PropertyProf Blog

Canada Has No 30-Year Mortgage

The housing finance market is very different up north:

The standard mortgage in Canada isn't the 30-year fixed, as it is in the U.S., but a five-year mortgage amortized over 25 years. That means the loan balance has to be refinanced at the end of five years, exposing the borrower to any increase in rates that has occurred in the interim. Prepayment penalties for borrowers hoping to exploit a decline in rates, on the other hand, are very steep. 

This looks as if it's a clear win for banks, which are minimally exposed to increased rates and protected from prepayments. But Canadian mortgages are also portable -- if you move before the five-year term is up you can apply your old mortgage to your new home. (If it's a more expensive home, you take out a new loan for the excess.) That restores some of the balance in the borrower's favor.

More important, observed Canadian economists Arthur Donner and Douglas Peters in a 2012 report for the Pew Charitable Trusts, the short term of Canadian mortgages allowed them to be funded from local short-term bank deposits at retail bank branches. The mortgage-lending system in Canada to this day resembles the American banking system up to the 1970s, when deregulation took hold and placed fancy, risky and careless lending at the center of the business model. (By the way, mortgage interest isn't tax-deductible in Canada, so there's no incentive to over-borrow.) 

 

Map of the Day: The World's Largest Annual Migration

From the Wall Street Journal: China’s largest search engine on Sunday launched “Baidu Migrate,” a map that displays Lunar New Year travel routes in China and their popularity over a rolling eight-hour period. The Lunar New Year, or Spring Festival, holiday in China is considered the world’s largest seasonal migration of people as hundreds of millions of people flock home to reunite with their families. 

Most of the popular routes in China are in line with recent migration patterns from rural to urban areas. The most popular route Monday afternoon, for example, was from Shanghai to the city of Chuzhou in eastern Anhui province, an inland province where many of China’s migrant workers come from. The next most popular route was from Beijing to Chengdu in central Sichuan province — another inland province known for its outflow of migrant workers.

Lehavi on Splitting the Housing Market to Preserve Affordability

Amnon Lehavi (Interdisciplinary Center Herzliyah - Israel) has posted Can the Resale Housing Market Be Split to Facilitate Long-Term Affordability? on SSRN.  Here's the abstract:

This paper argues that a comprehensive affordable housing policy requires the formal splitting of the homeownership market into (at least) two distinct segments: one designated for the general public and following a conventional market pricing mechanism, and the other designated for eligible households and controlling both initial supply and subsequent sales of housing units through regulated affordability-oriented pricing mechanisms. To facilitate the systematic design of an affordable housing segment that remains intact upon household turnover, the paper introduces two alternative cap-on-resale mechanisms: “Mixed Indexed Cap” (MIC) and “Pure Indexed Cap” (PIC). It explains how such models could promote long-term social mobility, allowing multiple low- and modest-income households to engage in capital building by sequentially enjoying increments of appreciation of properties in the affordable housing segment.

 

Upzoning Japan

Shinzo Abe, prime minister of Japan, has an interest in land use.  Zoning restrictions featured prominently in a list of changes Abe promised will sweep the country in the coming months:

Soon, our deregulation package will be set in motion. Over the next two years, in designated areas, no vested interests will remain impervious. For example, in Japanese cities aspiring to world-class status, limits on floor space will become a thing of the past. We will soon see high-quality housing, business complexes, and zero-emissions towns appearing, one after another.

Matt Yglesias provides a brief analysis:

Japan already has very dense cities and a falling population, so this reform is probably less necessary than in a country like the United States or France or the United Kingdom. That said, I believe the typical Japanese dwelling is quite small so upzoning could do a lot to improve quality of life.

Soon, our deregulation package will be set in motion. Over the next two years, in designated areas, no vested interests will remain impervious. For example, in Japanese cities aspiring to world-class status, limits on floor space will become a thing of the past. We will soon see high-quality housing, business complexes, and zero-emissions towns appearing, one after another.
Read more at http://www.project-syndicate.org/commentary/shinzo-abe-links-economic-recovery-in-japan-to-improved-prospects-for-global-peace-and-prosperity#leRcUum17s4ULJ03.99

Soon, our deregulation package will be set in motion. Over the next two years, in designated areas, no vested interests will remain impervious. For example, in Japanese cities aspiring to world-class status, limits on floor space will become a thing of the past. We will soon see high-quality housing, business complexes, and zero-emissions towns appearing, one after another.
Read more at http://www.project-syndicate.org/commentary/shinzo-abe-links-economic-recovery-in-japan-to-improved-prospects-for-global-peace-and-prosperity#leRcUum17s4ULJ03.99

Du Plessis & Frantz on African Customary Land Rights

Elmien Du Plessis ( North West University) & Gino Frantz (Johannesburg) African Customary Land Rights in a Private Ownership Paradigm on SSRN.  Here's the abstract:

With the advent of constitutionalism in South Africa, customary law is elevated to a position where it now is recognized alongside legislation and the common law as one of the sources of law.

This is a major shift from the previous position, where customary law was only recognized in as far as it was easily ascertainable with sufficient certainty or codified, and then only applied when it was not in conflict with the common law.

Despite the constitutional imperatives for the recognition of customary law, and interpretation that is in conformity with the constitution (that includes the recognition of customary law), the courts seem reluctant to do so.

This paper will look at the South African courts’ interpretation of ownership of land held in terms of customary law, and will aim at providing alternative interpretations to “ownership” of customary land.

Fracking and Local Control Over Land Use

Over at the Local Government Law Blog, Paul Diller has an extensive post on the recent fracking decision of the Pennsylvania Supreme Court.  Diller writes:

I commend to your attention the Pennsylvania Supreme Court’s decision in Robinson Township v. Pennsylvania, which invalidated the state law – “Act 13” – that controversially sought to facilitate hydraulic fracturing, or “fracking,” for natural gas throughout the state.  Act 13 preempted much, if not all, of local control over land use with respect to fracking, and even made local governments liable for money damages if they obstructed the fracking permitting process. [...]

In a majority opinion written by Chief Justice Castille, the majority held that Act 13 conflicted irreconcilably with the Environmental Rights Amendment (ERA) to the Pennsylvania Constitution.  In other states with environmental clauses in their constitutions, the courts have generally shied away from reading them as more than hortatory.  Alternatively, courts have interpreted them as merely imploring the legislature to protect the environment, while leaving it to the legislature to decide whether to act.  Robinson Twp. breathes new life into the judicial enforceability of at least one state’s ERA and, within Pennsylvania, the enterprise of independent state constitutional interpretation more generally.

The whole post is definitely worth a read.

Map of the Day: Liquor Map of the World

Blomley on the Spatial Dimensions of Property

Nicholas Blomley (Simon Fraser University) has posted Property, Law, and Space on SSRN.  Here's the abstract:

This short piece, to be published in a special issue of Property Law Review, aims to provoke interest in thinking about the spatial dimensions of property (particularly in land). This reflects the burgeoning interest in the geographies of law more generally. While there are many ways in which one can "think spatially", it is important to begin by noting that "space" itself is capable of at least two meanings. An "absolute" view regards space as a priori and asocial, and thus calculable and geometric. A relational view, conversely, regards space as meaningful only in relation to human practices. Both these views of space, I suggest, can be discerned when thinking about property. Indeed, they often collide in important ways.

One Home as a Microcosm of the Housing Bubble

The N.Y. Times has a realy thorough piece on the history of 12204 Backus Drive in Bowie, Maryland.  Built in 1990, the home incapsulates all the highs and lows of American real estate over the last 25 years:

But by 2002, prices had been rising for roughly a decade — and Roberto Ramos and Chong Kim, owners of a seafood takeout counter, bought 12204 Backus Drive for $299,000. They put 10 percent down and took out a fixed-rate mortgage.

Like so many houses at the time, this one quickly became a source of cash. Mr. Ramos and Ms. Kim refinanced twice, which allowed them to siphon out $175,000. In retrospect, such behavior may seem reckless; hundreds of thousands of people wouldn’t have lost their homes in the crash if they hadn’t depleted their equity during the boom. But for those with good timing, like Mr. Ramos and Ms. Kim, the system worked: In April 2006, they sold the house for $540,000, more than enough to pay off their loans. The value of 12204 Backus Drive had risen 80 percent in four years.

Even at that price tag, the house struck Leslie Johnson as a good deal. Rising prices had taken on an aura of inevitability, and the whole country seemed to believe that they would never fall. [...] The $540,000 price of the Backus Drive house seemed beyond her reach. But after providing documentation of her income (which she declined to disclose publicly), she was told that she had been preapproved. “They told me to go ahead and buy and just refinance later on to a more manageable mortgage payment,” she said.

Zhao on Contaminated Land Legislation in China

Xiaobo Zhao (Shanghai University) has posted Contaminated Land Legislation in China: Status Quo and Challenges (J. of Envtl Management & Tourism) on SSRN.  Here's the abstract:

China is experiencing increased land contamination in recent years. A number of social and economic problems have developed and must be dealt with, in some cases, as a matter of urgency. Those problems have been neglected for years and so far there is no nationwide specific legislation to address the contaminated land issue. However, numerous relevant provisions on addressing soil or land protections can be found under the current legal system, particularly in the context of environmental regulatory system. Those provisions address broad issues which include soil quality protection, land reclamation, land use planning and relevant liabilities. This paper explores the regulatory frameworks for addressing contaminated land issues. It concludes that the current regulatory framework in China can not fully address contaminated land problems, thus a specific legislation at the national level is imminently required.

Map of the Day: The Toll of the Anti-Vaccination Movement

Measles outbreaks (purple)  and whooping cough (green)

 

From the LA Times:

A couple of manifestations stand out. One is the prevalence of measles in Europe -- especially Britain -- and the U.S. Measles is endemic in the underdeveloped world because of the unavailability of the MMR (measles, mumps and rubella) vaccine.

But in the developed world it's an artifact of the anti-vaccination movement, which has associated the vaccine with autism. That connection, promoted by the discredited British physician Andrew Wakefield and the starlet Jenny McCarthy, has been thoroughly debunked. But its effects live on, as the map shows. Vaccine panic also plays a role in the shocking incidence in the U.S. of whooping cough, also beatable by a common vaccine.

Lewyn on Municipal Comprehensive Plans

Michael Lewyn (Touro) has posted Zoning and Land Use Planning: Plans are Not Enough (Real Estate L.J.) on SSRN.  Here's the abstract:

Some commentators describe comprehensive land use planning as a potential remedy for suburban sprawl. But in fact, states that require municipal comprehensive plans can be just as automobile-oriented as more permissive states. Why is this the case? Because like zoning codes, municipal comprehensive plans often favor low-density single-use development, wide streets and other factors that encourage automobile-dependent development.

Rich People Own a Lot of Stuff. Should Anyone Care?

The Atlantic takes a look at Oxfam's report on global inequality and pulls out some pretty amazing facts and figures.  For example, they highlight that the richest 85 people in the world own more wealth than the bottom half of the entire global population.  The bottom half includes about 3 billion people.  But, if things keep improving for the world's very poorest, is this really a problem? Maybe not:

But the chasm in investment wealth between rural Mozambique and Manhattan's financial district isn't necessarily the problem that the international development is or should be focused on. As Bill and Melinda Gates wrote in their annual letter, "the world is better than it has ever been." Cities like Mexico City, Nairobi, and Shanghai have been transformed in the last generation from dens of poverty to thriving international markets. In the letter, the Gates' make a big prediction:

By 2035, there will be almost no poor countries left in the world. Almost all countries will be what we now call lower-middle income or richer. Countries will learn from their most productive neighbors and benefit from innovations like new vaccines, better seeds, and the digital revolution. Their labor forces, buoyed by expanded education, will attract new investments.

Hayashi on Property Taxes

Andrew Hayashi (UVa) has posted Property Taxes and Their Limits: Evidence from New York City (Stanford Law & Policy Review) on SSRN.  Here's the abstract:

I report evidence from New York City that property assessment caps on small residential properties represent a significant tax benefit that accrues to the most valuable properties and the wealthiest neighborhoods. Moreover, rather than benefiting the long-time homeowners on fixed incomes who are their putative targets, the largest benefits go to the properties that are most likely to have been recently sold and to be located in neighborhoods where cash incomes have increased the most.

 

A Market For Kidneys?

Over at the Faculty Lounge, Kimberly Krawiec has a post summarizing a recent Wall Street Journal editorial and some of her work on kidney donations:

As a preview, the main takeaways from the paper that I plan to hit in these posts are the following:

• When properly measured, the gap between kidney need and supply is even larger than typically assumed and there is little reason to expect that trend to abate under current conditions

• The prospects are dim for increasing kidney donation rates under the current system: donation levels have been static overall since 2006, and donations from living kidney donors have actually declined from their 2003 peak. Moreover, most kidneys from suitable deceased donors are already procured -- even a perfect deceased organ consent and allocation system would not yield nearly enough kidneys to cover the amount needed per year to satisfy unmet demand

• Kidney transplantation is less expensive and results in better health outcomes than dialysis.  Furthermore, living donor kidneys provide health advantages as compared to deceased donor kidneys.

• Many current innovations in transplantation are positive and should be encouraged, but will not increase kidney transplants in sufficient numbers to close the need-supply gap, at least not in the foreseeable future

Lawton on The Non-Economic Value of Homeownership

Julie Lawton (DePaul) has posted Limited Equity Cooperatives: The Non-Economic Value of Homeownership (Washington U. J. of Law & Policy) on SSRN.  Here's the abstract:

This article evaluates the meaning of homeownership for low and moderate income residents who live in a homeownership model that does not provide equity appreciation. For many Americans, wealth creation is one of the major reasons for home ownership. Federal and local governments have for years looked to wealth creation as a means of helping low and moderate-income residents become self-sufficient. However, for many low and moderate income residents, homeownership is not an easily obtainable goal since many low and moderate-income residents have neither the income, nor credit, to qualify for a mortgage for a condominium or single family home. To combat these problems, some affordable housing proponents advocate for alternatives to traditional fee-simple ownership, such as community land trusts and housing cooperatives. One of the major criticisms of these types of homeownership is that they are structured to restrict equity appreciation to promote long-term affordability, and, thus, undermine the value of homeownership. This Article examines one of these alternatives, the limited equity cooperative, to evaluate the non-economic value of homeownership and to help understand why this homeownership model is still valued as homeownership for these owners who have no hope of equity appreciation.

Where Did Public Housing Go Wrong?

In the Journal of Economic History, Katharine Shester has outlined the history of large-scale public housing since the 1940s.  Her paper attempts to flesh out what, exactly, went wrong with this ambitious social program.  The gist:

Shester, in the new JEH article, examines the entire public housing experiment by looking at the whole country from 1933 to 1973. She shows that by 1970, even taking into account local conditions prior to their construction, public housing projects depressed counties’ social and economic levels. Critically, however, that was not true before 1970. Data from 1950 and 1960 suggest that public housing seemed to have positive local effects. Something changed in the 1960s. The source of change was not, in Shester’s analysis, the new projects built in the 1960s, but seems to have been some cumulative aspect of public housing generally.

Decisions and developments from 1950 to 1970, Shester argues, accelerated the physical deterioration of public housing and increased the concentration of troubled families living there. Limits on government maintenance funds, like the limits on the original construction costs, hampered the housing managers. And because of imposed rent ceilings, local housing agencies could not get the funds sufficient to keep up repairs by charging tenants. Physical dilapidation followed.

At the same time, tightening the requirements that housing be provided only to the neediest families meant that stable working-class families, once part of the mix, were gone. The renters became increasingly and exclusively the poorest and most troubled families. Their growing concentration in dense (and tense) settings compounded the problems of order. By 1970, public housing projects had gained their nightmarish image. Pruitt–Igoe (and others) came down.

 

 

(HT: Andrew Sullivan)

Morriss et al. on Eminent Domain & Involuntary Cotenants

Andrew Morriss (Alabama), Roy Brandys (Independent), & Michael Barron (Independent) have posted Involuntary Cotenants: Eminent Domain and Energy & Communications Infrastructure Growth on SSRN.  Here's the abstract:

The spread of renewable energy mandates, new discoveries of unconventional oil and gas, and the need to harden and upgrade telecommunications infrastructure will lead to expansions in large infrastructure easements over the next decade. Many of these easements will be taken by eminent domain. In this paper we examine the problems posed by this involuntary creation of co-ownership of land. Existing eminent domain laws are insufficient to address the problems created because they allow the courts to vary only one term: price. Given difficulty in pricing many of the other terms to the easements (e.g. indemnification agreements for landowners, controlling impacts on hunting leases, or compliance efforts to control invasive species), reforms are necessary to allow courts to substitute for the bargaining process that eminent domain short circuits.

Moving Near A Green Space Better Than Hitting the Lottery?

Researchers in the UK have documented surprisingly positive long-term effects of moving near an urban green space:

UK researchers found moving to a green space had a sustained positive effect, unlike pay rises or promotions, which only provided a short-term boost.

[P]eople do all sorts of things to make them happier: they strive for promotion at work, pay rises, they even get married. "But the trouble with all those things is that within six months to a year, they are back to their original baseline levels of well-being. So these things are not sustainable; they do not make us happy in the long-term. We found that within a group of lottery winners who had won more than £500,000 that the positive effect was definitely there but after six months to a year, they were back to the baseline." 

Dr. White said his team wanted to see whether living in greener urban areas had a lasting positive effect on people's sense of well-being or whether the effect also disappeared after a period of time. [...] Explaining what the data revealed, he said: "What you see is that even after three years, mental health is still better which is unlike many of the other things that we think will make us happy."

The Urban Institute on the Choice Neighborhoods Program

The Urban Institute has posted Developing Choice Neighborhoods: An Early Look at Implementation in Five Sites - Interim Report on SSRN.  Here's the abstract:

The overarching goal of the Choice Neighborhoods program (Choice) is to redevelop distressed assisted housing projects and transform the neighborhoods surrounding them into mixed-income, high-opportunity places. Choice builds on lessons learned during HOPE VI, the U.S. Department of Housing and Urban Development’s (HUD’s) long-running program to replace or rehabilitate distressed public housing. It maintains the emphasis of HOPE VI on public-private partnerships and mixed financing for replacing or rehabilitating assisted housing but extends eligibility to privately owned federally subsidized developments. It requires that grantees build at least one subsidized replacement housing unit for every assisted unit demolished in the target development. It also continues the emphasis of HOPE VI on protecting tenants during the redevelopment process and heightens aspirations to give existing tenants the opportunity to live in the redeveloped project upon its completion. It differs most from HOPE VI by providing funding for projects that create synergy between renovation of the target development and revitalization efforts within the neighborhood surrounding the target development. Beyond providing funding for neighborhood investments, Choice also fosters partnerships among organizations, agencies, and institutions working throughout the neighborhood to build affordable housing, provide social services, care for and educate children and youth, ensure public safety, and revitalize the neighborhood’s commercial opportunities and infrastructure.