Donjek :: The Cents of Place Blog

Redeveloping the Cents of Place Blog

From here forward, the Cents of Place blog will continue to focus on the issues in which you and I share an interest: Public finance, redevelopment, land use, urban economics, policy. Posts will, however, be shorter and more frequent than has been typical over the last four years. 

For today, I am pleased to post the final Minneapolis Saint Paul Metropolitan Business Plan, its executive summary, and a companion framing piece produced by our region's partners at the Brookings Institution. These documents will, I hope, remain in development in the near future, to reflect the increasing momentum and consensus around the importance of a region-scale agenda for innovation, human capital, education and workforce, spatial efficiency, key industry clusters and governance. Like other metropolitan economies, ours depends on intential approaches to each.

Thanks for continuing to read the Cents of Place blog - I hope you will find it valuable in this new format.

Strong Towns Releases Vulnerable Cities Report

The Cents of Place, since its inception in 2007, has addressed issues of public finance on levels ranging from specific projects to macro-level economic and policy issues. On the latter, I have been immersed since January in two efforts. In the first, I am managing the Brookings Metropolitan Business Plan initiative for partners assembled in the Minneapolis Saint Paul region; I introduced this project here in January, and will be posting draft business plan content for your review and comment within the next few weeks.

In the second, I co-founded Strong Towns, an entrepreneurial nonprofit organization calling for big change in American land use, last fall with Chuck Marohn and Ben Oleson of the Community Growth Institute. We’ve been producing research, building relationships and growing networks on Facebook and Twitter over the last six months. Our message – that current land use patterns are financially unsustainable and are eroding our ability to invest in our people and places – has been attracting attention of late. See us on the newswire at Planetizen and at the Switchboard at NRDC blog, and join us in developing these ideas by following us at Facebook and Twitter.

 Today, we have released a report titled “Minnesota’s Most Vulnerable Cities,” which addresses the following question: If federal and state aids disappeared tomorrow, and citizens wished to maintain existing services, how large a property tax increase would be required? How sensitive are our cities to the risk (and very likely eventuality) that state and federal aids fall?

View the report here. Make comments, throw darts, suggest solutions - help us develop tools to build Strong Towns.

Coming Down with Cartographia

It's a tradition:  In December, we share gifts. In January, we share illnesses. 

This year, in addition to a winter cold, I have taken on a new level of interest in the ever-expanding field of mapping or cartography. In some measure, this is because in the coming weeks I will be releasing mapping services that will interest placemakers - property investors, land use advocates, bankers, transit supporters - seeking to understand why some urban areas thrive and others stagnate. I've posted here before about GIS applications in Donjek projects, but my next steps will extend beyond my prior application of these tools.

For now, I am attaching two maps that I hope will interest you as they have me.  The first is a map I created online at Wordle, a free online tool to convert text to a graphic - the more oft-cited a word in the text, the larger its profile in the map. The map shown here is based on a Donjek report I drafted in recent weeks, and which will be available in final form shortly. You can guess its subject. See the collection of inaugural speeches in this "word cloud" form, provided by the New York Times.

The second is a map representing seven years of over 2,000 iterative changes made to the Wikipedia article on evolution, by 68 editors. The width of the graph bands indicates the number of words in the evolution article, and the colors indicate the identity of the author. The source of this map is Urban Cartography, a quirky and interesting collection.

Colorful pictures are all I can offer today - but I and my health will be back by the end of the week.

Should Recent Shifts in Interest Rates Encourage Placemakers?

It’s been a week since I posted to the Cents of Place.  I’ve wanted to contribute more in that time, but a number of projects have taken a turn for the more involved.  Why? Chaos in the private lending market has placemakers thinking twice and three times about potential partnerships with the public sector.  

One client is a well-seasoned developer and investor, looking to break ground this spring for a project in a major transit corridor. Financing is in place for multiple floors of retail and office, and preleasing has gone well.  Perhaps, the development team has explored, we could add thirty or more rental or condo housing units by building upwards, with a stepped design to ease concerns about views from the street?  Despite their record of selling and managing housing in urban corridors, lenders aren’t enthused.

Part of banks’ lack of spirit on this point is due to the recent spike in the rates banks charge each other for overnight or short-term lending.  The enclosed graphic shows how much higher is this short-term interbank rate (LIBOR) than the three-month Treasury bill; this difference is known as the “TED spread.”  In October, banks would demand interest over 4.50% higher than the three-month Treasury bill, to lend their funds to other banks.  Such a spread between the rates indicated dramatic anxiety among lenders.  If you’ve visited with real estate lenders in recent months, you know what this has done to your odds of securing project financing.

The bright side, of course, is that the graph illustrates the precipitous drop in the TED spread, from 4.63% in October to 1.08% as of this afternoon.  Hopefully, as economist Jim Hamilton suggests in this post, the shift is part of a larger, positive next chapter for the economy.  

Thanks to good friend Courtenay Brown, seasoned bond trader, for providing the graphic.  With uncharacteristic brevity, Brown called the drop in the TED spread “pretty good.”

Truth in Housing: Cooling Market Impacting Homeowners, Cities, Developers

Yesterday I attended a lunch sponsored by the Sensible Land Use Coalition, a gathering of developers, consultants and municipal officials. The featured speaker was former Minnesota Commissioner of Transportation (and likely 2008 Congressional candidate in Minnesota’s Sixth District) El Tinklenberg. I discovered talking with colleagues before and after the lunch that while transportation was on the program, the housing market dominated the collective brain. A few reasons why that’s the case:

Construction Down – Suburban and Urban Alike
The trends don’t appear positive on the national or regional level. In the Twin Cities, year-to-date building permits have dropped 51% since the high in 2004; the number of permitted units has dropped 47% in the same period. The value of the building-permitted construction undertaken so far in 2007 has fallen 44% (over $1 billion in today’s dollars) from the level experienced in 2004.

Local Governments Feel the Permit Pinch
The St. Paul Pioneer Press this week published a story (reg. req’d) examining the reliance of some cities on permit fees for revenue to finance development and in some cases, administration. As the market cools, local governments are experiencing rapid drops in fee revenues, while buyers of recent construction are placing additional demands on city services and infrastructure.  Combined with cuts to local government aid and county program aid enacted at the state level, diminished permit fees will fuel the fire of what is already looks a lot like a property tax revolt in Minnesota.

Prices Down Among Many Metropolitan Areas Across Country
Rating agency Standard and Poor’s reported this week the results of a national study which indicate that home prices in major markets are falling at the briskest pace since 1991. As opposed to market chatter over the previous year that significant declines were limited to previously high-growth areas on the coasts and in the Southwest, the S&P analysis profiles a much broader dynamic. From twelve months ago, price declines include: San Diego (-7.8%), Las Vegas (-6.1%), New York (-3.8%), Minneapolis (-3.4%), and Chicago (-0.9%). Cities with positive appreciation include Dallas, Portland and Seattle.

Investigations Abound
The Washington Post today reported (reg. req’d) on a tempestuous hearing of the Senate Banking Committee yesterday; the committee heard testimony from executives of major rating agencies including Standard and Poor’s, Moody’s and Fitch Ratings. At issue:

The Securities and Exchange Commission said an investigation of credit-rating companies was focused on whether bond issuers put pressure on the raters to win higher rankings for subprime-mortgage bonds.

Once originated, loans are bundled together into “tranches” and securitized, meaning the principal and interest revenue from loan repayments are purchased by individual and institutional buyers as mortgage-backed bonds. The investigation focuses on whether the companies bundling the loans and securitizing them influenced the rating agencies for a higher credit rating, thereby increasing the value of the bonds to be sold.

Spiros Pina, a Whole Loan Analyst at GMAC ResCap, described the process without equivocation:

Looking back a few years from now, some things will begin to come into focus: the perfect storm of easy money, excessively sloppy underwriting, and the agencies dozing at the switch. And let’s not forget that agencies make money rating credit risk and have an interest in seeing deals go to market...

Hungry for More?
Dig a bit further into the economic prospects for the housing market at EconBrowser, a blog written by two professors of economics at the University of California and University of Wisconsin.  Read more about the foreclosure wave here.