When the house loses: Part 1, $700 million a year?

September 24, 2014 | Boston, Casinos, Cities, Economic development, Economics, Everett, Gambling, Housing, Infrastructure, Land use, Local issues, Real estate taxes, Speculation, US News | No comments 134 views

By: David A. Smith

All that I am asking for is ten gold dollars
I could pay you back with one good hand

Loser, Grateful Dead (Jerry Garcia, Robert Hunter)


Gold has been coveted since prehistory because it is small, rare, and valuable

In Las Vegas they remind gamblers, The house always wins, but in the inverted logic of Vegas, ‘house’ means casino, and when it comes to cities and casinos, the house – the city and its inhabitants – seem always to lose, as shown in a David Frum essay in The Atlantic (August 7, 2014):

A Good Way to Wreck a Local Economy: Build Casinos

Maybe casinos aren’t guaranteed or even likely to wreck the local economy, but they certainly have a habit of showing up in places that are troubled even after the casinos’ arrival – which is all the more relevant as metropolitan Boston has just finished an eighteen-month battle of deception, maneuver, and politics that ended with the Massachusetts Gaming Commission awarding the sole metro-area license:

After five days of nail-biting deliberations, the state gambling commission voted 3 to 1 [It’s a five-person board; the chair recused on a conflict of interest, possibly UMass’s publishing of a 2011 study, Dice or No Dice: The Casino Debate in Massachusetts – Ed.] in favor of Wynn’s vision to turn a forlorn plot of polluted land on the Mystic River, just north of Boston in Everett, into a gleaming $1.6 billion gambling resort.


Will it Wynn?  In November, voters statewide will decide whether the casino law will be repealed.

A city is a triad of jobs, housing, and the means to get efficiently and cheaply between them (transportation), and every mayor, and every city council, always wants more of each – but there is only so much space in the city (except when the city goes up, which is expensive), so every investment of infrastructure must be evaluated as to how much it will boost each of these. Are casinos, which offers many jobs but low-wage ones, worth it?

Sources used in this post

Dice or No Dice: The Casino Debate in Massachusetts (Spring, 2011; navy font)

Economic Impact of Casinos on Home Prices, undated NAR 2013 study; red font

Boston Globe (June 30, 2013; gray font)

Boston Globe (April 11, 2014; emerald font)

Boston Globe (June 24, 2014; orange font)

The Atlantic (August 7, 2014)

Washington Post (August 26, 2014; olive font)

Boston Globe (September 15, 2014; teal font)

Boston Globe (September 16, 2014; blue font)

Boston Globe (September 16, 2014; photographs)

Massachusetts Gaming Commission web site (lavender font)

Boston Globe (September 23, 2014; magenta font)

The economic and political considerations are especially timely here, as first depressed Springfield, and now as Boston and Everett and Chelsea and Revere have been conducting a meat-market/ beauty-contest to attract a mega-casino, one of three new ones to be allowed in Massachusetts – or will they be?

The state’s highest court decided Tuesday [June 23, 2014 – Ed.] that a casino repeal measure can appear on the November ballot, touching off a ferocious referendum campaign over one of the most charged issues in a generation and jeopardizing the future of the billion-dollar industry in Massachusetts.

When pitching for regulatory approval, casino developers (like Vegas’s own Steve Wynn and Connecticut’s Mohegan Sun) claim, and their supporters believe, that new casinos will bring jobs, tourists, taxes, and stronger urban economics to the city lucky enough to provide the land that hosts the new edifice, like Las Vegas, a town that would not have existed but for gambling and government’s edge effect:


The original Vegas casino” the Flamingo, 1946


The Flamingo, the strip, and a lot of desert


The Strip in 1968: 37 years ahead of Sheikh Zayed Road in Dubai


Sheikh Zayed Road in the 1980s


Sheikh Zayed Road, Dubai

Wins like that haven’t been common in casino-urbanization, as for every Las Vegas there’s an Atlantic City, a town that has repeatedly thrown the dice on sin biz, with recurring urban bankruptcies to show for it.

[For my multi-part history of Atlantic City’s flutters with casinos, see Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7.]

The long-awaited ruling by the Supreme Judicial Court [now] overshadows the state’s nearly three-year debate over where casinos should be built and reignites an argument over whether they should be allowed at all.


That’s one for Region A, one for Region B, and one (maybe) for Region C

The law was enacted through the legislature, meaning that the citizens themselves never voted directly whether to authorize it (though Governor Patrick has been advocating for legalized gambling since 2007) and now, with casinos selected for Springfield and for Boston.

Should Massachusetts keep casinos, or repeal the authorization? 


We’re agreeing to disagree on this

Massachusetts’ two senators are split on the question.

1. Casinos bring big private investment and promise economic development

Casinos promise a new and easy flow of revenues to hard pressed local governments.

To anxious politicians, casinos look like adrenaline for the economy, always being touted as revenue and jobs generators; as the Massachusetts Gaming Commission says in a scroll on its home page:

The arrival of expanded gaming is anticipated to create between 8,000-10,000 construction jobs, 8,000-10,000 permanent jobs and $300-$500 million in increased revenue. – See more at: http://massgaming.com/#sthash.hNhYws32.dpuf

Despite searching, I could find no analytical backup for the MGC’s jobs and revenue estimate, which is mildly distracting:


Who needs evidence?  Just use the numbers

But some elements are definite, as they were minimum bid conditions:

The licensing fee for each resort casino will be a minimum of $85 million and requires a capital investment, to include a hotel facility, of at least $500 million.

The Commonwealth will receive 25% of gross gaming revenues.

Make no mistake, the state’s share of the revenues is enormous, and clearly influences the state’s perspective on the merits of gaming (as the industry insists on calling it).

The slots facility, which will hold up to 1,250 slot machines, has a $25 million license fee, and a minimum capital investment of $125 million.  The slots facility will be taxed at 40% of its gross gaming revenue.


You get all this, just for saying Yes

Of the three locations, naturally enough it’s the metro-Boston one that is most valuable:

The crown jewel of the state’s casino law has always been the Greater Boston license, which is projected to be worth about $700 million to more than $800 million a year in gambling revenue.

[Continued tomorrow in Part 2.]

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Where the money goes, the people will follow: Part 3, Not in China’s operating system

September 23, 2014 | Capital, China, Emigration, Exports, Global news, Housing, Imports, Markets, Schools, Speculation | No comments 135 views

[Continued from yesterday's Part 2 and the preceding Part 1.]

By: David A. Smith

As so happens when I write about China, the process of laboriously sorting through my thinking means the posts expand, and my post about Chinese emigration, using as a source an article from the Wall Street Journal (August 15, 2014), brought us to the point of realizing that the emigration of large volumes of Chinese entrepreneurs to other more law- and property-friendly countries is a smart-people’s referendum not only on the relative freedom and opportunity of the respective countries’ economies, but also on the value propositions of their respective housing markets, a value proposition the US government monetizes via the buy-a-visa-for-property EB-5 visa program.


Because I vacillate on the policy soundness of EB-5, I haven’t written about it; certainly it has some positive effect on US real estate values.


Asians welcome

In the global market for high-end real estate, Chinese buying has become a key driver of prices. According to the US National Association of Realtors, Chinese buyers snapped up homes worth $22 billion in the year ending in March.

While that may sound a large number, it is one one-thousandth the value of all US housing, which is $25 trillion.

Australia called a parliamentary inquiry to find out whether local households were being priced out of the market by Chinese money. (The conclusion: not yet.)

While there will be upward pressure on prime Sydney or Brisbane locations, Australia is an enormous country, largely empty of people, with an immense and sun-blessed coastline.  If I were the Australian prime minister, I would be doing everything I could to capture Chinese cash into Australian urban real estate, because with it I would be luring Chinese entrepreneurs.


No scaremongering here, cobber

In his book Restless Empire: China and the World Since 1750, the historian Odd Arne Westad writes that overseas Chinese “were, and are, the glue that holds China’s relations with the world together, in good times and bad.”


Isn’t Chinese behavior odd, Arne?

Entrepreneurs – and their close cousins, the sailors and importers – are every nation’s window on the world.

The Chinese diaspora has some 48 million members—about double the number of Indians living outside their country—and wherever they alight, they tend to rise to the top, be it Silicon Valley or the high-tech corridors of Southeast Asia.

In America, Chinese they become Chinese-Americans, and then they become Americans.

Foreigners sometimes have a hard time understanding why Beijing expends so much effort countering threats, real or imagined, from Chinese opponents overseas. But China’s leaders are haunted by history. To an extraordinary degree, the destiny of modern China has been shaped by the Chinese who left.

And America’s destiny is shaped by those who came, and who continue to come.

The overseas Chinese of Southeast Asia provided critical support for Sun Yat-sen’s 1911 revolution, which toppled the Qing.

History will record the Communists as the imperial dynasty that supplanted the Qing, and will see Sun Yat-sen as China’s only flicker of democracy.


On the eve of transient democracy: Sun Yat-sen, 1912

Without fee-paying Chinese students, many colleges in the post-recession Western world simply wouldn’t be able to pay the bills. Chinese students are by far the largest group of foreign students on US campuses, and their numbers jumped 21% last year from the year before—to 235,597, according to the Institute of International Education.

America’s universities – for that matter, probably the world’s – will welcome such students, because they pay full rates.

Their numbers are increasing at a similar pace in Australia. In England, there are now almost as many Chinese students as British ones studying full-time for postgraduate master’s degrees.

Too little remarked has been the impact, economic, sociological, and political, of educating the world’s elite in Western universities.  Aside from doing a tiny bit to balance the flow of trade, it also exposes emerging-world youth to Western society, democracy, discourse, and values. 


Peace, man

In education, the next big wave coming from China is high schoolers. Rich parents are opting out of an education system that prepares children to take high-stakes tests for college entrance but neglects the creative side. Besides, once they’ve been through the mill, the students have a tendency to kick back when they get to [Chinese] college.

The Chinese government has no desire to slow the flow of students. Its attitude is simple: Why not have the Americans or Europeans train our brightest minds if they want to? President Xi’s own daughter went to Harvard.

While the Chinese are exporting money, they are importing values and knowledge … and on the whole, the world is much better for the exchange.  And whether the students pick up Western morals, they certainly pick up the Western quality of life, and that means our universities are incubating the next generation of Chinese immigrants. 

In addition to seeing how clear the air is, these Chinese tourists will also see what housing costs, and what you get for your renminbi, especially in terms of what better housing brings – economic opportunity, school choice and quality, and community.  They will meet Chinese whose have become Americans and ask themselves, Can China duplicate this in my lifetime?  To do that requires reorienting away from industrial production, dramatically reforming urban governance, opening up free speech and removing Internet censorship – and answering their children, who once exposed to a free internet will never willingly embrace a restricted one.


Nope, we’re not going to let you see that either

China’s housing ecosystem thus is a product of its urban ecosystem, which in turn is a product of China’s political ecosystem.  To change one, you must change them all.  Premier Xi’s anti-corruption drive is an excellent place to start (and remember, he has a Harvard-educated daughter feeding him dinner-table Americanized insights), but he has a long way to go and the body moves much more slowly than the head.

Apatosaurus, previously known as Brontosaurus

I can look back more easily than I can turn back

The head, however, has turned outward:

The outflow has only just begun. The Hong Kong-based brokerage firm CLSA forecasts that departures from China will double to 200 million by 2020.

We need to welcome them.


Retired from playing poker with Deng

In his memoirs, Zbigniew Brzezinski, the former national security adviser, recalls a meeting between President Jimmy Carter and Deng. Human rights were on Mr. Carter’s agenda, and he started needling the Chinese leader about Beijing’s tight emigration policies. “Fine. We’ll let them go,” Deng snapped. “Are you prepared to accept ten million?”

Yes, we are – or at least, I am.

All this crystallized for me why, in this supposed age of a rising China and a declining US, we Americans should worry a bit less. No matter how huge China’s GDP gets, the US retains a deep, enduring competitive advantage: America makes Chinese Americans. China doesn’t make American Chinese.

In the 1950s Nikita Khrushchev was fond of boasting, we will bury you. 


Nowadays others may be forgiven for thinking, we will buy you. 


“We will bury you” – shoe slapped on lectern for emphasis

Having seen the 1980s Japanese buying waves, when Theory Z was the rage and the sale of Rockefeller Center was regarded as the fall of an icon, I’m more sanguine about America’s prospects, and the world’s prospects. 


Z for Zero?

China also isn’t particularly interested in making American Chinese. It isn’t in China’s operating system to welcome, integrate and empower immigrants to redefine the very meaning of Chinese-ness. That means that China lags behind the US in a crucial twenty-first-century way: embracing diversity and making something great from many multicultural parts.

When all is said and done, a leadership that loses its intelligentsia’s confidence loses its legitimacy.

The "Goddess of Democracy" stands tall amid a huge crowd of


And then it loses its power.

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Where the money goes, the people will follow: Part 2, Breathing freely is a basic requirement

September 22, 2014 | Capital, China, Emigration, Exports, Global news, Housing, Imports, Markets, Schools, Speculation | No comments 197 views

[Continued from Friday's Part 1.]

By: David A. Smith

Capital, whether economic of human, is a continuous referendum on government’s effectiveness – a referendum that government does not schedule but nevertheless must observe – and as we saw in yesterday’s post, using an article from the Wall Street Journal (August 15, 2014), China’s entrepreneurial classes are voting thumbs down (or more properly, feet outbound) on the country’s prospects:


I think it’s a good time to leave

The main reason she’s planning to pack up: Her 6-year-old daughter is asthmatic, and Beijing’s chronic pollution irritates the girl’s lungs.


What is clean air worth to you? To your daughter?

When you have money, you spend it on your children, and there is no price too high.

“Breathing freely is a basic requirement,” she says.

The girl also has a talent for music, art and storytelling that Ms. Sun fears China’s test-driven schools won’t nurture.

Recently, Ms. Sun flew to San Francisco to shop for a school for her daughter, browse for property and handle the paperwork for permanent US residency. She insists that she’s not leaving China forever – a sentiment expressed by many on their way out who see a foreign passport as an insurance policy in case things go badly wrong in China.

Of course not … she’s just doing everything that would enable her to do that when she is ready to verbalize what she already knows.

“I’m just giving my family another option,” she says.


A college professor, who insisted on anonymity altogether (“Just call me an intellectual,” he says), takes a darker view of China’s prospects as he prepares to emigrate to the US, joining his two children, who both have postgraduate degrees from US colleges.

Like many Chinese academics, the professor has a business or two on the side, although he hardly looks the part of an executive, unshaven and with crumpled pants riding 6 inches above his open sandals. In China, he pronounces, “Once you get rich, they arrest you.”

Whether that’s true or merely apocryphal, people act on their beliefs, as both the professor and the Beijing mother are.

His real concern is that to get ahead, he’s had to make compromises with his principles (he doesn’t say bribes, but that is what he means). “I’ve been forced to prostitute myself,” he says, and now he worries that it could all be snatched away. In China, a weak, corrupt legal system


No food, just cash

I’ve posted on Chinese corruption, but undoubtedly underestimated its significance.  The more I work in emerging countries, the more convinced I am that democracy means rule of law and property rights as much as it means elections – possibly even more.


When bribery becomes big business, it becomes ineradicable

– may sometimes work in favor of entrepreneurs while they’re clawing their way up, cutting corners along the way, but it is almost always a liability once they’ve made it.

If everyone is guilty of something, then enforcement is arbitrary, and then there is no law, just majoritarianism.

First-generation businessmen—the ones who powered China’s economic rise—now dream of a secure retirement.  


The wrong gap to open

When we’re young, the long future we confidently envision for ourselves, our lack of assets, and our mobility combine to make us willing to take risks.  As we age, we become more successful, more settled, so we have more to protect, less to gain.


I care more about the present than the future

That means legal safety in places like the US and Canada.

I’ve previously posted that China may be getting too soon old, too late rich; and that money is flowing out of China at high speed.  As I wrote in 2012:

We know that Chinese are expatriating capital in sums that may exceed $100 billion annually.  We know that capital always wants a bolt hole.  We know that Chinese individuals are buying properties as far away as Cyprus.

If you conclude you can make money in China, but you can protect money in America, then all those dollars we are sending the Chinese to buy our Treasury paper may be finding their way back to us as real estate prices – and as a further benefit, bringing Chinese’s entrepreneurs with them:

The professor is also a fan of US technology. One of his companies sells environmental equipment, and he’s hoping that by living in America, he’ll find ways to enhance his products and develop new ones—which he hopes to continue to sell in China, the biggest market. He holds up his Apple iPhone. “How many shirts do you think we Chinese have to export to buy one of these phones?” he asks.

China, he concludes, is still “a very backward country.”

China is also a very unequal country that thinks nothing of squelching individual opportunity in furtherance of national political goals.  Its government is autocratic, opaque, and insular – traits that undermine confidence among the entrepreneurial.

I work in a great many countries with wide gulfs between their urban mitochondria – the elite political economic, social, and intellectual, who often live in gated communities or luxurious mixed-use towers – and their protoplasm – the slums and the informal economy.  By the nature of my work, I am brought into contact mainly with those who want to reform their countries and see their countries grow, prosper, and become more egalitarian … but they are not everyone in their countries, and the change is often extremely hard.  So I can well understand when those with economic mobility – the smart, the educated, the multilingual, and hence the globally employable – take stock of their government and lose faith in it.


It doesn’t fly unless you believe it flies

What does a patriot who loves his country do when he has lost faith in his country to reform?  He hedges his patriotism by moving his money, and then his loved ones, to a country he thinks is more stable, and awaits events.

The flight of the rich recalls similar outflows from Hong Kong before the 1997 handover of the then-British colony to China and from Taiwan in an earlier period when its own future seemed imperiled.  In those cases, businesspeople parked their families in places like Vancouver and Seattle –

Which helps to demonstrate that ex-mittances drove up those markets’ prices.

– and shuttled back and forth to Asia for business.

People are smart; they optimize within the facts they see and the rules they perceive.  Move the hard-to-move assets first, and place them in a hard-to-recapture place.  And the pace of capital extraction will accelerate when the potential for domestic capital appreciation is dwindling:


If this is the trend, it’s not good

That is often the strategy in today’s China, which has entered an uncertain transition. The economy is off the boil; property prices are sliding.

Mr. Xi has amassed more power than any Chinese leader since Deng Xiaoping and is using it to crack down on corrupt officials –

Which China’s entrepreneurial class will support.

– while going after human rights lawyers, bloggers and civil society activists.

Which China’s entrepreneurial class will not support …but to Mr. Xi, they are much of a muchness.

That is ridding China of the kind of individual its government doesn’t want but is also scaring away the creative types it needs.

Funny thing about those creative types; they’re troublemakers, intentionally or unwittingly.


But rocking the boat is fun

When it comes to intellectual and entrepreneurial freedoms, autocrats (and their steroid-enhanced successors the dictators) are color-blind; they cannot see the pattern, so they believe there is connection.


What pattern?  I don’t see any pattern

Last year, the US issued 6,895 visas to Chinese nationals under the EB-5 program, which allows foreigners to live in America if they invest a minimum of $500,000.


South Koreans, the next largest group, got only 364 such visas.  

Again, though China got 19x as many EB-5 visas as South Korea, the population of China is 27x that of South Korea, so the Koreans’ rate was roughly 50% higher per capita.

Canada this year closed down a similar program that had been swamped by Chinese demand.

Some of the wealth sluicing out of China is undoubtedly ill-gotten gains.

Yes, best to get them out of the country – but in China, ‘ill-gotten’ may be grayer than it is in the US.


Don’t worry, we can launder it for you

The Chinese central bank estimates that corrupt officials may have siphoned off as much as $123 billion since the mid-1990s.

The true figure must be much higher, because even the central bankers, who are normally a nation’s most quantitative and clear-eyed government officials, will be pressured to keep embarrassing numbers and facts to a minimum.


Nothing to see here

[Concluded tomorrow in Part 3.]

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Where the money goes, the people will follow: Part 1, 64% of China’s rich

September 19, 2014 | Capital, China, Emigration, Exports, Global news, Housing, Imports, Markets, Schools, Speculation | No comments 247 views

By: David A. Smith

Up until now, my posts puzzling out China’s affordable housing have focused on its urban challenges, and whether the Chinese can make new cities that people want to live in without destroying the formerly-rural middle class by culturally and economically impoverishing them in totalitarian-style housing blocks.  Foolish me, I overlooked the best possible indicator of China’s fortunes: the behavior of those who have choice, and as reported in the Wall Street Journal (August 15, 2014), their actions are telling:

The Great Chinese Exodus

Many Chinese are leaving for cleaner air, better schools and more opportunity.

Among the many benefits of capitalism, workforce mobility is too little remarked, perhaps because when Marx was writing, workforces had to go to factories rather than the reverse; but in an information economy, where value chains can be discorporated, talent goes where it maximizes its life quality, and that is a complex equation involving both economic and non-economic factors.  Controlled economies can sometimes produce huge quantities (real or reported) of tangible goods, but in this pursuit they sacrifice everything to do with quality of life.  This works as a starting point when people are extremely poor and tangible goods are directly beneficial in extending healthspan, but once a country achieves a large middle-class, they start demanding more than tractors and concrete blocks – and that a totalitarian country cannot deliver.


Visitors to Tiananmen Square struggle with Beijing’s polluted air, Nov. 5, 2013.

So it traps its people inside the country … if it can.  And if it cannot, what then?

But Beijing is keeping its eye on them.


No one can be wise who lives the Middle Kingdom

Even when the emperors did their utmost to keep them at home, the Chinese ventured overseas in search of knowledge, fortune and adventure.  Manchu Qing rulers thought those who left must be criminals or conspirators and once forced the entire coastal population of southern China to move at least 10 miles inland.


Why venture to sea?  Except for Japan, there’s nothing to reach

But even that didn’t put an end to wanderlust. Sailing junks ferried merchants to Manila on monsoon winds to trade silk and porcelain for silver.

In Guns, Germs, and Steel, Jared Diamond speculates that China’s geography – linear coastline with open ocean – made the Middle Kingdom naturally inward focusing, as there were no interesting foreigners to meet by sea, whereas Europe’s Mediterranean coastline made sea travel a virtual necessity for civilization.


Any wonder that western civilization arose in Greece, and the Renaissance started in Italy?

In the nineteenth century, steamships carried armies of “coolies” (as they were then called) to the mines and plantations of the European empires.

By that reasoning, America’s black population is descended from similar one-man entrepreneurs.


In an America you get food to eat

Won’t have to run through the jungle and scuff up your feet


Everybody is as happy as a man can be

Climb aboard little wog and sail away with me

Today, China’s borders are wide open. Almost anybody who wants a passport can get one. And Chinese nationals are leaving in vast waves: Last year, more than 100 million outbound travelers crossed the frontiers.  [Global] tourism is booming again thanks to China. The Chinese have overtaken Americans to become the world’s biggest tourist spenders—and they’re rapidly moving upmarket.

Any time of the day that I walk through Harvard Yard, I see Chinese tourist groups; personally, I’m happy to see them, both for their economic impact and for their cultural education.


Every day at 7:00 am or so

While they may come as tourists, many of them also may be future emigrants from China to the US – and the longer they are exposed to America, the greater the chance they will want to relocate here.

Rapidly growing numbers are college students and the wealthy, and many of them stay away for good. A survey by the Shanghai research firm Hurun Report shows that 64% of China’s rich—defined as those with assets of more than $1.6 million—are either emigrating or planning to.

More than half of China’s rich thinking of leaving is a staggering figure, even higher than the French figures, and everyone knows France’s economy is in deep trouble.


Then too, I found this remarkable statement (Wall Street Journal, August 29, 2014; green font) from “the [American] son of Chinese immigrants’:

Try as I might, I just can’t become Chinese.

It started as a thought experiment: I wondered what it would take for me, the son of Chinese immigrants, to become a citizen of China. So I called the nearest Chinese consulate and got lost in a voice mail maze with nobody at the end. The consulate’s website explained the process for getting visas but not for naturalization.

Then I realized why it was so difficult to get an answer: Beijing doesn’t ever expect to hear from foreigners who want to become Chinese citizens.

As it turns out, a naturalization procedure is found under China’s Nationality Law. But precious few people pursue it: The 2000 Chinese census counted just 941 naturalized citizens.

I cannot help but contrast America’s approach to immigration and naturalization with that of China – and for all the debate we have regarding our immigration policies (such as they are), America is still the global beacon of opportunity – at least it is everywhere I’ve been too (most recently Mongolia).


KFC in UB!

To be sure, the departure of China’s brightest and best for study and work isn’t a fresh phenomenon. China’s communist revolution was led, after all, by intellectuals schooled in Europe.

Many are the revolutions stoked by expatriates educated abroad.

What’s new is that they are planning to leave the country in its ascendancy. More and more talented Chinese are looking at the upward trajectory of this emerging superpower and deciding, nevertheless, that they’re better off elsewhere.


How does this compare with the air in Beijing?

A Chinese tourist poses in front of the Sydney Opera House in Australia, June 18, 2013

The decision to go is often a mix of push and pull. The elite are discovering that they can buy a comfortable lifestyle at surprisingly affordable prices in places such as California and the Australian Gold Coast, while no amount of money can purchase an escape in China from the immense problems afflicting its urban society: pollution, food safety, a broken education system.

As I’ve previously posted, China’s leadership has made perhaps the biggest bet of all time: two decades before the payoff, with a billion people’s lives in the balance:


Whatever else you think of it, you have to be impressed: Shenzhen

The new political era of President Xi Jinping, meanwhile, has created as much anxiety as hope.

Another aspect of this massive population outflow hasn’t yet drawn much attention. Whatever their motives and wherever they go, those who depart will be shadowed by the organs of the Leninist state they’ve left behind.


Are you rolling over in it yet, Vladimir?

A sprawling bureaucracy – the Overseas Chinese Affairs Office of the State Council

The name has an ominous sound, don’t you think?


We’re just checking that you’re happy

– exists to ensure that distance from the motherland doesn’t dull their patriotism. Its goal is to safeguard loyalty to the Communist Party.


In a staged photo-op, a 95-year-old man swearing a loyalty oath to the Communist Party along with college students

This often sets up an awkward dynamic between Chinese arrivals and the societies that take them in. While the newcomers try to fit in, Beijing makes every effort to use them in its campaign to project its political values, enhance its global image, harass its opponents and promote the use of standard Mandarin Chinese over the dialects spoken in Taiwan and Hong Kong.

And the expatriates won’t be interested in doing that.

Politics, though, isn’t the most important issue on the mind of Ms. Sun, a 34-year-old Beijing resident who’s bailing out.  (She requested anonymity because she doesn’t want publicity to spoil her plans.)


We’re looking for you, Ms. Sun

You see?

 [Continued Monday in Part 2.]

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Poor poor pitiful door: Part 5, About a year

September 18, 2014 | Apartments, Condominiums, Development, Discrimination, Economics, GAIA, Housing, Inclusionary zoning, Journalism, Linkage, London, Markets, New York City, Rental | 1 comment 205 views

[Continued from yesterday's Part 4 and the preceding Part 1, Part 2, and Part 3.]

By: David A. Smith

By now, after four parts on a GAIA (God Ain’t It Awful) story about the separation of entrances in a fantastically located mixed-income property on New York’s West Side, readers may have deduced that I think the outrage frothed up and overblown – in which case, why kill so many pixels on the subject?


We had to enter the maze to find the beast within

Sources used in this post

Steve Cuozzo, New York Post (August 27, 2013, a year ago; brown font)

The Guardian (July 25, 2014; black font)

New York Times (Ginia Bellafante; July 25, 2014; blue font)

Slate (July 29, 2014; slate-gray font)

New York Post (July 28, 2014; green font)


I hate stereotyping, don’t you?

Aside from my general irritation that the subject was so deliberately misrepresented, these little flashpoints of zeitgeist illustrate both the human reality (we wish to think ourselves better than others), the political dynamics (no one ever went broke underestimating the American public), and the journalistic imperative (‘if it bleeds, it leads’), and how these collectively are the enemy of effective public policy.

And that’s important, because even as affordable housing does not exist inn economic nature, affordable housing policy does not exist in political nature.  It’s not a politician’s natural response – rent control is, even though rent control is the worst public policy imaginable.  So the sound bite/ headline/ catch-phrase mode of political discourse does meaningful damage to what I care about – and that doesn’t just tick me off, it makes me enduringly angry.

Critics of 40 Riverside aren’t satisfied merely to play the “racism” card.  Council Speaker/mayoral candidate Christine Quinn [At the time, a mayoral candidate, who lost – Ed.], Councilman Robert Jackson [At the time, candidate for Manhattan Borough President; he lost – Ed.]  and Assemblywoman Linda B. Rosenthal are insisting that all residents of any future “inclusionary” building must enjoy exactly the same apartments, views and services, whether they pay peanuts or a fortune to live there.

Sorry: Such rules would mean no “affordable” units being built at all.


No such luck

Certainly no one would take the density bonus in that case; the cost wouldn’t be worth it.  Mayor de Blasio would be back trying to compel the market to produce.

Land and construction costs in the city are so high, developers must maximize the return on their investments. Requiring luxury condos to share floors with subsidized rentals means a developer must swallow losses on subsidized units at prime locations within a building, which otherwise could be sold for market value.

The development equation is:

Density bonus versus affordability requirement

Feasibility equation

Net loss from affordable apartments (Cost-value gap)


Marginal profit from one more apartment in the sky

(Value when built minus direct construction cost)

For the developer, this equation gets worse as one goes further up, because those immutable laws of physical gravity (square-cube law) mean taller buildings must be proportionately thicker in the structure and building core.  There comes a point where zoning isn’t the constraint, physics and economics are.



Barnett points out, “If you say that in any project getting an inclusionary bonus zoning, the affordable units would have to take up some of our best views and units, nobody would build them.”

D3. Build farther out

Separating the affordable linkage apartments from the conventional ones offers the very useful possibility of using lower-cost land (or even city-owned land) to create more affordable homes for the same money.

Some would argue that integration ought to be subordinate to the greater goal of simply building as much affordable housing as possible, something more easily done in parts of the city where land is farther from central quarters of wealth and power, and thus cheaper.

Land value is an expression of where people want to live and work; anything more than that is inferential gloss.

Planning documents for the 56 Curzon Street development in Mayfair show that the developers told the local council “that on-site provision of affordable housing would result in significant design inefficiencies due to the need for separate entrances and building cores”.

Curzon Street development

Curzon Street, where developers argued affordable housing provision would result in ‘design inefficiencies’.

Conversely, the reviled Bloomberg amendments made this a choice, not an obligation:

One provision [of the 2009 zoning code amendments] said developers of market-rate condos could include affordable units on-site, instead of off-site, while allowing for the separation of a number of services that included the entrances.

For that matter, if inclusion is such a goal, why not move public housing or supportive housing downtown while one is at it?

Some argue that the city’s entire historic approach to “affordable housing” is flawed, yielding such truly segregated monstrosities as East Harlem’s instant-ghetto “Project Wall” from First to Lenox (Sixth) Avenue [James Weldon Johnson Houses – Ed.] and from 112th to 115th streets.


James Weldon Johnson, 1871-1938, poet and NAACP General Secretary

That’s why inclusionary zoning was created, and why the furtherance of inclusionary zoning is worthwhile even with its inherent tradeoffs.

While that kind of approach may be more economically efficient, and even ethically merited, it is hard to see it as more socially purposeful.

Another double-whammy equivalence: one gets more affordable housing, whereas New York’s homeless often choose great locations to be homeless in, which is to me a social purpose of a much higher order than the abstract of elevator- and lobbying-mixing.

D4. Build fewer

If one wants simple solutions, and one doesn’t trust the market, and one does trust elected officials to hold the public interest at heart, then there is an easy answer: give the government cash in the form of linkage payments, and let it choose where to build the apartments; then the city could decide if it wanted more, plainer apartments farther out, or a few luxury well-located gems (mysteriously captured by the politically savvy or connected).

Darren Johnson of the Green Party added: “The mayor and councils have been turning a blind eye to this for too long, they should simply refuse applications that have separate facilities or that refuse any affordable housing on this basis.”


Talk to the hand, not the blind eye

Does that mean Mr. Johnson believes no new council housing should be built in London?  Council housing is entirely separate and has no unregulated component.

E. A tempest or a teapot?


The story’s too big for a teapot

A good GAIA story should also pose a political question as if policy were all:

How, and to what extent, should the city mandate economic integration?

One cannot mandate what one does not pay for.

One can zone for whatever one wants, but then one depends on development, and development in turn depends on economic viabilitiy.

Wiley Norvell, Mayor de Blasio’s spokesman, said that the administration is working on amending the zoning language to prevent future developments with similar split entrances.

“Now that we are in a position to bring those rules fully into line with our priorities and values, we will make the necessary changes to ensure families in affordable housing are treated equitably.”

Among the other elected officials who voted in favor of the 2009 zoning changes are current Manhattan Borough President Gale Brewer and Public Advocate Letitia James.  Asked about her vote, Brewer also said the two-doors effect emerged from a “small” provision in a “long” resolution.

I wonder, does Ms. Brewer’s building have a doorman?  Does it have affordable housing included within it?

“A separate door on a building that benefits one specific project evades the spirit of our city — and we are working to close this loophole.”

Across the Atlantic, London’s mayor doesn’t see things that way:

London Mayor Boris Johnson, who is required to approve all new housing projects of 150 units or more, has gone on the record as saying that he doesn’t like the separate entrances and encourages removing them from building plans whenever possible.

The Guardian reported Monday that he has ruled out a poor-door ban, arguing that it can help curb housing costs for poorer residents who can’t afford the service charges associated with doormen or posh common spaces.

He doesn’t like separate entrances but he won’t rule it out.  There, at least, is a coherent position.

Development hinges on movements of people into neighborhoods they find more desirable now than those neighborhoods were before.  This is fiendishly hard to anticipate:


One could certainly have expected these good bones to come back

Gentrification, when it doesn’t result in wholesale displacement, accomplishes this to some degree. Manhattan’s Chelsea neighborhood and Boerum Hill in Brooklyn have both witnessed significant surges in real estate prices in recent years, though both areas are home to vast public housing complexes. Multimillion-dollar brownstones and apartments are in immediate view of buildings that house the very poor.

You can’t predict the future – and those public housing properties’ days may be numbered.

It may be wiser to concentrate affordable-housing efforts in areas where there would at least seem to be an organic interest in economic diversity, rather than force it in less receptive places.

In the end, the development at Riverside Boulevard will have generated a lot of controversy and political heat, all for the benefit of fewer than five dozen families in a city where more than 50,000 people are homeless.

New York City. Homeless man.

50,000 of him, 55 in 40 Riverside

A GAIA story doesn’t really want change; it wants readers to be stirred up, to feel righteous and superior, and to admire journalists for ‘standing up for the little guy.’  Hence these stories tend to return, like the swallows to Capistrano, at the same time every year.  As I was researching this one, I found exactly the same story line, about exactly the same property, a full year earlier: August, 2013, with the same rhetoric.

The mushrooming stink over the ‘two-door’ policy at 40 Riverside Blvd. is noxious on every level. Contrary to howls that it’s tantamount to “apartheid,” separate entrances at Extell Development Co.’s planned new condo/rental project are well-precedented and logistically necessary.

Last summer, just as New York’s mayoral campaign was heating up, 40 Riverside became a convenient political scapegoat for the lame-duck Bloomberg Administration, and as we saw many ambitious New York elected officials came out strongly against it.  But then, with new mayor de Blasio in office, seven months went by with no action on this front – instead Mayor de Blasio announced a dramatic, ambitious, and implausible 200,000-home affordable housing production goal.  Tightening inclusionary zoning to eliminate this feature, if it does anything, will work against that goal.

The focus now is to reverse the zoning change, Deputy Mayor Alicia Glen told me, a process that should take about a year.


See you next year

‘About a year’?  Just in time for another round of GAIA stories when 40 Riverside is being occupied.

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