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Transfer Taxes and the Fiscal Cliff, Cont’d.

It’s really going down to the wire, isn’t it? I attended an estate planning conference in New Brunswick last week, and the speakers —  practicing T&E lawyers from around New Jersey — were preoccupied with the uncertainty about this. Nobody seemed to think that the end result would be anything other than a modest lowering of the exemption amount from its present level. But one speaker articulated a growing sense among his colleagues that any deal on transfer taxes would ultimately be an afterthought, and might not be as deliberate as specialists in the practice — or their clients — would like.

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EHS Settles Fraud Accusations

This caught my eye, and brought back some memories. I stayed in an EHS building for a semester when I was at the New School, back in 2001. The company was a total slumlord. The school had a contract with EHS, so when I signed up for university housing I was given a room in one of their buildings, as if it were a dorm.

The place was in Brooklyn Heights. EHS had recently acquired the building, and the room hadn’t been touched since the acquisition. The previous owners had used the building as an SRO, so, really, it hadn’t been well maintained in a very long time. There was a small private bathroom within the room, and its doorknob was broken. The door itself had a big, black shoe mark squarely in its center, as if a previous tenant had tried to kick it in. This was a plausible theory, at least, given its tendency to trap a party inside, when fully closed. The water was never quite hot. The faucets would come off of the sink, exposing the tops of the valves. The carpeting in the main room had a plate-sized burn mark in the center of the floor. It didn’t seem like they had even thoroughly cleaned the place prior to the beginning of the semester. Other rooms in that part of the building were comparable, but there was another wing where things had at least been painted. It was very random.

I put in a request for a room change, but it went nowhere. I put in work orders to get things painted and repaired, but they went nowhere, either. And as anyone who dealt with the New School in those days knows, complaining to the university would have been an exercise in sheer futility. Then 9/11 happened, and having a shabby dorm room seemed like a very small problem. We actually took on additional roommates in that building — students who had been displaced from a building in Lower Manhattan. What a terrible time.

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In the Shadows of America

For those who believe that a ‘housing crisis’ means that the price of housing is not going up quickly enough: this is why smaller, less expensive units need to be permitted in our land use codes. Addressing this problem is more important than protecting the ten-fold returns on investment that people are expecting to reap on properties that they purchased when Jimmy Carter was in office. Would a supply of more, cheaper units solve all of the housing problems described in this story? Maybe not. But it would begin to alleviate the stress on the population that is employed in entry-level positions, and whose wages do not overcome the structural failures of bizarrely distorted real estate markets. I mean, seriously, what kind of a society allows this to happen to young people who are just starting out? It’s a disgrace.

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Transfer Taxes and the Fiscal Cliff

If the various constituencies in Washington can’t reach a Grand Bargain before the end of the year, will federal transfer-tax exemptions go over the fiscal cliff? Maybe, says Forbes‘ Deborah Jacobs. But, chances are, the scheduled automatic drop to $1M (which could, theoretically, ensnare a lot of estates) would be corrected retroactively in any eventual deal. Right now, the individual exemption stands at $5.12M, and when one considers that a married couple typically enjoys twice that amount in combined exemptions, it is clear that estate taxes are a non-issue for the overwhelming majority of Americans. At the end of the day, that probably won’t change.

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Trees v. Power Lines

On a smaller note, something about the utilities’ storm response in my neighborhood struck a nerve. Whenever I’ve spoken with anyone from any of the utilities, they’ve eventually come around to the same issue: Trees. Almost to a person, every customer service rep, lineman, or technician has pointed out that we have a lot of old trees in this neighborhood, as if this explains why our services are being restored more slowly here than in some neighboring areas. Seriously? So, now the trees are to blame for utility companies’ logistical problems? Just out of curiosity, I compared the outage rates that PSE&G was reporting several days after the storm in two neighboring municipalities: West Orange (where I live, and where most wires are overhead), and East Orange (which is an older city, where most of the utility lines have been buried for over a hundred years). The difference was striking:

Municipality                             Total Customers    Customers Out     Percent Out
ESSEX – EAST ORANGE CITY         30,403                 6,525                21.5%
ESSEX – WEST ORANGE TWP        19,970               11,078                55.5%
Source: Public Service Electric & Gas.

It’s a classic natural experiment, where a sudden event subjects two different scenarios to a comparable set of circumstances, with observable differences between the results. It’s no secret that suburban neighborhoods lose power more frequently, and for longer periods, after storms. And, of course, with a storm of Sandy’s magnitude, one would expect outages to be longer and more widespread. But stop blaming the trees. East Orange has plenty of old trees, too. It also, quite frankly, has a poorer population that enjoys less political clout — leading to an older infrastructure, fewer political favors in a time of crisis, and whatever other indignities such a disadvantage might entail. Yet two days after the storm, the percentage of East Orange households in the dark was approximately one-third of the percentage in suburban West Orange.

Yes, we do have a lot of old trees in this neighborhood. We’re very fortunate, and for the most part they’re great to have around, but sometimes they do come down when there’s a storm. But there’s a practice that’s worked for more than a hundred years to mitigate the effects of storm damage on utilities that transmit by wire: burying the lines. The practice also has the added benefit of creating more attractive neighborhoods by removing one of the most ubiquitous eyesores of the postwar American landscape. It’s not a perfect solution, and in flood zones, it might even do more harm than good. But, in light of the growing frequency of severe weather events, the time has come to start making this investment, again, in the places where doing so would be most effective.

The utilities don’t want to spend the money, and they’ve avoided doing so for a long time. Going forward, that has to change.

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Back From the Storm

It’s funny how unaware one can be of his dependence on modernity until a ten-day stretch without power comes along. Fortunately, aside from the epic utility interruptions, there was no trouble at the house. Nearby, things weren’t so lucky. This was the scene at a neighbor’s place after the storm:

Image

Note that this picture was taken after a hundred-year-old tree had been removed from the roof. Here’s a shot of another tree that came down in the same vicinity:

So, the effects of Sandy were fairly bad in this part of Essex County. We have an elevation of about 500 feet a.s.l., and we’re situated on the first ridge of mountains that runs behind the coastal plain– so we took a direct blow from the high winds that came in off the ocean. But the impact here was still mild compared to what happened in low-lying areas of the region: There was no flooding here.

We had no idea, initially, how extensive the damage had been to the entire utility system. There wasn’t much specific communication from PSE&G, Verizon, or Comcast. In the end, it took ten full days to have our electricity restored — almost to the minute. To this day — 23 days after the storm — cable television has still not been restored. Go Comcast! No one in this cluster of houses uses a landline, so who knows what happened with those?

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Another Study on Housing Costs

Interest.com has a sobering study, showing that– even at this nadir of the American housing market– the cost of housing remains stratospherically detached from actual personal incomes. The spread was found in about half of all US housing markets, including in nearly every market that contained high concentrations of dynamic industries, educated populations, and existing wealth. Not surprisingly, the disparity was most pronounced in the housing markets around Northern California, Southern California, and New York City.

This is troubling news, because it tracks a phenomenon that LT has covered, and which has been written about in depth by writers at Forbes, the Economist, and elsewhere: That is, there is a growing body of evidence that entrenched, restrictive land use policies are strangling our best cities, creating high barriers to entry in their housing markets, and excluding the very people who would most benefit from the opportunities of their labor markets. Presumably, the same policies are also dampening potential growth in the same regions by excluding a large number of potential economic participants from the local pools, and draining disproportionate shares of local moneys into non-productive real estate acquisition costs.

My fear is that that the hopeful signs that we’ve lately seen of a nascent real estate recovery could be dampened by the structural obstacles posed by a blanket of misguided legal devices that prevent the market from reaching anything like a healthy equilibrium. That is to say, we can’t have a sustained and sustainable recovery in residential real estate until the supply of real estate products begins to actually match the critical mass of demand that exists. And right now, that demand is for smaller, cheaper, and more energy-efficient units in the regions where economic opportunities exist. Instead, what we have is a massive supply of empty McMansions in car-dependent regions like suburban Phoenix, and abandoned houses in urban nightmares like Detroit and Buffalo.

The problem is that individual local land use policies, as determined by local governments, block the kinds of development that might begin to meet this demand. And the voters in a lot of communities have a vested interest in maintaining the stranglehold up to a certain point, because their home values are exaggerated by the overall shortage of units. It’s a vicious cycle, and a dangerous one if we intend to continue to place home-ownership at the center of our economic model for the US economy.