Rising electric prices are finally getting attention; PUC action pending?; MACT rule; 200 generating plants shut down

ABC27 (in Harrisburg) has reported on rising utility rates, refunds and PUC investigations:

Many of you have complained about bills that doubled, tripled and even quadrupled, and many of you are now getting refunds because of those complaints.

This story reflects the broader trend of rising electric prices and declining electric production:

The electricity price index soared to a new high in January 2014 with the largest month-to-month increase in almost four years, according to the Bureau of Labor Statistics. Meanwhile, data from the Energy Information Administration, a division of the U.S. Department of Energy, indicates that electricity production in the United States has declined since 2007, when it hit its all-time peak. The U.S. is producing less electricity than it did seven years ago for a population that has added more than 14 million people.

This development was predictable as long ago as May 2012, when the wholesale capacity auction for 2015 was held among utility suppliers.

These price increases result from the loss of over 200 generating plants across 25 states (between 2012 and 2017).

The primary cause of the massive plant shutdowns is the EPA's Maximum Achievable Control Technology (MACT) rule.

With the loss of 200 generating plants, this problem is not going away. Price increases will become more widespread and worse very soon. The Pennsylvania PUC has no power to repeal the MACT or to rebuild the 200 lost plants. If the PUC tries to solve the problem by restricting retail utility prices, the result will be shortages.

The effect upon real estate values is very hard to predict, as owners may be forced to sell their homes or face foreclosure. Buildings that use little electricity may rise in value. Buildings that use gas may not be immune, as wholesale gas prices have been affected as well. Regardless of the existence of alternative fuels, a sudden forced conversion of a large portion of the real estate of an entire region of the country will not be smooth and will create many disruptions in the real estate industry and beyond.

Mortgage account "glitches" at PNC Bank

Homeowners with PNC Bank mortgage accounts learned today that their mortgage (and other) accounts were hit with double charges and unauthorized miscellaneous withdrawals (as reported by CBS 3 in Philadelphia).

Bank officials have promised a quick solution to the problem.

Urban farming progress in Detroit

I have written before on this blog about the trend toward urban farming in cities around the country, where blighted neighborhoods would be converted to agricultural uses. Click here for stories related to such activity in Harrisburg, Pittsburgh , Detroit and elsewhere.

Surprisingly, progress has been made in Detroit, as a private company is spending $450,000 to purchase 1,500 parcels on 150 acres:

A private company is snapping up 150 acres on the Motor City's East End -- property where more than 1,000 homes once formed a gritty neighborhood -- and turning it into what is being billed as the world's largest urban farm. Hantz Woodlands plans to start by planting trees, but hopes to raise crops and even livestock in the future, right in the midst of the once-proud city.

Immediate plans are to demolish and clear 15 of those acres and plant 15,000 trees, with additional plans for orchards, crops and livestock in the future.

Hantz' plans on a larger scale have been stopped or delayed by municipal (and community) resistance. It is too early to tell whether environmental and title issues will delay plans for utilizing the 150 acres in this transaction.

Is this agricultural activity worth watching as a predictor of the future of Harrisburg?

Obamacare tax on real estate sales

From My9 TV in New Jersey comes a discussion of the Obamacare real estate tax:

Very few home sales will see a capital gain sufficient to generate tax revenue under the current scenario.  Which means that (1) the rate will go up and (2) the minimum gain necessary to invoke the tax will go down - way down. Obamacare is not so  much about medicine or "care" as it is about taxes, revenue and paperwork.

Separate entranceways for subsidized tenants in New York.

The New York Post provides the story of a luxury development in Manhattan that receives federal subsidies because the development includes low income housing.

But there is a catch. The developer has installed separate entrances for the low income residents, even though all units are in the same building.

No matter how often the government tries to repeal the laws of economics, the fact remains that one cannot receive something for nothing. If you reside in subsidized housing, you will endure either the indignity of separate entranceways or fingerprinting or both or something even worse.

Sheep as landscapers for solar panels.

From the Carlisle Sentinel comes a story that reflects what may become a common problem as more companies install large solar panels on their property.

The Snyder's-Lance snack food company wanted to use sheep for the purpose of keeping their grass low because their 15,000 solar panels make it more expensive and difficult to mow the surrounding fields. But the Penn Township (Cumberland County) Zoning Hearing Board denied a variance for the company to keep sheep in its non-agricultural zone.

While there is nothing particularly earth-shattering about this story, it might give some companies a few ideas about landscaping shortcuts, especially if they place large items (such as solar panels) on their grounds. Certain zones permit farm animals, while a number of businesses will look to solar panels as electricity prices skyrocket over the next few years.

Covered bridges in Cumberland County

The Carlisle Sentinel recently included a piece on covered bridges in Cumberland County, including the two remaining bridges and a brief history regarding those bridges that were built in the 1800's and have since been lost.

Baltimore's "special tax districts" designated for supplemental security.

From Baltimore, Fox 45 brings to us the story of certain neighborhoods that charge a surtax to residents for the purpose of hiring private security to combat increased crime:

In Baltimore City there are four special tax districts where residents pay more to make their neighborhoods safer. Charles Village is one of them and has the lowest surtax of the four. It was formed in the mid-1990s as a way for the community to provide supplemental security and sanitation services to what the city was already providing. The surtax charged to homeowners has never been altered. Baltimore’s Little Italy community is one of the latest to seek to hire its own private security force, following the recent beating and robbery caught on a private security camera.

The story of this program in Baltimore's Little Italy is carried here. Only time will tell if such programs will spread to neighborhoods in other major cities. [Click here for CBS' story of private security being hired to patrol neighborhoods in Oakland.]

"Shale gas is Rearden Metal" - The Telegraph

For those who follow issues related to the recovery of natural gas from shale, a recent article in the UK Telegraph is of interest. Writer James Delingpole compares the campaign by unions/bureaucrats/environmentalists against shale development with the war against the fictional Rearden metal in the dystopian novel, "Atlas Shrugged." While not mentioning Marcellus Shale directly, Delingpole's article and the issues related thereto have a direct bearing on Pennsylvania real estate and the Pennsylvania economy.

East Shore v. West Shore (Harrisburg) real estate sales

Pennlive.com posts an article about real estate sales in the East Shore v. West Shore (Harrisburg area). The article is inconclusive and nonspecific, but helps highlight the issue.

Mayor Bloomberg wants to fingerprint all public housing residents

From WCBS in New York comes the story of the true price of public housing. Mayor Bloomberg wants to fingerprint all public housing residents. As public housing and housing subsidy programs expand, this type of proposal will spread also.

Municipal pension crisis

As should have been obvious a long time ago, the issues surrounding Detroit's bankruptcy filing are not limited to Detroit.

Governing.com has provided a list and a map of all 36 of the municipal bankruptcies in the United States snice 2010. A major factor in these bankruptcies has been unfunded pension obligations. This problem exists in municipalities throughout the country. This crisis was predicted more than 30 years ago:

As for state and local pensions, they are in shambles. . . . . A 1975 survey of 44 Pennsylvania cities revealed that over 75% of them had pension programs that were not adequately funded. . . . Pension fund debt literally threatens the future survival of state and local finances.

Gary North, How You Can Profit From the Coming Price Controls, pp. 6-7 (1980).




While the 1975 data may be old, it wasn't old in 1980 when North wrote his book (yet the whole issue has been ignored until circumstances forced it into the headlines). In the last 30+ years, the problem has only grown worse. Those pension programs did not somehow get more solvent since the 1970's. Municipal spending has increased and hiring has increased (until very recently). Tax bases have declined - both in terms of population and property values (especially in the past 5 years).

As the pension crisis spreads and worsens, real estate values in the affected municipalities will reflect that crisis.

Click here for previous commentary on municipal default.

Monroe Township sewer fee collection

Pennlive reports that Monroe Township has been successful recently in collecting tens of thousands of dollars of past due sewer charges from residents. Monroe Township is not the only municipality that has accumulated thousands of dollars of unpaid sewer charges. But it may be one of the few that has made an effort to collect the charges instead of simply waiting for the homeowners to sell the real estate.

Numerous municipalities are strapped for revenue and have resorted to imposing or increasing fees of dubious legitimacy in recent years (inspection fees, fines, occupational taxes, etc.). But how many municipalities have made efforts similar to Monroe Township to collect on delinquent, legitimate, pre-existing sewer charges instead? How many have even seriously considered this option?

Electricity prices rising; War on Coal.

I have written previously about rising electricity costs resulting from the shutdown of coal generators in the northeastern United States.  The coal shutdowns are necessitated by new federal regulations that are expected to cause more than 200 plants to close. Electricity rates are expected to rise drastically by 2015. 

Last week, an advisor to President Obama provided further context, advocating a "war on coal:"

Daniel P. Schrag, a White House climate adviser and director of the Harvard University Center for the Environment, tells the New York Times "a war on coal is exactly what's needed." Later today, President Obama will give a major "climate change" address at Georgetown University.

“Everybody is waiting for action,” Schrag tells the paper. “The one thing the president really needs to do now is to begin the process of shutting down the conventional coal plants. Politically, the White House is hesitant to say they’re having a war on coal. On the other hand, a war on coal is exactly what’s needed."

Record electricity prices were seen in the United States in May. 

This news should affect decisions about how buildings are heated, pricing strategies for rental units and whether utilities should be included in the tenants' rental package.

  

Harrisburg school tax increased by 3 1/2 percent.

Harrisburg School District has announced a three and one half percent (3 1/2 % )  real estate tax increase as part of its new budget.  WGAL has more details. 

Detroit debt default and impact on solvent municipalities

From Bloomberg comes the story of how Detroit's recovery plan may impact the municipal bond market throughout Michigan:

Emergency Manager Kevyn Orr’s plan to suspend payments on $2 billion of Detroit’s debt threatens a basic tenet of the $3.7 trillion municipal market: that states and cities will raise taxes as high as needed to avoid default.

Investors have viewed municipal bonds as "safe" for decades because municipal governments could always raise taxes to pay back the principal and interest.  Should local governments lose that power, local debt would be no more safe than corporate debt (probably less so - as corporations are constrained by the profit motive in their daily operations). 

Should investors lose confidence that cities can or will raise taxes no matter how much debt they acccumulate, the bond market will suffer far beyond Michigan.  Cities have incurred debt and expenses that today's economy cannot support.  Cities and other municipalities have been looking to other sources of revenue for years, as they turn their police and code officials into little more than bridge trolls. Muncipal employees (more and more) now demand money in exchange for safe passage (or permission to conduct business) instead of acting for purposes related to legitimate public safety concerns.  This trend will continue if municipalities have a harder time selling bonds.

Impairment of the bond market will also impact local officials' operation of school districts, sewer plants and public water - with resulting changes in school taxes, sewer rates and water rates.

It will take more than default by Detroit to affect local governments and local taxes in Pennsylvania.  But Detroit is not the only city that is facing or has faced these choices.  Even the federal government cannot print enough dollars to bail out every city in the country. 

Harrisburg is only a little further from the brink than Detroit.  Maybe Harrisburg can count on a massive bailout by the federal government.  Maybe it can't.  But it would be wise for local governments across Pennsylvania to consider scaling back operations and ambitious plans for sewer expansion and other adventures before they face a choice between (1) borrowing in a hostile bond market or (2) raising taxes and fees on already overextended residents. Whether a township is solvent or not, the ability to raise funds through the bond market may be seriously compromised by a municipal default by any city in Pennsylvania.

Gary, Indiana to sell 7,000 properties for $1.00 each.

Gary, Indiana has proposed two steps that may predict the future for cities across the country:

 

(1) The Daily Mail reports that the City would like to operate on 40% less land.  40% of Gary's land would "return to nature" under this plan.

 

(2)  Gary owns 7,000 properties (compared with the roughly 500 owned by Harrisburg, PA).  Gary proposes to sell these properties for $1.00 each. 
  

• In the next few months the city is planning to auction off the housing for $1 each.
• The homes would each need $15,000-$30,000 in repairs.
• Buyers would have to agree to renovate their purchases as quickly as possible.
• If buildings are beyond repair, NBC reports that a 'deconstruction' program could be initiated - to take apart buildings and recycle materials.

This approach fails to recognize the title defects that result from prior tax sales.  The City is unable to convey good title to these buyers.  The buyers will have to file quiet title actions (against prior owners) in order to clear the title and obtain financing for the repairs. 

 

Despite the flaws in this proposal, urban consolidation is an approach that will become almost mandatory as municipalities struggle with declining revenues and increasing service costs.

 

Compare this approach with the approach taken by Detroit in recent years. 

  

Update - August 25, 2013
Tara Steele provides more information on the "catches" in this program.

Homeownership at its lowest rate since 1995

From Bloomberg news comes the story of home ownership at its lowest rate in 18 years:

The share of Americans who own their homes was 65 percent in the first quarter, down from 65.4 percent a year earlier and the lowest level since the third quarter of 1995, the Census Bureau reported today. The vacancy rate for rented homes dropped to 8.6 percent from 8.8 percent a year earlier, while vacancies for owner-occupied houses fell to 2.1 percent from 2.2 percent.

This reduction corresponds with increasing investment by landlords:

“Credit conditions are still tight and investors are taking advantage, in the interim, of favorable yields,” Paul Diggle, property economist for Capital Economics in London, said in a telephone interview. “They’re making hay while the sun shines.”
Diggle said the homeownership rate will continue to fall throughout the year. It peaked at 69.2 percent in June 2004, spurred by easy credit.

Americans raiding 401(k) accounts

CBS-3 in Philadelphia reports on a new study that shows increasing numbers of Americans drawing on their 401(k) accounts in order to pay routine bills and expenses.

While there is no direct real estate aspect to this story, I link to it because there is a definite real estate implication for the immediate future.  Increasing raiding of retirement accounts (despite penalties and tax consequences) implies severe lack of liquidity on the part of the individuals doing the raiding.  Unless lending standards are relaxed to reflect pre-2008 requirements, this lack of liquidity will tend to dampen the market for residential real estate.

There are many factors that determine trends for real estate sales and values, but consumer liquidity will definitely affect such trends going forward.

Gasoline prices in 2013

As we have seen, gasoline prices are on the rise again. This report from WJZ CBS in Baltimore provides more details:

At the rate we’re going experts say $4 a gallon is just around the corner.


2013 is on track to be one of the most expensive years to fill ‘er up. Gas prices in Maryland are up 16 cents in just one month. Nationally, they are up 17 cents. AAA says it’s just the beginning.

“The way prices have been increasing over the past few weeks we wouldn’t be surprised to see prices approach near $4 a gallon here in Maryland,” said Christine Delise, AAA.

Rising gasoline prices have a definite effect on real estate sales and values.  Four-dollar-a-gallon gasoline prices have had a stifling effect on the economy in recent years.  The rising fuel prices and their effects will not be limited to one geographic area.  For the first time, gasoline prices may rise higher than $4.00.