Chuck Ponzi January 17th, 2007
Every once in a while, I stumble across some good analysis of the current housing bubble that seems to go unnoticed. I uncovered just such a tidbit the other day that would make for a good read.
Some of the points I agree with, some I find hard to digest… the logic seems a little light, or perhaps there are other answers to the question posed. Just such an article appeared on Prudent Bear the other day.
The Author, Dan Forshee, takes us on a great historical ride regarding the last 90 years or so of housing prices in the US. It even includes the very impressive chart:
I am confident that it took quite some time to compile the data, normalize it, and show it in a meaningful way. As they say, a picture is worth a thousand words.
It made me reconsider the concept of cycles and supercycles that housing is falling into or may be falling into. Regardless of whether there is a supercycle at play here (I’m not sure myself), it’s a great way to consider the past as a possible predictor of future events.
Dan also includes a great discussion of land-use restrictions by measuring the number of years it takes for the tallest building early in the century to be superceded by an even taller structure. His estimation (and anecdotally if you look at the data he presents), is that it took quite some time after the roaring Teens, 20’s and early 30’s for land to once again be valuable enough to build taller skyscrapers on.
However, like any critical reader, I must view any assertions in some suspect light, even if I agree with the potential outcome.
For example, there was a very large drop after the 1930’s in land prices and corresponding building of supertall structures. Does this mean that suddenly land could become even less valuable than before? Possibly, but he offers very few clues as to the triggers.
Personally, I believe that there was a substantial shift that occured within cities as we knew them in the early part of the century with the widespread availability of automobiles and interstate highways. This made it possible for families to reside outside of urban centers and economically commute to places of work. This reduced the pressure on builders to build vertically. The technological changes of the automobile are fundamental when viewing the Southern California region’s building habits.
Much has been said about the condo-izing of Los Angeles, Orange County, and San Diego. However, the impetus for this kind of building up is also related to the relative prices/scarcity of cheap fuel for autos. The unseen hand both squishes up and smooshes down.
Peak Oil advocates (in my mind) would find it hard to be pro-housing bubble due to the obvious effects pricier energy would have on outer exurbs and commuting costs. However, it’s interesting to note that there are a number of die-hard bubble believers who are also peak oil believers as well. How they resolve that cognitive dissonance is as as difficult for me to understand as how Gary Watts is still able to sell his predictions after his embarassing smack-down on his 2006 forecast. Guess the impossible does happen.
On the other hand, if there were to be another fundamental technological shift, some disruptive technology that makes energy substantially cheaper than oil, or just as likely to negate the need for oil, we might see land prices once again fall. I have mentioned 2 such shifts… cheap nanotube based Solarpower and advanced telecommuting (for non service-based jobs). I know that many of the people I work with would gladly trade the great weather but terrible schools and oppressive taxes of California for other locales that have much cheaper housing and better schools (the bad weather notwithstanding). Anecdotal as it may be, employers have much to gain by reducing the costs of living for their employers since they then will be able to negotiate lower salaries. In the past, bandwidth was the primary hindrance to this dream. I believe we have already overcome it, and many new communities are recieving fiber to the home (fiber-optic internet) which can have much higher bandwidth than many can currently imagine. At this point, the hardware switches become the bottleneck, not the wire.
In addition, cheap nanotube solar power makes it possible for households to be self-supporting. Roofs as solar collectors are quite efficient and that’s a lower input per person in a high-rise. Stick-built houses are relatively inexpensive, and can collect greater amounts of solar power. This kind of disruptive technology will be available to homes much quicker than some know. As we speak, Nanosolar Inc. is developing a large production plant in Northern California to produce flexible solar panels on orders of magnitude cheaper than current silicon-based methods.
While my intention was not to discredit any particular concept outlined in Mr. Forshee’s analysis, it is rather to invite those reading to consider that even when a person comes to the same conclusion, thier reasoning might not be bullet proof. Bubble bloggers, after all, were the ones who railed against groupthink. We cannot allow ourselves to become victim to it.
