Albert Saiz presentation in TCD, June 9th

Albert Saiz, a leading urban economist based at MIT, will be giving a special seminar next Monday (June 9th) at 3.30pm, hosted by the Department of Economics at TCD. The talk, which will take place in the IIIS Seminar Room, top floor of the Arts Building in Trinity College Dublin, is entitled: “Immigrant Locations and Native Residential Preferences in Spain: New Ghettos?” An abstract is given below.

Albert is also giving the keynote the following morning (Tuesday 10th) at a workshop hosted by the Policy Institute at TCD on the latest Irish housing market crisis, this time the lack of supply. The event is aimed at policy-makers and other decision-makers in the housing sector. As capacity is limited, if you’re interested in attending, please send me an email (firstname.surname@tcd.ie).

Immigrant Locations and Native Residential Preferences in Spain: New Ghettos?

Abstract: In research we are studying the impact of immigration on native residential mobility in a European context. Before the economic crisis, Spain received an inflow of immigrants roughly equivalent to ten percent of the population in only ten years. We have obtained a massive data-set from the national registry, or Padron – everyone is required by law to register their address after moving to new dwellings. Importantly, all immigrants in Spain need to be inscribed in this municipal registry in order to be eligible for visas, and illegal immigrants can also register. We can identify the exact geo-location of the place of residence for each individual registered in the country – about 45 million- from 1999 to 2008. With this information, we study the residential responses of natives at the very micro level –including across buildings. We are finding fascinating patterns that suggest that immigration and the consequent white-flight that engendered in central cities greatly spurred suburbanization in the larger metropolises.

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11 thoughts on “Albert Saiz presentation in TCD, June 9th”

  1. Re: Broad Questions

    David McWilliams did give an interesting brush over the topic of property markets in Ireland on Miriam O’ Callaghan’s weekend morning radio show recently. Readers will be able to find podcasts of the show I am sure. It’s just interesting, given that McWilliams has been looking at this topic now in Ireland especially for such a long time.

    What would be of particular interest, in regards to the MIT speaker is to find out what his take was on property of any kind, as an investment made by long term funds, insurance companies, pensions etc.

    I passed a closed down HMV store today, which I noticed is owned by one of the Irish pension funds. The foot fall around the space unoccupied too, is very large.

    Recently in Ireland, the debate has come up (in the context of Sinn Fein’s proposal to reduce the tax exemption status of money invested in private pensions in this country), about how poorly many private pensions in Ireland have fared out.

    It doesn’t surprise one, if a lot of investment was tied to the Irish stock exchange, which went down to about a third of its value or something.

    What they found in America, was that property investment by long term funds proved robust in the downturn. It would be interesting to hear the MIT’s professors take on that.

    What people tend to forget, is that even in the property bubble and burst in Ireland, even though the VALUE, of a lot of commercial property and land, . . . just fell through the floor, very quickly, . . . that doesn’t always mean that the income generated of this property always evaporated in the same way as the values did.

    If anything, I suppose, when the stock market does so badly as it has done in Ireland, . . . what happens is the funds place un-realistic pressure upon the property side of their portfolio to perform, . . . because everything else is tanking. And we do need to watch that carefully in Ireland, because rates for commercial rates, is so closely tied to other aspects of the Irish economy.

    What is interesting about MIT though, from this point of view, is that it has both a real estate economics department and an urban planning department – both of which have had a significant influence down through the years.

    The real problem here in Ireland, with any of our construction and built environment schools, . . . is that no one ever talks to anyone else, in the other departments. For example, at Bolton Street, you have architecture, urban planning and real estate schools in the one building, . . . and I think it is safe to say that students in one school, would never know or meet students from another.

    That is just the way it goes, unfortunately. It would be interesting though to listen to the professor from MIT’s take on this communication deficit.

    The built environment is something that has to come together like a lot of musicians playing ‘in a band’, in the real world. But for some reason, we don’t train or learn in that manner, in schools, . . . even where all of these disciplines are shoved together in close physical proximity as in Dublin Institute of Technology. It still doesn’t make much difference, as the ‘language barrier’ seems to be the obstacle, that stops all interaction.

    Even though we know about this problem by now, we still don’t do much to address it. And yet, in the real world, we expect that the whole policy will merge together flawlessly in execution, using real resources and real cash, and real bank finance.

    I remember at one stage, I studied the history of the generals of the American civil war. Many of them had been to Westpoint military school together, when the size of the entire American military was only about 20,000 men. In other words, the largest size of force that the Westpoint graduates were ever expected to command, was only a small portion of that even. However, as it turned out in the civil war, they found themselves sometimes in command of bodies of troops, many times the size of what they were used to dealing with. There just weren’t any generals of any significant skills or ability in the entire American civil war – barring a few exceptions.

    It is sort of the same in construction still, in 2014.

    We expect it all to ‘come together’ in real life. But really, we aren’t training any generals, who really know how to manage resources, and economics of it all.

    This is what I noticed, most of all, when Taoiseach Enda Kenny recently announced Construction 2020, and talked about the forty different stakeholders he had consulted with, . . . as if it were a good thing, that every time we need a policy, . . . that the Taoiseach of the country has to go around talking to forty different parties.

    If we have to talk with forty different stakeholders, each time we need a new policy for construction, . . . then that is not an efficient or reliable command structure, . . . and problems are sure to arise, when you place that command structure, under any level of stress (when you really engage with adversaries like rising prices and shortages of space.

    You just don’t go into battle like we do in Ireland, and expect it all to end well. It just won’t.

    It took minister Phil Hogan two whole years in government, in order to declare Cherrywood, for instance, as an SDZ. And then another two years to sort out the SDZ almost, and still not a brick has been laid.

    We ain’t at the races, unfortunately. That’s with NAMA and paying two billions of fees to professionals.

    I happened to work for a real estate development & construction company, a few years ago, where all of the professionals from Bolton Street were ‘thrown in together’. But that was the only time, I found myself in an environment like that. Most of the time, professionals find themselves isolated and ‘cut off’ in some lonely and miserable outpost of the construction industry, . . . sort of like Kevin Costner’s character, in Dances with Wolves. BOH.

  2. Interesting description “white flight”. In the US it led to whole cities becoming no go zones complete with weak public services the most important of which are education and police services. If the nearby suburbs are in a different tax zone than the city proper then the deterioration of property values and tax revenue lead to a downward spiral that in the case of Detroit, Michigan led to a hollowing out of the city at every level. One solution under consideration is returning lots to farmland.
    Granted the USA is exceptional and in Europe National and Provincial governments pay a higher proportion of education and policing costs plus self governing suburbs have curbs than disallow plundering the mother ship. I associate ghettos for immigrants with hostility from the natives. The argument that e.g. the Turks are not assimilating and are creating their own self sufficient communities, which I hear quite often in Germany means that the Turks feel excluded and are making the best of a bad situation. It all fell into place one day when a teacher in a German school that catered to Turkish immigrants explained to me that the school had hired teachers from Anatolia so as the children of Turkish immigrants would fit into life in Anatolia.
    If the British did that for the Irish the Gaeltachts would be bigger. Would we have been better off. Since it is touchy subject I will keep my opinion to myself.

  3. @Brian O’Hanlon
    You find it surprising that the Taoiseach and his staff consult 40 stakeholders.
    At the early age of 14 or so I believed without a shadow of a doubt that the Irish government model was the Taoiseach as head waiter (Maitre d’hotel) the Ministers as waiters (Garcon, close to garsun) and the senior civil servants as busboys/girls. The longer I look at it the more convinced I am that I got it right.

    The political party consulting process is a close relative of the soliciting of campaign contributions. It is well rewarded and so life goes on.
    Governing for the common good in Ireland is a strange and abstract concept best left to people like Jean Jacques Rousseau and Voltaire in a far away land. As Brian Mulroney once said “You dances with the one that brung ya.”. A more sophisticated politician than Brian would be hard to find.

  4. Re: Chains of Command

    The idea that did work at times, for commanders who in ‘the thick of it’ during the 1860’s, . . . was the idea that they could sketch out the broad strokes of what needed to happen, at the given moment, . . . and that they was a circle of sufficient able and competent sub-commanders around, who could take those broad outlines, and develop it efficiently amongst themselves into a executable strategy.

    The area where that can break down of course, as it did on both sides of the campaign in the 1860’s, at times, was when the sub-commanders were not up to the task, or were not on their best game.

    Bearing in mind too, that this is only one area of policy that a government will have to try to work in. This area of policy and programming just happens to be an area, where I have spent a great deal of time learning about. As I mentioned, there is a clear deficiency in our training methods for real estate and construction management professionals, . . . in that no one talks any one else’s language.

    I.e. Even where you do get a collection of junior staff of sufficient ability, there is not much translation that goes on between on language and another one, in property and real estate.

    This is probably, the reason why the Fine Gael and Labour government did have to go around and try and extract from the forty different tribes, what it was they were talking about.

    The point of this however, is that every time that you do go on this marathon session of diplomacy, it wears down the resources of leadership that you have to depend on at the top. This is what I mean about having a layer of competence, lower down than the leadership who are able to coordinate, plan and execute.

    Interestingly, what did happen a lot I recall from my studies of the American civil war campaign, on both sides, that they would try to promote from below. I.e. Someone who had displayed a talent as an officer, might get a chance at a higher rank. That had very mixed results also, as the talents and skills that were so useful in dealing with fewer people, didn’t always work on the larger stage.

    What I am saying, is that I can be useful to have talent distributed throughout the different levels.

    What I would say the biggest problem in Ireland (or anywhere else), is that in the professions, we can train officers to work with and coordinate groups of a certain limited number (and within that one profession).

    But then there is this big yawning gap, between that officer level, and the top leadership, . . . which does need to be filled somehow, so that the broad outlines of direction or objectives can be offered by a leader, and the finer detail can be interpreted by those immediately in a lower level.

    It is that area in particular, I think, where the deficit of human resources does occur. It makes it very frustrating from a point of view of the senior officers below, and the leadership at the top, . . . because there is this big yawning gap, as I described, . . . which can be almost impossible to bridge in enough time and in a manner that is reliable.

    This is why I reference this policy introduced by the Irish coalition of late, the Construction 2020, policy. It has all the hallmarks of something that had a lot of work go into it, . . . and the problem is, a lot more work than it should have needed, . . . if that more effective command and control structure were available to use.

    This thing of going around to chat with all of the different tribes, and take their input, in one instant can sound impressive. But when one stands back from it, one realizes that it is actually not feasible at all. And what surprised me was that the leadership in the coalition seemed to feel so proud of that.

    Again, as I said, that is just me looking at an area of policy, that I happen to know a little bit about.

    Put me into another area, or portfolio, where I don’t even know A, B, C, and I am sure, I wouldn’t notice these things, as quickly at all. And let’s face it, the elected members in any democracy don’t always get to choose the portfolio they want, and just stick with that. Sean Lemass even being one example, who felt at home in enterprise and innovation, and left that portfolio with reluctance in order to move to the Taoiseach’s office. BOH.

  5. @Ronan Lyons

    My best to your colleagues ….

    ‘Male of the newly identified Wakatobi Flowerpecker Dicaeum kuehni that was caught on Tomia Island by Trinity College Dublin zoologists in the biodiversity hotspot of Sulawesi, Indonesia.’

    http://www.independent.ie/irish-news/trinity-college-scientists-discover-new-bird-30330639.html

    I hear there is a shortage of nesting sites in rural Hibernia due to farmers cutting down all the hedge(fund)rows to qualify for CAP funding; looking forward to the Daft.ie report on such horrendous inflation!

    @all

    Why don’t crows emigrate?

  6. White flight is a pretty specific phenomenon to the US, tied up in a history of white supremacy and a set of institutions that enforced racial inequality. Black Americans were forcibly kept out of white communities (in the north, post Jim Crow) through violence and public policy. So how is this white flight? Rather than the middle classes move to the suburbs while the working and upper classes stay in the city ? Is this class flight not race ? (What are the past trends with white immigrant groups, such as the Irish and Jews in London?)

  7. @Ronan Lyons

    A question re REITs?
    Are REITS starting to invest in residential property in Dublin, or can they invest in residential property? Could this be a contributing factor to the recent price hikes?

  8. Re: Residential as Investment Property

    @ Joseph,

    The debate that I have heard on this, suggests that in Ireland we have ended up, with an ownership model for rented properties (in residential market), by accident. That is, the well known phenomenon whereby banks in Ireland during the boom, loaned money to people, who purchased additional homes.

    It is this idea, where people purchase an additional home, in the aspiration that it will perform better over time, than would a pension fund, if they invested money in that instead.

    But what it boils down to, is an individual who begins maybe with one single mortgage on their own home, ends up being the owner (via lending from a bank), of several homes. A lot of folk in Ireland ended up becoming residential landlords, without really intending to become such.

    The point that is made about this, is that with such a low number of residential properties to rent and maintain, there is not enough revenues involved to be able to hire a professional property manager. I listened with interest to one interview not so long ago, it may have been a Late Debate RTE radio show, where the participants brushed over this point.

    In other words, in summary, it does not have to be a bad thing, that a small company or enterprise comes into the market, which has the finance to be able to own 50-100, or more residential units.

    We don’t tend to have that in Ireland as it stands.

    As I explained, when we constructed hundreds of thousands of residential units in the last ten to twenty years, when bank credit was available to buy the same property, . . . it resulted in a lot of Irish people getting into the business of becoming landlords, by accident and without any real sense of a plan or purpose.

    I can distinctly remember though, during the bubble period, interviews with experts on Irish radio, where some developers were building whole blocks of apartments at a time, with a specific strategy of leasing out the whole lot to rent allowance tenants.

    There were a lot of people at the time, I can recall, who looked at urban planning in the broader sense, and they balked at that new development in the residential construction universe in Ireland, . . where one had purpose built residential blocks, aiming to cater for a very specific kind of tenant.

    We do have American residential management property companies operating in Ballymun, who do own residential blocks there. That model was coming in during the boom era too. These are very experienced and skilled residential property managers, who own and manage a lot of residential property in many parts of the world. It is just what they do. There is nothing at all, wrong with having these competitors in the Irish market. They do bring in experience and standards that we could badly do with here in Ireland.

    Earlier, in Ronan’s earlier item on housing in Ireland, I made reference to the yard sticks for density in urban planning for residential. Dr. Peter Bacon for example, in his 1998 contribution to a joint RIAI and IPI conference, made use of the benchmark of bed spaces per acre. He observed in that conference, that in parts of the docklands in Dublin, achievement of up to 400 bed spaces per acre could be possible.

    When one moves into those densities, it does make a lot of sense to move away from the old model, where one landlord owns a couple of units, and another landlord owns a couple more etc. There are established models that are used in other large destination cities around the world, where professional property managers own 50-100 units, and upwards of that. Of course, it does take a lot of finance. It is a professional venture.

    That is not to say, that in Ireland we didn’t achieve density in the past.

    For example, as I mentioned before, in areas such as Portobello, or Stony Batter in Dublin city, densities there approach the 100 bed spaces per acre level, and over 70 units per hectare. The ownership model in those areas is very much one unit, one owner. It works fine, for centuries and decades. But those are own door, properties, each unit has its own access to the street (no use of common areas like in the apartment blocks).

    What you will notice in a lot of the purpose built local authority housing in Ireland (what little we were starting to build), was a lot of own door residential unit design, and no use of electric lifts at all. That was intended of course, to impact on the way that these units needed to be managed over the long run. BOH.

  9. Re: More on REITs

    What you might find in residential, is some participation of residential REITs in joint venture projects, or PFI.

    For example, in a PFI, the government say owns or has a claim on a portion of land. The residential REIT might take on the financial risk of building on the land, and do a contract with a building contractor and property manager, to build and operate the facility.

    What you could also have is a residential REIT, getting involved in joint venture. Again, someone might have raised finance to buy a certain piece of land that would be suitable (or may own a portfolio of suitable residential development land), and again the residential REIT undertakes to accept financial risk for construction of the project(s). You have have building contractors getting involved in the joint venture, and a professional property manager giving quite a lot of advice up front about the design and sequence of construction of units. That is, the professional property manager, in the joint venture, might have precise knowledge on the kinds of units to build at a given time.

    There are various ways that REIT’s can and do get involved in residential. REIT’s originally came about, because of a need to own and maintain critical oil, gas, water, electricity distribution networks.

    The closest thing that we probably have to a REIT in Ireland, is ESB Networks, or Telecom Eireann.

    The model for REIT’s in utilities, later got applied to things like office blocks and retail. But really, the idea of REIT’s can be applied to a whole lot of things. And as I mentioned, REIT’s themselves then get involved in various ways to deliver the actual finished projects, with parties who have the expertise and knowledge in various aspects of project delivery.

    As far as I know, in north America there are REIT’s who solely work in the area of supplying key building materials, to the American market – such as timber. The vast proportion of residential property in America is not masonry, but timber construction. So you have REIT’s in America, who do nothing else except own forests, manage those forest and sell the product to the construction industry (they even manage some of the forests as amenity areas, like parks for recreation, hiking etc).

    In that sense also, you can think of something like CRH, which is involved a lot in cement, concrete, road building materials etc, as being like a REIT in that sense. The common theme though, is that you are getting involved in the supply and maintenance of some crucial ingredient for economic activity. You just need some ‘model’ or way to own and finance these items, over a longer period.

    What a REIT does enjoy, at least in the north American context, is a taxation status, which is different from that of other entities – your normal commercial companies etc. If you think of it, in the sense of what REIT’s of all flavours, generally do, you would understand how they manage to enjoy that taxation status that is different.

    If you don’t have REIT’s, what you tend to find, is that a lot of this stuff can end up on the balances sheets of various banks, and private companies, and it can all get very difficult to manage. REIT’s can be very, very large in size of their balance sheets, . . but the way in which they are financed is so radically different from how a bank, or even many private companies would finance themselves (top heavy on debt of various sorts). What one tends to find with REIT’s is large amounts of equity ownership.

    Of course, when the REIT’s undertakes then to do certain projects, where they need to raise additional finance, they will issue debt in the form of bonds and what have you. But the major portion of the balance sheet will be funded using equity investment raised on the stock exchange, in which the REIT is quoted. BOH.

  10. Over the years I have read books on rental property some dating back to the Victorian era that advised against investing in rental property due to the risky nature of the business. Early on I gave some thought as to why rental property was risky since the reasons were not laid out in the texts. Then I cottoned on to “Rent Controls” which can come like a bolt from the blue and significantly reduce the ability to raise rents. This happens during periods of high inflation when the damage is particularly significant. In some markets multi unit rental apartment construction has ceased. The rental market then consists of Condominium units rented out by investors who own one to 10 units (the upper limit based on where rent control kicks in). Numbered companies are commonly used to avoid concentration of ownership. There are obvious benefits to investors in owning units where the Condominium Corporation manages the building, parking garage and grounds and provides security.. For tax purposes the Condo maintenance/management fee simplifies tax accounting.
    As a reliable source of cash flow with a reasonable ROI Condos have a place in an investment portfolio. There are risks in that Condos are a commodity as compared to single standalone houses with a higher lot (land) component per unit. Detroit provides a cautionary tale where even the lot value has deteriorated to its agricultural value. But then I remember that at one time in Geneva single family housing sold at 12 times the average wage in industry.
    We have now said good bye to the days when everyone and his brother said “Sure property has never declined in Ireland boy.

  11. Re: Housing models

    @ Mickey Hickey,

    One references that I often give, because he is someone who designed and built housing in Ireland, and took on the task of living in schemes that he designed and buildt, . . . spoke at a 2009 conference in Ireland, briefly about his study of the area of housing management and made some observations about Ireland. BOH.

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