CONSTRUCTION DEVELOPMENT TO BE AN EVEN MORE TAXING BUSINES

It seems like there is just no end to the ways bureaucrats dream up to try and choke the market based economy. The newest twist is to slap a “linkage fee” on new developments in the city of Los Angeles. Based on mayor Eric Garcetti’s proposal, the Los Angeles City Council would levy a $5.00 per square foot fee on new commercial development and a $12.00 or more per square foot fee on new market rate residential development. Residential projects with five or fewer units would pay $1.00 per square foot. This additional revenue would go toward City controlled low income housing. Is this just another way to allow government to take over the free market economy? Do we really want the government to take over the housing industry? What would be the effect of this additional expense on new developments?

There is no question about the shortage of housing in Los Angeles or, for that matter, in the entire state of California. Housing is becoming more and more expensive, rents are getting astronomically high. Who is to blame?

There are several factors to consider. California is, was and always will be the place to be, mostly because of the marvelous geographical location, climate and the excellent opportunities for people to advance their careers. You can ski for almost 8-10 months of the year, like this past rainy season has proved with its enormous amount of precipitation. You can play tennis for basically 12 months of the year. The lifestyle of Californian people is very casual, just to name a few good things.

As they say California is not following any trend, it sets the trend.

When I came to California in the ’70s the population was about 18 to 19 million people, if I remember correctly. Today we’re pushing 40 million people. That means that we are more than twice as many people for the same real estate area as we had 40 some years ago. People come and will continue to come to California in the future. There is no stopping of that. Supply and demand dictates that more people on the same real estate area will push prices up. It’s basic supply and demand economics.

How do we help control prices going thru the roof? The answer is YIMBY instead of NIMBY!

In my humble opinion we shouldn’t make developments more expensive as this new “linkage fee” would do, but make construction and development less expensive and less regulated. One of the best ways to achieve this is the newly passed ADU state law or SB 1069 that allows a second unit on the same lot. As everybody knows by now, this very new state law allows a second unit to be built on the same lot with very relaxed parking requirements. By promoting private low budget developments like ADU’s, the government or cities would be kept out of the business of development and small developers including owners of single family homes would build thousands and thousands of low income units for rent. More available rental units will definitely push rental prices down. If the government wants to help, it should provide low interest rate loans to help home owners to build these second units. People know better than the government what is good for them if you give them an incentive to make a profit.

Very soon the popular phrase of Not in my back yard or NIMBY will change to: Yes in my back yard or YIMBY.

Keep the government out of the business of development and
construction!!!

WHY DO WE COMPLAIN ABOUT RISING HOUSING PRICES

You really think housing is pricey in America? Be glad you’re not in Hong Kong! Are prices are getting out of control? Maybe so if you consider that a dilapidated fixer-upper in San Francisco can fetch easily over a couple million dollars, but if you fantasize about going abroad to get more home for your buck/euro/yen, make sure you choose wisely.

A recent study of more than 300 metropolitan housing markets in nine countries by research group Demographia found U.S. Housing markets to be the most affordable, beating out Canada, the United Kingdom, Ireland, Japan, Australia, New Zealand, Singapore, and China (well, just Hong Kong).
To rate affordability, researchers used a metric called “median multipliers”, which is the median housing price divided by the median housing income. Basically it’s how many years’ worth of household income you’d need to buy a home. A market is rated “unaffordable” with a calculated value of above 3.0 and “severely unaffordable” if it’s above 5.1.

There was a lot of variation among the 88 markets surveyed in the U.S., from a bottom-scraping 2.1 in Detroit to 9.2 in San Francisco, but the average rating stands at 3.4 and even if you’re counting only major markets (with population over 1 million) the rating is still 3.6.

But that’s remarkably livable compared to Hong Kong, at the other end of the scale with a median multiple of 17, a record high in the 11 years of the survey. Put into starkly human terms, even if you could direct all your household income toward buying a house, it would take 17 years before you can afford one. By the way, Hong Kong also had the smallest homes in the study, with an average size of a new home at just 484 square feet.

Working 17 years for a home of 484 square feet? I think we should stop crying foul for our home prices “going thru the roof…”

SHOULD WE BE LESS THAN PROFESSIONAL?

A very strange thing happened lately to our office.

Most of you know that there is a state law for structural observations for certain phases of construction, performed by the design structural engineer. This structural observation has nothing to do with the city’s inspector coming to the site and signing the job card. This structural observation program was designed to protect the owner of the job, that the contractor builds the structure exactly as it was designed by the structural engineer and approved by the city’s plan checker and doesn’t leave out any important element from the construction. It also protects the contractor by shifting the responsibility to the structural engineer, should any problem surface long after the building was finished, because he approved every phase of the construction. It is a win-win situation.

When we finished a small residential project lately, the contractor noticed the mandatory structural observation schedule on the plans. He immediately demanded the removal of those, saying that he knows how to build a building and he doesn’t need anybody to check his work. He said he knows the city building inspector and he – the inspector – will approve his work, so he doesn’t want the structural engineer coming to the site during construction. We tried, unsuccessfully, to explain to him that if we do not comply with the state law and don’t indicate the necessary structural observations on the plans, we could be legally liable. We also told him, that if he doesn’t want us to perform these observations, then don’t call us, we will not go on our own, only when it is requested.

Unfortunately we didn’t come to an agreement, we did not remove the observation schedule, but he didn’t pay us for the work either. We did not have a choice, but had to go to court to have the court decide. The question really was: As a professional, can we do less than the law requires, even if it is with the knowledge and the request of the client?

What do you think what was the court decision?

P.S. Of course, the law was upheld. We won and even got paid, although it looks like – not surprisingly – the contractor will not use our services in the near future…

THE LEANING TOWER OF… SAN FRANCISCO?

It looks like the City of San Francisco is adding a new tourist attraction to the city’s landscape. The Golden Gate Bridge, China Town, The Embarcadero, The Fisherman’s Wharf, Pier 39, Lombard Street just to name a few, will be joined with a new attraction so even more tourist can cram into the already jam packed city.

What I’m talking about?

The Millennium Tower, which was built just about 8 years ago, decided that the Leaning Tower of Pisa in Italy gets too much attention and fame. The Millennium Tower, which has sunk into the ground a bit and is leaning these days, had set its sights on usurping the tower at Pisa as the most leaning tower on earth. You know here in America if you are not the biggest, the strongest or the best, then nobody gives a hoot. That’s why we call the championship games in baseball the Word Series, the basketball finals the World Championship, although everybody knows that in other countries people play pretty good baseball and basketball too. So The Millennium Tower wanted to be the Most Leaning Tower on earth. The way things go, it has outdone the Leaning Tower of Pisa bigly… (Big-League Ha-ha-ha)

Everybody knows that The Leaning Tower of Pisa, the free standing bell tower, has been tilting ever since it was built in the 14th century. Over approximately the past 800 years the top of the structure has moved horizontally about 13 feet or 154 inches to be exact. In the past almost 10 years the Millennium Tower has leaned about 15 inches on top. If it continues like that, in the next 100 years it will reach the displacement of The Tower of Pisa. After that? It will have the title: The World Champion of The Leaning Towers! We will be the best in the world again! (You don’t have to worry about what will happen 800 years from now, but theoretically the horizontal displacement would be about 100 ft.)

What has really happened?

The 58 story concrete condominium building, said to be the heaviest building west of the Mississippi, was built on a landfill. There are two ways to build on a landfill to avoid excessive and uneven or differential settlement, which can create this type of leaning. Use a “Mat” foundation, which is a massive concrete footing occupying the entire foundation area of the building to spread the vertical-gravity load, (excessively used in the low lying, marshy areas in Texas) or use deep piles to reach the underlying bedrock for firm support. Neither system was used. The piles supporting the building did not go deep enough into the bedrock, in this case about 200 feet below the surface. Instead, the builders relied on piles that were driven into firmly compacted sand and mud about 60 to 90 feet below.

Who is at fault?

If the structural engineer followed the soil or geotechnical engineer’s recommendations and did not make calculation mistakes, it appears that the geotechnical engineer is on the hook.

In the meantime, values of the condominium properties are plunging and the lawyers are circling like vultures in the San Francisco sky…

TOUGH LOVE FOR MILLENNIALS?

During this latest election cycle, we’ve heard a lot about adult children living in the basement of their parents’ homes. How does this situation affect the real estate market and construction industry?

The job market for young adults has been improving gradually since 2010, yet the number of young professionals living with their parents is continuing to climb. As recently as this year, about 26 percent of millennials – those aged 18 to 34 – are living with their parents, according to the Pew Research Center. The trend is most pronounced among 25 year olds. Why is that?

The truth is that most of the millennials would love to move off on their own rather than back under their parent’s roof, but due to all of the college loans and difficulty finding a job, or at least a job with a decent salary and benefits, they are forced to move back home. If it weren’t for the astounding tuition costs, other staggering expenses and their salaries incapable of offsetting these rising expenses, you could be sure that a lot more millennials would choose their own independence over reverting to a place of inadequacy.

But financially speaking, the growing number of young adults living with their parents threatens their parents’ retirement financially and psychologically. Baby boomers who support adult children are much more likely than other baby boomers to report moderate to high financial anxiety. So is it time for baby boomers to show some “tough love”? Many say that baby boomers shouldn’t allow their adult children to move back home, even when they struggle to find a job or manage their money. If they do absolutely have to move back home they need to pay rent and the terms need to be inked on paper.

On the other hand, taking care of children in need, even if they are young adults, is making a stronger family. You know, what goes around comes around. When parents force their unprepared children out on their own, what can the parents expect when they themselves are in need of care and support in their later years? This is a country of lonely elderly people and when I see an RV with a bumper sticker that says “We are spending our children’s inheritance,” I can only think “there goes a couple whose children won’t answer their calls someday!”

So what is the solution?

I’m not in favor of big federal programs, but this is an area where careful consideration of federal money for housing can be applied in the form of low down payments and lower interest rates. The higher the education of the individual young adult is, the more likely that he or she will be able to pay the loan back, so interest rates and down payments would be tied to excellence in education.

I think it would stimulate harder studying and construction of new housing for young adults as well.

Am I dreaming only?