rental demand office market high tech

If You Own, You're In Business
land rent profitability

Now It's Cheaper to Buy Than to Lease

How much you have to pay to have a place to live or work has risen, so has a new business cycle started? We trim, blend, and append four 2012 articles from: (1) Los Angeles Times, May 5, on apartments by A. Lazo; (2) PRNewswire, May 7, on offices; (3), May 7, on farmland by J. Caldwell; and (4) National Hog Farmer, May 7, on farmland, all followed by a link to an interview of Dan Sullivan on American Freedom Radio, May 4.

by Alejandro Lazo, by PRNewswire, by Jeff Caldwell, and by National Hog Farmer

The foreclosure mess has pushed millions of former homeowners with tarnished credit into a competitive apartment market across the U.S. Add fresh demand from young workers, few new units, and tight standards for home loans, and the result is rental sticker shock not seen in years.

Rents are surging from New York to Los Angeles. The average monthly U.S. rent for apartments hit $1,008 in the first quarter, pushing past the all-time high set in the third quarter of 2008. In certain markets, it is now cheaper to own a home than rent.

A big driver of rent increases has been demand from young workers who are striking out on their own after doubling up with family members during the worst of the economic downturn.

People who've lost their homes to foreclosure or short sales are also feeling the sting. Damaged credit means many must pay a premium or put down a bigger deposit to secure a place.

The crash has made owning a home more affordable than renting in some markets. An index by the research firm Green Street Advisors compares buying with renting in 79 metro markets; that index hit its most attractive point last year for buying since 1991, when the firm began tracking the data.

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JJS: One personís pain is anotherís gain in this system. But so is one personís profit another personís profit.

Strong growth in high-tech sector hiring and increasing competition between firms for talent created new tech-oriented submarkets around the U.S. and Canada in the first quarter of 2012.

Despite high-tech's relatively small footprint in office markets, accounting for just 8.5 percent of all jobs using office space, it has had a tremendous impact on the absorption of office space in the top five tech-oriented markets. Additionally, the sector's recent employment growth -- roughly three times the overall U.S. employment rate -- has begun to affect a growing number of other markets around the U.S. and Canada.

High tech accounts for nearly one-third of recent office market absorption nationwide. The top five markets of Boston, New York, San Francisco, Seattle and Silicon Valley recorded annual rent growth across key tech-oriented submarkets between 16.8 and 57.9 percent in the first quarter.

The submarkets that saw positive annual rent growth in the period included Vancouver's Yaletown submarket; Boulder, Colorado; downtown Pittsburgh; Washington, D.C.'s East End; and the West Loop submarket of Houston, Texas.

High-tech demand for office space, which has led to rent recovery in many markets adversely affected by the financial downturn, is now spurring speculative construction activity in the office sector for the first time in more than five years.

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JJS: Itís not just where people have settled but also where they farm that land soars in value.

Farm land sale prices are up $38 to rent row crop acres. That adds up to an 18% increase from a year ago, the largest increase since ISU officials have kept track of rental rates 18 years ago. The year's average -- now $252/acre -- has climbed steadily from $176/acre in 2008.

Estimated rents for land in the high third of each county increased by an average of 20%, but estimated rents on low third quality row crop land increased by only 15%. In many counties typical rents were $400 to $500 per acre or more for the higher quality land.

Numbers like these are common all around the Corn Belt, where the rising tide of grain market prices has floated all adjacent markets higher, including both land prices and rental rates.

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A significant difference in profitability exists among farmers. The farm profitability levels can be broken into five groups (bottom 20%, 20-40%, 40-60%, 60-80% and the top 20% profitability by crop).

The cost of production varies by group, starting at $5.36 per bushel of corn produced in 2011 in the bottom group, declining to $4.63 for the 20-40% group, $4.30 for the 40-60% group, $3.91 for the 60-80% group and $3.45 per bushel for the most profitable group -- a difference of $1.91 between the top and bottom groups in profits.

The most significant impact on this cost of production is the yield per acre produced, which ranged from 139 bushels per acre in bottom tier to 177 bushels per acre in the top group, a difference of 38 bushels per acre.

One of the top five costs was seed, varying slightly among groups from $102 to $105 per acre. Fertilizer is the second-highest cost and the bottom three tiers had similar costs at $154, $152 and $151, while the top 20% spent $118 per acre.

The highest cost was land rent, which varied, but did not vary significantly among groups.

Other top expenses were repairs, fuel and oil in direct costs, and depreciation in overhead costs.

Net return to labor and management income started at $63, increasing quite dramatically in each group until reaching $509 for the top 20%. The top 20% of farmers are managing much higher net returns to labor and management by $446 per acre over the bottom 20%.

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JJS: The key to note is that in all these cases, it is the need for land, and the competition for scarce land -- a good of a fixed quantity -- that drives the price. Further, the owner creates neither the land nor its value yet in the current system gets to exclude everyone else from their land, even land theyíre not using, and get to require others to pay to use that land. Itís not fair, not is it efficient, since it creates bubbles. A better system is to pay oneís community for land, and not pay taxes on oneís labor or capital. Itís a superior system explained in greater detail on a radio show.

Dan Sullivan of Pittsburgh -- a city which used to levy a land tax -- and a former Libertarian Party activist, was on American Freedom Radio this past Friday. He was on during the second hour, and once the program has loaded, you can go to the middle of the time-bar and catch him. He covered a lot of interesting history. To listen .


Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the ďLand RightsĒ course, click here .

Also see:

When the value of good land rises Ö

Family farmers worse off despite high prices

Land-use tax hearing attracts large audience

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