Landmark Links May 11th – Self Defeating

Lead Story…. Some times I wonder if too many posts here are spent writing about the California housing affordability crisis – easily my most frequently posted-about topic – but then I consider that the state keeps providing ample ammunition by doing so much stupid shit.  The latest in a long list of easily avoidable self-owns took place this week when the California Energy Commission voted 5-0 to approve a requirement that all newly-constructed residential buildings up to three stories high, including single-family homes and condos, be built with solar installations starting in 2020.

Before I delve too deeply into this subject, I think it’s important to note that I consider myself a solar advocate and put my money where my mouth is.  I own two houses in Southern California.  One is my primary residence and the other is a rental.  Both have solar panels on the roof for a combination of the following reasons:

  1. It increases the values of the houses
  2. It saves money on electrical costs over time
  3. Its good for the environment
  4. It provides a hedge against ever-rising electricity costs

I point out the above in order to give some context to what I’m about to write.  As my actions make clear, I am both a supporter of an believer in solar energy as a reliable source of renewable power.  That being said, the recent vote by the California Energy Commission is an incredibly stupid move to make in the middle of an affordability crisis and here’s why: when I put solar on the two houses, it was because I was able to pay the higher upfront cost in order to reap the financial benefits down the road.  In other words, it was a choice that I made on my own and not everyone has the financial flexibility to make such a decision.  However, the state is now mandating that they do so in the event that they are purchasing a new home.  Sebastian Malo and Nichola Groom of Reuters provided some context to the economics behind going solar:

Constructing a home in accordance with the new rules will add about $9,500 in immediate costs, according to estimates by the Energy Commission.

It will save homeowners about $19,000 in energy and maintenance costs over 30 years, Energy Commission spokeswoman Amber Pasricha Beck told the Thomson Reuters Foundation.

That appears to be the best case scenario for cost as builders estimate that the upfront cost increase is more in the $14,000 – $16,000 range.  For home buyers with high incomes, this isn’t much of a hardship and the investment should pay off over time.  However, for entry level home buyers it is a much bigger issue.  The $9,500 (or $14k – $16k depending on who you believe) is a much larger percentage of a $350k house than it is of a $1MM house.  If a buyer is already barely at the margin to buy an entry level home, the extra cost of solar could potentially push them out of qualifying range and back into the rental pool.  This is especially bad in a market where there are very few existing entry level homes on the market meaning that new construction has to account for a larger portion of the entry level than market than usual.  It’s even worse when you consider that this creates more renters at a time when rents are sky high and around 54% of California renters is already considered rent burdened (meaning that they pay over 30% of their gross income in rent).

For the record, about 15% – 20% of new homes built in California today include solar panels.  The California Energy Commission’s stated objective with this solar mandate is to lower carbon emissions by increasing energy generated from renewable resources –  a worthy goal.  However, California would do far better by the environment and its middle class residents to simply increase density dramatically in cities and spend the money being wasted on the bullet train boondoggle on urban mass transit.  Its a shame that many of the so-called environmentalists who push efforts like state mandated solar aren’t equally as passionate about building more in urban areas, which pretty much every credible study shows would be the best thing that we could do for the environment in the long run. Then again, that type of impactful solution doesn’t allow for either the virtue signaling or they payoff to donors such as solar companies and Tesla like mandating solar panels on newly built homes does.


Coming Due: Corporate America has been binging on cheap money for the past decade.  Now companies will need to refinance an estimated $4 trillion of bonds over the next five years in a rising interest rate environment.  Side note: this is a bigger risk for those that have eaten through their equity positions to buy back their own shares.  See Also: Credit cracks are showing if you know where to look.

Squeezed: In a sharp turn from 2015-2016, companies are now facing higher input costs.  However,  passing those costs on to consumers is proving difficult.

Dismal Science: The current rate increase cycle is proving once again that economists don’t truly understand how Federal Reserve actions impact jobs.


Ghoul Pool: From the obvious (Sears and JC Penney) to the somewhat surprising (J Crew and Neiman Marcus), here’s a list of 12 retailers who could be going bankrupt in the not-too-distant future But See: Some bright spots are showing up in retail as concept stores are taking vacant spaces.

Called It: The Blackstone acquisition of Gramercy Property Trust is a perfect example of what I wrote about back on May 1st: a massive amount of private capital is well positioned to purchase public REITs trading well below NAV.


Drained: Millennials are spending approximately 45% of their income on rent in their 20s compared with 41% for GenX and 36% for Baby Boomers when they were the same age.

Bad Choice: How California’s land use regulations favor poverty over sprawlSee Also: High housing costs are driving out lower-income Californians.

High Bar: HUD now considers $87k per year of house hold earnings for a family of four to be low income for housing subsidy purposes in Orange County.  This sounds absurdly high until you realize that a family of four in the Bay Area is considered low income if they make under $117k a year.


The Verdict is In: The Federal Reserve Bank of San Francisco provides the definitive piece on how futures trading changed Bitcoin after its manic run-up.

Blowing Off Steam:How Baghdad became a party town after the Gulf War and the war against ISIS ended.

Law of Unintended Consequences: How taxi cab industry and its overseers who crafted regulations that protects the interest of medallion owners over customers created Uber.

Fake It Till You Make It: Meet the scammers getting paid to advertise sketchy trading strategies and pyramid schemes on Instagram by posing as ultra-wealthy Millennials.

Chart of the Day


Measured Response: A Georgia man was sentenced to life in prison after being convicted of murdering his wife by attempting to decapitate her when she told him that she wanted to move to Florida.  Let me be clear: I do not condone this in any way whatsoever……but it was Florida.

Worst Job in America: I can’t imagine any non-hard-labor job worse than managing the MTA’s Twitter account where you have to respond to 2,500 often profanity-laced tweets a day from angry NYC commuters.

Thirsty: A woman was arrested after calling 911 claiming a medical emergency when she really just wanted some beer because Florida.

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