Chicago land still < $1000/sq ft
From today's (2/27/07) Chicago Tribune:

Fordham Co., agreed in January to pay $60 million to HBE Corp. of St. Louis for an approximately two-acre parcel at Illinois Street and Columbus Drive

This is a block off Michigan Av, a very desirable site but not the most valuable in town. The reported price works out to $689/sq ft.

http://www.chicagotribune.com/business/chi-0702270210feb27,1,5314982.story

Residential land is expensive
Just one more example, from the Long Grove area.
It's a big download,but here is a map showing that most of the lots have been sold, but several remain, priced from $379,900. The ad points out that these lots are desirable because of the local schools and "city sewers."

A 2000 sq ft lot for $52,000
That's what Perry Casalino paid at 2926 W Warren Blvd. The lot is too small to be buildable under ordinary zoning rules. But since his spouse (and business partner, apparently) is Chicago Commissioner of Planning Denise Casalino, perhaps he didn't worry about it.

A stop-work order was issued after the house was substantially complete. The Tribune report indicates a building inspector found "work contrary to plans," though it's not clear what plans could have been consistent with zoning, as no variance was reported.

The building permit application indicated anticipate construction cost of $125,000, which would put the total cost for house and lot at $177,000. Asking price is $345,000.

Source: Chicago Tribune, Sept 24 2005 "City stops work on house of Daley aide."

For more postings see my blog at menace.bloghorn.com

$10,000/square foot
That's what the sales agent says a piece of Manhattan land is worth. This particular land is under part of Rockefeller Center, whose owners lease the site. Landowner is a church, who'd like to sell an 80% interest in the parcel. A "real-estate expert" says the actual value could be "somewhat less."

The salesman expects the land to eventually be developed residentially.

source: Wall Street Journal Sept 14 2005, page B8.

btw, anybody reading this, the blog has moved to menace.bloghorn.com . I'm just using this ebloggy blog for notes about land values.

Another menace of privilege
This blog continues at menace.bloghorn.com. It seems that site will be a bit easier for me to use, and offers rss. But this ebloggy site will continue for some specialized purposes.

Who needs a hired truck? We have TIFs
I hadn't seen one before, but here is a map showing (as of March '04) all the TIFs in Chicago. Helps one to appreciate how much the economy is distorted by TIFs, in which politically connected developers are able to obtain not just subsidies, but subsidized land, to build as they please.

Maybe Indians weren't here first
Some say that Europeans "stole" the land of North America from the people formerly known as "American Indians," now usually "Native Americans." The Plot Thickens, from The Economist July 16 2005, reports that though the Amerindians came no more than 15,000 years ago, there's evidence of earlier humans, perhaps from southeast Asia, present 40,000 years ago.

Of course, Georgists know that it really doesn't matter whose ancestors were here first, since everyone is entitled to access land and we understand a fair way to allocate it.

Avoiding the rent-- Carlos Cortez's method
It's important to distinguish between "land" and "wealth," because the former cannot be produced by people and its benefits should be shared. But "collectibles" are an intermediate. Collectibles are products of people which cannot as a practical matter be reproduced, which can therefore be valued without regard to their cost of production. A classic example is work by deceased artists. Sometimes the value of old paintings can be far more than the producer ever earned.

Longtime radical artist Carlos Cortez, who died early this year, found a way to be assure that his works could remain available and no one could collect rent from them. He left "more than 100 wood and linoleum blocks used to produce his prints to Chicago's Mexican Fine Arts Center Museum, stipulating that if the price of his art went up, the blocks should be used to produce more and drive it down." Assuming that his instructions are carried out, his works remain available for not substantially more than the cost of printing them.

Source: Obituary in Chicago Tribune, January 23 2005.

See the land rent
Sometimes it's difficult to actually see the land rent, but today the Tribune's Thomas A. Corfman makes it a bit easier. He reports that the ground rent for 100 N. Riverside Plaza (Boeing's hq), plus the air rights for 300 S. Riverside Plaza, total $3.5 million/year. Somebody please explain why the City and/or the School Board shouldn't tax away 100% of this, rather than letting private interests collect it. Will the "investors" take away the ground, or the air, if they're not allowed to profit from it? $3.5 million, as Mayor Daley might like to say, is the real estate taxes on about 800 bungalows.

Land price update
CBS has reached "non-binding agreement" to sell its McClurg Court site, says the Tribune (July 16), which cites a price "in the upper $20 million range for the 66,490 sq ft site." That'd be about $400-$450 per square foot. It was bought in 1956 "for nearly $1.3 million," says the paper. That works out to about a 6.5% return, probably not as good as the stock market, but much better than inflation (4.1%). Although they paid some real estate taxes, they had the benefit of using the land.

The building originally was a rundown stable that required extensive reworking by CBS. Now it almost certainly will be demolished and redeveloped, probably with condominiums.

CBS plans to move to a new site at Dearborn and Washington, on Block 37.

Subsidies leading to inefficiency
It's hardly news that subsidies tend to discourage efficient use of land. A nice clear example is in today's Tribune, with subhead West Texas cotton farmers concerned about losing subsidies are switching to winemaking . From the article:

Larry Young, a rancher in Brownfield who grows 1,200 acres of cotton, said he wouldn't make a penny on cotton without the subsidies. As a result, he said, he eventually hopes to get out of the cotton business and expand his 25 acres of wine grapes to 40 acres.

While grapevines are more labor-intensive than cotton, Young said the payoff is much greater with less risk. He said he spends about $350,000 on his cotton, for everything from seed to herbicides, while he only spends $35,000 on his grapes. Grapes return roughly $5,000 in profits an acre while cotton brings in $100 to $150 an acre even with the subsidies, he said. [end of direct quote from the article]

So the subsidy for cotton has been reducing the demand for labor. Its disappearance-- if that happens-- will create jobs.

A puzzle is why, if grapes yield 33 to 50 times as much per acre as subsidized cotton, anybody bothers to grow cotton. Perhaps there are other factors not explained in the article.

Of course, the increased profit will raise land prices, benefiting current owners but burdening anyone who buys land in the area. The new owners will find themselves heavily mortgaged, and probably demand subsidies....

"Even promising industries are more apt to be demoralized and stunted than to be aided in healthy growth by encouragement that gives them what they do not earn..." -- Henry George.

Things economists don't know
Economist Robert J. Samuelson says"Our ideas for explainng trends in output, employment and living standards...are in a state of disarray...[M]any assumptions that economists once casually accepted and taught are now suspect or discredited."

Or maybe, as Henry George said, "relegated ...to the rank of a pseudo science in which nothing is fixed or can be fixed."

Samuelson's three examples are:

(1) We don't understand consumer spending and savings, which were stable for decades but have changed since 1990. Why should we expect consumer spending to hold up during the next recession, as it has previously, when so much of households' "savings" is really the increase in value of their real estate?

(2) We don't know how globalization and the world economy affect us.

(3) We don't have any way to define "full employment." (He doesn't seem to question whether "full employment" is what we really want)

"The less we understand the economy, the better it does," he continues.

Newsweek has put the article behind a paid-archive screen, but you can find it, at least for now, in the Charlotte Observer.

Thanks to Robert Blau for catching this article.

Housing bubble?
There's been a thread discussing Is there a real estate housing bubble, and, if there is, what will pop it? over at fatwallet.com since November 2003. I'm beginning to wonder if the housing bubble won't pop until folks stop talking about it.

Residential sites are expensive
That's not news to anyone familiar with the more desired neighborhoods of Chicago or the inner suburbs. Now we see a new development proposed for Yorkville, 50 miles from downtown Chicago, where lots are expected to sell for $80,000 to $90,000. An alderman "had heard complaints that local builders can't afford lots and there wasn't really affordable housing for seniors and young adults." This isn't downtown Yorkville, either, but a rural district south of town. The lots will be 12,000 square feet or more, and are still cheap compared to smaller lots in close-in areas.

And let us remember that although we call these lots "land", they aren't untouched nature but incorporate wealth in the form of streets and other facilities, as well as the labor involved in developing a plan acceptable to governmental authorities. (source: Kendall County Record, May 5 '05)

How cheap is gasoline?
In America, very cheap, according to an analysis by an energy research firm. As reported in the Kane County Chronicle,
"Since 1982, the increase in gas prices is 25 percent lower than food costs, 50 percent less than housing, 70 percent less than medical costs, and 80 percent below the surge in college tuition costs".
I wonder how much gasoline would cost if the appropriate share of national "defense" expenditures were included, especially including the indirect costs.

Whose windfall?
Chicago Tribune reports today that due to rising natural gas prices, "thousands" of landowners in and around Ft. Worth are getting an average of $250/acre/month for drilling rights. Meanwhile, Fort Worth's municipal budget is short at least $3.9 million, not to mention a has a $206 million pension shortfall. If, let's say, 150 of the City's 292 square miles are suitable for drilling, that'd be $24 million/month.
Well, maybe it would be unfair for the City to collect revenue from gas on private land. Maybe those landowners made the natural gas themselves and are just getting rewarded for their effort.

Book doesn't say Georgists are wrong
Poverty: Opposing Viewpoints is apparently one of a Greenhaven Press series presenting "all types" of positions on public issues. About 200 pages, the book consists of short essays by (apparent) experts. Some are paired and opposite: "Promoting Marriage Will Help End Poverty" and "Promoting Marriage Will Not Help End Poverty." At least one of these essays bothers to define what "promotion" might be.

Then there's "Globalization is Helping to Reduce World Poverty" and "Globalization Is Making World Poverty Worse." Neither seems to define what "globalization" is, or say how it differs from free trade.

OK, Georgists. What do they say about our remedy? Is there a "Poverty Is Caused by Privatization of Natural Resources" and "Poverty Is Not Caused by Privitization of Natural Resources?" Of course not. But there is "A Lack of Opportunities Causes Poverty." If you read it you find that it says "Low wages cause poverty." Which isn't wrong, is it? But says nothing about natural resources, or land speculation, or taxation of production...

Georgists will have accomplished something when some future book on the topic of poverty doesn't ignore their recommendation.

Of course, it could be worse. At least the book doesn't have an essay entitled "A Lack of Opportunities Does Not Cause Poverty."

Real estate transparency index
Chicagoans who are interested in such things are well familiar with the imperfections of the real estate market here. We have legal secret land trusts, which can make it impossible to determine who owns a parcel, or even what it was sold for. We have public authorities who routinely take land from one owner and sell it at a discounted price to another who is better-connected.

And we're hardly the worst. In Texas, for instance, the actual price of land is always legally secret.

Still, while looking for something completely different, I discovered that there exists a worldwide"transparency index" for real estate, according to which the U. S. real estate market is "highly transparent," tied for third best (with the UK) after Australia and New Zealand. The worst: Saudi Arabia, Rumania, Ukraine.

Rankings are done by Jones Lang LaSalle, who say they "define a real estate market of 'pure' transparency as one that:
- Is completely open and clearly organized
- Operates in a legal and regulatory framework characterized by a consistent approach to the enforcement of published rules and
regulations
- Respects private property rights"

The summary in pdf is here.

Has CTA service any value?
I have written elsewhere about how real estate values are maintained and enhanced by the availability of rail transit service. But when I see ads like this I wonder if maybe this no longer applies to the Chicago Transit Authority.

The ad is for a condominium at 605 Oakton in Evanston. This site is only one hundred yards from the South Boulevard 'L' station. Yet the listing doesn't even bother to mention this. Could it be that the reputation of CTA service is so poor that the listing agent thinks it isn't something to tell buyers about? Or not as important as a "deeded carport" and "freshly painted?"

The Erie Canal
Sometimes it's hard for us today to understand the magnitude of technological change that was taking place in the 19th century. Of course, in Henry George's time we had the railroad, the telephone, major manufacturing advances. But earlier in the century, canals were a huge advance. Travel from Albany to Buffalo in 5 days instead of a month. Freight carried for a tiny fraction of previous charges.

I've just finished Peter Bernstein's Wedding of the Waters: The Erie Canal and the Making of a Great Nation. It's comprehensive and highly readable, including a history of European canals and canal technology, with broad historical context. Two things that won't surprise Georgists:

(1) Among the canal's strongest advocates were the owners of vast tracts along the proposed route;

(2) A land tax, proposed to finance the project, was defeated (by Martin Van Buren among others)(p.185). Then, when the legislature did vote a real estate tax on lands near the canal, the tax was never collected (p.190).

And this book contains much other relevant material. For instance:
--The Erie Canal wasn't the first navigation improvement serving the area. In the 1790s, the Western Inland Lock Navigation Co. built locks and improved rivers to make water transport less difficult along parts of the route, but never attempted a continuous canal. And even earlier, in 1730, someone-- apparently nobody knows who-- dug a channel to ease navigation along on the headwaters of the Mohawk. (More information is here .)
--Construction was powered by horses and men, but not without technology. Bernstein describes a clever device for felling trees, and another for uprooting the resulting stumps, which speeded the work. The inventors were anonymous. (If intellectual "property" interests had been as powerful then as they are now, I wonder whether the canal could have been built.)
--The Canal actually depopulated the rural areas through which it passed, by making it economical to ship grain from the great lakes states to east coast ports. New York farmers left for better land in Illinois (and elsewhere), which explains such names as Aurora, Batavia, Geneva, and Oswego in our part of the world.
--The Canal was a financially successful project. The state bonds used to finance it were easily paid off by tolls, as traffic far exceeded projections. The facility worked as planned even though the designers were inexperienced.
--"There are no poor people here, at least not in the Northern and Western States" Bernstein quotes French economist Micheal Chevalier writing in the 1830s.

Unfortunately, the book has at least a few unimportant errors (and I hope no important ones). Bernstein attributes Chicago's growth by 1840 to railroads, although no trains served the city until 1848. He links Kent College of Law to the University of Chicago, though it's actually part of IIT. And somehow he has the Chesapeake and Ohio Canal serving Baltimore.

More subsidies for landowners and aviation
Just when you thought there was no more money for cta, the City finds $42 million in TIF money to build a terminal for cta airport service under block 37. (source: Chicago Sun Times, 5/10/05) TIF money, of course, is real estate tax money that would otherwise be available for schools and other services. Both Chicago airports already have rapid transit service, but it's slow and unreliable. The terminal allows a special express service which will charge a premium fare and, transit officials have assured us, needs no subsidy. In addition to the financial burden, the airport express involves grade crossings and passing tracks that will further delay the regular service.

Question: If there's TIF money available, why can't it be used to pay for the cta service that supports the value of land in the TIF district?

More about the Chicago parking space market
Field Harbor Parking Condominium, trying to sell spaces in "Chicago’s fast growing New East Side" (the former freight yards east of Michigan Avenue and south of the Chicago River), provide what they claim are prices for parking spaces at other developments around the central area. I wonder why Lake Point Tower has the highest price, $99,000. Could it be because there aren't any other garages within easy walking distance?

If you don't need a space yourself, they suggest you could rent it out. I wonder how the Assessor values these units. If CTA were funded by a real estate tax, then parking space speculators could help support it.

Apparently, judging from this web site, the buyers are mainly people in the real estate business.

Settling in Illinois in the 1830s
We like to illustrate the Law of Rent by showing how land, originally "free", comes to have value as the community grows, until much of the product goes to those who own it rather than those who work on it. Although the principle should be obvious once pointed out, it's convenient to find it illustrated by actual events. For example, Ole Rynning's True Account of America .

Rynning emigrated from Norway to Illinois in the 1830s, and wrote this description to inform other Norwegians who might contemplate the move. Of particular Georgist interest, he reports that he has never seen a beggar in Illinois, because work is easily available. A "capable workman" could earn 50c to $1 per day in winter, much more in summer. (Wages in Wisconsin were much higher.) Land was available from the government at $1.25/acre, though the best areas were already claimed and speculators charged up to $30/acre. He also mentions paying $2/acre to "break prairie".

Although an immigrating Norwegian would probably want to settle near countrymen who came before, that land would be already taken so he'd have to move farther away.

America's not for everyone, says Rynning, but only for those willing and able to work.

Book Review: Shadow Cities
Shadow Cities: A Billion Squatters, A New Urban World. By Robert Neuwirth. New York, Routledge, 2005. 335 pages.

Will people build on land they don’t own? Land they have no legal right to use? Build not just shacks, but multi-story, multi-use structures of brick or concrete? Buy and sell these improvements and the right to occupy the land? Will they do this even though they probably could get clear title to land?

Of course.

Henry George pointed out that security of improvements doesn’t require ownership of land, and Robert Neuwirth has explored how this works in cities around the world. He says that a billion people are squatters. Primarily, they’re migrants who depart rural areas where they can’t make a living. They build on unused or underused land in or near cities where they can find work. Although they don’t own the land, in some places they have, by law or custom, significant rights to use it. Here they build substantial structures, and may even become “landlords” renting out rooms in buildings they own. Though mortgages are impossible, there’s no shortage of capital here, notes Neuwirth. (Contrast with Hernando de Soto’s assertion that land titles are necessary so that residents have collateral for loans.)

Elsewhere, squatters have little security, and so like Irish peasants of George’s time, they make only minimal improvements.

Neuwirth spent months in squatter settlements in and around four cities: Rio de Janiero, Nairobi, Mumbai, Istanbul. He got to know residents in each community, and tells us their stories. Many are desperately poor, but some are relatively prosperous businessmen or skilled workers. Some prosper by taking advantage of the spotty enforcement of tax and drug laws.

He also provides historical background. Mass migrations have regularly involved squatting. Remember Sutter’s mill, the start of the California Gold Rush? After finding gold, Sutter claimed a large area including the entire City of Sacramento. Settlers ignored his claim, speculators got involved, and the ensuing violence in1850 resulted in, among other things, the death of the municipal assessor. Five years later, in San Francisco, a Joint Committee on Land Claims reported that 95% of the property holders in that city lacked legal title. The remedy was the “Van Ness Ordinance,” which legalized “many” of the claims. These former squatters became landlords and later evicted subsequent squatters.

After briefly mentioning Captain Streeter, Neuwirth devotes an entire chapter to squatting in New York. It’s not that the squatters couldn’t afford to buy land, but by squatting they were able to moderate their expenses and have better housing than residents of tenements.

Neuwirth does mention Henry George, approvingly but too briefly and without any indication of George’s practical proposal for solving the squatter problem. His own prescription is unclear. “Without any laws to support them [the squatters] are making their improper, illegal commmunities grow and prosper. We don’t need to crush their communities wth our hard-nosed conception of property rights. Instead, we can learn from them...”

What we can learn from the squatters, I think, is that even under an impossible system, people will do the best they can, sometimes surprisingly well. It takes nothing away from those accomplishments to suggest it would be better to fix the system.

Georgists can learn a lot from this book about how a billion people actually live without legal right to land. It’s a good quick read, well written though sparsely indexed.
There are some other reviews on Amazon.

New data show overpopulation still not problem
The Census Bureau has issued 2004 population estimates for counties and states. Illinois' seven fastest growing counties (in terms of absolute numbers) are the six "collar" counties (DuPage, Kane, Kendall, Lake, McHenry, Will) who gained a total of 307,000 people since 2000 — that's about 198 people per day, almost one person every 7 minutes, 24/7. Cook County dropped by 49,000, more than any other county in the United States.

Of the 3141 counties (and equivalents) in the country, 1213 lost a total of 993,000 people. 59 of Illinois' 102 counties lost population, a total of 80,000 people. Were these counties all overcrowded? Not likely. Most are rural. So there's plenty of room for people. Perhaps these counties have other problems to deal with, but I doubt that overpopulation was the force driving people away. Consider, too, that if we had data for smaller areas, such as individual municipalities, we'd find the total of population-losing areas to be greater.

53 Illinois counties gained population, a total of 374,000 people. Are any of these counties now overpopulated? Certainly there are concerns when a growing population overwhelms a transport and utility system that might have been adequate for smaller numbers. But their density, for the most part, is much lower than in Cook County, and in fact the low density of development is part of the problem, making provision of services more difficult and converting more farmland to residential land than many people would prefer.

Georgists can find a lot of other interesting numbers in the new data. Despite the growth- choking effects of Proposition 13, California continues to gain population, adding more than 431,000 in the latest year. But the growth isn't due to people moving from other states. Rather, 274,000 people (net) immigrated from abroad, and births exceeded deaths by 300,000. Of those who during the year didn't die, weren't born, and didn't move internationally, 145,000 (net) left California.

How Chicago Parking Spaces are like Dutch Cows
Earlier I reported how Dutch cows were like Chicago taxicabs: the right to operate one costs more than the cow (or taxicab).

The March 27 Tribune reported on a couple of downtown residential developments. On the northeast corner of State and Randolph (once the site of the Masonic Temple, the tallest building in Chicago), the 2-story Walgreen's is to be replaced by a 32-story condo/retail/ballet structure. Condo's, 50% sold out already, range from $300k to $500k+. Parking spaces will cost $55,000, or two (tandem?) for $85,000.

At Oak and Dearborn, the former YWCA (later Scholl College) will be replaced by 45 condo units (70% sold), costing $600k to $3 million (plus 45 not-yet-priced townhomes). Parking spaces will be $50,000 to $65,000.

Many of the cars parked in these spaces will probably cost less than the space. If you ask they purchasers why they're spending more for the space than for the car, they might say that the space will appreciate in value, unlike the car, or perhaps that they're just too rich to care.

Another way to collect the rent
Tribune columnist Ron Grossman proposes that the Federal Government sell titles of nobility. He calculates that, if each household with income over $1 million buys one, at a cost of $487,804, it'll fix the Social Security deficit. Not every household would buy, but some would want extras. Of course a Constitutional amendment would be required.

What would Henry George say? He'd probably suggest that the titles be leased rather than sold, or, at a minimum, that they be life estates only.

The concept is already in use, at a small scale, in vanity license plates. It'll cost you $94 extra to have a plate with your name on it, unless your name happens to be something like ZK1453.

Why couldn't municipalities grab this idea and sell local titles? Earl of Evanston, Duke of DeKalb, Marquis of Melrose Park? The only reason not to, as far as I can tell, is that somehow local officials would find a way to lose money on the project, as they do on other economic development ideas.

I wonder if Grossman remembers the story he did for the Jul 27, 1988 Tribune, about the Henry George School and its late Director, Sam Venturella.

Whatever it is, I'm against it.
An article from the Seattle Times, ( reprinted today in the Chicago Tribune), discusses a sort of increased density in a Seattle suburb. A Realtor opposes the change because "people don't want to live next to cottages-- and that leads to a loss in property value." Two paragraphs later, a neighbor says "The development will increase the value of my house...I'm not anxious to have my taxes increased."

How Dutch cows are like taxicabs
One example I like to use about the magnitude of privilege involves Chicago taxicabs. Every cab in Chicago has to have a medallion, and the number of medallions is strictly limited. Last I saw, medallions were going for something like $40,000, meaning that the privilege of operating a cab costs more than the cab (and more than the driver will earn in a year).
Now the Tribune brings us another example: Dutch cows. Apparently, in order to sell milk in Holland, you need a quota license valued at $25,000 per cow. The actual cost of a cow isn't reported, but I infer from the article that cows go for something like 1/10th that amount. With the additional advantage that farmland in the US is much cheaper than in Holland, Dutch dairymen are moving to Ohio and other central states, where they can finance large-scale operations. One says that he was worried that the quotas might be abolished.
It would be interesting to know how the price of milk in Holland compares with what we pay here.

More on rising farmland values
Writing in today's Chicago Tribune, Greg Burns reports on how farmland values are getting a boost from ag subsidies, IRS regs, and suburban sprawl. Federal subsidies amount to nearly 40% of total farm income. Suburban sprawl enriches some landowners who are in its path, and these in turn can defer income taxes by buying more farmland further out. Combined with relatively high commodity prices, the result is to push land prices even farther beyond what working farmers can afford. Although Burns cites some reasons land prices could ease, he doesn't seem to see a crash any time soon. He leads with an example of a LaSalle County farm that more than doubled in value in five years. (LaSalle County is probably just a little beyond the far fringe of Chicago's suburban growth.)