Two days ago, we looked at Santa Rosa’s Country Mobile Home Park, whose owner wants to condo the land (at least as reported in the San Francisco Chronicle; the owner wouldn’t talk to the newspaper), and yesterday we saw that in a forced condo conversion, land value would be a tussle.  Yet why the choice of condo rather than co-op? 

It has to do with optionality.  Who can force or block what?

I’m blocking your conversion attempt

To sell to a co-op, by definition the land owner must persuade at least a majority of the residents – often a super-majority – that the proposed purchase is a good deal.  With a condo, evidently the owner can act unilaterally through a subdivision procedure, putting the residents to a Hobson’s choice: pay the owner’s price – which can include a premium equal to the home owner’s sunk costs lost on relocation – or move.

Like it or lump it

Nor are mobile homes insignificant.  According to the Chronicle, California hosts 4,707 private owned mobile home parks with 365,382 lot spaces (an average of 78 per lot), home to 700,000 residents.  One Californian in fifty lives in a mobile home park.

The legislation’s sponsor echoes this post’s themes:

“We’re trying to make sure that people whose lives are going to be affected have a voice,” said Assemblyman Pedro Nava, D-Santa Barbara, the bill’s sponsor. “Mobile home parks are affordable housing. The notion that you could have the land sold out from under you is just abhorrent.”

The proposed legislation (text in pdf) opens with a policy statement, then quickly gets to a procedural solution:

SECTION 1. Section 66427.5 of the Government Code is amended to read:

66427.5. At the time of filing a tentative or parcel map for a subdivision to be created from the conversion of a rental mobilehome park to resident ownership, the subdivider shall avoid the economic displacement of all nonpurchasing residents in the following manner:

(a) The subdivider shall offer each existing tenant an option to either purchase his or her condominium or subdivided unit, which is to be created by the conversion of the park to resident  ownership, or to continue residency as a tenant.

No one can be forced to buy or evicted for failure to buy.

 (d) (1) The subdivider shall obtain a survey demonstrating support of a majority of the residents of the mobilehome park for the proposed conversion.

This equity-balancing procedure – the large landholder having to persuade at least a majority of the small landholders – dates back to the English Enclosure Acts, about which I posted by borrowing from Jack Aubrey:

Most of what I know about the Enclosure Acts, I learned in Aubrey-Maturin

Harry glared about him, scribbled sums on a piece of paper, and then said to Griffiths, ‘God’s my life, sir. You have the effrontery to present this with just the barest majority by value, when you know perfectly well that three quarters or four fifths is the usual figure. And to make matters worse, far, far worse, you do so against the will of the lord of the manor, your natural superior. I have never heard of such a thing. I wonder at it, sir. I wonder at it.’ (Pages 74-75)

Back in Santa Rosa, the survey requires procedural democracy:

(3) The survey shall be obtained pursuant to a written ballot.

(4) The survey shall be conducted so that each occupied mobilehome space has one vote.

Voting about future use or sale is core to group ownership of property, as we saw in Florida’s Briny Breezes, and similarly core to land-use policy decisions, like the UK’s stock transfer.

After the condo conversion – assuming it goes through – the minority non-purchasing residents would receive extra protection akin to that they now have under the state’s mobile-home park ordinance:

(f) The subdivider shall be required to avoid the economic displacement of all nonpurchasing residents in accordance with the following:

(1) As to nonpurchasing residents who are not lower income households, as defined in Section 50079.5 of the Health and Safety Code, the monthly rent, including any applicable fees or charges for use of any preconversion amenities, may increase from the preconversion rent to market levels, as defined in an appraisal conducted in accordance with nationally recognized professional appraisal standards, in equal annual increases over a four-year period.

More fingers, Mr. President

(2) As to nonpurchasing residents who are lower income households, as defined in Section 50079.5 of the Health and Safety Code, the monthly rent, including any applicable fees or charges for use of any preconversion amenities, may increase from the preconversion rent by an amount equal to the average monthly increase in rent in the four years immediately preceding the conversion, except that in no event shall the monthly rent be increased by an amount greater than the average monthly percentage increase in the Consumer Price Index for the most recently reported period.

Assuming this legislation were to pass, one can expect it to be challenged by park owners, who have shown a consistent predilection for litigating mobile-home statutes, particularly at the county or local level.

In response [to ordinances barring mobile home park condo conversions in the name of affordable housing preservation], park owners have filed more than 15 lawsuits against the municipalities.

Though the home owners have a strong case in policy equity, particularly given the unique history of mobile homes and their netherworld status as an asset class, the park owners have a strong legal point: preventing subdivision and sale to the residents, regardless of price, materially compromises their rights as landowners.

The only one that made it through the appellate process was decided for the park owner, said Richard Close, a Santa Monica attorney who represents owners in many of the lawsuits.

Close to the owners? 

Mr. Close has been on these issues for a quarter-century, and has successfully represented owners trying to condo their parks:

Mr. Close co-authored “Downward Mobility” (Los Angeles Daily Journal 2007); “Conversion to Resident Ownership: Does it make sense for you?” (WMA Reporter June 2007); “County Leaders Missing Point on Park Conversions” (Santa Cruz Sentinel 2007)

In several of these pieces he cites what seems a critical potential fact:

How can low-income residents afford to become homeowners? For low-income residents who elect to purchase their lots, the state provides 3% financing in an effort to preserve affordable housing and to promote affordable purchase housing.

Mr. Close’s assertion is not documented by a hyperlink, and it’s inherently suspect.  Three percent financing is well below market, meaning there’s an implicit subsidy involved, which further implies finite resources, which implies competition for those resources … which implies they won’t be much help to mobile home owners.  As negative confirmation of these deductions (beyond Mr. Close’s unsubstantiated assertion), the only reference I can find is to CalHome, a state program for which mobile homes are eligible but clearly neither preferred nor encouraged:

Grants to local public agencies or nonprofit corporations for first-time homebuyer downpayment assistance, home rehabilitation, including manufactured homes not on permanent foundations …

Assistance to individual households will be in the form of deferred-payment loans, payable on sale or transfer of the homes, or when they cease to be owner-occupied, or at maturity.

Note: CalHome does not loan directly to individuals.

If I have this straight, CalHome wouldn’t work in a condo situation, it would apply only if a non-profit rode to the rescue and bought the whole park.  If I’m right about this, then Mr. Close’s claim is a red herring.

Something fishy?

Can’t blame a guy for trying

Financing is available through banking institutions, Cal-Vet loans and local governments often offer financial assistance through redevelopment funds/first-time home buyer programs.

Furthermore, most park owners offer financial assistance in an effort to facilitate sales and encourage resident ownership in the parks.

Translation: We’ll set the price out of your reach, then offer you a discount to swing your approval.

Remember: residents lack optionality, as in practical economic terms, they cannot move:

“In the old days, if you didn’t like a park, you unhooked and drove to another location,” said Sam DiGiacomo, who lives in a mobile-home park in the town of Sonoma and runs the local chapter of the Golden State Manufactured-Home Owners League, which represents residents. “But now they’re not really mobile; my home sits on a cement foundation, the wheels are removed.”

Cover of the most recent GSMOL publication

“People think we’re nomads that travel from place to place,” said Suzanne Angeo, a resident of Santa Rosa’s Country Mobile Home Park. “But we live here; these are our homes. Many of us have invested our life savings into them.”

Suzanne Angeo waters in front of her manufactured home at Country Mobile Home Park in Santa Rosa. (Brant Ward / The Chronicle)

Many residents worry that going condo will wipe out that investment.

Potential buyers will heavily discount the value of the homes if they have to pay a big premium for the lots, said Will Constantine, a Santa Cruz attorney who represents park residents fighting condo conversion.

“When a park owner converts, the mobile-home owners lose about 95% of their homes’ value,” he said.

That has to be hyperbole.  It’s likely to be bad but not that bad.

“If a resident wants to sell, the person buying has to buy the lot. If you have to pay $200,000 for a lot, you won’t have much left over to buy the mobile home.”

Mr. Constantine’s numeracy seems no better than Mr. Close’s; in fact, the whole Chronicle piece is missing that crucial element.  What price would the owner think equitable? 

[Mr. Close's Downward mobility article offers as an example a favorable land purchase in Palm Springs, $88,000 spaces now worth $139,000, which sounds good, except that the cited home owner is now paying $190 in monthly association fees and $100 in taxes, plus a minimum of $440 per month in capital costs (6% x $88,000), for a total occupancy cost of $730 monthly versus the $500 he paid before in monthly rent.]

Let’s play our game, with your home on the line

What price is affordable? 

The right price for a mobile home, not a trailer!

What price is financeable?  Since we have no information on any of this, we fall back on procedure. 

The owner wants all the optionality with none of the restrictions; the residents are rightly terrified that with such a power imbalance, if they lack legal standing they will lose their affordability. 

“For many of us, this is our last home; we’ll go from here to the grave or a nursing home,” said Jean Warnes, 74, who chairs the homeowners association at Sequoia Gardens, a Santa Rosa mobile home park that has applied to go condo. It has the same owner as the Country park.

For most of us, housing is not only a comfortable haven for our declining years, it’s also a source of inflation-hedged wealth to be monetized for ourselves or our children:

You should have listened to me when I recommended buying the lot

“When we pass away, our heirs cannot inherit our homes if they must buy the air-dirt underneath. If we go to a nursing home, we will have nothing for our keep.”

“As many years as we’ve paid rent, we could have bought this lot over and over,” said Joan Allen, who has lived in Santa Rosa’s Country for 29 years.

Probably not, actually.  And your rent’s likely been cheaper than the cost of owning a home would have been.

“I feel it would be more advantageous to buy the lot. If we had the opportunity and the price was right, it would be a good investment.”

Once again, it’s back to the question of price – and the related question, at least in the unique asset class of mobile homes, of who has what optionality.

The bill passed the Assembly in May on a 41-31 vote and is eligible for a vote on the Senate floor Aug. 17.

Wonder how they’ll vote?

I predict it will be enacted.

I make laws with my right hand

Then it’ll be litigated.

So sue me

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Yesterday we encountered Country Mobile Home Park, an estate in Santa Rosa whose park owner is adamant about converting the land to condominiums, and selling the individual plots to those whose homes rest atop those plots.

Plots? I love plots!

[Editorial note: park owners persist in calling the land 'spaces', as if to emphasize the transient nature of home occupancy, when plots is a much more appropriate word, for once the manufactured home is installed on the site, few if any of them ever move again. – Ed.]

Given the property’s good location and attractive construction, you’d think residents would be eager to buy, but as presented by the San Francisco Chronicle, they’re not:

“If it went condo, my wife and I would … have to abandon our unit and leave,” Dion said. “We’d have no place to go.”

If you owned a home here, wouldn’t you want to own the land under that home?
From left, Roger McConnell, Phil Dion, Mickie Dion, and Dick Root.

(Photo by Brant Ward, San Francisco Chronicle)

The couple paid $50,000 for their two-bedroom manufactured house about seven years ago. The monthly rent for their space is $515.

Those facts raise the question: what’s a fair price for the land?

In the ideal world of unfettered and undistorted Lockean capitalism, both buyer and seller are free actors with an infinity of possible actions. In such a case, fair market value is easy to derive: put the land up for sale, give it exposure in the marketplace, pick the highest offered price, and if the seller accepts, then that’s the value. Actual buyer-seller bargaining is the pure procedural value, hence the classic appraiser’s definition: ‘independent parties dealing at arm’s length, neither under undue compulsion …”

Just preserving my bargaining rights

The problem here is that the Lockean ideal is impossible to achieve. Manufactured housing or even longstanding mobiles homes get rooted to the soil; relocating them is at least expensive, and often totally destructive. When the land occupancy cost spikes, it’s the home owners who suffer. They have a substantial capital investment tied to a place – the Dions paid $50,000 – an investment that cannot economically be moved. The power imbalance is self-evidently visible and frequently exploited.

The home owners lack optionality; facing ruinous relocation costs, they’ve got to buy their land or lose their implied home equity. So they’re vulnerable to having a coercive or even punitive price premium squeezed out of them, and in a non-market transaction – you must buy at the price I set – the land could be valued in any of four ways:

Choose the one that’s best for you

1. Land rents. Take the current stream of land rents, treat them as an annuity, and capitalize them at a market cap rate.

2. Comparable sales. Find similarly zoned and situated parcels, and calculate a per-acre or per-space-equivalent price. This gets tricky because density adds value, especially in California’s better counties.

3. Highest-and-best use. Imagine the land vacant (because the mobile home owners would be legally obligated to remove them) and available for development. What is that urban land worth?

4. Pain threshold. The maximum price where a mobile home owner would still be better off staying than moving. This calculation would start with the home owner’s alternative tenure – could the home be moved? What would it cost for an equivalent site, plus the home’s relocation?

The last three of these offer no prospect of continued affordability. How much protection might the first approach provide?

To cook up a valuation, follow the right recipe

For convenience, assume that today the landlord pays real estate taxes [How would a condo conversion be treated under Proposition 13? – Ed.] and park infrastructural maintenance costs. Upon sale to the residents, they rather than the park owner will have to pick up these costs, so from their perspective they need to substitute $515 of monthly debt service for $515 of land rent payments, or else they’ll be economically worse off.

Multiply the $515 monthly rent times 12 to annualize it, then cap $6,180 at 6% – even in a nasty recession, this is still California, and as noted yesterday, I like the location – and you have an ‘affordable’ price for the land of $103,000 a space.

Although I can’t tell precisely how many spaces there are per acre, a random comparable in Redding, California, has 11.5, so what with the interior streets and driveways/ breezeways, let’s make it an even 10. That’s $1,030,000 per acre, and while I can’t tell exactly what land in Santa Rosa costs, a quick search suggests even this would be a terrific price for the land owner.

Is it affordable?

“We couldn’t afford to move our home, and we couldn’t afford to buy the lot underneath,” [Phil Dion] said. “I contacted 13 finance companies, and only one would finance the lot purchase – at 18% interest.”

The Dions are caught in a rate whipsaw. Their monthly rent capitalizes up into value at 6.0%; their land-purchase financing would be at 18.0%, three times as much.

Reconstituted, you’ll be worth one-third as much

Yet if the manufactured home plus the newly bought land were treated as real estate, then they could certainly be financed at something in the 6-7% interest range. So once again, the legacy of having been constructed as a mobile home leads to a financing impairment that destroys affordability for the owned-land-mobile-home asset class – absent government pump-priming of the credit market, that is.

The park’s owner, Country Mobile Investments of Walnut Creek, could not be reached for comment.

Actually, we needn’t hear from this owner, since another Google search reveals that the owner is well aware of the residents’ legal protections, and is litigious about preventing their expansion, as this 2007 article shows:

MOBILE HOME PARK SUES CITY

The owners of Country Mobile Home Park in Santa Rosa sued the city Friday, seeking $23.1 million in damages because the city in May enacted restrictions on condo-style conversions.

One suit, filed in Sonoma County Superior Court, claims the city “unlawfully stymied” Country Mobile Investments’ attempt to sell land at the park on Fulton Road when they passed the ordinance last month.

A second suit, also filed Friday, seeks to overturn the city’s new ordinance.

That for your ordinance!

While there’s no further reference that I could find [Based on ten seconds' search? – Ed. It's a blog post, not a legal brief – Auth.], suggesting that the lawsuit went away as did the proposed county-wide legislation, the following further tidbit caught my eye:

The county law requires park owners to secure the approval of 20% of their residents before filing an application to convert and then getting support from more than 50% once the application has been processed.

Thus we already have two levels of government involved – county and local. The locality’s also trying to strengthen the implied warrant of habitability:

Instead, it requires that park owners prove their parks meet building codes and that their roads, sewer, water and utility systems are in good condition prior to conversion.

Setting aside the procedural questions – how does the owner prove this? – this statute is based on sound public-policy principles. Yesterday I observed that the mobile home park operator – that is, the land owner – stands relative to the residents much as a municipality does to a homeowners’ association, as the infrastructure provider. This is clearly the case at Country Mobile, with its interior roads and association amenities like the visible clubhouse:

Who’s responsible for upkeep on the in-site infrastructure?

As long as we’re in that 2007 scenario, some additional detail is worth citing:

When a park undergoes conversion, individual mobile home lots can be sold to current tenants.

Naturally – and at the right price, desirable for all concerned.

Once converted, local rent control laws no longer apply, although a state rent control law protects low-income residents.

But those protections would be wiped out if those low-income tenants move, purchase a lot or die, according to city officials.

Selling the underlying land as a condo thus both (a) eliminates rental protections for all non-low-income residents, and (b) creates a ‘vacancy decontrol’ elimination of rental protection even for the low-income residents. A nice finesse around resident protections phrased in terms of rental.

You thought I had to trigger the protections, didn’t you?

Sale of the underlying land turns the unofficial affordable housing into officially unaffordable housing.

Even the apparent protection for low-income residents is less than it seems, as the 2009 San Francisco Chronicle adds:

Low-income residents who don’t want to buy have lifetime rent-control protection. But as soon as one unit in the park sells, all the moderate-income and above residents get switched from local rent control – which ties annual increases to inflation – to state rent control, which allows rents to increase to market rate over four years.

There go your rent protections

With multiple levels of government are involved, protections are always going to differ, and it’s no wonder the owner would like to slide into whatever form of regulation is most favorable. In a case like this, the less pro-tenant law is almost certainly going to be from farther away, the more-removed unit of government – if the state law were stronger, the local law would have no reason for existence. (Supremacy principles would generally pre-empt a locality’s efforts to negate a stronger state law.)

In recent years, many cities and counties have barred mobile home parks from going condo, saying they want to preserve affordable housing.

Striking here is the leverage difference in occupant ownership forms between going condo – every owner individually for himself – and co-op, where we all reside in a living club.

Are we?

[Continued tomorrow in Part 3.]

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Legally, mobile homes that lack land aren’t real estate, and you can’t finance one as real estate; instead you get a chattel loan. You can’t avail yourself of the legal protections of a property owner (like RESPA); you can’t use a real estate broker. The law sees your home as a tin can on wheels

You want to buy the land, don’t you? Reunite your home and the land on which it sits by turning your mobile home park into a condominium?

If you owned a home here, wouldn’t you want to own the land under that home?

Or do you?

As profiled in an intriguing San Francisco Chronicle article, how and with what approvals or consent rights a mobile home park may turn from a rental to ownership is a politically incendiary issue in California:

Tuesday, July 21, 2009

(07-20) 20:22 PDT — Mobile home parks, still affordable to many people, have become the latest housing battlefield. A growing number of park operators want to convert the spaces those mobile homes occupy to condominium ownership – a move that some residents say would price them out of their homes.

A bill being debated in the Legislature would give local governments and park residents more say in such conversions. It would allow municipalities to give more weight to surveys of community residents in deciding whether to approve condo conversions.

Surveys, we discover from reading the proposed legislation, really mean majority-vote referenda – as they should, because a decision to go condo is irrevocable and economically disruptive. If the park owner can compel it unilaterally, then that ground owner can evade the resident rent protections otherwise available to mobile-home park residents under California law.

At issue are two things:

1. Who gets to choose if the mobile home property goes condo?

2. What’s the right price?

Ooh, the Right Price is gonna be a tough question

The ‘right’ price may be fair, it may be affordable, it may be something else.

How can I figure if the Price is Right?

Mobile homes represent unique challenges in public policy surrounding land rights. They are legally awkward, as they are neither true rental nor true ownership. Instead owned mobile homes on rented spaces possess the worst optionality features of both:

• Rental – lack of controllable occupancy cost
• Ownership – substantial capital investment that is lost upon relocation

Neither fish nor fowl, neither ownership nor rental, they place the home owner at a horrible leverage disadvantage versus the park (land) owner, which is why so many states, California among them, have enacted a series of incremental mobile-home-owner protection laws.

Previously I’ve posted extensively about mobile homes, which remain to me America’s great overlooked and underappreciated form of affordable housing.

Mobile homes are also the closest configuration and tenure form we in the US have to the global south’s informal settlements, including the regularization of land tenure and the challenges of municipal infrastructure (which ain’t free).

Traditionally, mobile home park owners rent out lots and maintain common areas such as roads, clubhouses or pools. Residents own their dwellings but pay rent for the lots where they sit.

Relative to the home owners, the mobile home park land owner is in much the same position as a developing-world municipality is with its slum dwellers, with the significant differences that the park owner is not publicly accountable and is out for pure profit.

“Not that there’s anything wrong with profit!”

As in global-south slums, the occupants often lack legal standing, but as their numbers grow, they gain political clout, and in liberal democracies, they learn how to wield it:

“We’re trying to make sure that people whose lives are going to be affected have a voice,” said Assemblyman Pedro Nava, D-Santa Barbara, the bill’s sponsor. “Mobile home parks are affordable housing. The notion that you could have the land sold out from under you is just abhorrent.”

Nava wants the home owners to have a say

[The California-oriented Web site Sham Conversions not only lets you know exactly where they're coming from, but also links to the source material – Ed.]

When a park converts to condo-style ownership, which requires approval to subdivide from the municipality, the so-called air space the mobile homes occupy is offered for sale, often for prices of $100,000 to $200,000, eliminating rent.

This framing entangles two threads that often intertwine but need not necessarily: valuing the land, and rendering the resulting price affordable to the residents.

Critics say park owners are exploiting a loophole in state law that lets them cash in big-time, circumvent local rent control and gentrify affordable housing.

California allows local regulation of mobile home park ground rents, typically at levels whose escalation is tied to some external metric (like CPI) that allows the owner an inflation-hedged return, but not a pain-threshold or highest-and-best-use return. Recognizing that owners of mobile-home park land may want to sell, or may want to use selling as an end-run around regulation, many states have right-of-first-refusal or similar right-to-buy statutes that are activated if the land owner starts a sales process.

Captain, sensors indicate our legal deflectors are losing power

Some owners try to maneuver around this protection by taking sequential actions that achieve the same economic outcome – decontrol – without invoking the resident-protection provisions. We saw these shenanigans in New Jersey’s Paradise Park (see Part 4 of A Christmas Present for Paradise Park), whose owners undertook an I-know-nothing approach to their conversion-oriented sale:

Whether or not you like a mobile home park in your town, says the court, the legislature has decided that existing mobile home park residents are entitled to protection, and the law must carry out that policy conclusion.

Judicial review of individual statutory sections of the Act must, therefore, be guided and informed by these two overarching legislative policies:

1.  To continue the use of mobile home parks on lands currently used for such a purpose; and

2.  To encourage and promote ownership and self-governance by the residents of these parks.

A consistent theme running throughout these exemptions is that none of the transfers or conveyances carry a significant risk of changing the property’s use to something other than as a mobile home park. That is, if properly carried out in good faith, none of these transactions undermine the Legislature’s commitment to encourage park-ownership by mobile home residents, and self-governance in mobile home communities.

In other words, for a sale to be exempt from triggering resident rights, it must not increase the threat to those rights. This is an entirely sound public-policy principle, one that finds its expression in numerous affordable housing preservation statutes.

My sovereign duty is to protect my people

Mobile homes are the dark matter of the affordable housing universe – significant, important, and ignored.

Good faith is the linchpin of this analysis. If courts permit interested parties to utilize these statutorily recognized transactions as legislative loopholes, i.e., as a means of circumventing the procedural and substantive rights bestowed to mobile home park residents in N.J.S.A. 46:8C-11 and N.J.S.A. 46:8C-12, then the public policy rationale embodied in the Act is frustrated.

Because they’ve crept on us as a configuration and tenure (see Mobile homes: how they got here, Part 1, Part 2, Part 3, Part 4), mobile homes are unofficial affordable housing. The resulting jurisprudence of their affordability derives from case and common law – meaning that it’s always evolving, and patchwork, and hence has both gaps and strains.

Found a gap in our land-use laws

But [California's mobile home] park owners say:

1. This is a property rights issue

2. Going the condo route is the best way to capitalize on their investment

3. It benefits residents who can afford to buy or can obtain publicly assisted loans to buy.

The park owners are right that the legislature or courts need to grapple with property rights. If these are judicially compromised, then it’s potentially an eminent domain taking and hence governed by rigorous procedural rules and strong protections of property owners’ economic rights.

That said, the park owners’ arguments boil down to:

1. Touch my property and I’ll sue you for eminent domain taking compensation.

2. This is how I can maximize my return.

3. Anyone living in the park who can’t afford the land price should get help from the government, not me.

Admittedly, this casts their position in a harsh light, based on secondhand reporting in a possibly-unsympathetic newspaper.

You want sympathy? I’ll show you sympathy!

But let’s go back to the issue of process. Who decides?

Santa Rosa’s Country Mobile Home Park is one whose owner has applied for condo conversion, a move opposed by a majority of its residents. Among them are Phil Dion, 70, and his wife, Mickie, 67.

Courtesy of Google (Earth and maps), here’s the property:

1180 Fulton Road, Santa Rosa, CA 95401

Good location; only a couple of miles from downtown and the US 101 freeway, yet at the same time on the edge of development (with all that agricultural land directly to the west).

Do those look like tin cans on wheels to you?

Most striking in the photograph is how good the homes are, and how well laid out on the site. By contrast with some higgledy-piggledy single-wide developments, that look like the back end of a distribution warehouse, these are carefully laid out on subdivided streets. Moreover, Google’s street view (link should work, UPS van emerging) shows a trim bungalow-style complex, with a discreet wall along the main road and the property’s name on an entrance sign. No one driving by would think it a trashy trailer park.

Fortunately, this isn’t our subject property

Thus it seems evident that residents might be interested in buying the land underneath their park.

Will they? At what price? Who will decide?

[Continued tomorrow in Part2.]

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Though housing is the output of an enormously complex, ever-changing, hugely capitalized value chain, unlike other abstract capital-markets products like Credit Default Swaps, we all connect to it because we live in its results, and we all care about it because the equity in our owned homes drives our new business formation, our self-esteem, our family formation – you name a major life milestone and it is likely accompanied by a change in housing configuration or tenure, and hence in housing finance.

In that spirit, we looked in May at three very micro-level dramas, starting with that invisible informality, the in-law apartment, via Outlaw in-laws: Part 1, symbiotic replication, Part 2, creeping densification, and Part 3, quiet amnesty:

Ma, maybe you should have your own entrance?

“When in-law apartments are outlawed, only outlaw in-laws will have apartments.”

– Bumper sticker from the National Relatives Accommodation Association (NRAA)

Despite all the emphasis we bestow on the visible and regulated forms of affordable housing – LIHTC, HUD Section 8, even inclusionary zoning – there are more forms of invisible affordable housing than are dreamt of in the typical policy maker’s philosophy.

Spot the affordable housing?

To mobile homes and triple-deckers we must add the modest creature with the unlovely name of accessory dwelling unit (ADU), more commonly known as the ‘in-law apartment,’ and featured in a bland but nevertheless thought-provoking little briefing primer, Accessory Dwelling Units: Case Study, prepared for HUD’s Office of Policy Development & Research by Sage Computing [Why them? No particular expertise in housing. – Ed.].

Even more fundamental than expanding or subdividing a house is building it or tearing it down, and in both cases the production paradox applies – whatever you want to do, your neighbors will oppose it.

We’re against it! … What are you proposing?

In England you can’t built it up, as we saw with the Travellers, who are blatantly exploiting British government’s inability to move quickly, in Whose side are you on? Part 1, the invasion, and Part 2, choose your side:

The Daily Mail provides a link to a previous article showing exactly the same tactics:

A Daily Mail photograph of Crays Hill in Essex, a Travellers’ community

Travellers tarmac a new camp in a bank holiday weekend as helpless villagers watch

Marching to the faster-than-government beat of their own drummer, the Travellers were determined to finish all their structures before the opening of business Tuesday morning.

Farm worker Matthew Davies, who lives near the site, said: ‘They changed what was a pretty meadow into a building site overnight. Who knows what it will look like a few days down the line?’

It’ll look like a community of people – informal, unzoned, but not unplanned.

Local councillor Len Lawton said: ‘Villagers were told the field’s owners only wanted to build temporary accommodation for horses.’

Horses yes, people no? Is something out of whack here?

‘When the owners started making small engineering changes earlier this year, such as laying pipes, the council reminded them that major building work required planning permission.’

That shivered their timbers.

Not another council reminder!

No, no, shooting an elephant, not an elephant shooting!

In America you can’t tear it down, as newly liver-transplanted Steve Jobs found out in Shooting a white elephant: Part 1, the elephant, Part 2, the blunderbuss, and Part 3, the human shields:

After this exhaustive exercise in proving the blindingly obvious, the Environmental Impact Report found that:

Things physically feasible cost lots more money

Things that didn’t cost more money neither

Built a new house nor

Stopped the current house from crumbling.

Ladies and gentlemen of the electronic Town Council, you have now heard the staff’s report.

How would you vote?

Remember, then Friends of the Jackling House will be watching:

On May 12, 2009, the Woodside Town Council may vote to wiggle around a string of Court rulings AGAINST granting demolition of this historic mansion. There is still no adequate evidence to grant demolition.

Before you vote, let me add the most ironic part:

It is important to point out that in acting on this application, the Town Council’s authority is limited. The Council may approve or deny the demolition permit. The Council does not have authority to direct that one of the restoration alternatives described below be implemented.

Because directing such an action would be equivalent to a taking, and that would cost the town a lot of money.

I wonder, did Mr. Jobs realize that if he submitted plans for a big new house, such a projection might cost a high enough figure that it would make salvaging the Jackling house economically feasible? Might he have gamed the new-house price down?

Council members asked why cost estimates for renovation of the Jackling House appeared so high, while projected costs for a proposed new house for Mr. Jobs appeared preposterously low. Will there really be very low-grade surfaces in the new master bathroom? many wondered in disbelief.

Now you see it …

Remember, the demolition approval has nothing to do with the application for a new house. Mr. Jobs could then change his mind.

… Now you don’t

It’s my mansion and will die if I want it to

Die if I want it to.

Die if I want it to.

The end?

Housing affects health, both mental and physical, as we saw in Check out of the roach motel

Asthma is an urban disease, possibly affecting as many as one in four urban children, a much higher toxicology rate than in rural areas.  So naturally we deduce that something about urban buildings triggers asthmatic responses – but the causes have been much debated until a recent study fingers a likely culprit:

Hiding in plain sight?

During May, it was our great privilege at AHI to be favored with two of the three parts of Sherlock Holmes’s long-lost and definitive Socratic dialogs on What makes a good consultant? Rules of engagement, Part 1a, Part 1b, and Part 1c, throughout which Holmes first established that though the consultant may be expert, the client is the decider:

A5. Never makes the client’s choice for the client

Although Holmes never truckled at setting himself up as judge and jury where John law was concerned, he had no delusions of grandeur concerning his clients.

“Well, it is not for me to judge you,” said Holmes as the old man signed the statement which had been drawn out. “I pray that we may never be exposed to such a temptation.”
The Boscombe Valley Mystery

He once said to me, in the course of the case of the politician, the lighthouse, and the trained cormorant, of whose particulars we were sworn to secrecy, that “a client, Watson, is owed our energy, our insights, and our wholehearted commitment to her problem – but neither our reproof nor our foreclosing her options. No client thanks us for superseding her right to choose for herself.”

The first thing I knew about it was when I saw you two gentlemen driving back in her dog-cart.”

“And I had my doubts about you gentlemen, I should add.”

Holmes rose and tossed the end of his cigarette into the grate. “I think, Watson, that in your medical capacity, you might wait upon Miss Smith and tell her that if she is sufficiently recovered, we shall be happy to escort her to her mother’s home. If she is not quite convalescent, you will find that a hint that we were about to telegraph to a young electrician in the Midlands would probably complete the cure.”
The Adventure of the Solitary Cyclist

More truths will be revealed in due course

Good God, Holmes, they’ve posted your essay without paying for it

Later that month we offered the world the second volume, What makes a good consultant? Services and activities, Part 2a, and Part 2b:

B1. Protects his client’s interests

Clients, he once told me with great exasperation, have the annoying habit of acting despite our advice. Then he chuckled.

I heard a sharp rustle, the night air blew into the heated room, and the avenger was gone.

On occasion those ruined by evildoers received vengeance.

If they did not, if they always acted wisely, why then there would be no clients for me, no emerald stick pins, no continuing stream of challenges.

When given the opportunity to do the right thing, he acted:

Hardly had the woman rushed from the room when Holmes, with swift, silent steps, was over at the other door. He turned the key in the lock. At the same instant we heard voices in the house and the sound of hurrying feet. The revolver shots had roused the household. With perfect coolness Holmes slipped across to the safe, filled his two arms with bundles of letters, and poured them all into the fire. Again and again he did it, until the safe was empty.

The Adventure of Charles Augustus Milverton

When I later asked Holmes why he had done this, at some risk to ourselves, he looked at me as if I were daft, and said merely, Common decency warrants no surcharge.

Common decency warrants no surcharge

New York and Boston are an endless source of entertaining housing or real estate stories:

Good source of baseball stories, too!

– as we saw in Spot the culprit, and Better dead than read?:

As the unionized employees of the Boston Globe debate among themselves whether they will accede to the $20 million in annual wage cuts demanded by their owner, the New York Times Company, they might do well to ponder a grim real estate reality, as presented with clinical dispassion by the Boston Business Journal:

The Boston Globe might be worth more dead than alive to the New York Times Company.

A dismantling of the Globe’s assets could yield roughly $85 million.

Worth 85x that dead?

One who was worth much more alive regrettably died: Jack Kemp, 1935-2009:

Kemp was, I think, the first American who rode sports success into politics. Nowadays we think nothing of having Jim Bunning in the Senate, or Steve Largent and J. C. Watts in the House – back in 1971, for a football to win elective office was either a joke or a novelty (and, as Jesse The Brain Ventura later showed us in Minnesota, sometimes too much a novelty) – but his real success, at least in housing, was his single term as HUD Secretary under President Bush 41.

“Pro football gave me a good perspective. When I entered the political arena, I had already been booed, cheered, cut, sold, traded, and hung in effigy.” – Jack Kemp, 1996

Not to mention, “chewed out by the best”

Kemp’s predecessor was the narcoleptic Samuel Pierce, on whose soap-opera-fueled watch HUD experienced its worst scandals ever (and that is saying something), and he entered the building, under Pierce’s tenure as a place for being quietly irrelevant, in much the manner of the Tasmanian Devil in a Bugs Bunny cartoon. He was a whirlwind of ideas, including:

1. Reorientation of public housing toward residents as principal customers.

2. Lobbying for an American version of UK stock transfer. Kemp promoted Homeownership and Opportunity for People Everywhere (HOPE), under which public housing would be sold to tenants. (Congress appropriated only a tenth of what he sought.)

3. Creation of Empowerment Zones.

4. Welfare reform with a temporary rent-increase freeze for people who get jobs, to get them out of the means-testing poverty trap.

Too bad more of them weren’t implemented consistently or sufficiently.

I’ve still got ideas!

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In yesterday’s post, via a this-can’t-be-happening breathless story in the Memorial Day weekend Sunday Daily Mail, we encountered a group of British Travellers who, in the manner of worker ants setting out to build a new colony, have been industriously working nights and weekends to lay out, grade, service, and occupy – in short, to develop – a large green field in Newent, Gloucestershire, for their new spontaneous community.

Homestead: The Travellers used diggers to create the site

Actually, the nascent community is definitely not spontaneous.  Speedy, yes, spontaneous, no.  The operation has been meticulously and strategically planned, and the Travellers’ actions make abundantly clear that they are moving in, like it or not. 

Their leader, who gave his name as Richard, said: ‘There’s 50 men here working so we don’t have time to talk to you. You’ll have to come back on Tuesday when we are done.’

All right then, whose side are you on?  I mentioned yesterday that there are three possible sides, with my utterly unofficial soundbites of their positions:

1. The Travellers.  “We just want a place to live our way on our own land.”

2. The government.  “We have land use policies for sound reasons, and they must be respected.”

3. The local community.  “We play by the rules and expect others will too.”

While you’re pondering the rights and wrongs of this, let’s follow out intrepid Travellers as they beavered away.  Start with their impressive pre-launch planning and coordination:

Last week they persuaded energy firm E–ON to supply electricity to the site on the pretext that they needed it to light planned stables.

Readers, do you see the problems here?  At least two are obvious:

1. Britain has zoning and land use laws that presuppose everybody will act honorably, and be leashed when government wants them to be leashed.

2. Fine distinctions among permissible uses.  Growing horses on the land is permitted; growing people is not.  Yet both people and horses need power, water, sanitation, and structures.

They then diverted the site’s existing water supply – which had fed a horse trough – to a standpipe.

Zoning means horses yes, people no!

Four legs good!  Two legs bad!

Locals, who said a stream of lorries had been going to and from the camp for 15 hours a day, added that the Travellers do not have planning permission for the site.

Obviously not, and they’re making a deliberate decision to flout those laws. 

At Easter Travellers who had bought a three–acre field in the village of Blackmore, Essex, moved on to the site on Good Friday with 60 men and started laying 1,000 tons of hardcore.

Judging by their behavior, the Travellers are a complex interconnected community that feels it receives nothing from the machinery of formal government.  They coordinate among themselves (one invasion over Easter, another over Memorial Day), therefore they communicate among themselves, which allows them to use each successive land invasion as experimental data to inform and improve the next. 

It seems clear, therefore, that Britain is facing an organized and deliberate challenge to its land-use legal system by an far-flung and enterprising tribe determined to achieve extra-legally what it must have concluded it cannot achieve legally.

[In Blackmore], villagers were helpless until council planners went back to work on Tuesday and started the lengthy legal process of eviction.

The audacity of it relies on the Travellers’ judgment about the probability of response times the cost of lost investment, versus the value created by non-response.  Let’s express it in simple algebra:

Can you solve these equations?

Risk = Investment x Probability-of-Loss

Gain = Value x (100% – Probability-of-Loss)

The Travellers’ Investment is (a) their time, plus (b) the non-recoverable costs of (i) improving the site and (ii) defending themselves in court.  (The land is a recoverable cost; they can always sell it.)

Their Value is the use-value of the homes they will make – including security of tenure, controllable occupancy cost, improvability and so on.

Despite locals’ repeated pleas for help from both the police and the Forest of Dean District Council, yesterday the Travellers continued to work unhindered.

The mail provides a link to a previous article showing exactly the same tactics:

A Daily Mail photograph of Crays Hill in Essex, a Travellers’ community

Travellers tarmac a new camp in a bank holiday weekend as helpless villagers watch

Marching to the faster-than-government beat of their own drummer, the Travellers were determined to finish all their structures before the opening of business Tuesday morning.

Farm worker Matthew Davies, who lives near the site, said: ‘They changed what was a pretty meadow into a building site overnight. Who knows what it will look like a few days down the line?’

It’ll look like a community of people – informal, unzoned, but not unplanned.

Local councillor Len Lawton said: ‘Villagers were told the field’s owners only wanted to build temporary accommodation for horses.’

Horses yes, people no?  Is something out of whack here?

‘When the owners started making small engineering changes earlier this year, such as laying pipes, the council reminded them that major building work required planning permission.’

That shivered their timbers.

Not another council reminder!

‘The owners were asked to respond but never did.

The wheels of government then ground slowly along …

‘I have nothing against the Travellers’ lifestyle. My concern is that the legal system seems unfairly weighted against local people.’

Does, doesn’t it?

No one from Forest of Dean council was available for comment.

It being the weekend …

Another local said: ‘Nobody wants them here because it’s an illegal operation but our main gripe is with the council because we warned them almost half a year ago.’

Complacency in the face of threatened non-compliance is a less-desirable feature of bureaucracy.  Somehow it never penetrates that people willing to flout substantive laws will have no compunction about flouting procedural ones.

‘It’s because of their ineptitude that these people can do what they have done.   They will never get moved away now – it’s too late.’

Remember, in this story, you have to be on somebody’s side.  Whose side are you on?

Pick one!

How about, which side are you against?

The Travellers.  For.  They have a lifestyle that (we presume) they cannot achieve via the formal system.  They’re taking the land-use law into their own hands.  Against.  It’s illegal, the law applies to everybody.  Get the bulldozers onsite and knock everything down.

The government.  For.  It must uphold the rule of law and it will, since an illegal occupation can be reversed via eviction and enforced demolition.  Against.  When law-abiding citizens have to watch illegal activity because they have ceded enforcement powers to a locality that is not at home, government has failed its essential function of keeping the peace.

The local community.  For.  They’ve played fair and warned government, yet it is they who will suffer.  Against.  The very same anti-development rules that exclude the Travellers benefit the current locals as a righteous cloak for NIMBYism.

Don’t like any of those choices?  How about a fourth choice?

The policies are wrong.  What price greenfield?  As we saw in the case of Steve Jobs and his attempts to shoot his white elephant, land-use laws and bodies tend to adopt a Joshua-stopping-the-sun approach to the use of property.  Mr. Jobs sought to tear down his own home because it was, in his view, economically and physically obsolescent.  Richard the Traveller sought to build his own community on his own property.

Just lookin’ for a home, lord, lord just lookin’ for a home

Both were blocked by the do-nothing lobby, the committee of neighbors, those who have a vision of aggregate land use that in turn entitles them to say what may change on other people’s property.

In America, we think of land use as virtually unencumbered; for us, zoning seldom bites because America is a nation rich in land, and with a frontier-settlement tradition.  Even eminent domain, a staple of governments around the world, is in America a flashpoint for passionate arguments about what it means to be American and to be the owner of real property.

As society becomes more interdependent, we adopt conventions that reduce entropy; and to ensure compliance, we give them the force of law.  Because drive-on-the-right is a convention that adds value for all motorists, we can make it illegal to drive on the left. 

As society urbanizes, land use becomes interdependent.  I am downwind from your skunk farm; you are downhill from my tannery.  To cut down the adverse externalities of urban living, we choose to surrender bits and pieces of our libertarian freedom on land use because propinquity produces conventions that add value. 

As Justice Oliver Wendell Holmes in a landmark Supreme Court case (Pennsylvania Coal, 1922), “the general rule, at least, is that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.”  The law being an empire, it expands until thwarted – by Suzette Kelo, by Steve Jobs, or by Richard the Traveller. 

Travellers have nowhere to live.  Exercising the classic remedy of the slum dweller, they’re flouting the established law, changing facts on the ground and daring the authorities to enforce against them.  Are they wrong, or has Britain’s regulation of land use gone, in the words of Justice Holmes, too far?

It’s not obfuscation when the Supreme Court says it isn’t

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