Who Really Controls Which House You Buy?

28 thoughts on “Who Really Controls Which House You Buy?”

  1. Johnny – I just bought plane tickets to Hawaii (Kona for airport) for my first visit. Where are the best places for urbanism? Anything I should do while I’m there on the culture side? I don’t want to only do beaches and hikes the whole time. Thanks!

    1. Kona’s tough. It’s basically a little piece of Southern California that washed up on the beach. Pleasant, but not what you would call “urban.” The old part of Kailua along Ali’i Drive has a few historic buildings like Mokuaikaua Church that looks like New England Protestants built it (because they did.) If I were you I would embrace the reality on the ground and enjoy the 1960’s and 70’s era Jet Age architecture of motels with kidney shaped pools. That’s as good as it gets. The King Kamehameha Kona Beach Hotel next to the Kailua Pier is basically a Soviet concrete box if you strip away the banyan and palm trees. But it has some period touches in the lobby amid the black lava stone walls. Call it Khrushchev meets Kennedy. Sometimes you have to squint a little to see the subtle beauty… I said squint damn it! If you want the full Monty poke around at Uncle Billy’s motel down the road. It’s a crescent shaped vision in cinder blocks and plywood with a fake Polynesian village in the center – complete with the original orange Dacron bedspreads. If you have the cash you can stay at the Sheraton Kona up the coast and bask in the 1980’s version where the Soviet concrete boxes became curvilinear and the pools made the transition from kidneys to amoebas. Honestly, the best thing about Kona really is the beach. Try the one at the old airport. Head all the way out to the end of the giant parking lot (the old runway) and then walk along the rocky coast for a bit until you reach the little protected cove of white sand. It’s amazing. Food in Kona is nothing special since the restaurants cater to people from Indiana who like plain meat and potatoes. The best food in Kona is the hole in the wall mom and pop Asian places, but they’re hit or miss. Kenichi Pacific out in a Keauhou strip mall does a pretty high quality meal if you’re looking for something better than average. I once had breakfast at the Denny’s up the hill above Kailua Bay between the Walmart and the Lowe’s (a little island in a sea of parking lots) and had a breathtaking view of the ocean as whales breached. That’s basically Kona…

      Hilo (on the other side of the Island) has a pretty good 1920’s era Main Street with a great farmer’s market on Mamo Street. Again, keep your expectations low. This is a small town. But do check out the old Roosevelt era Post Office on Waianuenue Ave. and the nearby East Hawaii Cultural Center building across the park (it’s a fake Chinese dream.) And there’s the Palace Theater where they play the Rocky Horror Picture Show, the odd foreign films, and live community theater which is a lot of fun since Hawaiians are way over the top. Again… Squint. Ocean Sushi on Keawe Street is my favorite local dive for good cheap food in Hilo. It’s the Japanese Hawaiian version of a Greek diner in New Jersey – if that makes any sense. For the best food in town try Hilo Bay Cafe on Lihiwai Street out by Liliuokalani Gardens (look for the Suisan fish market sign by the canal.)

      Absolutely get up to the top of Mauna Kea and check out the snow on top of the volcano. Seriously. If you stay late enough for it to get dark the folks at the observatories will let you look through some little telescopes they set up for tourists. But bundle up. It’s f-ing cold up there.

      Oh, and see if the caldera on Kilauea is bubbling and flowing lava down toward Kalapana. She’s moody so you never know what she’s up to.

      That’s enough for now. Enjoy.

  2. I have followed your writing about Cincinnati and at last come look again ten years since me last visit. Do you think it connects? Do you think it becomes a city possible without driving? Or does it just develop separated pockets of revitalization?

    1. First there are pockets of really good walkable urbanism. Then over time the pockets will start to connect. This will take some time. The new streetcar will help.

            1. I’m assuming you mean racial integration. It depends. As a rule the younger generation is far less preoccupied with race, in the same way the the whole gay thing just doesn’t matter to most people under thirty. The real shift in racial integration is a byproduct of a completely transformed economy.

              As with the rest of the country integration occurs when really smart people with a quality education work their way up the economic food chain. The Indian physician at the local medical center, the Chinese mathematics professor, the black computer programmer at the IT firm. These folks are generally well integrated in professional settings and have bought their way in to more affluent white neighborhoods in ways that weren’t possible a couple of generations ago.

              Increasingly, integration is also occurring as a result of the white middle class contracting and living with reduced circumstances. Many older declining white suburbs are now populated with a lower income mixed demographic. The fifty year old white couple can’t afford to move to a fancy new McMansion suburb or trendy downtown neighborhood just as many of the single family tract homes on their cul-de-sac are converting to rental units and inhabited by non-whites. It’s a peculiar kind of integration.

            2. In case you mean transportation integration… That will take time – probably an entire generation. However, there are already work-arounds underway. Vastly improved bicycle infrastructure has already started to connect different nodes together. Web based taxi services and car sharing systems are making it convenient for many people to live car lite if not entirely car free. And the existing bus service (the ugly stepchild of transportation) is steadily improving. These things take time to fully ramp up. But it’s happening.

  3. Given the regulatory costs of banks – which are much higher than in the past and only likely to continue to increase – it makes a lot of sense for them to avoid financing anything they don’t ‘understand’ (easily).

    But it also seems like this kind of thing is driven by the influence of the feds and their subsidies. Would you support (gradually) ending those subsidies?

    1. The reason banks only offer loans for a narrow range of building types is they need to bundle tens of thousands of similar loans to sell off to institutional investors like pension plans. These loans are a commodity like corn. A strip mall in Florida is identical to a strip mall in New Mexico or Wisconsin. One garden apartment complex is the same as a million others. It’s a matter of convenience. The built environment has been adapted to the needs of interlocking financial bureaucracies. This need for fungible products – a real estate monocrop – creates the conditions for systemic failure. The system only allows certain things to be built even though those buildings are no longer productive or legally adaptable. Sooner or later the economic equivalent of a blight or insect swarm will hit.

      I don’t believe the banking system can be reformed – at least not by tweaking the existing set of arrangements. Instead the banks will ultimately fail (along with the pensions and municipal bonds) and be reinvented along entirely different lines after a crisis. There’s simply too much debt out there that can never be repaid and too many useless buildings with no real utility or value. When the dust settles the existing building stock will be repurposed and retrofitted in ways that make sense in each local context.

      As for government subsidies… Everything is subsidized or taxed in a way that creates perverse side effects. The subsidies will change over time as will the taxes. That’s been true everywhere around the world for centuries. Suck it up and adapt as need be.

      1. I’ve heard some smaller community banks may hang onto some loans, perhaps because non-conforming? Any evidence of that?

  4. Great article — thanks! Your struggles with real estate and beaurocracy are similar to problems I’m experiencing right now. I live in Canada, in a province with very little agricultural land. I’m trying to buy farmland, to actually farm, and it’s not going well. On the one hand, the provincial government is trying to promote the use of farmland for agriculture. But land is crazy expensive, and getting an agricultural mortgage is not cheap or easy. So most of the farmland in my area gets bought up by wealthy city-folk who build fancy houses on it and spend their weekends here. They are as against farming as the banks are (the homeowners like fresh local food, they just don’t want to see farming). How is anyone supposed to be financially, socially or environmentally responsible (use the land to feed oneself, generate a profit, provide fresh local food, and create opportunities for food tourism/education) in these circumstances?

    Good for you for going ahead and investing, despite the difficulties posed by the banks and the real estate market. And good luck with the renovations 🙂

  5. The banks are just following the FHA and Fannie Mae. After reading the Strong Towns articles from last week and reading the recent report from the Regional Plan Association, I have concluded that these agencies, more than anything else, created urban sprawl and the transformation of towns and cities after World War II into stereotypical urban hellholes. This didn’t happen. It was done. Mostly unintentionally, but no less effectively.

    Since that time these agencies have set the policies that ensure no one is building, and few want to maintain, the apartment over business building that has been the mainstay of towns for millenia. Only suburban strips or urban megaprojects get built. They won’t tell you but federal policy by default is to discourage walkable small and medium sized traditional towns like they’re some great social scourge.

    1. I don’t flip. Ever. I thought about paying cash and holding the bakery while I made steady improvements to the property, but ultimately switched to a different neighborhood. I bought a smaller less interesting building at an even lower price, but in a location that was improving at a much faster rate. I basically chose to compress the wait time of revitalization. The trade off is the building itself isn’t as interesting. Pick your battles.

  6. Strongtowns has a recent podcast interview with another guy who had a similar problem with wanting to buy a mixed-use building with several apartments and a business (maybe two) on ground floor. Part of this guy’s issue was that he was spread thin already – he owned (owns?) a vacation home which he rents out, and was panning on using the mixed-use building as a way of paying for a majority of the mortgage and taxes.

    I think he tripped some flags and it sort of seems to me that, from a bank’s POV, want they want are “guaranteed” sources of mortgage revenue – that is, homeowners are “safe” because they work somewhere, and if they lose their job(s) can work elsewhere. For a typical loan, a homeowner’s income source is abstracted/removed from the land/house being mortgaged, whereas his source was pretty dependent upon having tenants.

    Your issue though sounds more like typical slow-to-change banking policy. There really should be a New Urbanist mortgage company!

    I’m sorry to hear you’re not going forward with a Cincinnati property! I’m thinking of buying a residence across the river in Newport, KY. It and Convington have some really good bones and small streets (there’s even a pedestrian bridge which goes over the river from Newport to Cincinnati!). I think there will be an upswing in interest (and in house prices) there as people get priced out of the old neighborhoods of Cincinnati but the interest in the metro region grows (which I hope it does, in not-dumb ways)

    1. I did actually buy property in Cincy last June. I just bought a single family home. I paid cash. I could have paid cash for the mixed use building too, but I decided I would have radically fewer potential buyers when/if I ever decided to sell the place. I’m generally allergic to bureaucracies so I avoid complications if possible. Of course there have been many complications with the single family home as I try and improve it. Zoning, building codes, begging the city for permission to do the simplest and most obvious improvements… It’s just the nature of the beast.

      1. Oh, great to hear! I don’t blame you for wanting to avoid the bureaucracies and other complications around skipping over a mixed-use building. The place I’m looking at in Newport is essentially a tear-down: it’s a 30×90 plot, but the current or previous owners plopped an even smaller one story mobile home-sized house on it because… who knows? Despite them having done some remodeling inside and out, it doesn’t fit in with the character of the neighborhood, and if I get it, it will go. It’s on the corner of a single lane one-way street with on-street parking, a narrower 1 way street, and a still narrower alley! I’ve been playing in a CAD program for a couple days and have figured out how to get a good deal out of that small lot. Now if I can just talk my wife into leaving the suburbs…

  7. This is a bummer. I believe you, but yet I can’t hardly believe it. Banks, and the values of the bankers, investors, regulators are often the root of many problems.

  8. I don’t sympathize, this is a turn of the century multi story mixed use property, in a rundown part of town (on the way back). This is a project for an entrepreneur who has carefully watched over their capital and today should find themselves mostly in cash. If you are a young couple with smarts and energy just starting out, your bank is your older relatives who have watched over their money carefully. The moral of this story is everyone living above subsistence should have cash savings. You may say impossible, I could only put $20. a week away, and that would seem like a small inconsequential amount of money. Over the course of a year that $20. becomes $1,040. + some interest. If you made savings a priority after “basic” housing, groceries and medical, you would surprise yourself with how much cash savings you could accumulate. And then when an opportunity like this presented itself, you would be back at the beginning of this reply.

    1. You didn’t read the article. He paid cash for a different building because he didn’t want to deal with the hassles that would be involved in trying to resell the building in the future.

  9. This is a bit off topic (apologies), but I’ve noticed you seem to be up for buying properties all over the place: SF, Hawaii, Cincinnati, etc. You also seem to 1) do a lot of your own work incrementally over time and 2) rent to other people. My question is how do you manage all of this? The logistics seem pretty daunting.

    1. I would greatly prefer to have a collection of properties all within close proximity to where I live. But the San Francisco Bay Area is ridiculously expensive. Buying property around here is only possible (for me) if I were to load up on a mind bending amount of debt. So I find spots with good prospects in other locations and suck up the long distance management. I know people who leveraged themselves into properties with loans and lost everything in the crash. I simply will not do that. It’s all about compromise.

  10. Banks have to be able to resell a property if it defaults. That can be hard to do if the property is unique. I think that drives them greatly.

    1. This is absolutely the case. Banks are after all notoriously conservative and this is definitely a manifestation of that. Unfortunately, they’ve only been made even more conservative by subsidized mortgages.

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