Category Archives: Economy

Economy Property

Real Estate Market Recovery?

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By Dr. Alfred J. Gobar
Chairman, Alfred Gobar Associates

As illustrated in Exhibit A, the recent recession was considerably deeper in percentage terms than the one that affected Southern California after June 1990. Sadly, the recovery from the most recent recession is a good deal more anemic than was the previous recovery, suggesting happy times for real estate properties (except for those who know how to profit from adversity) are still in the distant future.

Occasionally people wonder why nonagricultural wage and salary employment, as illustrated in Exhibit A, figures in so many of the graphs we use. The reason for that is shown in the graph in Exhibit B. The little triangles are estimates of the number of occupied units in the United States based on a statistical model, the major input to which is nonagricultural wage and salary employment. The little squares in the graph are actual households as reported by the U.S. Bureau of the Census.

For those of you with an unhealthy interest in statistics, the statistical model has estimated the number of occupied units nationwide with an R2 coefficient of correlation of 0.9867. In economics, this type of correlation usually implies the analyst is cheating. As can be seen, the estimate of number of households nationwide based on statistics has been flat since 2005. It is not expected to turn sharply upward in the immediate future—based on the trends in Exhibit A. The number of occupied units probably will rise above the estimate as the data evolves. Anecdotal information indicates that many households are living in homes on which they are no longer making payments on the mortgage—i.e., economic recovery is often less than physical occupancy in times of financial duress.

With more specificity with regard to Southern California (Ventura, Los Angeles, Orange, Riverside, San Bernardino, and San Diego Counties), growth in nonagricultural wage and salary employment in the twelve months ended February 2012 totaled 62,600 jobs. This is well below the long-term average in the six-county area during periods of normal housing markets—approximately 150,000 new jobs a year. Actually, employment growth in nonagricultural wage and salary employment over the most recent twelve months was considerably less than the comparable figure for the twelve-month period ended February 2011. Southern California’s economy (and therefore its real estate market) is not recovering rapidly. In fact, these statistics indicate the opposite.

Categories of nonagricultural wage and salary employment experiencing continued decline include construction, certain portions of the financial sector, and local government, as well as the information sector as newspapers become technologically less efficient than they were prior to the Information Age. Somewhat surprisingly, manufacturing employment grew during the twelve-month period contrary to the long-term trend over the last 15 years of a secular decline in manufacturing employment throughout the United States and with special regard to Southern California.

In 1969, analysts at Alfred Gobar Associates noticed the relationship between nonagricultural wage and salary employment and housing market trends. This led the number crunchers at the consulting company to develop a plethora of algorithms which incorporate generally available time series economic data published by the government and other sources into “models,” which simulate housing market conditions for each Metropolitan Statistical Area in the United States overall. The efficacy of these models with regard to the housing markets in each of these Metropolitan Areas was tested against the Census data for 1970, 1980, 1990, and 2000. Since Dr. Gobar’s retreat from consulting, less attention has been paid to the statistical simulation models, although kindly old Dr. Gobar did fund an analysis of the efficiency of the models in terms of estimating the number of occupied units by Metropolitan Statistical Area as of the date of the 2010 Census.

The output of the most recent update with extensions to Third Quarter 2011 is a basis for illustrating housing market conditions in each of the Metropolitan Statistical Areas that make up the Southern California market in which the Inland Empire is such an important segment.

The conventional output of the models, which was used by such investors as PMI, GE Capital, Nationwide Builders, etc., from the 1970s to the 1990s consisted of a total of 17 pages for each market. In the interest of simplicity, many of the outputs were combined into indices. The simplified index of housing market conditions for the Inland Empire is shown in exhibit C.

Although the statistical simulations of current market conditions overall in the Inland Empire are not quite as bad as they were at the depth of the 1990’s recession, the current trend is still down. The indices for this market have deteriorated fairly consistently since Third Quarter 2006. Housing price in the Inland Empire (as well as Southern California overall) has historically been high relationship to the ideal price structure. Because of declining demand derivative of the recession, even with the decreasing prices in the Inland Empire, the relationship between price and income is still not comfortable.

A similar index for Los Angeles County, which continues to be the largest economic entity in Southern California, is as follows in exhibit D. Currently the index on an overall basis is lower than at any time shown. The index suggests that spillover demand from Los Angeles County is not soon likely to be a major element in housing demand in the High Desert.

The exhibt E index for Ventura County shows overall market conditions about similar to what they were during the worst of the 1990s:

Between Third Quarter 2010 and Third Quarter 2011, Ventura County’s economy improved enough that incremental demand exceeded the incremental supply of new housing based on very feeble building permit activity in prior months in Ventura County in 2009 and 2010. The most recent index point is actually up a little bit from the two previous index points for the Ventura area.

Another of the Southern California economies that has suffered less than the Inland Empire is Orange County, see the graph in exhibit F. The index for Third Quarter 2011 was higher than in Third Quarter 2009 or 2010, indicating a very modest improvement in relative supply and demand conditions in housing in the Orange County Metropolitan Statistical Area.

By far the strongest recovery of the housing market in Southern California is in San Diego County where the index has been improving for about three years, and incremental demand has exceeded incremental supply, see exhibit G

As shown, the low point of the index in recent years is well above the comparable indicator for the 1990’s recession.

This column has referred in the past to economics as the “dismal science.” In a vain hope to counter this probably accurate definition of my life’s work, we have included a comparable graph (Exhibit H) for a market that is currently in much better condition:

This market appears to have been immune to the recession and, in fact, from 2006 to 2011 the index for the market increased year by year, while the price index shows that housing prices in the market are less than they need to be in terms of the consumer support levels driven by the local economy.

Another regional economy which reflects stronger-than-typical housing market conditions is illustrated by the exhibit I graph.

Although there has been some decrease in overall market strength (i.e., demand exceeds supply), it still remains a very viable real estate market in comparison with much of the U.S. Perhaps Joseph W. Brady wants to sponsor a contest for readers of this column to identify these two mystery markets which are apparently doing well despite the abysmal conditions in much of the rest of the U.S. (at least the statistics are a whole lot better).

An interesting anomaly related to the most recent analysis of these statistical data concerns the composition of employment growth. As noted in the early part of this column, nonagricultural wage and salary employment grew less between 2011 and 2012 than it did in the prior twelve months. Another source of employment data, however (based on the household survey), reflects a humungous increase in employment as reported by individual households. Typically, the difference in estimated employment between the household survey and the establishment survey relates to contract workers, small entrepreneurs, underground employment, etc. For long periods of time, the employment levels estimated on the basis of the employer surveys have been about ±87.0 percent of the employment levels estimated on the basis of the household survey. The most recent data available, however, suggests that reported change in nonagricultural wage and salary employment based on the employer survey was 58.0 percent of the level of employment change estimated on the basis of the household survey. Either an awful lot of people are working “off the books” or there is a glitz in the reporting or our interpretation of the numbers. We have been interpreting these numbers for roughly 40 years and have never seen this kind of relationship before. Since it is a one-time event, it could have been a typographical error, a simple transposition, or some other statistical screw-up. Not too much should be inferred from this unusual circumstance. Nonetheless, it is consistent with what we expected to happen with the onset of a highly-regulated society—an increase in informal employment as the market system worked to side-step a stifling bureaucracy. The late Jack Kyser and I discussed the implications of the Obama Administration’s ideology at a meeting a little over two years ago and hypothesized that the informal economy would grow faster than it has in the past in response to overregulation, mitigating to some extent the negative effects on growth of a highly-regulated economy.

If, in fact, the informal job growth was actually as great as the statistics seem to indicate, the overall condition of the market should be better than the graphs shown above suggest.

Let’s hope so.

Readers interested in reviewing Dr. Gobar’s observations about the statistical relationship of real estate market behavior to conventional economic time series data are referred to his book which is available from Alfred Gobar Associates.

Economy Property

Industrial Firms Continued to Absorb Space in the Inland Empire at a Very High Rate in 2011

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By: Ronald J. Barbieri, Ph.D, CPA

One of the primary economic drivers of the Inland Empire and therefore the High Desert is the expansion of warehousing and distribution facilities as well as manufacturing operations in the Inland Empire. Such industrial operations provide Base Employment for the region which in turn generates Secondary Employment in other economic sectors of San Bernardino and Riverside Counties. Over 60,000 residents of the High Desert commute to the Los Angeles Basin for work. This represents approximately half the workforce of the High Desert. Hence, an increase in the demand for industrial space in the Inland Empire has a positive indirect effect on the High Desert.

Also, the absorption of industrial space in the Inland Empire would further reduce the limited supply of industrial land in the Los Angeles Basin. A study by John Husing dated August 2008 determined there were only 4,860 acres of land in the Los Angeles Basin portion of the Inland Empire that could be developed for industrial use. This number could be significantly reduced over the next few years, thereby reducing number of sites that are rail served or can accommodate the development of large industrial buildings. It will not be long before the very large industrial tenants or firms that require rail will have to locate in the High Desert or in the area along the I-10 Freeway in Banning, California; The migration of more industrial firms to the High Desert would create more Base Employment in the area, which in turn could generate additional Secondary Employment. This would lead to lower unemployment rates in the greater Victor Valley area.

There is 499 million Square Feet (SF) of industrial space in the Inland Empire. This is equivalent to half the inventory of industrial space in the greater Chicago area. Costar defines 482 million SF as Warehousing/Industrial space. The remaining 17 million SF is in smaller Industrial Flex space. The High Desert currently accounts for slightly over 4% of the total inventory; but in the intermediate term and beyond it is expected to be the primary expansion area for industrial development in the region. Southern California is home to almost 2.0 Billion SF of industrial space. Much of the increased demand for industrial space in the Inland Empire is attributed to firms relocating out of Los Angeles County in search of industrial sites on which to build larger, more efficient facilities. The vacancy rate for Warehousing/Industrial space in the Inland Empire has increased from 5.2% at the end of 2004 to 12.2% by the end of 2009. The increase in vacancy was the result of overbuilding rather than a decline in industrial demand. The vacancy rate at the end of the Fourth Quarter 2011 declined to 7.5%. Very little inventory was added in 2010 and 2011; but there was a substantial absorption of large box industrial space during that two year period. If the vacancy rate declined to 5% the industrial market in the Inland Empire would be in equilibrium. That could occur by 2013 if the developers do not build an excessive amount of inventory that is not preleased. Developers are beginning to build spec large box industrial space in the Los Angeles Basin.

There are a limited number of sites in the Los Angeles Basin that can accommodate large industrial boxes greater than 800,000 SF. Industrial tenants and users wanting larger facilities will have to locate either in the High Desert, Moreno Valley, or Banning California. The lack of larger industrial sites in the Los Angeles Basin could result in a substantial increase in the level of industrial development in the High Desert beginning as early as 2015.

In calendar year 2007 the Net Absorption of industrial space peaked at almost 27 million SF. In 2008 industrial demand increase by 4.6 million SF; but in 2009 the Net Absorption was a negative 400,000 SF. Net Absorption in the Inland Empire was a positive 12.1 million SF in 2010 and 15.0 million SF in 2011. A portion of the increase in Net Absorption was caused by the acceleration of demand due to relatively low rents compared to prior years. The increase in industrial demand in the Inland Empire in the last two years is substantial, especially in light of the slow economic recovery in both the U.S. and California. In fact the Inland Empire only experienced one year of negative industrial absorption during the last recession.

From 2005 through 2008 an average of 26.1 million SF of Warehousing/Industrial space was delivered annually in the Inland Empire. Deliveries declined to 7.0 million SF in 2009. Only 1.7 million SF was delivered in 2010; while 3.8 million SF was completed in 2011. The level of new construction has definitely increased in the last year. This limited level of construction coupled with the unanticipated increase in industrial absorption has resulted in the elimination of half of the Excess Vacancy in the market place.

The vacancy level was 22.1 million SF at the end of 2005. It peaked at 57.9 million SF by the end of 2009. As of the end of 2011 it had declined to 36.5 million SF. There is still an estimated 15 million SF of Excess Vacant space in the Inland Empire; but the industrial agents in the Los Angeles Basin are now reporting Excess Demand (no vacancy) for buildings of 500,000 SF and larger. Most of the vacancy is in the medium and smaller size buildings often occupied by small businesses that have not experienced much growth since the Great Recession.

Industrial agents are now suggesting there will be a new wave of construction for buildings larger than 500,000 Square Feet. When this is coupled with the fact there are only 4 sites in the Los Angeles Basis that can accommodate a building greater than 800,000 SF it is logical to conclude it will not be long before the High Desert will be able to successfully compete for the larger warehousing and distribution tenants. A higher level of industrial development will occur in the High Desert, though the timing is uncertain, and unfortunately very much a function of public policy that will be determined in Washington and in Sacramento, California.

In spite of all the political and economic uncertainty the big box industrial market in the High Desert is likely to add one or more users each year for the next few years before the increase in demand accelerates in the second half of this decade. This will probably be the case because large industrial users will continue to relocate from Los Angeles County to the Inland Empire in order to build larger, more efficient facilities. As the availability of large industrial sites in the Inland Empire diminishes those seeking larger sites will have no choice but to locate in the area of Banning, California or in the High Desert. Only an economic depression would defer this from happening.

All the inventory, absorption, and construction information contained in this article was obtained from reports The Bradco Companies generated from Costar. These numbers are deemed to be accurate by real estate industry standards; but they are not exact and subject to change.

Economy

Employment Development Department

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By John Williams

2011 unemployment rates are shown in the following chart. The rates shown are National, State of California, San Bernardino County, and the High Desert Region.

It appears that 2011 was a year of fairly high unemployment for most of the nation as well as California. The High Desert cities had even slightly higher unemployment rates for most of the year than either the nation or the state. The last four months of 2011 did show a slight downward slope in unemployment rates, which we hope will continue throughout 2012. The data shows that it is trending in a more favorable direction for the economic growth of California, San Bernardino County, and the High Desert Communities.

 

Contributed by the staff of the EDD Workforce Services office in Victorville. Please contact (760) 241-1682 for further information.

Economy Property

Snapshot of the Commercial and Industrial Real Estate Markets in the High Desert

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By Ronald J. Barbieri, Ph.D., CPA

Office Market

As of the end of 2011, the High Desert had almost 5.5 million SF of office space. The net absorption for 2011 was negative 8,900 SF compared to the 135,000 SF absorbed in 2010. The vacancy level at the end of last year was 347,000 SF or 6.4% of the total inventory. The increase in the vacancy rate was mostly due to the delivery of 62,000 SF of office space in the second half of last year. Most of the increase in office space demand over the last two years was from the expansion by local government and the medical profession. There was 25,000 SF of office in Apple Valley under construction as of the end of 2011. The new construction is targeted for medical users. While the office space is only slightly oversupplied, there has not been any additional demand for space in the High Desert. This has resulted in a slight decline in rental rates over the last year.

Retail Market

There was 15.6 million SF of retail space in the High Desert of which 1,352,000 SF was vacant at the end of 2011. This represents a vacancy rate of 8.7%. The High Desert experienced a negative net absorption of 67,000 SF in 2011, compared to a positive 262,000 SF in 2010. Only 6,900 SF was delivered in the second half of that year. Macy’s has announced that they would be moving into a vacant 70,000 SF former department store in the Victor Valley Mall and adding an additional 30,000 SF to the structure. However, this will not be reflected in the absorption figures until early 2013. Three super Wal-Marts in Victorville, Hesperia and Apple Valley are under construction and are expected to be completed this year.

Industrial Market

There was 20.4 million SF of industrial space in the High Desert at the end of 2011. The vacancy rate was 6.1% or 1,241,000 SF. The net absorption in 2011 was 978,000 SF, which was approximately the same the prior year. There is 49,600 SF under construction. Most of the absorption was in the large boxes. Substantial warehousing and distribution as well as manufacturing companies counted for the increase in demand. The cities of Adelanto and Barstow accounted for the negative absorption in 2011. The City of Victorville absorbed over 1,000,000 in both 2010 and 2011. Most of this increased demand occurred at SCLA.

Economy

Positioning California and the High Desert For New Manufacturing Investment

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By Jack M. Stewart, President, California Manufacturers & Technology Association

California manufacturing pays the highest average wages among all sectors at $71,000, offers the best opportunities for upward mobility for working families, and creates an abundance of local economic growth and activity.

In 2001, manufacturing accounted for 11.8 percent of the Riverside-San Bernardino metropolitan statistical area’s (MSA) workforce. Ten years later, that percentage has dropped to 7.6 percent.

Unfortunately it’s likely more of a state issue than a regional issue. California lost 34 percent of its manufacturing base over the last decade. The San Bernardino and Riverside MSA, which contains the “high desert region”, was not far behind at 28 percent. Accounting for 620,000 and 33,000 lost manufacturing jobs respectively, California and the High Desert region have much to fight for in any national manufacturing resurgence or the “re-shoring” of industrial jobs.

Bringing new high wage jobs to California will not come easy. We must scrap, wrangle, crusade, lobby, and contend for vital manufacturing growth. We must lay out the welcome mat with policies that allow production facilities to compete domestically and make secure long-term investments in capital and workers.

State policy has a tremendous impact on manufacturing job growth. States with a positive business climate (competitive operating costs, a trained workforce, and a predictable regulatory climate) outpace states with negative business indicators. California’s 34 percent manufacturing job loss compares with Texas at 21 percent, Indiana at 29 percent and Louisiana at 19 percent.

Specifically, there are some bottom-line issues that must be resolved. California imposes industrial electricity rates that are 50 percent higher than the national average and 95 percent higher than our competitors in western states. California is also one of only three states that taxes the purchase of manufacturing equipment, and, in 2011, the state had the fourth highest workers’ compensation premiums.

Business climate issues have a direct impact on new investment. From 1977 to 2000, California received 5.6 percent of the nation’s new and expanded industrial facilities. Since 2001, California’s share of those facilities has plummeted to 1.9 percent. Industrial investors plan on a 10 to 15 year time horizon when making large investments in land, buildings, and equipment. States with long-term budget deficits, excessive infrastructure needs, and aggressive regulatory agendas seldom make the short list of corporate planners.

It’s true that California continues to be the innovation state – we receive a large share of venture capital. But in the past decade, we have lost our ability to both innovate and manufacture new products here. From 2005 to 2009, California received 48 percent of U.S. venture capital investment, but only 1.3 percent of U.S. industrial investment.

The current model is to innovate in California, manufacture in a more cost-competitive state or country, and market back to California consumers. Under this scenario, California gets the jobs advantage of small, start-up research and development firms, but loses the enormous jobs benefit when those new products move to the production stage.

California’s modern government grew up of an era of rapid economic growth led by industrial expansion. During the 1950s, 60s, and 70s, California led the nation in industrial growth, becoming the top manufacturing state in 1977. With that growth came a flood of new tax revenues allowing California to invest in infrastructure, education, and new social programs. California became dependent on the largess of a robust industrial economy.

During the ensuing 40 years, California found pride in implementing “first in the nation” environmental regulations. Clean air, land, and water are laudable goals, but the associated regulatory costs have had an impact. Four decades of accelerating environmental activism have taken a toll on our ability to attract new investment and jobs.

We’re told by financial analysts that American corporations have $3 to $5 trillion available for investment when the current recession ends and that more and more U.S. manufacturers are re-shoring their overseas operations. The question is: will California, as well as the industrial-dependent high desert region, attract a fair share of manufacturing investment, or will investors look elsewhere for a more favorable business climate? We must prove California is serious about rebuilding a manufacturing economy by acknowledging where we must make improvements, not resting on an assumption that this is simply a national problem with a national solution. It’s California’s problem to fix.

Economy

Macy’s Is Coming to the Mall of Victor Valley

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Located in one of the fastest growing areas in California, The Mall of Victor Valley is the dominant regional mall in Southern California’s High Desert region. A strong anchor and in-line retailer mix attracts customers who would otherwise have to drive at least 30 miles (through the Cajon Pass, a significant geographic barrier) to find similar, quality shopping. It is also the only regional mall within the 220 miles that separates San Bernardino from Las Vegas.

With numerous manufacturing and distribution facilities drawn by the area’s low land costs and superb accessibility, the High Desert region has enjoyed a boom in industrial development. In order for The Mall of Victor Valley to maintain its appeal to the growing population and ever changing environment, a new refined look was needed.

In 2007, The Mall of Victor Valley went through an exciting transformation in which a full interior remodel was launched to better serve this Southern California community. The 10-month renovation project delivered a fresh look with new flooring and tile, a paint palette complementing the majestic High Desert region, and updated aesthetics such as lighting and new modern ceiling treatments. The mall will continue to expand its desirable offerings in 2012 and 2013 with the addition of Macy’s, a new expanded JC Penney and plans for many more new to market national retailers.

On November 10, 2011 The Mall of Victor Valley officially announced Macy’s to take the place of 72,000 square-foot former Gottschalks department store building. With a planned opening in spring of 2013 the new 103,008 square foot, single story, full-line department store will feature many of the store’s popular celebrity lines.The iconic department store remains one of America’s top retailers, with a focus on innovation in localizing its merchandise and connecting with customers. “We are looking forward to serving High Desert customers with the localized assortments, distinctive fashion, obvious value, and exciting shopping experience for which Macy’s is known,” said Ron Klein, Chief Stores Officer, Macy’s. “We are making plans for getting to know this community and the customers served by this well positioned shopping center.”

The Mall of Victor Valley officially announced the expansion and relocation of jcpenneyon February 6, 2012. As one of nations’ best retailers, jcpenneyis re-imagining every aspect of its business in order to reclaim its birthright and become America’s favorite store. The company is currently transforming the way it does business and remaking the customer experience across its 1,100 department stores and on jcp.com. The effort is spearheaded by Straightforward Fair and Square Pricing, month-long promotions that are in sync with the rhythm of their customers lives, exceptionally curated merchandise, artful presentation, and unmatched customer service. The expanded store at The Mall of Victor Valley is set to open in October 2012, expanding into a 92,672 square f00t, single story, full-line department store, approximately twice the size of the current jcpenney.

A loyal consumer base, coupled with the center’s position as the dominant retail hub in the High Desert, places The Mall of Victor Valley in a unique position to leverage this development into additional remerchandising success. The improvements to the merchant mix, curb appeal enhancements, and addition of strong anchors promise to create a real estate and community asset that will continue to grow with the market for years to come. For more information and future updates about the project please visit us at TheMallofVictorValley.com.

Economy Politics

No More Redevelopment…What’s Next?

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By Larry Kosmont, President & CEO of Kosmont Companies

Successor Agencies have assumed control and will be responsible for the winding down of the activities and assets of former Redevelopment Agencies under the supervision of Oversight Boards, which are currently being assembled. Following audits by Counties and the State of previous redevelopment transactions and ongoing Successor Agency obligations, properties of the former Redevelopment Agencies will begin to come onto the market. Cities are now handicapped with respect to future economic development without the capacity for tax increment financing. New and relatively untried tools such as infrastructure financing districts and community-based economic development authorities will be explored and implemented as a replacement for redevelopment, while existing tools, such as lease/lease-back financing and sales tax reimbursement agreements will concurrently be revisited. Several redevelopment legislation clean-up measures are underway to provide guidance and options to cities in California, but filling the void left by redevelopment will still be a formidable task.

Where We Are

Redevelopment is dead, and effective February 1, 2012 the dissolution process has begun. Though it is procedurally untried, the unwinding process is vaguely similar to certain aspects of private sector liquidation in that, by and large, the new decision makers (Oversight Boards) will act much like creditor committees, seeking to liquidate assets in order to share in the sale proceeds in addition to getting public agency-owned properties back on the tax rolls.Due to the unique and untested requirements and processes in AB1X 26, Successor Agencies (the cities that formerly had redevelopment properties) and private sector entities that took part in the program or may want to buy those properties are focused on several key questions going forward, regarding such issues as the next steps in redevelopment dissolution, the availability of properties going forward, the feasibility of redevelopment without tax-increment financing, replacement economic development tools, and potential redevelopment legislation clean-up.

What’s Next?

  • Successor Agencies have already made the decision to remain in control of the redevelopment dissolution program. Almost every city in the state elected to become a Successor Agency to its redevelopment agency, enabling them to finish ongoing projects and dispose of assets with the express review and approval of Oversight Boards.
  • Seven-member Oversight Boards will be formed over the next two months (deadline is May 1, 2012), to oversee the winding down of redevelopment assets and activities. For the most part, careful attention and emphasis is being put into the selection of board members, as these are the individuals who will decide what happens to former agency assets (though decisions can be appealed to the State Department of Finance and/or State Controller’s Office). Oversight Board members are appointed by county board of supervisors (two), the city mayor (one), the largest special district by property tax share within the jurisdiction of the former agency (one), county superintendent of education (one), Chancellor of the California Community Colleges (one), and one member representing employees of the former agency.
  • Successor Agencies have adopted their Enforceable Obligation Payment Schedules (“EOPS”) in January 2012. Audits and reviews of former agency transactions are now underway by the Department of Finance and the county auditor-controllers to scrutinize the EOPS and Recognized Obligation Payment Schedules (“ROPS”) and importantly, to set up the liquidation of former agency assets, including notes and properties.

Will Properties Become Available? If So, When?

Properties will become available. Timing is unclear. The Successor Agency EOPS must be ratified by the county auditor-controller, State Controller’s Office, and Department of Finance. The primary assets referenced on EOPS require ongoing payments (e.g. bond payments). Concurrently, real estate assets are being placed on lists by Successor Agencies to be disposed of “expeditiously and in a manner aimed at maximizing value” subject to the direction of the Oversight Boards as outlined in AB1X 26. Successor Agencies are currently evaluating preferred methods of disposition, initiating assessments of value, and formulating strategies to be recommended to Oversight Boards, once they are formed (by May 1, 2012).

Can Cities Accomplish Economic Development Without Tax Increment Financing (“TIF”)?

Terminating redevelopment essentially eliminated TIF in California. As a result cities have lost their primary leverageble revenue source for economic development projects. California is now one of only two states in the nation without some form of this valuable financing instrument. TIF enables public agencies cities to freeze property and other tax revenues, such that additional increment can become available to match or enhance private sector equity/debt investment. Without this tool, California cities are limited in ways to assist public-private projects and pay for infrastructure.

New & Untried Economic Development Tools

In the next year, there will be a prevalent debate about which tools should be authorized as a replacement for redevelopment. Most alternatives will involve the reintroduction of tax- increment at some level:

  • Infrastructure Financing Districts (“IFD”), which divert property tax revenues for public infrastructure improvement projects (highways, transit, water, sewer, parks, etc.). The current IFD statute requires approval by all effected taxing authorities and a vote by all constituent parties. As such, the process is too cumbersome and not workable.
  • Community-Based Economic Development Authorities – some charter cities have had such authorities in place, such as the City of Placentia (a Kosmont client), where the Industrial Commercial Development Authority was established in 1982. The City of Alhambra is a charter city that is leading the way by adopting an economic development ordinance that empowers the City to acquire or lease property, provide for site preparation work, accept financial assistance from public and private sources, provide financial assistance to projects, issue debt, and other essential economic development activities. Other charter and general law cities in California must decide whether to pursue similar actions. Ideally incorporated into any such model would be broadened surplus property disposition, ability of general law cities to create TIF-based reimbursement agreements, and capacity for cities to sell property below market to encourage private investment and job creation.

Existing Economic Development Tools Are Being Revisited (partial list):

  • Lease / Lease-Back Financing
    • With and without General Fund guarantees
    • Site specific tax revenue pledges for hotels and retail
    • Ground Leases
    • Sales Tax Reimbursement Agreements
    • Operating Covenants (e.g. for Retailers and Auto Dealers)

Clean-Up Legislation in Process (As of March 2012)

  • SB 654 (Steinberg) – Various Redevelopment Clean-Up
    • Currently at Assembly Desk
    • Would allow for L/M Income Housing Fund to transfer to Successor Housing Agency
    • Would allow certain City/Agency loans as Enforceable Obligations
  • AB 1585 (Perez) – Various Redevelopment Clean-up
    • Currently with Senate Rules Committee
    • Some overlap with SB 654 re: Housing Fund Balance and City/Agency loans
    • Additionally addresses employee project and termination and other admin costs
    • Requires Oversight Board to direct Successor Agency to prepare inventory of assets and fair market values and adopt asset disposal/transfer strategies
  • SB 986 (Dutton) – Bond Proceeds
    • With Senate Committee on Governance & Finance
    • Provides that all bond proceeds generated by former Agency are encumbered and not remittable to County Auditor-Controller
    • Requires that proceeds are used by the Successor Agency for the purposes for which the bonds were sold
    • Obligates Oversight Board cooperation with respect to establishment of enforceable obligations related to bond proceeds
  • SB 1220 (DeSaulnier, Steinberg, Assembly Member Atkins)– Housing Opportunity Trust Fund Act of 2012
    • With Senate Committee on Transportation & Housing
    • Imposes $75 on recordation of real estate documentation to support affordable housing development
  • SB 1151 (Steinberg) – Long Range Asset Management Plan
    • With Senate Committee on Governance & Finance (hearing scheduled for April 18, 2012)
    • Requires Successor Agency to prepare long range asset management plan outlining a strategy for ongoing economic development and housing functions
    • Plan would require Oversight Board & DOF approval
  • SB 1156 (Steinberg) – Community Development and Housing Joint Powers Authority
    • With Senate Committee on Transportation & Housing(hearing scheduled for April 10, 2012)
    • Authorizes Cities/Counties to form “Community Development and Housing Joint Powers Authorities” to assume from Successor Agencies the responsibility for managing the assets and property of the former redevelopment agency
    • Authorizes these entities to exercise specified powers included in the RDA law and to exercise certain other powers relating to financing its activities such as establish additional sales tax

Economic Development – A New Wave is Coming

As the burden of redevelopment dissolution and the roles and responsibilities of the various successor entities become clear, it is also becoming evident that there is significant room for differentiation in how cities cope and position themselves for future economic development efforts. Cities should be assertive in their pursuit of asset strategies, starting with full consideration of an upgraded and updated economic development strategy. Now, more than ever, local governments will need to be creative in their exploration and implementation of economic incentives and public financing tools for economic development projects. While redevelopment was the most widely used revenue-financing tool, it was in fact just one tool in the toolbox at the disposal of California cities.

More to come, so stay tuned!

Economy Property

In the Home Building Industry, the Indicators May Finally Point Upwards

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By Carlos Rodriguez
CEO Building Industry Association Baldy View Chapter

The inland counties of San Bernardino and Riverside have always been the ultimate beneficiaries of job creation and housing demand that begins in the more densely populated coastal counties; San Diego, Orange and Los Angeles. So homebuilders in San Bernardino County (and most importantly the Victor Valley) have always taken a special interest in keeping a finger on Southern California’s economic pulse.

And the pulse seems to be growing stronger, according to an overall assessment of the recent Inland Empire 2012 Builder Panel and Economic Forecast presented by the Building Industry Association (BIA) Baldy View and the Riverside County chapters. Summing up the general tenor of the presentation, panel moderator MetroStudy Director Steve Johnson noted that the overall theme of the event was that homebuilders “have changed their processes, they’ve changed the way they do things, they’ve changed the products in search of success – and they are getting that success this year.”

The event featured Panelists KB Home Division President Steve Ruffner, Lennar Division President Greg McGuff, Pardee Home Director of Sales Peter Altuchow, and Standard Pacific Division President Marty Langpap assessing the building climate as the industry enters 2012.

Panelist McGuff observed that the overall tenor of the event was to exhibit “positive builder confidence out there and a lot of pride in how far the industry has come in meeting the buyers’ needs.” McGuff noted that themes absent from previous builder forecasts were beginning to emerge, including indications of positive job growth and builders’ heightened interest in purchasing land.

Another aspect of the recovery is that home builders are increasingly expanding their product lines to include niche markets such as multi – generational and move up buyers, said Donna Lawler of Orange Coast Title, Co. Projects such as Lennar’s Rosena Ranch have adjusted their product lines to provide homes for these types of buyers, and will represent the new face of construction in the Inland Empire.

While the overall permit figures in 2012 may paint a fairly dismal picture, the story they reveal is actually fairly heartening, added BIA Baldy View President Jonathan Weldy of Meridian Land Development.

According to figures from the Construction Industry Research Board (CIRB), in 2011, San Bernardino County homebuilders issued about 1,465 single- and multi – family permits. While a far cry from the nearly 17,000 permits issued at the height of the building boom in 2005, today’s figures show a far more diverse building landscape. Where only a fraction (less than nine percent) of the overall permits issue in 2005 were for multi – family housing, over the past few years, homebuilders have been building increasingly larger proportions of multi – family housing. This is especially important because when multi – family housing was unable to keep pace in the boom years, it forced many families into riskier mortgages on single family homes. With a graying population of ‘Baby Boomers’ and young people finding dismal prospects in today’s job market ‘boomeranging’ from colleges back into their parents’ homes, offering a greater diversity of housing opportunities for our labor pools will offer businesses a greater incentive to relocate or expand in the region and create even more new jobs.

Assessing the permit totals always tells a story. This year the story shows that the I-15 Corridor cities (Ontario, Rancho Cucamonga, Fontana, Hesperia, Victorville, Apple Valley and the unincorporated county sections surrounding those cites) accounted for nearly two – thirds of the total permits in the county – and nearly half of those from Victor Valley cities.

Residential construction in the Victor Valley and along the I-15 corridor cities leading to the region holds the key to San Bernardino County’s economic recovery, and the Building Industry Association (BIA) Baldy View Chapter maintains programs to ensure it happens.

The big issue confronting builders in the High Desert continues to be water and every August for the past six years the BIA Baldy View Chapter has presented the Annual San Bernardino County Water Conference. The conference focuses on the key water issues confronting home builders, such as conservation, conveyance, and emerging new technologies to maximize and conserve our most precious resources.

Keeping development impact fees (DIFs) at realistic levels to spur economic growth while maintaining the best possible cities in Southern California is another key factor in the chapter’s overall approach to rehabilitating our housing markets. Here in the Victor Valley, the Baldy View Chapter continues to monitor all development impact fees for cities, school and water districts to ensure the fee’s accuracy and proper implementation. The chapter has also coordinated closely with local, county, and state levels of governance to monitor general plan updates and development codes. We are also working with our colleagues at BIA of Southern California to advocate for the balanced implementation of SB 375.

Homebuilding remains the cornerstone of our region’s economy, and there are some positive economic signs that the construction industry and our economy are headed in the right direction. We remain optimistic that our industry will emerge from this unprecedented downturn and provide the engine for the economic recovery that our region desperately needs.

The Building Industry Association (BIA) Baldy View Chapter represents homebuilders and associates in the housing industry in all of San Bernardino County and the easternmost portion of Los Angeles County. Founded in 1938, the Baldy View Chapter is the most honored homebuilding chapter in the nation. It is a member of the California Building Association (CBIA), a statewide trade association representing nearly 6,000 businesses, including homebuilders, remodelers, subcontractors, architects, engineers, designers, and other industry professionals.

Economy Property

The High Desert Single Family Market Appears To Be Stabling

Published by:

By Ronald J. Barbieri, Ph.D., CPA & Bob Thompson

For each month during 2004 and 2005, an average of 600 new homes were completed and sold; and an additional 500 to 600 previously owned homes were also purchased. The vacancy level for housing was low; and builders were not able to deliver homes fast enough. The median price for previously owned Single Family homes peaked in February 2006 at $322,000. In March 2012 the median home price in the High Desert for the Victor Valley Area was $110,000. Home prices have declined 65% from the peak. Over the last year the median home price increased by only $79 with home prices fluctuating between $106,000 and $112,700; consequently home prices today are statistically the same as they were a year ago. The table below published by Bob Thompson is the Market Condition Report for March 2012.

Home prices in the High Desert and elsewhere have probably been stable because Fannie Mae, Freddy Mac and the FHA along with some of the major financial institutions appear to be controlling the number of homes they release for sale in order to keep home prices from declining substantially from current levels. Some economists believe that an additional 15% to 20% decline in home prices across the United States would substantially weaken the financial strength of banks and cause undue hardship to many homeowners. If in fact these institutions have elected to carry the homes in their portfolios rather than dumping the units on the market, they are probably implementing a constructive policy given the current state of the economy.

During 2004 and 2005 the number of outstanding listings averaged 2,500, which represented four to five months of sales. As of February 2012 there were only 1,063 homes listed for sale in the Victor Valley area.An average of 477 homes was sold each month. Hence the number of listings on the Victor Valley MLS represents slightly more than a two month supply. Also, a review of the second page of the Market Condition Report would reveal that only 209 REO homes were listed for sale at the end of March, which is less than the 224 units sold in that month. For whatever reason, the financial institutions are not listing homes that they acquired through foreclosure, even though some real estate agents claim more homes could have been sold if more properties had been listed.

REO and Short Sales accounted for 67% of the transactions in February 2012.This is down from 74% a year earlier.This is a positive trend because it indicates properties that were foreclosed on represent a declining portion of the sales activity. Many of the buyers were investors who rather than owner occupants renovate the homes and either resell the units; or lease them to renters who are not able to purchase a home. The demand for Single Family homes has been artificially increased because of policies of the Federal Government.Interest rates are extremely low and down payments could be substantially below 20% of the purchase price. Individuals are purchasing homes in the High Desert with as little as 3% down. On the other hand, the underwriting criteria and documentation requirements are far more rigorous and extensive than normal; and the requirements for home appraisals tend to place a downward pressure on home prices. The effect of all this is to make home prices in the High Desert the most affordable in Southern California.

Many individuals want to know when the construction level for Single Family homes will begin to rebound. Some analysts believe the rebound could begin in earnest as early as 2014 while others believe it will be another seven years before new home construction reaches 3,000 units per year or 40% of the peak volume of the last real estate cycle.

The construction of Single Family homes will ramp up when the excess vacancy in the High Desert and the Inland Empire is absorbed due to an increase in household formations. There are 2,000,000 to 2,500,000 excess vacant housing units in the United States, which are defined as the number of vacant units in excess of normal vacancy levels for a market area. The normal vacancy level for Los Angeles County is approximately 3.5%, whereas the normal vacancy level for the High Desert is around 5%. There are an estimated 40,000 to 70,000 excess vacant housing units in the Inland Empire and between 5,000 and 7,000 excess vacant units in the High Desert.These are not very precise estimates, but they do provide a sense of the overbuilding that occurred during the last housing bubble.

The Inland Empire and the High Desert housing markets will be in equilibrium when these excess units are occupied, as a result of household formations.The number of households in the Inland Empire and the High Desert is expected to increase because of population growth, driven by the formation of jobs and an increase in the number of retired people.Many real estate analysts and economists estimate it will take another five years before the excess of vacant housing units are absorbed. There are an estimated 150,000 jobs in the Inland Empire previously lost in the Great Recession that still have to be replaced.

When the excess vacancy is absorbed home prices are expected to increase to the replacement costs for new homes. Home builders will only build new homes if they think they can sell the units for more than their costs to build and earn a normal profit for their effort. This could result in home prices in the High Desert increasing between $50,000 and $70,000 per unit from current levels.This would only occur if the U.S. and California economies continue to expand, creating jobs that could support population growth and substantial household formations in the High Desert. The good news is that the population of the High Desert appears to be almost stable over the last three years, and the U.S. Census Bureau estimates the population of California increased by 439,000 during the 15 months following the 2010 Census. This is discussed in another article on population in this Bradco High Desert Report.

Economy General

The High Desert’s Population Decline Appears To Be Substantially Overstated

Published by:

By Ronald J. Barbieri, Ph.D., CPA
February 9, 2012

Population estimates by Nielsen/Claritas indicate the Population of the High Desert declined from a high of 443,516 as of January 1, 2009 to 421,712 as of January 1, 2011. If the estimates are correct it would represent a population decrease of 21,804 or 4.9% over the two year period, which is significant.  The estimated loss in population in 2009 was 12,721 compared to 9,083 in 2010.  The rate of decline has diminished somewhat in the second year; but it is still large enough to raise concerns that the population may have continued shrinking in 2011, because of the lack of job formation in the Inland Empire.  When the population estimates by Nielsen/Claritas at the beginning of 2009 are compared to the 2010 U.S. Census counts for the High Desert the decline in population is only 2,139 over the 15-month period ending April 1, 2010. As of that date the Population of the High Desert was 441,377.

In December 2011 the U.S. Census Bureau released its population estimates for July 1, 2010 and July 1, 2011.  During the first 3-month period after the 2010 Census the population of California increased by 84,242; and for year ending July 1, 2011 it increased by 353,714.  This represents 15.4% of the population increase of the United States.  Births over deaths accounted for approximately 88% of California’s growth in population; so there was a net in migration of population during the 15 months following the 2010 Census. This was an encouraging sign that California is still able to attract more individuals than the number that migrate out of the state.

The Bradco Companies analyzes a substantial amount of demographic information to support our real estate brokerage and consulting activities, a portion of which was incorporated in the following Table that depicts the population estimates by Neilsen/Claritas for the first day of 2009, 2010, 2011 and 2016; and the annual changes in population during 2009 and 2010 and for the five year period that encompasses 2011 through 2015. This data is in the Orange section of the Table. The green section of the Table reflects the population counts for the 2010 Census and how they differ from the Nielsen/Claritas estimates for 2009, 2010 and 2011. This information is provided by zip code and grouped into the five cities and their areas of influence. The cities and zip codes are identified in the brown section of the table. The table also provides population information for the High Desert, San Bernardino and Riverside Counties and the State of California.

The counts from the 2010 Census are the best estimate of the each submarket’s population as of April 1, 2010. Demographic estimating companies such as Nielsen/Claritas and ESRI are still using 2000 Census counts to derive their January 1, 2011 and 2012 population estimates. The 2010 detailed Census data was released around the summer of last year.  It is now being used to recalibrate the models that will estimate the population for January 1, 2012.

Click twice to enlarge picture

A comparison of the actual 2010 census counts to the Nielsen/Claritas estimates for January 1, 2009 revealed that that population of Adelanto increased by 1,098 over the 15-month period while the Town of Apple Valley’s two zip codes lost 4,622 inhabitants. The Barstow zip code suffered a decline of 1,563. The population of Northeast Barstow was down by 1,304; and the population of Fort Irwin decreased by 1,923.  In the 2010 Census the City of Hesperia and Oak Hills had a population of 110,595.  This was 7,887 more than the 1/1/2009 estimate by Nielsen/Claritas.  The Greater Hesperia area including Pinion Hills and Wrightwood experienced a population growth of 9,217 over the same 15-month period.  The three zip codes that include the City of Victorville saw a population decrease of 4,267.  The Greater Victorville area that also includes Helendale/Silver Lakes, Phelan/Baldy Mesa and Oro Grande realized a population decrease of 2,764.

The aforementioned population changes assume that the population estimates for the first day of 2009 were accurate.  There are indications some may have been overstated. The Census count for San Bernardino County was 32,280 less than Nielsen/Claritas estimated for 1/1/2009 and the count for California was 305,772 less than what had been estimated for that day. It is highly unlikely the population of California declined by such an amount in during the 15-month period. The more likely scenario in both cases is that the population as of 1/1/2009 had been overestimated. The models may have given too much weight to the completion of residential units in 2006 through 2008. During that period many homes received their Certificate of Occupancy; but they were not sold or occupied in the typical time frame. Because of such an overstatement it is possible the population of the High Desert actually increased during the 15-month period before the 2010 Census.

Conversely the population of the High Desert and some of its submarkets may have been underestimated for the beginning of 2010 and 2011. The models consider factors that act as proxies for vacant residential units, which have increased because many households have doubled up in order to reduce expenses. The models may be overestimating the loss of population caused by the increase in vacant housing units. Children may move back with their parents adding to the vacancy level; but not reducing the population. The consolidation of households because of the recession has likely resulted in lower population estimates than would normally be the case.

The number of children attending school has decreased, probably caused by the outmigration of construction workers from the High Desert. The decrease in the number of students has been significant; and would suggest a population decline.  On the other hand there is anecdotal evidence that retired people are moving to the High Desert, accelerated by the low cost of housing. It may be that the loss of population caused by the outmigration of families with children has been offset by the in migration of retired people.

It is unlikely there was any significant decrease in the population of the High Desert since the beginning of 2009. It may even be increasing.  The fact that there have been significant increases in taxable sales over the six quarters and home prices have not dropped substantially in the last 18 months, tend to collaborate a stable if not slightly expanding population scenario in the High Desert. Nevertheless some cities such as Barstow, Victorville and the Town of Apple Valley may have experienced population declines while the City of Hesperia and outlying areas like Oak Hills, Pinon Hills, Helendale/Silver Lakes, Phalen/Baldy Mesa benefited from a growth in population.

According to the 2000 Census the population of the High Desert was 305,909. In the 2010 Census the population reached 441,337, which represents an increase of 135,468 or 44.3% over the decade. Nielsen/Claritas estimates that the population of the High Desert will grow by 55,000 during the five year period ending in December 31, 2015. While this would represent a growth rate of 13.1%; or 59% of the rate for the last decade, it is nevertheless significantly positive and substantially higher than the 5% growth rate expected for the U.S. over the half decade.

Economy

Tenuous Optimism Prevails

Published by:

By Dr. Alfred J. Gobar
Chairman, Alfred Gobar Associates

The last issue of the newsletter provided preliminary evidence of improving economic conditions that will eventually affect the High Desert’s economy and real estate market. Although recent trends are far from robust, they do continue to be positive, as indicated in the graph in Exhibit 1. The low point in the employment index in July 2011 is higher than the previous low point, which is a positive indicator. This relationship is made more explicit in terms of change in nonagricultural wage and salary employment over the twelve months ended July 2011. During this interval, the six-county Southern California area experienced growth in total non-farm employment of 49,300 jobs—about one-third the “average” level of growth in nonagricultural wage and salary employment in Southern California over longer periods of time. Gross increase in nonagricultural wage and salary employment in the six-county Southern California area over this interval was 65,300 jobs. This increase was mitigated by a decline of 16,000 jobs in the government sector, primarily in terms of federal government employment and decline in state and local education employment.

These trends suggest some improvement on the demand side of the supply/demand equation that defines housing markets. As would be expected in light of economic circumstances, little new housing has been added on the High Desert in recent months. During the first half of 2011, a total of 188 new units were authorized by permit for construction in the High Desert area—mostly in Victorville. Extrapolating six months’ data to a full year suggests total permit activity on the order of 370 to 400 units a year, comparable to the full-year permit activity for 2010.

In 2005, 8,295 new units were authorized by permit in the High Desert. Permit activity is down ±95.0 percent from the 2005 level. An interesting aspect of the permit data is the increase in target value of new single-family units being authorized for construction on the High Desert. This indicates an above-average proportion of these units are probably custom homes.

The overall relationship of building permit activity on the High Desert and in Southern California as a whole is shown graphically in Exhibit 2. The graphs show that for both Southern California as a whole and the High Desert, building permit activity recently has been at unprecedented low levels, indicating that new supply is not a threat to the housing market on the High Desert in the near term in any sense of the word. Foreclosures, short sales, etc., occasioned by the unusual financial structure of the housing market prior to the collapse, however, imply ample supply.

The statistics suggest we probably have passed the bottom of the cycle, and that the trends should improve in coming months. Note, however, on the basis of the materials in Exhibit 1, it is likely to take quite some time to return supply and demand conditions to those we saw in 2007. A simple extrapolation suggests that recovery to this level of market activity is unlikely to occur before 2017—about six years from now.

Even this doleful extrapolation may be optimistic in light of the relatively slower economic recovery evident currently than was the case during recovery from the 1990’s recession.

Unemployment rates continue to be extraordinarily high. The official unemployment rate probably understates the degree of dislocation in terms of employment evident in the real world. One interesting glitz in the employment data is that although establishment-based nonagricultural wage and salary employment increased in the twelve months ended July 2011, the other indicator of overall employment—employment estimates generated by household surveys—showed a net decrease over the same interval, which may mean that the net effect of the improved employment figures may be less positive than they appear, reinforcing Harry Truman’s observation that he preferred one-armed economists so they could not resort to saying…”On the other hand…” Over the twelve-month period ended July 2011, nonagricultural wage and salary employment actually declined in the Inland Empire, while on an overall basis in Southern California there was a net increase. The bulk of the increase occurred in San Diego County and Orange County, and, to a minor degree, in Los Angeles County.

More detail with regard to the supply-side figures based on building permit data shows that in 2011 the High Desert accounted for the smallest proportion of new single-family units authorized by permit in Southern California in any of the years tabulated since 1980. Only 2.24 percent of the new single-family units authorized by permit in Southern California during the first half of 2011 were in the High Desert area, while during boom periods the High Desert has accounted for more than 12.0 percent of the new single-family units authorized for construction in the six-county Southern California region.

At the national level, unemployment continues at an extraordinarily high level. At a little above 9.0 percent, the national unemployment figure for the U.S. has stubbornly remained at near record highs for several years, reflecting unemployment trends similar to those observed in Germany and France in the first half of the last decade where unemployment levels remained above 9.0 percent for several years before and after 2000. This comparison suggests the possibility that enduring high levels of unemployment may be a characteristic of welfare economies, such as the U.S. is apparently becoming. On the other hand, Sweden and Norway experienced reasonably satisfactory unemployment levels during most of the last decade. The European Union overall generally had unemployment rates on average in excess of 7.5 percent throughout the decade of the 2000’s. Hopefully, this does not imply that as the U.S. moves closer to the European model of welfare state, we have to accept as a concomitant an enduring and sustained level of high unemployment. Welfare states tend to sustain an environment that provides incentive for avoiding work by people with a predisposition to do so, which may account for the difference in unemployment rates at the margin between welfare states and free market economies.

Another analogous period of high and enduring unemployment rate was our own depression (the 1930’s) during which we had high long-lasting unemployment rates despite massive public spending and rapid progress towards a welfare state. Could it be that pursuit of a welfare state and concurrent big public spending are associated with high unemployment over an extended timeframe, contrary to what people my age were taught in graduate school? Maybe my Ph.D. in economics was based on an erroneous theory? Will I be asked to return my diploma?

The U.S. currently appears to be in a contest to define itself as either a free market economy or a welfare state. Economic uncertainty that is a byproduct of this clash of philosophies has the spillover effect of discouraging investment, employment growth, etc., associated with demand for newly-developed real state and, therefore, has a special impact on the economy of the High Desert which has historically been dependent on real estate development as a stimulus for local economic growth.

Economy

Anatomy of a Market Collapse

Published by:

By Bob Thompson – Advanced Listing Services

Beginning in January 2005, observe that median price was increasing in a steady fashion until the first quarter of 2006. Then began a precipitous decline in the price schedule until 3rd quarter of 2009, when the market plateaued after losing over $200,000 in median price value.

Notice that demand (closed properties) peaked in the 2nd quarter of 2005, about 1 year before price declines begin. Demand then continued to decline until the first quarter of 2008, then declined again (double dip) and has now steadied. Failures increased to unprecedented levels and have now declined to 2005 levels.

Market efficiency (the ratio of closings to total attempts to list) peaked in April of 2005 and declined steadily to the bottom in October of 2007. It has now climbed back to former levels and steadied.

Now here is the lesson in all this. The market began to fail in July of 2005. Prices peaked in May of 2006 (almost a year later.) As the market was failing,property values continued to rise to the peak, and then collapsed over a period of about 900 days to the current plateau.

The market sent fair warning that went unheeded. The question is did agents and brokers do their part in communicating market reality? If they warned, did sellers listen or did they hire another agent that told them what they wanted to hear? Thousands were financially crushed over the time period. I fear it was a bit of both.

Economy General Nonprofits

High Desert Resource Network

Published by:

By Vici Nagel, President/CEO
High Desert Resource Network

As we in San Bernardino County focus on the economy and how to turn it around locally, I urge us all to think about how nonprofit organizations can and do play a significant role in local economic activity … and what we can do to strengthen that role. “Nonprofits” present our county with huge opportunities for economic growth and it is time for serious investment in this sector!

First, a word about the term, “nonprofit.” I cannot think of any other industry who’s title tells you what it is not, rather than what it is! In my opinion, the term “nonprofit” should be replaced because it causes all sorts of misconceptions about the sector. It is a term that comes from the Internal Revenue Service, which basically means that these types of businesses, and they are businesses, may not distribute their excess revenues over expenses, their “profits,” to owners. Instead, nonprofits must reinvest all of their “profits” back in to their nonprofit purposes; such as caring for the sick, sheltering the homeless, and preparing our next generation of leaders.

It has long been understood that nonprofit organizations provide value to communities as they help improve the quality of life and mitigate a host of ills. What is often overlooked, however, is the economic impact nonprofit programs and services have. Here are a few examples:

• Every dollar invested in quality early care and education for children saves taxpayers up to $13.00 in future costs.

• An investment of $10 per person per year in proven community-based programs to increase physical activity, improve nutrition, and prevent smoking and other tobacco use could save California more than $1.7 billion in annual health care costs within 5 years.

• Nationally, the nonprofit arts and culture industry generates $166.2 billion in economic activity every year.

In our county, nonprofit organizations contribute a great deal of economic activity. Nonprofits purchase numerous goods and services, mostly in the local economy, including things such as real estate, rental property, utilities, insurance, office supplies and equipment, financial services and printing to name a few. They hire employees who purchase houses and cars and pay local property and income taxes. Following are a few stats about our county’s nonprofit sector:

• There are more than 5,000 nonprofit organizations in San Bernardino County.

• They employ 5% of the workforce.

• They spend more than $3 billion annually.

• They control roughly $4 billion in assets.

In addition to the current benefits nonprofit organizations already provide our community, they are also a greatly untapped resource for generating additional economic activity in our recession-worn region. For example, the disparity in foundation funding to local nonprofits is staggering: California nonprofit organizations annually secure an average of $119 per capita in private foundation grants, while San Bernardino County nonprofits average just $3 per capita.

Let me repeat that another way … our communities receive $116 per person less than the state average in foundation funding. With more than 2 million county residents, that amounts to $230+ million a year in untapped resources for local food banks, domestic violence shelters, children’s charities and more.

This certainly begs the question, “Why?” Why, with vastly higher levels of need does our county receive vastly less funding to address those needs?

My colleagues in the region and I believe the answer is multifaceted. First, there are very few foundations located in San Bernardino County, so we must attract outside investment. Second, the huge size of our region makes collaborations that foundations want to fund, more difficult. Third, the majority of local nonprofits are small and under-developed, and less sophisticated in their efforts to attract funds.

That’s the bad news, but the good news can be summed up in the word “opportunity!”

With our county recently bringing together all of its 24 cities and towns to craft a shared vision, the opportunity for collaboration has never been greater. This collaborative effort to create a better future can be the cornerstone we need for advancing the nonprofit sector and attracting major support from foundations outside our region.

Another opportunity that exists is the organization I work for, High Desert Resource Network. As we work with county government, the local philanthropic community, and our extensive network of nonprofit partners, our vital social service sector continues to grow and increase services. For example, as the region’s nonprofit management support center, our training programs have been proven to have a 4:1 benefit. In other words, each $1,000 High Desert Resource Network spends on training provided to make nonprofits stronger, helps those organizations generate an additional $4,000 for services for the community.

Finally, the biggest opportunity lies in those funding disparity numbers. What would you invest to generate a $230+ million annual return? And, where would you invest it? I challenge all Bradco High Desert Report readers to seriously consider investing in the strengthening of the region’s nonprofit sector.

For further information about how you can get involved in the exciting opportunities strengthening the region’s nonprofits pose, email me at vgnagel@yahoo.com. I can’t wait to work with you to create a prosperous future for our community!

Vici Nagel is a 30-year nonprofit professional and President/CEO of High Desert Resource Network, a nonprofit organization dedicated to improving the quality of life in our region by supporting and strengthening the social service sector. Further information may be found at www.hdrnetwork.org.