Archive for the ‘Real Estate’ Category
REIT Development Pipeline
On June 28, Fitch Rating Services issued a report on the REIT development pipeline that has generated a bit of discussion in the real estate community. Fitch’s emphasis was on the lack of development — with some noteworthy exceptions — and how this has “not a meaningful” implication for REIT credit risk. However, the topic is important from a fundamental perspective, and deserves a bit more discussion.
Historically, REITs weren’t in the development business. REITs are a tax vehicle, and to maintain that status, they’re supposed to collect rents and pay 95% of those rents out to shareholders (well, that’s a gross oversimplification, but let’s go with it). As such, REITs enjoy preferential tax status, and have usually enjoyed excellent leverage. REITs have some significant limitations on the proportion of profits which are supposed to come from business enterprises, capital gains, and such, and can lose their preferential tax status if these other items exceed a certain threshold.
During hot and heavy times (let’s say, pre-2007), REITs are hit with a triple-whammy. First, they depreciate existing properties, and need that depreciation to shelter income (and thus exceed the 95% threshold, which they usually do and which investors expect). Second, they were loathe to sell fully depreciated properties in order to buy new ones, because the huge capital gains from sales would impact the preferential tax status. Finally, developers were demanding large premiums — income producing buildings were selling for amazing multiples which barely made sense (that’s called a “bubble”, folks).
The good news for a REIT was that if they developed their own properties, the development profits could be kept in-house, and there would be no fatal tax recognitions. Depreciation expenses stayed high, and they could thus pay-out higher and higher funds from operations to shareholders. It was a win-win. The only downside, of course, was that development activities were considered risky, and so the credit rating agencies kept a close eye on these practices. However, REITs were typically less leveraged than other ownership vehicles, to the riskiness was usually minimal.
A tthe peak, in 2007, the REIT universe had an aggregate investment of 7.6% of undepreciated assets in the development pipeline, or a total of $34 Billion. By March 31, 2012 (the cut-off for data in the Fitch report) that had collapsed to 2.7%., and indeed over a third of that is in the fundamentally sound apartment market.
Fitch summarizes the market as “fairly muted”, and says that “By and large, companies have not ramped up development pipelines,” according to Steven Marks, managing director at Fitch in a follow-up interview to Globe Street. “It is really growth via acquisitions and organic cash flows from existing portfolios.”
The report also noted that over the past 10 years, REIT development activities have had a high correlation with U.S. GDP changes. Thus, improvements in U.S. GDP would signal development opportunities for REITs, but continued stagnation in the U.S. GDP suggests that REITs will continue to remain quiet on the development front.
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International Financial Reporting Standards
I know I’m sounding like an overly technical geek on these subjects, but as we know from the recent (current?) economic malaise, seemingly back-page issues can have major impacts on large segments of the economy.
Buried deep inside Friday’s issue of the Wall Street Journal (OK, page C1, but that’s pretty deep) was news that the SEC will once again delay implementation of the International Financial Reporting Standards (“IFRS”) for U.S. regulated businesses (from a practical standpoint, essentially all of them). For those who aren’t up on their accounting theory, U.S. accounting standards — generally referred to as “Generally Accepted Accounting Practices” or “GAAP” for short — have been developed over time from essentially three sources: “best practices” which have evolved literally over the centuries, pronouncements of the Financial Accounting Standards Board, or “FASB”, and its predecessors, and adaptations to conform with U.S. tax practice. IFSR is more of a top-down approach, and governs accounting practices pretty much anywhere in the developed world EXCEPT for the U.S. (One might argue, and with some validity, that recent accounting problems among Chinese businesses reveal real problem with IFRS compliance, and one wouldn’t be altogether wrong. That’s a topic for a different day, though.)
American businesses dealing in global commerce (as nearly all big ones do, now-a-days) have been anxious for a unifying accounting paradigm for many years. Indeed, the differences between IFRS and GAAP are significant, and in fact adoption of IFRS in the U.S. may cost many businesses quite a bit in tax penalties, since IFRS doesn’t recognize certain tax avoidance strategies (e.g. — last-in-first-out inventory accounting) that are common in the U.S. Nonetheless, American businesses are willing to suffer the tax pain in order to get a common accounting language globally.
From an accounting perspective, this delay by the SEC is a royal pain in the neck, but that too is a topic for another day. The reason I bring it up today is the implicit impact on real estate appraisal standards. I’ve noted, with some interest, that appraisal standards are increasingly derivative of accounting practices. Back when America’s Uniform Standards of Professional Appraisal Practice (“USPAP”) was developed, accountants could barely care about appraisal standards. Today, a close examination of the International Valuation Standards Council (IVS) reveals a substantial degree of input from the accounting and banking fields, much more than we saw 25-ish years ago when USPAP was first codified.
In my own observation, this SEC delay gives the appraisal profession another year or so to decide if they want a top-down or bottoms-up approach to appraisal standards in the U.S. Do appraisers want to be driving the truck or riding in the back? I’ve observed that the three constituent “regulatory” bodies (the professional organizations, such as the Appraisal Institute and RICS, the Appraisal Foundation, and the state and federal regulators) seem to be of three different minds on the subject. The constituent bodies seem to be more proactive and ready to move forward with IVS adoption. The Foundation seems to have been constantly playing damage control in the past couple of years over the mortgage market meltdown and the resultant sturm-and-drang from the Federal regulatory bodies. None of those regulatory bodies seemed to have a dog in this hunt, so haven’t appeared to care. I will say, however, that proposed changes to USPAP 2014, which are currently being circulated in draft form, are very forward-looking, albeit with baby steps.
Finally, state regulators are almost 100% reactive. Some are very good at reacting, and some are very bad. Currently, they are all overwhelmed with the double-whammy of very real budget cuts and very real appraisal standards violations problems emanating from the mortgage market meltdown. As such, a major paradigm shift in appraisal standards will be difficult for them to swallow.
This all seems to be back-page stuff, but in fact these issues have very real implications for the way “business does business”, particularly in the real estate valuation world. We’ll keep you posted.
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S&P Case Shiller Report
I WISH I could be excited about the most recent home price index report. I really wish I could.
The news is mediocre, at best — home prices in April rose by 1.3% on average from their record lows in March, and are still down 2.2% (for the 10-city composite) from April, 2011. Not surprisingly (after March’s terrible news), no cities posted new lows in April. Of the 20 cities tracked, 18 showed increases (NYC and Detroit being the exceptions).
So, why? If you read my blog yesterday, you know we have a terrifically supply-constrained market. This morning’s Wall Street Journal had an article about Chinese investors who are providing about $1.8 Billion in kick-start capital to Lennar to get a big 12,000+ home community underway in San Francisco — a project Lennar has been working on for 9 years. While I congratulate the Chinese and Lennar for this partnership, it does not at all bode well for U.S. investment liquiity that off-shore capital is needed to get a new project off the ground in one of America’s most dynamic cities.
Recall from ECON 101 that “price” is what happens at equilibrium when supply intersects with demand. (OK, technically “price” can emerge in disequilibrium, as well.) Right now, supply is hugely constrained, with a lot of REO-overhang and little new construction. If demand was healthy and growing, prices should be soaring. Instead, prices remain flat-lined, suggesting that demand is also stagnant. However, population continues to grow and household formation should be positive.
What’s taking up the slack? The apartment market continues to explode, with huge demand for rental units. What’s the end game for all of this? I can only think of two results:
1. The home ownership rate in America continues to languish, finding some new post-WW II low; or
2. Eventually, home ownership will go on the rise, and we’ll have an overbuilt situation in apartments.
Where would I bet? Sadly, given the state of the world’s economy, #1 looks more tenable in the long-term. That doesn’t mean we’re moving from being a nation of home owners to a nation of renters, but it does mean that the tradition of home ownership which has prevailed in the U.S. for decades may be becoming passe. Either way, in the intermediate term (the next several years), we’re probably looking at the status quo.
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New Home Sales — “Much Ado About Not Enough”
Big news today — new home sales hit an annualized rate of 369,000 in May, compared to 343,000 in April. That’s 20% higher than a year ago. It also beat economists collective prognostications of 350,000.
Wow…. and only about 63% less than the 1,000,000 per year we would consider health.
And about 74% below the peak of 1.4 million during the boom years.
Obviously, there’s a problem here, and unless and until we get back to “normal”, the portion of the economy which is driven by home development, construction, financing, and sales will continue to suffer. Three things are currently terribly broken, and fixing them is no easy task.
1. The lending market is utterly disfunctional. There was a great headline in one of the papers the other day — if you don’t NEED money, there’s plenty of it. Unquestionably, one of the contributing factors (not a major one — but one, none the less) to the market meltdown was the sale and financing of homes to folks who had utterly no idea how they were going to meet their mortgage payments. However, even in good times, we know that a certain percentage of loans will go sour — call it about 2%. The straw that broke the camel’s back was when the recession hit, that “sour loan” percentage went up to about 4% – 6%. Unfortunately, the secondary market had “priced” these loan pools with the notion that only 2% or so would go bad. The loan pools themselves were so badly over-leveraged (at Lehman, apparently, the pools were leveraged something like 35-to-1 or more) that an increase into the 4% range completely destroyed the secondary mortgage market. Today, the pendulum has swung too-far in the other direction, and first-time homebuyers, who often have good jobs but little in the way of demonstrable credit, are completely shut out. If they can’t buy “starter” homes, then the “move-up” market suffers, and the retirees (who want to buy in places like Reno and Ft. Lauderdale) can’t sell their homes to “move down”. Fixing this lending crisis is the first order of business.
2. The land development business is broken. Even if we magically “fixed” the lending problem tomorrow, there is a real shortage of land in the development pipeline. It takes years to turn a vacant field into a subdivision full of lots (or a condo site), with extensive engineering, planning, financing, and entrepreneurship efforts. Even in good years, there is a fair amount of risk-taking and capital expenditure. We can’t just pick up where we left off a few years ago, because many (most? nearly all?) of these development projects burst like soap bubbles during the recession. Thus, we have to completely hit the “re-start” button on subdivision development in America. Unfortunately, there is absolutely no appetite for financing these projects, and many of the players have gone out of business. After World War II, the country was able to kick-start the housing market with extraordinarly favorable financing (remember VA and FHA loans?). None of that exists today, and the secondary market to sustain all of that has gone away. In the absense of a Federal mandate to kick-start housing, comparable to the GI Bill of 1944, this aspect of the market will continue to be flat-lined.
3. Local community infrastructure development is broken. Housing development requires a substantial public-private partnership. In many communities, much of this is paid for as a “public good”, while in others there is the expectation of significant developer contribution. Nevertheless, local planning agencies, transportation and utility departments, and even school districts and fire departments have to stand ready to provide infrastructure for housing. Local government fiscal crises have frequently broken the back of these agencies. Nationally, we’ve laid off something like 50,000 teachers in the past few years, yet new housing development and household formation will require increasing numbers of schools. The same is true for fire fighters, EMTs, police, road maintenance, and utilities. Until our cities, counties, and states are back on their financial feet, this segment of the equation will continue broken
Sadly, these are interactive parts of the same equation. For example, local governments fund planning departments with fees paid by developers. Hence, the city or county reviews tomorrow’s building permits with fees paid by yesterday’s developers. Restarting the system will take talent, money, and some significant leadership, none of which is currently apparent.
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North, to Alaska
Now, you’re dating yourself if you recognize the name of this song/movie from 1960 (Johnny Horton sang the theme song to the John Wayne movie. The song, which topped Billboard‘s Country chart and reached #4 on the “Top 100” chart, was significantly more popular than the film.)
Ms. K and I took a lovely cruise to Juneau, Ketchikan, and Skagway last week, on board Norwegian’s Jewel — kudos’ to them, by the way, for a great job on the cruise. More intriguing, though, was my observations of the Alaskan economy and real estate. I’ve been to the 49th state several times on business, and still have some back-burner projects up there. Ms. K had never visited (ironic, given her Scandinavian background). We did the normal tourist-y stuff, including riding the Juneau tram to the top of the mountain and riding the Skagway Railroad along the Yukon Trail gold-rush route into British Columbia. Of course, throughout the trip, I had a careful eye on tell-tail signs of the health of the state, or at least that small part I was able to see.
Ketchikan — This is the southeast-most “sizable” city in the state, and is often referred to as the gateway to Alaska. The economy is heavily driven by tourism and fishing, and it serves as a marine and air hub for this part of the state. I had more “on the ground” time in Ketchikan than in other cities, and also was accompanied by a local real estate investor. I had the chance to meet with two bankers (one of whom is also a state official) and tour a mechanical contracting facility. In general, the economy seemed to be booming. There was significant construction ongoing, and I also saw significant interior shopping mall which has been successfully “turned around” by an investor. The local bankers I met with were “conservatively positive” about the economy, and indicated that lending was ongoing.
Ketchikan has benefitted in no small part from major governmental changes in 2010. Previously, in 2006, the Alaska state government enacted certain taxes and regulations on the cruise industry which were difficult, if not impossible, for the industry to meet. As a result, there was a significant decline in cruise passengers into Ketchikan from 2006 – 2010. However, the state rolled-back the taxes, and now Ketchikan is expected to receive about 470 port-calls from cruise ships this year and over 900,000 passenger visitors. The economic impact of this cannot be under-stated.
Thus, as long as the state government continues on a business-friendly pattern, the economy of Ketchikan should continue on solid footing.
Juneau — This is the state capital (no, it’s not Anchorage!) and about half of the employment is government related. Juneau also receives about the same level of tourism as Ketchikan, plus it’s a significant center for commercial fishing and mining. As such, the economy is less vibrant than Ketchikan but more solid. (Juneau’s unemployment rate is 4.8% — the lowest in the state.) Since my last visit to Juneau, there has been significant construction and upgrades in the “tourist” part of town, and occupancy looked strong.
Skagway — This was the launch-point for the Yukon Trail gold rush, and later a rail road was built (about 120 miles or so to the Yukon) to haul gold down to the Skagway docks. Today, the entire town is a national park, and the population is entirely dependent on tourism. Nonetheless, there are efforts afoot to expand Skagway’s economy, leveraging off of the fact that it’s one of the only cities in that part of the state to have road access to Canada and the lower 48 states. New construction is almost non-existent, since nearly the entire town is historically preserved. However, the preservation efforts seem to be paying off, and the town appears to be flush with tourism money.
I’m not trying to write a promotional piece on Alaska, nor would I suggest that the benefits in these three cities are in any way transferable to other parts of the world (how many cities could handle a daily tourism influx equal to their entire population?). However, the efforts of locals to integrate tourism with other strengths, and to focus on being “business-friendly” so as not to kill the goose laying the golden eggs, is an admirable set of traits for other cities to study.
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Wither goeth the Euro?
Observations on Greece, the Euro, and the implications for real estate finance —
First, there is extraordinary confusion over the causes of the Euro crisis, and thus confusion over the effects, particularly here in the U.S. A few observations, to set the stage:
1. Europe is in a massive demographic decline. “Native” Europeans have a birth rate which does not support the population, and as such their “native populations are getting older and smaller. Up to a point, this has positive effects on the economy, because small children cost money and a population actually gets more productive as the “bubble” in its age demographic approaches middle age (middle-agers are more productive than young folks or old folks). The REAL problem begins when that bubble starts approaching retirement, and there aren’t any younger cohorts to replace them. This is part and parcel of what happened in Japan not to long ago, and the reason why the Japanese economy seems to be in permanent doldrums.
2. As an aside, I focus entirely on Europe’s “native” population. Unlike the U.S., Europe has a terrible problem integrating immigrants into its productive society. That’s a topic for others to expound on.
3. The Euro was formed in a very different way from the dollar. When the U.S. dollar was adopted as a currency, the Federal government took on all of the state’s “operational” debts (the “Alexander Hamilton Solution”) which resulted from the American Revolution, and the states were prohibited from running operational deficits going forward. States can issue debt to pay for capital items (highways, schools) but not for operational items. Hence, a state can’t borrow money to pay interest on money it already borrowed. The Hamilton Solution means that the U.S. has a highly integrated economy, unlike Europe’s, which is more artificially integrated. (One might argue that the U.S. also benefits from a common language. Anyone who has ever traveled from Seattle to New Orleans may debate this issue.)
4. Soooo…… if the U.S. borrows money to cover its operational deficit, it can “print” money to cover those debts. (OK — a bit of advanced Econ for ya’ll — “print” is an analogy. Technically, the Fed expands or contracts bank credit to increase or decrease the money supply. “Print” is just a handy shorthand for the more complex methods.) On the other hand, Greece can’t “print” Euros — they all come from European central banks.
One might notice that the debt/GDP ratios in Greece and the other troubled countries are no where NEAR where we’d historically see countries in dire straights (Given the dampening influence of the World Bank, IMF, the G-20, and such, we really don’t see hyper-inflation any more in emerging markets like we did a generation ago.) The big problem is that Greece can’t “inflate” itself out of debt by printing Euros. If they could, the banks would gladly loan them money so as to “kick the can” down the road a bit. If Greece had a growing, productive economy, then they could grow their way out of debt, but no-one buys into THAT fairy tale, either.
If, on the other hand, they withdraw from the Euro zone, they’ll be able to print all the Drachmas they want, albeit at terrible inflation rates. If the Greek citizenry thinks that current austerity plans are potentially painful, they should re-read some history of the German Weimar Republic (you know — that period in history when the Germans were so distraught, they elected Adolf Hitler because he promised to “fix things”.)
What does this have to do with real estate? At the core, the Greek problem (and by extension, the entire Euro problem) is a BANKING issue, not a debt/GDP problem. Admittedly, some countries within the Euro zone borrowed money that they had not idea how they would pay back. That’s a structural failure dating from the creation of the Euro, and it’s highly doubtful, particularly at this stage in Europe’s economy, that the Eurozone nations would be willing to accept such a level of fiscal unity and central governance. (Not to mention the European Union countries which are NOT members of the Eurozone — such as the UK).
Currently, in the U.S., we just came out of a banking-induced housing bubble. We’re currently IN a banking-induced housing depression. In the worst-hit states (for example, Florida and Nevada), the lending market, particularly for retirement or second homes, has nearly stopped. The Greek problem is, at its heart, a banking problem, since European sovereign debt relies much more heavily on commercial banks than in the US. Relatedly, banking is global today (Note how many HSBC Bank offices are scattered through the US?) At the back-office level, banking is almost completely global, with liquidity flowing across oceans as rapidly as phone calls and e-mails. (Recall: central bankers don’t “print” money anymore, they just fine-tune liquidity.)
With that in mind, an already damaged US banking system, with credit severely curtailed to one of the most important sectors of the economy, will be increasingly damaged if and as the Greek/Euro crisis continues to escalate. On the other hand, if the Greek citizenry recognizes that austerity under the Euro is preferable to ultra-austerity under the Drachma, then a huge sigh of relief will permeate the world’s banking customers.
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State of Alaska v Wold, take 2
I’ve received an amazing amount of response on this post! Several of you have requested copies of the ruling, and others have asked that it be posted here on the blog. So, here ’tis:
Enjoy!
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State of Alaska v. Wold
On Friday, the Alaska State Supreme Court issued a ruling on an appraisal standards case which is already having national — even international — implications. (I’ve already received e-mails from as far away as Australia about this!).
To synopsize, I was the testifying expert on appraisal standards for Wold’s attorneys. For a couple of decades, Wold has been a successful and highly respected appraiser, real estate expert, and investor in Ketchikan, Alaska. Back in the 1990’s, he testified on a pair of court cases, and the opposing expert in one of the cases was a member of the Alaska Appraisal Licensing Board. (You can see where this is going, right?) The Board filed a number of charges against Wold, and as is usual in such matters, the charges went before an Administrative Law Judge. The Board did not accept the Judge’s findings, and decided to adjudicate the case themselves. (You CAN see where this is going, right?). The Board found against Wold on all 8 charges and Wold naturally appealed to the District Court. That Court not only overturned 7 of the 8 charges, but ordered the Board to reimburse half of Wold’s fairly significant legal fees. Wold appealed the 8th charge to the State Supreme Court, which not only handed Wold a decisive victory (in the only USPAP case ever heard by that Court) but also remanded the case to the lower court for consideration of reimbursement of the REST of Wold’s legal fees.
As the testifying expert who advised Wold’s attorneys, I’m naturally pleased at the outcome. That having been said, I’m concerned about the bigger picture. Appraisal licensing boards around the country have a record number of complaints filed against appraisers today, and in many of these matters, sifting through the truth as opposed to the fiction is an increasing challenge. Clearly, some appraisal mistakes were made in the recent housing finance debacle, not to mention appraisal review and underwriting. The job now is understanding when and how those mistakes were made, and approaching these matters objectively, credibly, and in an unbiased fashion.
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American Real Estate Society annual meetings
ARES is one of the two primary real estate academic organizations in the U.S. (The other is the American Real Estate and Urban Economics Association, “AREUEA”). While most real estate academics are members of both, ARES also attracts a significant number of practitioners (typically ex-professors who are now in the consulting or investments business) plus has a great relationship with such practitioner organizations as the Appraisal Institute and the Royal institution of Chartered Surveyors. ARES publishes several of the top real estate academic journals, including the Journal of Real Estate Research (for which I’m a reviewer), the Journal of Real Estate Literature, the Journal of Real Estate Practice and Education, the Journal of Real Estate Portfolio Management, the Journal of Housing Research, and the Journal of Sustainable Real Estate (for which I’m on the editorial board).
ARES holds its annual meeting in April, usually in a coastal city on alternating sides of the US. This year’s meeting was last week at St. Pete Beach, Florida (an island just off the St. Petersburg coast), and we believe we set a record for attendance at a real estate academic conference. Several hundred working papers and panel presentations dominated the program, along with sessions featuring research from doctoral students, and a well-attended, day-long “Critical Issues Seminar” on Wednesday co-sponsored by the Appraisal Institute and the CCIM Institute.
I presented papers in sessions, including one I chaired (“Real Estate Cycles”) and participated in an excellent panel discussion on Friday on “Real Estate Failure”, chaired by my good friend Dr. Gordon Brown of Space Analytics (and featuring Dr. Larry Wofford of U. Tulsa, Dr. Richard Peiser of Harvard, and myself).
I’m still digesting the huge volume of intellectual content that came out of ARES, and I’ll probably discuss some of these papers in future blog posts. More later!
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Welcome to April
…and welcome to Florida. I’ve been in the southeast corner of the U.S. for the past two weeks in a hearing. I happen to love Florida, and if I ever get around to retiring, I’ll probably end up here. Thanks to personal choice, some business, and just a little bit of kismet, I get to travel here at least 3 or 4 times a year. Indeed, by the end of April, I will have made 3 trips here in 2012, with at LEAST two more planned.
In many ways, Florida is the poster child for the current economic problems plaguing the U.S. It has all of the hotbutton issues in one place — overbuilt housing, lending practices to match, and huge demographic shifts. The latter is almost humorous — Florida is jokingly referred to as “God’s waiting room”, not withstanding the fact that suburban Las Vegas, Orange County, California, and Scottsdale, Arizona, are all fighting for that moniker. Indeed, about 15 years ago, I was relegated to represent my university at the annual meeting of the American Association of Retirement Communities. I learned (among other things) that the two Carolinas, when taken together, actually get as many retirees every year as does Florida. However — and here’s the funny part — the “source” of Florida’s retirees is primarily the New England and Mid-Atlantic region. The “source” of the Carolinas’ retirees is Florida — they’re called “half-backs” because they move to Florida, find the weather to be abysmal, and move half-way-back home.
Being that as it may, Florida is still the destination for seemingly millions of retirees, a large proportion of whom seem to be “snow-birds”. They live in Florida 6.01 months of the year (just enough to qualify for Florida citizenship, and thus preferential Florida taxes) and then head back up north on March 31 every year. (I was in Florida on March 31, and the out-migration seemed to clog the interstates).
Before the melt-down, the whole housing industry in Florida existed to provide half-year housing for these snow-birds. Pick what you want — condos, townhouses, detached homes, we’ve got it at every price-point, size, color, and configuration. It would be hard to imagine a housing solution that wasn’t available in Florida. Financing? No money down? No problem. Move right in. While a surprisingly large number of homes were paid for with cash, there was certainly lots of available financing for the retiree who didn’t want to tap his funds for a down payment. And why tap your funds? When the stock market is growing at 10% per year, and real estate is going up by 15% per year, who would avoid a 4% mortgage? And what bank wouldn’t make that mortgage? After all, Grandpa and Grandma are great credit risks, and if they die before the loan is paid off, certainly the property can be re-sold for a profit. It’s a win-win, right?
Yeah, we don’t need to re-visit the meltdown, but the aftermath is a fascinating war zone. First, a lot of cond0-dwellers simply walked away. A lot of single-family dwellers tried to hang on, but often to no avail. Nothing would re-sell, so the market just froze. But, remember that a LOT of the buyers paid cash or had very low LTV loans. Those folks are particularly harmed — they are sitting on nearly unsellable property, with no end of the pain in sight.
If you visit Sarasota or Naples or any of the dozens of “retirement” communities on the Florida coast, you’ll get two distinct pictures. The beaches are filled, the hotels are filling back up, and the neighborhoods look healthy. Visit the county government complex, though, and you get a distinctly different picture. Floridians are a distinctly tax-averse lot, and so many county and city governments thrived on fees paid by developers. With that market frozen, the local government finances are a mess. Couple with it an actual and meaningful decline in property tax collections, and you get a local finance problem that won’t get fixed anytime soon.
With that in mind, millions of Americans (and an increasing number of South Americans and Europeans) see Florida as the best of all retirement solutions. The weather is great most of the year, there is excellent infrastructure and health care, and plenty of recreational opportunities. The cost of living is among the lowest in the U.S., providing ample opportunity for “worker bees” who move here to care for the retirement cadre. However, the housing market continues in the doldrums. A good friend of mine, with excellent credit and not unsubstantial resources, recently bought a Florida condo. The BEST loan he could get was 40% LTV, and even that was a paperwork nightmare. There is plenty of demand for Florida housing, but the financing side of the equation continues to be an issue. Unless and until the financing problem gets fixed, the housing problem will still be with us.
From a small northwestern observatory... 