows, (financially) failing local governments go crazy when taxing commercial properties.

    This causes every enterprise, in turn, to flee — taking gainful employment with them.

    Un-gainful employment — aka civil service — ramps away until Chapter 9 is filed.


    California is importing an unproductive demographic, and in size.

    As the Baby Boom shifts into retirement, the percentage of employment age Whites is going to plunge: the demographics of the young are skewed hugely towards Latino immigrants.

    This shift will be as dramatic as the White flight from Detroit, proper. Tax collections will simply plunge.

    The Brown administration is oblivious to this (economic) trend.

    All that Jerry sees is gaining a total lock on the vote.

    Detroit can explain to Jerry just how valuable that lock can get — when the sugar runs out.

    Both Hollywood and Silicon Valley depend entirely upon globalization.

    Any fracas — pretty much anywhere — would bring pain.

    • I will disagree slightly. Prop 13 can be gamed to death by corporate who can consolidate commercial property by buying the corp that owns it without a reassessment. They can meanwhile charge what the market will bare in rent while avoiding the inflationary increase in taxes they would pay. I’m not saying that I support higher taxes because the more Sacramento starves (especially are states oh so fucked Prison Industrial Complex) the better. But Prop 13’s corporate provisions give an INCREDIBLY unfair advantage to legacy corps. It does nothing to benefit new business in CA. Real Estate ownership not DIRECTLY under the control of the business operating in the space is the LAST thing that should be favored in the tax code! tax the Rentier class and lower regulatory taxes upon the people who actually deal in goods and services.

      • You MUST be younger than I thought.

        Real Estate is almost NEVER held inside a corporation, certainly not operating corporations.

        You need, really need, to sit down with a tax accountant and go over the staggering disadvantages that belay any operating corporation that holds real estate.

        I’m not going to go into a prolonged exposition as to just how far off you are. This would turn into Moby Dick.

        Suffice it to say that your premise that ANYONE games Prop 13 via your primitive strategies is risible.

        One parting shot: consolidating real estate is a nightmare. It is ONLY ever engaged upon when the land is to be redeveloped towards a higher (literally) usage.

        I had a billionaire real estate mogul as a client, back in the day. In his entire career he was never able to consolidate commercial land.

        Government can consolidate land. His last big mega-buy (that I recall) involved buying up the entire assembly crafted by Yakima in Washington. On his own, he could NEVER have pulled it off.

        Prop 13 goes out the window when California or its entities consolidate land — obviously.

        As for run-away taxation on commercial enterprises: the history of that plague goes back into the mists of time.

        Such tax revenues are to a politician what heroine is to a junkie. Too much is never enough.

        THAT’S the problem with opening up the floodgates for Jerry. Only someone truly young and naive hasn’t yet figured it out.

        BTW, Jerry is on the cusp of another budget blowout. The boy never learns. You will be around long enough to see the results. By then Jerry will be history.

      • “THAT’S the problem with opening up the floodgates for Jerry. Only someone truly young and naive hasn’t yet figured it out.”

        First of all I don’t know why you’re being such a dick, but whatever gets you off…

        Anyway, if I’m wrong I’d like to know why. IE Westfield has consolidated quite a few mall properties. Said properties were held by corps and those corps have a locked in Prop 13 rate. Why would Westfield buy the property and be reassessed as opposed to the corp? What’s the advantage of not doing it that way.

        I’d like some facts to research and it doesn’t have to be Moby Dick in length (pun intended :-).

        Seriously, responding to a thesis with what is ultimately “I’ve been around and know better than you kid” is beyond trite. You seem like you have some knowledge. Share it as opposed to being condescending.

      • N Z 0

        I’m amazed that anyone would posit that commercial real estate is held in corporate name.

        Entire textbooks are dedicated to explaining why the IRS tax code makes the corporate form ruinous for real estate investors.

        Your ‘facts’, your assertions, don’t pass the smell test.

        For ground truth visit the property tax records. I have. (Hawaii) EVERY hunk of commercial real estate was (and still is) held in personal, partnership or trust form.


        No-one can afford to make that kind of mistake.

        The corporate form is used solely by development corporations that can’t gain advantage by using the other forms. The IRS code doesn’t grant any sugar for those who are flipping properties.

        This last aspect is what did in Carleton Sheets. You can read his bio — which (Wiki) totally omits WHY he HAD to generate operating income.

        In his own words, the IRS threw him out of ‘passive income’ status and into operating income status — as a flipper/ excessive transaction tempo.

        His tax liability EXPLODED. Frantically, Carleton grabbed the microphone and started virtually giving his secrets away. It wasn’t his first choice, not by a long shot.

        If you’re basing your blurb on some trashy write-up in the local rag… Just blame it on sloppy reporting by a young cub reporter who doesn’t know the first thing about real estate tax law.

        BTW, the large form of real estate ownership is a REIT, which is a TRUST.

        Trusts cannot be merged into operating corporations. They also don’t have perpetual life.

        The idea that professional investors would be willing to submit to double taxation on a passive investment (1120) when they don’t have to (1040/ 1065) is just too bizarre.


      • Okay you’ve corrected me on crossing an REIT with a Corp. However as it relates to Prop 13 what’s the difference? You can have a controlling interest in a REIT change hands without a reassessment. I found no evidence that they cannot be maintained in perpetuity after a quick Google search…

        There is empirical evidence that residential RE in prime city areas (SF, LA, etc) has taken on a much larger share of the tax burden post Prop 13. This while commercial property values in those same areas have skyrocketed faster than residential. We can argue semantics all day but the facts support that the tax base from commercial is not increasing proportionate to it’s value the way residential is. If that is fact, which I believe it is though I din’t have time today to research an essay, then Prop 13 is favoring one tax base (the wealthy rentiers, surprise, surprise) over another (working people who actually liver in their homes).

      • Trusts, as a matter of statute, can NEVER have perpetual life.

        The various public REITs that you find listed have various termination dates — after which they must liquidate and distribute the proceeds.

        There are many flavors of REIT. Some are so specific that no reinvestment of cash is permitted by the charter.

        Other REITs were structured as quasi-banks. This form famously blew up in Florida two generations ago. That’s why you no longer see it listed. It’s still a legal form of REIT. But no-one wants a fiscal disaster.

        IIRC, the absolute limit for a REIT is 99-years. I never read of any publicly traded REIT with a life beyond 40-years — but I haven’t read everything.

        Most REIT investors want their money back a heck of a lot quicker than that.

        I’m not in the trenches on Prop 13 and swaps. But my guess is that Jerry is NOT going to permit grandfathering to favor the wealthy few.

        The law is aimed at his spending impulses.

        Your basic premise is simply off. As sweet as beating out property taxes might be, it pales when compared to the larger picture: people get old and die. The typical investor in commercial real estate is ALREADY in mid-life – if not older – at the beginning of the deal.

        Speaking from experience, I can assure you that very, very, very few families can co-operate when mom and dad pass on. At least one needs CASH. Attorneys don’t rent cheap.

        The fact remains: Prop 13 is the only thing stopping Jerry from even further damaging the California economy.

        Detroit didn’t have Prop 13 and take a look at the property tax rates in that city. It’s not a unique example. It’s how large systems devolve.

        Do not latch on to some blurb in the MSM — especially a local rag — about how someone ‘beat the system.’ Such news releases are SOLELY the result of interested parties. The cub reporter never researched anything.

        The typical interested party would be some local politician: at the local level they are ALL in the real estate business. Real estate — and its transactions — is all consuming at the local level. You’d be well advised to sit in on some local confabs. It’s one real estate scheme after another.

        Cue up “Chinatown” or “LA Confidential” —

        I had a contact within the Marin County elite. He opened my eyes. Near as he could tell the authorities spent 97% of their time on real estate issues.

        When these hit the media, he’d give me the low-down. I soon discovered that the press never dug up a story in their careers. They wait for the phone to ring.

        This remains true even at the national level. Every story is initiated by interested parties, hence the constant ‘leakage.’

      • Blert,

        When you say corporation, are you talking about S or C corporation? Or it doesn’t mater?
        What about LLC treated as an S corp.?….

      • blert: “I’m amazed that anyone would posit that commercial real estate is held in corporate name.”

        Many people use Corps to run their active businesses and create LLCs to own real state and avoid double taxation.

        I’m sure you’re well aware of this, but choose to ignore it in order to parrot the Prop 13 line.

      • In the beginning Subchapter S elections — aka Sub S — aka S corp — 1120S couldn’t hold passive real estate. That was ages ago. Since then Congress has expanded a structure that was originally conceived for small businesses and farms — non-passive incomes for the small guys.

        Now it’s possible to hold passive income assets inside an S corp. BUT… there’s a kicker: the benefits normally sought by real estate investors are NOT PASSED through to them.

        “Generally, passive activities include (a) activities that involve the conduct of a trade or business if the shareholder does not materially participate in the activity and (b) all rental activities (defined later) regardless of the shareholder’s participation. For exceptions, see Activities That Are Not Passive Activities, later. The level of each shareholder’s participation in an activity must be determined by the shareholder.

        The passive activity rules provide that losses and credits from passive activities can generally be applied only against income and tax (respectively) from passive activities. Thus, passive losses cannot be applied against income from salaries, wages, professional fees, or a business in which the shareholder materially participates or against “portfolio income” (defined later). Passive credits cannot be applied against the tax related to any of these types of income.

        Special rules require that net income from certain activities that would otherwise be treated as passive income must be recharacterized as nonpassive income for purposes of the passive activity limitations. See Recharacterization of Passive Income, later.

        To allow each shareholder to correctly apply the passive activity limitations, the corporation must report income or loss and credits separately for each of the following:

        Trade or business activities,

        Rental real estate activities,

        Rental activities other than rental real estate, and

        Portfolio income.

        From: IRS instructions for 1120S.

        It’s easier to herd cats than to get real estate investors to dive into even a modern 1120S corp. The famous pass-through provisions don’t apply in any meaningful way for them.

        As for an 1120 aka 1120C corp, the tax sweeteners don’t pass through at all. They are held back as corporate losses. This normally would be expected to go on and on for almost a decade for most deals. Then the corporation would pay taxes and then the stockholders would pay taxes — again.

        There are big businesses that hold real estate in corporate form. Typically they do so because absolutely no-one will finance such an asset. It’s destiny is to be a steel mill. Anything like that has a collateral value of zero. Auto assembly lines are like that, too. When Packard shut down half a century ago, no alternate use existed for its plant. You can see Detroit pictures of it uploaded on the Web.

        For heavy industry their real estate outlays are trivial compared to their total assets. Outside of that crowd, real estate is held in any other legal form.

        Banks are famous for even renting their buildings from (shudder) other financial institutions. (small banks in particular) They are not allowed to rent properties owned by their principals. Otherwise, that’s the way it’s done. The owner of the operating corporation holds the building and land in his own name/ partnership/ trust and thusly is able to move passive cash flow to his pocket income tax free. (Depreciation shelters same.) The tempo of this cross rent has to be at quasi-market rates — and is typically normed around the bank financing used for the structure.

        My BIL is up past his eyeballs in such transactions. (banker to small businesses with real estate assets)

        LLCs were originally drafted for the express purpose of professional partnerships. The law keeps changing on them, so I can’t presume that they are in or out WRT real estate structures. I fail to see how an LLC is any advantage over a classic real estate partnership. (general or limited) But I’m not an attorney and am not active in that area.

        Things keep changing.

      • “Real Estate is almost NEVER held inside a corporation, certainly not operating corporations.”

        blert – now I am kinda confused. Are you saying that Public Storage, a corporation does not hold real estate or are you saying that they are not an operating corporation? I am very confused because it was my understanding that they are both an operating corporation that holds real estate and the reason I know this is because many moons ago you were schooling me that they purchased and held real estate and had no debt. You told me that they were a real estate company that dabbled in public storage. I had to look at the company balance sheet again to make sure that they had real estate on their balance sheet.


        What am I missing?

        BTW there is debt on their balance sheet as far as I can tell but I am open for debate…

      • RE: What?

        I think Blert is being a bit evasive as to the initial argument, though i do appreciate the enlightenment as to how RE is held by biz entities. The greater pointg i made remains however. Whether through trusts, corps or whatever Prop 13 can and does allow commercial properties to dodge being assessed at market value. Now I don’t want Sacramento to have more revenue (despite blert’s earlier Ad hominem attack) but i would like an equitable distribution of RE taxes between residential and business. Prop 13 as is has skewed the tax burden in an unfair way. Blert never addressed this point specifically.

      • Public Storage holds General Partner status atop a slew of Limited Partnerships.

        Hence, the dominant vehicle of ownership remains PARTNERSHIPS.

        Being a General Partner in such an arrangement has long been considered an ACTIVE INCOME situation. (still is)

        BTW, Prop 13 means virtually nothing to the limited partners. Each one of these expects to be liquidated — entirely within fifteen-years. Such limited partnerships are sold primarily to mature adults in contemplation of retirement.

        As for myself, as a registered broker, I sold limited partnership interests of Public Storage. I can’t recall a single investor under the age of 45. But, that’s just me.

        Limited Partnerships are common as dust in real estate — and sports franchises. The Yankees are owned this way. They are hardly alone. Rush was kicked out of his opportunity to own a hunk of the Steelers — years ago. He was slated to own a trivial fraction of the franchise. (huge monies required)

      • N Z 0

        The weird and UNIQUE business taxes emanating from Sacramento are a wonder to behold.

        Entire textbooks exist to lay them out. They will bend your ears back.

        End your illusion: business entities in California DON’T ride cheap on the tax code. You have to flee to Nevada to do so. It’s not for nothing that Apple has its investment HQ in Nevada. It’s not for nothing that California’s warehousing is in Reno and North Las Vegas.

        Further, there are no breaks for the elderly for commercial real estate.

        Lastly, because of Federal court judgments, California property taxes are routed up to Sacramento where they are re-allocated towards the various school systems.

        This bizarre situation is DIRECTLY tied into Prop 13 history. They occurred at the same time — the late 1970s.

        What this means is that GENERAL business taxes are blended into property taxes — up in Sacramento — so that the schools are NO LONGER dependent upon property taxes.

        As you may correctly guess, the vast bulk of property taxes are used to sustain the various school systems of the states. Before public schooling, property taxes were a joke. They only had to cover the shortfalls at the courthouse and the official payrolls.

        Sacramento did not wait for you, and your generation, to figure out how to ‘reach around’ to grab revenue to sustain a bloating civil service.

        The biggest single political debate, in Sacramento, each year, is over just how large the cut must be for the school systems. (teachers unions)

        California is ALREADY at the taxing limit for re-locatable commercial enterprises.

        Hence, the broad-based flight of one significant corporation after another. Charles Schwab is taking 3,000+ employees out of San Francisco at this very moment.(Texas)

        That massive payroll has major multiplier effects.

        Even Hollywood is filming ever more outside the state. (New Zealand, Canada)

        Sacramento is re-creating the dynamics of the plantation. Read:


    • Tired of the BS

      “California is importing an unproductive demographic, and in size.”

      Which unproductive demographic would that be? Would it be the state subsidized poor or the Fed subsidized asset trading rent skimming variety? I’m thinking all of the above.

      • By their nature, the Federal creatures are domiciled in and around greater New York City.

        That’s because the spew emanates from the Federal Reserve Bank of New York — ONLY.

        For those not immersed in the Fedsury: the New York Bank is the hub of the entire system. It’s NOT in any way equivalent to the other eleven branches.

        1) It runs the SOMA book.

        2) It runs ALL of the international trading for the Fed.

        3) By statute, the chairman of that ‘branch’ (more like trunk) was paid twice as much as the chairman for the entire system. (!) This happened because he was (originally) far more powerful than the chairman down in DC. (Originally, just a flap-jaw.)

        4) This branch runs ALL of the US Government securities trading Primary Dealers. Which means that it runs all of the Federal debt issuance — by one remove.


        There is a certain truth that the vast entitlement system feeds the rentier class — by one remove. But that demographic is trivial and is NOT an import.

        In contrast, Barry has induced a flood of Dreamers. The tsunami figures to be epic — and everyone to be a perpetual dependent.

        Is it any wonder why the economy can’t move ahead?

      • I'm Not POTUS


        Don’t forget the Fed facility in New Jersey that handles all the multitudes of pallets of freshly minted $100 Fed IOU Notes that get shipped to foreign destinations to line the bed frames of all the apparatchiks, thugs, warlords and “politicians’ we rent all around the rest of this planet. I have no info on who handles the interstellar payola.

    • Other states have managed to survive without Prop. 13 protections for commercial properties, so will California. Imagine all the owners of those thousands of hideous strip malls up and down California having to pay their fair share of taxes for the police calls that are a result of liquor stores and seedy bars housed in them. Maybe they can take their strip malls to Texas as a result of tax breaks if they don’t like it.

      This issue is incredibly nuanced. But at the end of the day, just pay your fair share.

      • It’s NOT that nuanced.

        Prop 13 is Anti-Jerry Brown.

        It, everything about it, becomes an issue only when Jerry is on top.

        The zany idea that California is under taxing corporations is bizarre. They are already fleeing PDQ.

        Tax sources can — and will — always flee faster than tax drains.

        The number one problem for California — as a government — is that Jerry’s boy (Davis) locked in the dot com bubble into the assumed investment returns for CalPers.

        This (8% ROA) money from heaven has never happened since. The imputed obligations have ramped away. What occurred at the state level was mimicked at the local levels.

        Get a load of the insanities inside the City of San Francisco’s retirement accounts. On nearly flat employment, retirement outlays have surged drastically. This expenditure now totally dominates all city budgets. Fifteen years ago, it was assumed that these outlays would be covered by windfalls from Wall Street.

        This attitude/ faith is STILL built into the budgets.

        It is a FANTASY that breaking Prop 13 will resolve the matter.

        The retirement outlays continue to compound away — EXPONENTIALLY.

        Vacaville is the future of municipal California. Get a hint.

      • Did you mean Vallejo? I agree that Gray Davis screwed things up immensely. He increased pensions for law enforcement and public safety workers at the state level by 50%, retroactively, without having them pay more into the system or a little more without covering all of the costs. 1999’s SB 400 caused more damage than just about anything else in California.

        I find Jerry Brown to be much more fiscally prudent than Gray Davis.

        New government employes are getting much lower pension promises than current government employees. Look at Santa Monica, an incredibly rich city but they changed the pension for new civilian employees.

        The problem is nobody wants to touch pensions for law enforcement and public safety government employees, including Santa Monica. In the City of LA, residents voted to reduce pensions for newly hired cops which made it easy for the politicians.

        As I mentioned once before. The cop pay/pension things is both a Democrat/Republican issue. Republicans love cops and Democrats love unions. Peace officer unions are playing both sides so it is unfair to pin it on only one side.

        I agree there will be more bankruptcies but not at the scale you present. Scandals that have happened at Bell and Detroit have much of their basis in uninformed and disenfranchised populations. But if the Koch brother types get their way I may change my mind……..

      • ernst blofeld

        There are a lot more Vallejos, Stocktons and Riversides out there.

        Culver City passed Measure Y (1/2 percent sales tax increase) in November 2012 to cover pension shortages, and was running a multimillion dollar budget deficit. Torrance’s pension funding is at 40% and the Torrance city council recently approved a major pay raise for all city employees where some got pay raises as large as 8%.

    • I think that most California businesses outside of agriculture, entertainment, and tech will be boutique businesses serving the poor, middle class, and rich in their proximity. Think lots of cell phone shops! Heck, I drive through SoCal these days and most all you see is strip malls anyway. California has always been destined to be more of a recreation than a production zone. Why waste the sunlight on a corporate HQ that can be located just as easily in Phoenix or Salt Lake City? I have a friend who hires for Gartner. He says they avoid assigning their up-and-comers to any of the California offices because it always dead-ends their careers when they refuse to be transferred away from the sun and surf. California has always sought to be the antithesis of the Eastern busybody culture.

  • Things always look appealing when they are on the rise. The world is still in melt down mode. The US is the place to run to and try to hide. Money is pouring in and will probably continue to do so as the world gets uglier. Hence the rise in many asset classes.
    Apartment houses are on the rise because the real wages have not gone anywhere in many years. This trend is not going away. And income uncertainty to the mix and 65% home owners is probably going to be the high water mark in the US.

    • “Apartment houses are on the rise because the real wages have not gone anywhere in many years.”

      Hmmmmm. By “many” you mean the last 35 years, right? Your thesis re: flat real wages underpinning apartment building rise only accounts for the last 4 years. Why?

      Also, why pluck “real” wages? It’s actually a miracle that real wages haven’t fallen in a low (core) inflation rate environment. Falling nominal wages over the past 35 years, being independent of inflation, are what has held back the plebe’s purchasing power.

  • Our entire economy is based on borrowing — houses, cars, educations. It used to be you made a sizable down-payment. Who ever leased a car? A college education was affordable for the middle class.

    We’re a debtor nation now. It’s good for the corporations — they get everybody hooked and tapped out like drug addicts. When the party crashes, the taxpayers cover the losses.

    Those of you who think we have a healthy real estate market, good news — the FHA and banks are lowering credit standards so we can cram more people into mortgages!!!

    It’s sick.

  • Since it’s the Fed’s job to set short-term (overnight) rates and has the allowable financial weaponry to affect long terms rates up or down as they see fit, why frame the low-rate environment as “artificially low” instead of “historically low”? Isn’t the rate always “artificial” whether the Fed is actively affecting it or actively not affecting it?

    • Nope. Interest was a price signal for most of our history . I believe sometime in the late 70’s early 80’s they (Fed) changed mindsets from signal to lever. Liquidity has always been manipulated to stop credit freezes. Change in interest was a by product of the action not the goal. I am not convinced that we are “managing” the economy at the same rate as the majority our history as a nation. I concede that there has been regulations including on interest rates but out and out long term removal of cost of money is something pretty new. Most intervention was short bursts and then we went back to the “normal” within months. This time is different but in a bad way. But hey, this may all turn out great! Who knows (other than blert)?

  • Housing To Tank Hard in 2014!!!!

    • son of a landlord

      Jim, it’s over 2 months since the Ides of March.

      And 2014 is roughly 38% over and done with.

      I’m still waiting for the Hard Tank.

      • That’s right 38% is still well short of even half way. Plenty of time left for this to TANK HARD!

    • Please bring back “@” to your prophesy. Still loving the capital “T” in “To” offsetting the lowercase “i” in “in,” though 🙂

    • where'd my username go?

      United States To Tank Hard in 2015!!

    • JimboTheDumby

      Jim, Jim, Jim… show men a time when real estate started CRASHING during the summer buying season? It doesn’t happen… If there was any sort of actual price drop momentum leading into the summer.. then price drops would have a chance. But all the price drops that happen this year will be in the fall and late summer and will be normal seasonal price drops. Mark this post.. I’ll be correct. I’m not saying, prices will climb this summer.. I do think asking prices are FAR FAR to high, but those homes will discount their outrageous asking prices and comps will end up flat to up 5-10% from 2013. Wait and see!

  • when will the dollar lose its world reserve standing ,,,, anyone ?

    • where'd my username go?

      When we no longer have the purse or stomach for foreign wars.

      When there are 100 million electric vehicles for primary transportation owned in the US.

    • When there is a viable replacement. I think I agree with blert (I rarely agree with him) that Brazil/Russia/India/China need not apply. I agree that the Euro most likely will not survive long enough to be a viable replacement for the reasons that blert stated… Etc. Etc. Etc…

    • Ben ….the world would do everything possible not to make that happen. The old saying America has it’s faults, but show me on the planet where is there a better place for any race,religion,gender to get a fairer shake in life?

    • I doubt anytime soon… Watch rates rise as soon as it’s in the realm of possibility. Now that realm of possibility may be on us quickly as the Russian/Chinese relationship becomes ever closer. The foolish RE bulls who think the FED gives a shit about their flipping enterprises are in for a rude awakening. Current US power rests greatly on one pillar, our military’s ability to defend fiat dollar access to energy markets. We can devalue our currency while keeping a (relative) cap on energy prices. A move away from the dollar by the BRICs will be met with a hiking of rates to make repatriation into treasuries irresistible to investors.

      The FED is not concerned with the value of stucco shacks, maintaining dollar hegemony is of their utmost. The Dead Cat Bounce that has been Housing Bubble 2.0 was a convenient exercise to strengthen the banks balance sheets. That task has accomplished all it will and a higher rate environment is inevitable. Mortgage rates at 6% would require a wipe out of all Bubble 2.0 gains just to keep payment parity. Then factor in cratering investor demand and we’re back to 2010 prices or below.

      • BrainOfEngland

        NZ wrote: I doubt anytime soon… The FED is not concerned with the value of stucco shacks, maintaining dollar hegemony is of their utmost. The Dead Cat Bounce that has been Housing Bubble 2.0 was a convenient exercise to strengthen the banks balance sheets. That task has accomplished all it will and a higher rate environment is inevitable. Mortgage rates at 6% would require a wipe out of all Bubble 2.0 gains just to keep payment parity. Then factor in cratering investor demand and we’re back to 2010 prices or below.
        This for the main part. The world will not peel away from the US or the dollar. Come on… EU Europe is so fractious. US has the smartest minds, huge natural resources, advanced capable large military at all levels (and a willingness to use it), – capitalist countries sing and dance to US needs – not even any real fuss kicked up on US sweeping all the data. Also your companies active abroad, buying up swathes of investments at distressed prices from Spain to UK commercial property. I can’t game-theory it all, but US is going to do just fine. And which other power to replace US dollar anyway? Debt is a problem but it’s also a solution.

        Although unfairness in markets is a phenomenon which is real – although I hope just part of the longer process that’s been required to smoothly rebalance positions. And yes; my view too, Housing Bubble 2.0 serving only strengthening bank balance sheets. I hope it’s lulled a lot of owners into complacency. It certainly seems to have had people lose trust in money (it’s not earning anything in the bank – against inflation ect) and seen a lot of malinvesting, including back into property at high prices.

        I don’t think you/we need mortgage rates at 6%. All it needs is private buyer demand against very high house prices to fall away (say hello to mortgage applications really declining now) – and investor money to (China is tightening, and Russia and elsewhere not going to see so much more easy money to go buying at silly high prices in Santa Monica or London.. trickling off already I hope).

        Prices are decided by buyers. Anything which sees buyer side willingness/able-ness to pay prices owners have been thinking their semi-to-prime homes are worth = House Price Crash. All it takes is for a few owners to then sell at lower prices to, and it could be a big drop to the level where those buyers are proceed-able. It’s credit growth banks will want, and if you can’t get it at topped out real estate prices… and you’re in a much healthier position to lend… what do you hope for?

    • I heard the IMF SDR’s are a possible replacement for the dollar as the reserve. Any thoughts?

      • Unworkable for traders.

        SDRs are themselves composed of slices of the other dominant trading currencies.

        So, it’s like a snake eating its tail: a nice picture but never seen in real life.

    • A super-economic power has to lose a serious war to lose its reserve currency status.

      Nothing else does the trick.

      Think of it as psychic inertia.

      As long as America has a globe straddling navy absolutely no-one is going to mess with its top dog status.

      In one century America took down:
      Latin America forever
      Germany II

      America destroyed half of the ChiCom armies in Korea 1950-53 while standing in place — with but a fraction of its military power.

      Consequently there are no serious powers interested in entering the big ring. Only the insane remain.


      In case you’re unaware: the ENTIRE (electronic/digital) global money movement system is centered around New York and London — using American standards and technology.

      And the top digital sleuths remain: NSA and GCHQ. These are not really separate organs. They are siamese twins — fused at the spine. Wherever one is the other is, too.

      Some idea of how that works out was embedded in “Dr. Strangelove.” If you’ll recall Group Captain Lionel Mandrake was on detached service with USAF SAC — and in a critical position, to boot. Such postings exist across the NSA-GCHQ empire.

      THIS is the reason for the Special Relationship.

      BTW, there is no treaty, no rents, involved in American forces deployed to Britain.(!)

      In military terms, the two nations are virtually fused at the hip. (throw in Canada, Australia, New Zealand)

      The two nations are also fused in electronic technology. During WWII Britain produced 100% of the radar technology — no matter where it was produced. America produced 100% of the anti-radar technology — no matter where the actual devices were produced.

      This tag team ran Adolf right into the ground.

      You will remember that Britain was the first nation to sign on to the F-35 project.

      This makes un-turfing the US dollar problematic.

      • i knew i could count on you to give me the answer. anglo american military and banking elite. woohoo

  • BrainOfEngland

    “First you move out into a rental, save for a down payment, then bought a home. That part of the market has been stunted in this recovery because first-time buyers make a pathetic amount of all current home sales.”
    Could more Multi-Unit starts also serve the needs of older downsizers too, in metro areas, rather than us just reading it as more pain inflicted on younger people into life of renting? Future sellers/downsizers will need somewhere to live, if forces of correction return in Metro semi-to-prime areas, hopefully causing a cascade of sellers to market. Then write huge volumes of new mortgages to younger people at much lower purchase prices than today. My bet is on banks wanting credit growth, and they’ll happily take it by allowing a crash in prime housing values at some point.
    There are any number of factors behind this move to closer quarters, baby boomers tired of paying for lawn care, the demand for shorter commutes………. “The recession has hit the young generation the hardest and they’re putting off big life steps such as getting married, buying a home and having kids,”

    A study I read some years ago suggested severe destabilizing forces can silently build up leading to market vulnerabilities in markets that have been riddled by supports for Vested Interests, too much stimulus to prevent rebalancing, and bailing out the reckless.
    “You’ll notice that mortgage apps are near an all-time generational low.”

  • No Apologist for Prop 13

    “The end of Prop 13 protection for commercial property means dire results for employment.”

    There have been numerous studies that show that revoking the ridiculous loopholes for the Commercial side of Prop 13 has no negative effects on the economy. That’s demagoguery at its finest.

    What if instead of raising taxes, they lower the state’s sales and income taxes a percentage or two and get rid of the Prop 13 exemption of transfer of a commercial property with less than 50% ownership? If they take the money from commercial properties and spend it on infrastructure and schools, it could have a serious ripple effect. Both of those things together (cutting taxes for many and raising taxes on commercial) would have a tremendous incentive for consumer spending and economic growth.

    • Your so-called impartial ‘studies’ are agitprop for the spendists in Sacramento.

      That is all.

      There could ONLY be one out come: higher taxation so that Jerry and his kids can spend even more on bloated pensions, instead of correcting them to reality.

      Every gambit along this line results in lost (private market) jobs so as to paper over the wholly unsustainable retirement program for Jerry’s retireds.

      BTW, these are the Boomers that you ought to be upset about.

      All of California is headed for a Bell Gardens/ Vacaville ending.

      Bell Gardens became so extreme for PRECISELY the mechanism advocated: a back-door to additional (largely hidden) taxation. In short order, the king of Bell Gardens was giving himself a salary beyond $800,000 per year. (!) And his was a ‘cake’ job.


      Note the voter fraud and property taxes angles.

      Trust me, this is not the only cockroach in the cupboard.

      California is a one-party state. Additional inquiries can only end up exposing one Democrat after another. To no-one’s surprise, Jerry doesn’t want to touch it.

      (He was massively involved in pursuing the Bell Gardens scandal. He was the State’s Attorney General at the time. Imagine the dirt that must have flowed his way. He only jumped on Bell Gardens AFTER it became public knowledge, BTW. Prior to that, his office was totally clueless that something was amiss.)

      (The primary purpose of the State Attorney General is to stop corruption in public life… ie officialdom. The office does not prosecute common criminals, just uncommon ones. These would include epic scams that sweep the state — crossing many counties.)

      • Correction Bell not Bell Gardens is the scandal city.

      • blert: “There could ONLY be one out come: higher taxation so that Jerry and his kids can spend even more on bloated pensions, instead of correcting them to reality.”

        How about we not view pensions/prop 13 as a single problem, but view it as two separate problems that need correcting?

        We can limit prop 13 for all but primary residents AND start winding down pension obligations for new hires.

        Believe it or not it IS possible to curtail spending AND increase revenues simultaneously.

      • @ MB

        Blert doesn’t trust Jerry and he has no reason to. No prop 13 = Higher tax revenue short term = business fleeing to Texas, etc. = boom in tax rev = Jerry and future Dem spending like no tomorrow to keep his power = less tax rev in future = CA disaster.

        I have to agree with Blert on this one.

        The 5 faces of JB



        “The man has reversed course so many times before that there’s no reason to assume he’ll stand by anything he says. When Jerry Brown wants power, he has a good sense of what he has to do to win and maintain it.”

        Bottom line, the power the unions have (police, fire, teachers, etc..etc..) means you either pander to them, or you watch someone else win who will.

  • Owning a home in NYC, LA/OC, SF, Boston, or DC now requires a high income. If you want to be in that crowd, just go to an Ivy college, get good grades, then you can purchase a home in one of those cities.

    If you go to a lesser college, and you still want to live in one of those top tier cities, you will be able to rent a very nice place. If you have a lesser college degree, you can still purchase in very nice cities, such as Phoenix, Seattle, Austin, … all very nice places.

    In my opinion, Phoenix, Seattle, and Austin are very desirable places to own a home and I don’t understand why people with a lesser education decide they must live in LA when it manes no financial sense.

  • “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.” -Thomas Jefferson

    Checkmate USA!

  • This is the reason why I stopped trying to make sense of it all…


    First prize will be awarded to the best attempt at an explanation… I doesn’t have to be real just has to make the majority of thinking people say “oh, that makes sense”.

    Good luck!!!

    • Lest anyone forget: the Federal Reserve is STILL removing US Treasury bonds from the global system at a faster tempo than the US Government is issuing debt.

      That is all.

      • What about the mysterious Belgians? We need more grassy knoll!

      • Belgium is the home of more private banks than Switzerland!

        Meaning: You’re looking at oligarch monies being shifted that-a-ways.

        Belgium is the new Cyprus.

        That the shift occurred while this Ukraine dust-up is unfolding… ’tis obvious, no?

      • I like!!! I think I can almost sell this grassy knoll… I have just one more question. I would think that if this is the case that we would see the other side of the move from the prior “banking” to our new Belgian Grassy Knoll Bank. Wouldn’t we see an equal and opposing sell in the prior Bank of Blah Blah Blah? Someone’s gain would seem to need a loss somewhere else as this is simply a shifting of assets no?

      • Short term paper merely matures.

        As for the records, the accounts, everything jibes.

      • “Short term paper merely matures.”

        That is going to be a rough sell. I would expect that the source would need to “refinance/turnover” their debt as well. Hey, maybe it is that the source entity that loses the deposits are selling 45 billion at the same time that the new Belgian GN Bank is purchasing 45 billion and it is a net wash? If that is the case, then how come we are not seeing the sell off unless it is the “Red Russians” sell off of US treasuries we have been reading about? Hey! I think that would make sense! I think I can sell this on soooo many levels. The “Red Russians” know that they are going to have their assets frozen so they move their money from Russian entities to Belgian entities. The result is the sell off of Russian holdings of US Treasuries which looks like a retaliation for US sanctions as the MSM sold it but in reality they are simply moving the money to Belgian GN Bank!

        “…when I think you couldn’t get any dumber you go ahead and do something like this and… completely redeem yourself!!!”

  • Just Wondering

    I live near this building. Its a new 2 unit building. Why are all the sites saying this is a single family home.

    The building sold for $990,000.


  • I live in a “Chinese desired community”, Arcadia/Temple City/San Marino in California, where price has gone over 2007 pre-bubble-burst time. We were searching for a house in September 2012. The same house sold at $580k in 2012 will be $780k at least today. It could be even higher during this coming summer. I thought to myself how ridiculous it is but that is how it is around this area.

    I am not saying US housing market has recovered or is recovering because some of the not-so-desired areas still hurt from last bubble. My prediction is price will be even higher for prime area while price will stay flat or increase slightly in others for the next three years provided by there is no big surprise hits USA (earthquake, high unemployment rate, war etc.).

  • The demographic trend is towards rental growth. The market is far from normal for residential housing. cash looking to be parked and low inventory make for a “hot” market in some areas. This will go on for a while. Maybe another year?
    Some states like TX are actually growing employment and have relatively low home prices. Not CA.

  • There are a lot of very nice places in California that are still affordable. You just have to change your definition of success from “class and money” to “happiness”. Moving to a furnace like Phoenix is hardly necessary.

    LA is a pit. An infected boil on California. Anyone who WANTS to live in it due to their obsession with class and money is also okay with buying or renting at those prices. They can have it. I just wish it wasn’t such a hindrance to getting to the genuinely nice areas north and south of it.

  • Good to be reading you, Blert

    Ditto, in Sonoma County they’re even going back to gravel surfaces for a huge % of non artery County roads

    • The high class folks in Sonoma are going country, like us folks in Texas. From reading this blog, it looks like that California does not have much of a future, same thing that Gov. Perry has been saying to the California companies.

      • Big Tex…. Cal will always have a future. Just to many players in the state along with what it contributes to GDP. No matter how folks portray it as a downsized China or India (?) it still has world class everything, and that makes it always viable.

      • Robert, you are probably smoking that mind altering stuff that comes from Mendocino to have such an unrealistic outlook, or maybe you are a shill for the real estate industry.

      • “or maybe you are a shill for the real estate industry.”

        Ding, ding, ding, ding… ladies and gentlemen, we have a winner!!!!

      • Big Tex… I venture to say if folks win the lotto the first place they are “not” moving to is TEXAS guaranteed pal!

      • Yes sir Big Tex, Waco is the next boom town, where do I pick up my Stetson and Colt 45?

  • So… with a 400% increase in Apt construction on line, generally speaking, will the sales value of similiarly situated presently built complexes fall ?

  • BrainOfEngland

    What happens when the buyers fall away from buying prime at silly high prices? At true for SoCal as it is for SoCal. Some sellers will accept lower prices, which bring down values for all the other owners. It’s basic market principles. You can’t confidently claim your house is worth $1m, when seller of a practically identical house next door, or across the street, has decided to accept and transact a buyer’s offer of $750K. It’s how house prices rose year on year, recently and into the longwave, and it’s how they also fall.
    MAY 19, 2014

    AIR is beginning to leak from the London residential property balloon. Moreover, anecdotal reports indicate that Asian and other foreign buyers are no longer rushing to buy prime London properties following the surge in prices….

    ..Group chief executive of Savills in the estate agent’s trading statement last Monday. “we have lately seen some cooling in the prime and super prime central London market.”

    Indeed, a count of some 600 properties on sale above £2 million (S$4.2 million) on the websites of upmarket agents Savills and Knight Frank shows that only 9 per cent have been sold and only a further 14 per cent of potential buyers have agreed on an “on offer” price, but so far have not exchanged contracts with sellers.


    • You can’t confidently claim your house is worth $1m, when seller of a practically identical house next door, or across the street, has decided to accept and transact a buyer’s offer of $750K. It’s how house prices rose year on year, recently and into the longwave, and it’s how they also fall.

      Brain in America it happens every day. A home sold near me for 870k in late March ,the neighbor next door listed the approx. ( I think 100ft larger) footage home with the same golf view for $1.1m it sold in early May for $1m83K.

      Yes listed as a cash deal in public records ( so no apprasial)but this house set up the whole neighborhood which now sells for $1m to $1.2m.

      I did it myself last year, invested in a production house that sold down the way for $495k, I fixed up the same home (paid $488k) made great curb appeal and staging listed it for $619k and in 38 days sold it for $597k in 2013.

      It easily appraised ( the buyer put 65% down), now everything on that block goes for $649 and up in April 2014.

    • What happens when the buyers fall away from buying prime at silly high prices?

      Sorry Brain but I can’t let get away with these quotes. It is Cal. folks always will pay silly prices because they have crazy money.

      Unlike England and most of the USA you feel good all the time there, the climate in the most desirable locations is excellent and you can’t put a price on climate even if the quality of life has changed for the worse it is still Ca. The state in still a dream and destination for many people world wide.

      • Should we keep having this conversation?

        In counter to California being a dream destination:

        a) California’s population is barely rising. Goes counter to that dream destination thing.
        b) 1/3 of California qualified for Medicaid. This should make u pee in your pants. That means 1/3 of California makes 135% of the poverty line or less.
        c) Using this logic, Baja, Mexico should have prices in excess of CA. No sorry, weather is not what pays the mortgage.
        d) States like MD, NJ, CT have far moe millionaires per capita than CA but houses are cheaper. Why? Real rich people are smart about money and don’t live an overleveredged pretend life.
        e) Ask them Toyota exceutives who used to be in Torrance about the magic of CA.
        Sorry, once again, California is a decent place with some pluses and some minuses. It is only magical to those who are delusional.

      • This guy is a riot

        You feel good all the time there! We’ve finally heard it all!

      • BrainOfEngland

        robert – I absolutely do not doubt this is what you did, and the profits you have realized.

        Also I accept much of your argument about Cal. having higher and longer-term appeal vs London, for both residents of US, and foreign money coming in. The foreign money coming to London, paying such high prices, is for protection of their wealth under our legal system, vs kangaroo type courts in many other countries. Other reasons being Asia seems to be getting carried away by the yields suggested in promotions on investment property. Definitely not for the climate and the overall scene you have in Cal. which my sister loves.

        I do have differ that there is as much ‘crazy money’ out there as you might believe, to maintain values. There’s a specific date/day recorded marking top of the tulip bubble, at an auction in Netherlands, when buyers came but just didn’t buy. It was a buyer-side collapse, as I understand it. And that has been a feature of other crashes, including real estate at many other points in time.

        Of course I could be wrong. For both Cali and for my own locality. With such demand (and money) holding out into the future, and even accelerating (which would be painful). I’m already advanced in contingency planning for a move to one of the premium/prime tourist locations in Southern Spain (for a Cali-lite experience, albeit different language and lots of other differences) – including vetting out the schools/private schools.(quite good value for money). Lots of value buying and rental (what I would do first year – for my contacts say that deals can be had for lot less than prices being asked on most real estate listings).. quality housing at just a few cents in the dollar vs California prime. So I might be BrainInSpain in 2 years. 🙂

  • ZerO …I notice this Blert guy is eating your lunch, I realized I wasn’t going to be a anything but a journeymen ball player, why don’t you join a board you can handle?

    • Really? Weak sauce little robby is telling someone else to find somewhere else to play? Wow! You want the board to troll all to yourself?

    • blerty blert blert

      No this blert guy just loves to hear himself talk. In this case it would be loving to read his own words. His musings come across as pompous and bloviating. I’m not what nor nzero.

  • Seriously all of the fawning over blert is a bit much. Must be the same crowd that loves to listen to a guy who loves to hear himself talk.

    No I’m not what or nzero.

    • Your not??? Then who am I?

      BTW – I often disagree with blert and sometimes have had rants about him but I would take ten blerts over one robby, christy, MB, jt, etc. He is out of his mind but it is entertaining to decipher his madness. And he actually can hold an intelligent dialog unlike the shills/trolls. I know that I will regret saying this but there, I said it…

      • It use to be trash me, now it is christy, MB, jt, etc. “PRETTY SOON YOU WILL BE ALL BY YOURSELF YOU AND ZerO” can have fun, the under 21 crowd.

      • Shill, shill, troll, troll, shill, troll…

        Keep on trolling brother!!!

      • BTW – I am at the age where “the under 21 crowd” is considered a complement. Keep them coming brother!!! Troll on!!!

    • Oh Blert.. With these folks you lose your identity fast, so far I’m Nick, Frick,Frack, Bill, Bob,Ted and Alice?

      When do I become Winston Churchill, Gen Patton, Caesar Chavez, Lassie, any thing but Bob,Ted and Alice?

  • This guy is a riot, so you feel better in 45 inches of snow 7 months out of the year, who is smoking what on this site???

  • Look folks left Cal. long time ago but I don’t forget what it did for my wife and I financially. You never disparage the hand that fed you, and Cal made me lots of money in the appliance, auto, and real estate commercial and residential. I also was able to play baseball year round which I couldn’t do in Chicago and it got me a look and contract, it never would have happen back there.

    • BrainOfEngland

      Look folks left Cal. long time ago but I don’t forget what it did for my wife and I financially. You never disparage the hand that fed you, and Cal made me lots of money in the appliance, auto, and real estate commercial and residential. I also was able to play baseball year round which I couldn’t do in Chicago and it got me a look and contract, it never would have happen back there.

      Be careful not to allow any sentiment affect your decisions too much, to keep doubling down on Real Estate flips now. I’ve never owned. The gulf in circumstances and opportunity in prime areas between older people (+ wage inflation) who bought ages ago, through 70s-99…. it’s almost unreal the advantages they’ve had and still have.

      (Multi-unit) Retirement Villages (apartment complexes) are something developers are focusing more on in the UK.


      Although asking prices to melt the mind of a younger person. I’d like to believe more Retirement VIllage complexs for older people consist a large part of the multi-unit starts that will be built in US. Remember how happy Peter Parker’s Aunt was when she downsized from her older home.

      Prices start from £600,000 for properties at Battersea Place [PH]

  • Thanks Brian you are a top 5 poster (actually I don’t know who is the other 4) nobody leaps out, but Doctor does a Yeomen job with graphs, anyways top 5 sounds good… take care.

  • When I hear that multi-unit starts are up %400 it sounds more unusual than saying multi-unit starts are back to “normal” but the graph the good Doc has posted exactly that. Or is the historical context before 1998 for multi-unit starts much lower than the trend line for most of the aughts that can be seen in the graph?

    • bler_not_blert

      Interesting question.

      The other thing that strikes me is that the project count doesn’t really get at what these units are. In Portland there are a lot of multi-unit projects underway, but similar to BrainofEngland’s post, many of them are towards the luxury end.

      To the extent these might serve median families, they seem designed to still hit above the 30% affordability threshold.

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