Southern California rents rose 0.5% in October vs. a year ago, according to the region’s Consumer Price Index. And while that’s a modest hike, it is the largest jump in 14 months and another hint that local landlords are regaining pricing power in the rental market.Given the housing availablity in Southern California, any uptick in prices is pretty remarkable. Money is starting to seep out.
Thursday, November 18, 2010
Paging Paul Krugman 8: SoCal Rents Up at Fastest Pace in 14 Months
Lansner on Real Estate writes:
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Yes this IS definitely counter intuitive.
ReplyDeleteIn Kalifornia we have white/business flight.
We have the housing and commercial real estate collapse.
We have rising unemployment and thus less disposable income.
We have increased vacancies in both personal and commercial real estate.
How account for this rise?
In my area I have come to realize that the largest business real estate owner in the area is "For Lease". Must be a German name I figure.
A businessman in my area who had a restaurant in a strip wall had to go out of business. Why, in the face of a collapse of commercial real estate, was his rent to be jacked up.
The fellow investigated and found that the mall owner would have a better bottom line with him out. There was some provision in the tax code whereby the mall owner could deduct the (not collected) imputed rent if he were not there. And the mall owner could impute far more that the businessman could afford to pay him.
Who knows?
Whatever it was I have seen this same scenario many times in my area: businesses barely making a profit but paying their rent on time being forced out of business by the same ones that regularly collect the rent.
It must be the mall owners of America obeying the Tax rules rather than the rules of the Market.
Alternately, to explain the rise in rental rates, could it be that Illegal Immigration is so huge ...
Or international investors still thinking that the last refuge for their money is not Treasury notes but US Real Estate?
Or foreclosed home owners having to have somewhere to live?
Or are the statistics, at least in part, hedonically imputed?
I suspect that it might be the latter.
Here we find from Wikipedia (Hedonic Regression) somewhat on point:
Hedonic models and real estate valuation
In real estate economics, it is used to adjust for the problems associated with researching a good that is as heterogeneous as buildings. Because buildings are so different, it is difficult to estimate the demand for buildings generically. Instead, it is assumed that a house can be decomposed into characteristics such as number of bedrooms, size of lot, or distance to the city center. A hedonic regression equation treats these attributes (or bundles of attributes) separately, and estimates prices (in the case of an additive model) or elasticity (in the case of a log model) for each of them. This information can be used ... As with CPI calculations, hedonic pricing can be used to correct for quality changes in constructing a housing price index. It can also be used to assess the value of a property, in the absence of specific market transaction data. It can also be used to analyze the demand for various housing characteristics, and housing demand in general. It has also been used to test assumptions in spatial economics.
The Uniform Standards of Professional Appraisal Practice, or USPAP, provides for mass appraisal standards to govern the use of hedonic regressions and other automated valuation models when used for real estate appraisal. Appraisal methodology treats the hedonic regression as essentially a statistically robust form of the sales comparison approach[1]. Hedonic models are commonly used in tax assessment, litigation, academic studies, and other mass appraisal projects.
Anyone have another theory?
Else we must consider the purported rise BS - fodder for shadowstats.com.
But then the 0.5% rise ... isn't it less than the 'true' inflation (however you define 'true').
So rents are going down ...
I know you are in Krugman-bashing mode, with which enterprise I heartily agree, but certainly a trip to the local grocery store would provide you with better examples ...
Hmmm ... does Krugman shop at the local grocery store? Or like Bush Senior et al is the shopping done for him?
The thinking, such as it is, is certainly not done for him.
But the propaganda themes of his writing certainly are done for him.