Sunday, December 26, 2010

A Wish for the New Year (Live-Work Spaces Along the Transit Core)

            It’s perfectly logical to conclude that persons having no permanent stake in a neighborhood are less inclined to invest in its present upkeep or the future state of repairs – except to the degree that inclination affects those persons’ bottom line.  Ironically, that “neighborhood investment” cuts both ways; the greater the investment, in other words, the greater the commitment, if your world – view encompasses economic reality.  If it does, then you may agree that an urban form in which folks who work in a place live on the spot makes some sense.  Take a look, for instance, in the couple of blocks along Roosevelt Street just west of 7th Street at the lofts that top the shops and restaurants (like the Nile CafĂ© at 610 East) on the ground floor.  The vested interests of those worker/dwellers, whether a function of aesthetic perception or property values, are directly evident and palpable.  There’s pride of business and residential ownership.
            Segregation of commercial from residential functions lengthens distances required for essential travel.  In turn, that circumstance increases traffic and parking demands at “central gathering points” like shopping centers, a situation improved by mass transit options.  So, what would result in Phoenix if we allowed folks who produced – on a low-key scale - goods and services to live in two and three story buildings along the path of the light rail system above the businesses they operate?  Envision that the goods are produced on the second floor, sold from the ground level, and the owner rests her head anywhere there’s room for a pillow.  Suppose further little pockets of grouped buildings where foot traffic is stimulated is by rows of shade trees or some other kind of shade structures.  Imagine the invitation emanating from buildings not set back 25’ feet from the sidewalk but instead that are open for shopping right adjacent to the shade structures.  Is that threatening?  Not if minimal parking spaces were afforded in shared configurations to discourage vehicular traffic aggregating in these live – work situations.
            I think it’s highly likely that such spaces would become neighborhood gathering places where an intimacy develops between the producers and the consumers.  Would not that fact offset the inconvenience of minimal parking opportunities?  An illustration of how that works occurs at Central and Camelback with the coffee drive through flanked by the retailers at Red Hot Robot, Smeeks, Frances and Halo.  Those merchants earlier this month had an outdoor craft fair that drew a boatload of folks who, of course, had to drive so as to “contain” their purchases somewhere – but I had the sense that many attending walked or rode light rail.  It was wall to wall humanity, and it was fun just to gauge the mood of the crowd which seemed relaxed and festive.  That corner is not multistory, but I’ll wager the owners would love to live right there where they work, and it’s right next to the Camelback stop for the light rail.
            Transit Villages aren’t new concepts, folks.  Michael Bernick and Amy Freilich were writing about the concept of building new communities at transit stations in suburban and inner city areas in the late 1990s.  If the cities (Phoenix, Tempe and Mesa, for now) own any excess property near the stations, they should request development offers and sell these excess parcels for live-work development at market rates, nothing more.  And while they’re at it, Valley METRO should try out this wacky idea: charge 50 cents for one-way and 75 cents for all-evening ridership after 7:00 p.m. on weekdays and all day on Sundays.  The increase in ridership likely will nurture a culture of “taking the train” all the time, including during peak ridership hours.  Or, Valley METRO could sell a monthly “night pass” for one fee for ridership on light rail and busses valid only after 7:00 p.m.  Would that encourage “undesirable elements” to crowd the valley’s transit system?  Doubtful; see, gang-bangers and pickpockets both require a “quick getaway” option that doesn’t exist with bus or light rail travel, unless the rascal intends to hurl himself out the window.  Not gonna happen.  The growth of usage of the transit system in this ever-increasingly crowded metroplex justifies a trial of such a concept. 


Wednesday, December 1, 2010

Inflation? If it happens, what will it look like?

This morning I am attending a class about disclosure, taught by Bill Gray, the former owner of the Arizona School of Real Estate and Business. He talked about one aspect of the health care bill, which for individuals earning more than $200k or couples earning more than $250k, imposes a 3.8% tax on the profit from selling properties.

And generally the attitude is that it doesn't really apply to anyone. But let's think for a moment what happens if inflation comes. Say prices rise by a factor of 5. (I'll talk about whether this is possible or not in a moment) If this happens, your $200k home you owe $300k on is now worth $1,000,000. When you sell it, the tax for the health care bill will be about $24,000 (depending on down payment and commissions.)

At this point in history, the national debt is larger than it has ever been, at it is at a point where history shows us that the United States might collapse. Historically a nation which has a huge debt compared to gross national product is in danger of collapse. However, in the 1930's, due to a shrinking of GNP, debt reached as much as 128%. So it doesn't always happen. And even in that time in history, inflation did not occur. Instead we had deflation.

Two things helped in the recovery at that time. First, home ownership became a priority. Prices were low, and in 1934 the FHA was created. Home ownership was seen as a way to get the nation back to work. The government subsidized loans to promote home ownership. People who buy homes also buy furnishings, refrigerators, radios, curtains, etc. and this drives manufacturing. The other thing that helped lift us out of depression was the onset of war, which also drove manufacturing.

And if you look at history, the path for many nations out of depression is war. Not that the wars help, but rather the people are so miserable and distrustful of the government that war becomes inevitable.

So what is our government trying to do now? They are trying to cause inflation, because deflation is just too scary. In a deflationary environment, asset prices fall and the banks (who now bear most of the risk) have little hope of recouping their investments. But if we are in an inflationary environment, asset prices rise (in terms of our fiat currency) and the banks can recoup their investments, as in the example at the beginning of this post. It is vitally important to the banks, particularly to the Federal Reserve, to cause inflation -- and lots of it.

It hasn't been able to do it. The Fed tried quantitative easing, pumping more than a trillion into the economy and nothing happened. QE2 is another $600 billion. The only thing they haven't done is to give money away on the street corners. There are some signs of inflation, though, as we see commodity prices and food prices rising, even as housing prices continue to fall. Prices today are the lowest they have been in 10 years, for resale homes in the Phoenix area. The least hard hit areas are in Texas, especially in oil related areas.

Parts of Arizona are also doing better -- due to rising commodity prices, such as copper. I don't understand why, but this is likely exactly the opposite effect desired by the Fed. They want to inflate real estate prices and not harm commodity prices; that would be the best answer. Unfortunately, foreign trade does not often invest in single family homes, rather, they buy goods ... and commodities. So a weak dollar does not help the housing market, and increases prices in things we need to buy.

I wish I had better news.