The building boom in Florida is in cinders. It is going to take a long time to tally the costs and devastation to the public interest.
“Developer gives up fortune,” reads a bankruptcy story in The Miami Herald about Juan Puig who “lived the high life during the housing boom: a Gables Estates waterfront mansion, a condo near Aspen. A fleet of 10 luxury cars, including a 1966 Ferrari and 1969 DeTomaso Mangusa. A 59-foot Ferretti Yacht. More than 70 pieces of art. A gold Cartier watch with diamonds. Extensive wine collection. Welsh Hunter pony. But now he and his wife must give it all back.”
Puig’s flameout was caused by bad bets on the arbitrage between rental values and condos. But the $100 million in debt that Puig owes and can't account for is a pinhole compared to the massive speculation and overinvestment in the hyper-inflated construction bubble that mars the Florida landscape.
Back in 2003, Jeb Bush loyalist and campaign finance chair, Al Hoffman—who was then chairman of WCI Communities, Inc.—crowed to the Washington Post that suburban sprawl was “an unstoppable force”.
Today, WCI is now struggling against a stronger force: reality. The cost to international credit markets from the exuberance of builders and the development lobby in fast-growing states like Florida is already measured in the tens of billions, a landscape of structured mortgage products and financial derivatives fertilized by Wall Street without friction, impedence, or meaningful regulation.
For the public interest, of course, what is left from the building boom are massive deficits, degraded wetlands, bad water quality, and a trail of public corruption that seems to have no end.
Take Palm Beach County, for example.
Former county commissioner Tony Masilotti is headed to jail, for taking a piece of the action on property he was involved in, as a zoning matter. Current county commissioner Warren Newell just plead guilty to criminal charges on another land deal where more than $300K lined his pocket from a success fee paid to an engineering consultant.
As reported by the Palm Beach Post, a key figure in the cases is Enrique Tomeu, president and co-owner of Palm Beach Aggregates. Tomeu's company also figured in the corruption case of former County Commission Chairman Tony Masilotti. In a transaction that led to Masilotti's political demise and conviction, Tomeu helped Masilotti gain control of$7.7 million worth of land in Brevard County. In return, Masilotti engineered a vast zoning increase allowing 2,000 homes on 1,200 western-county acres that had been limited to 120 units.
Tomeu persuaded a state agency, closely managed by the Governor’s Office in Tallahassee, to purchase 1190 acres of his property to be used as “water storage”.
An engineering consultant, Dan Shalloway, engineered the $190 million land deal for the Palm Beach Aggregates rock pit to be used for “water storage”. He is now facing a professional-misconduct complaint. On Monday, the South Florida Water Management District filed the complaint with the Florida Board of Professional Engineers, according to the Palm Beach Post.
“The four count complaint includes allegations that Shalloway lied to the district in 2001 about his relationship with Palm Beach Aggregates, a Loxahatchee mining company that was trying to sell 1,190 acres of rock pits to the district for water storage. “Please let me clarify that neither my firm nor I works for Palm Beach Aggregates, “ Shalloway wrote to then-district Executive Director Frank Finch. “We were merely pointing out to water available to the public as good citizens.”
Shalloway and (Palm Beach County Commissioner Newell) made arrangements as far back as 1998 to share the profits from any sale of the pits.
The media has yet to explore the links between Tomeu and Governor Jeb Bush, who was elected to his first term in 1998, and had clearly articulated the twin goals, economic development and environmental protection, that were well served by entrepreneurs like Tomeu—a Geoge W. Bush Pioneer and contributor to the US Senate campaign of Mel Martinez—who keeps up appearances with Florida environmentalists.
And that is another price of the building boom: the extent to which environmentalists were compelled to cozy up to land speculators and entrepreneurs like Tomeu.
If any of the greens were aware of the behind-the-scenes manoevering including the corruption of local government in Palm Beach, through land deals pushed by Tomeu, no one is raising their hand.
Nor did conservationists have any leverage when the State of Florida agreed to the per acre benchmark established by the Palm Beach Aggregates deal, at more than $180,000 near lands owned by Big Sugar and coveted by the environmental community for the restoration of the Everglades.
The outrageous purchase price was justified for its "environmental benefit": in fact, it was a price pushed by corruption. Period.
But the consequences are extreme: inflated values which supported wealth creation of the growth machine have pushed the cost of environmental restoration into the stratosphere on the one hand and buttressed by well-financed property rights advocates on the other, establishing precedents by which future land values will be measured.
For county commissioners and bankrupt developers, there is always a chance to start over. And for career bureaucrats, another rung on the professional ladder.
But there is no starting over for the train of destruction that greed has etched on the Florida landscape.
In June, Nicole Brochu, columnist for the Ft. Lauderdale Sun Sentinel, wrote, “Count me as thrilled federal prosecutors are cleaning up the halls of government and tossing the scoundrels out of office. But when you watch as low-life drug dealers get 10 and 20 years for their craft, or vandals get enhanced hate-crime penalties for spray-painting a swastika on a synagogue, or even button-down CEOs like Enron's Jeffrey Skilling get 24 years in the slammer, you expect the same iron fist to come down on the dirty politicians who infect the democratic process and victimize the entire community.”
But the same iron fist is not coming down on those who illegally facilitated the growth machine.
The tale of $100 million disappearing down the drain of the housing bust, of county commissioners shuffled off to jail, tells another story: why Florida voters are ready to take away the power from elected officials for new changes to comprehensive land use plans. (See, Florida Hometown Democracy at floridahometowndemocracy.com)
Here is the hard scrabble truth: while the beneficiaries and entrepreneurs of the late, great housing boom may be able to "start over"—after their fortunes have been lost and declaring bankrupcy, or, business plans burnt to a crisp—the communities they wrecked by promoting terrible zoning changes, allowing the costs of infrastructure to be deferred, wetlands destroyed, water quality: these results cannot be reversed.
There is no starting over for Florida.
The legacy of the building boom—the call by the growth machine for “streamlined permitting”, “more protection, less process”—all the ways in which Floridians have been promised a higher quality of life, while the public interest has been dragged under the bus—these are reasons Floridians will vote for the Florida Hometown Democracy measure if they are given a chance.
It should come as no surprise to the construction and development lobby that it reaps what is sows: profound citizen discontent over the trashing of Florida and barriers erected against the public interest—like Amendment 3 approved by a state-wide vote in 2006 that raises the threshold to 60 percent of the electorate, for changes to the Florida Constitution by referendum.
The Herald reports that the Puig bankruptcy “is the biggest yet to come out of the slumping housing market”. But it is certainly not the last. And Florida is far, far from totaling the damage.
9 comments:
I would like to comment intelligently on this but I can't.
Your post makes me want to cry.
WHY can't more people see what is happening right before their eyes?
WHY are so many people willing to just accept the mantra "Growth is inevitable"?
And you are right. Once our quality of life is destroyed, the damage is irreversable.
The ones responsible for the ruination of this state won't be sticking around to wittness their handiwork - they'll be the only ones who can afford to get out.
That's right.
The sad thing is, all anyone has to do to find evidence of the twisted logic and convoluted economic principles being applied all over this state is to read.
I scan a dozen or so Florida newspaers a day and this is an example of two stories that ran in the same newspaper on the same day:
http://www.orlandosentinel.com/news/custom/growth/orl-lclermont1107sep11,0,6493010.story
County considers rezoning groves
Clermont's council will decide today whether to endorse a development plan.
Robert Sargent
Sentinel Staff Writer
September 11, 2007
CLERMONT
A large citrus grove in a rural part of south Lake County could be redeveloped for a crop of new homes.
Rows of orange and tangerine trees now cover the hillsides on the 731-acre Clonts Groves along U.S. Highway 27 south of Clermont. But the county is considering a proposal to rezone the tranquil setting to allow more than 1,100 homes and a quarter-million square feet of commercial and office space.
http://www.orlandosentinel.com/orl-homes1107sep11,0,3288978.story
Homes outlook worsens
Jerry W. Jackson
Sentinel Staff Writer
September 11, 2007
Benjaimal Sukhram's home-for-sale listing recently expired after six months. Not one person came to see his Lake County house during that 180 days, much less make an offer to buy it.
But the Clermont resident signed up Monday with a different Realtor, ready to try again. He has plenty of company.
A record 26,313 homes and condos were listed for sale last month just in the core Orlando market, up another 295 listings from the month before, according to records kept by the Orlando Regional Realtor Association. And thousands more are on the market as for-sale-by-owner properties.
Can anyone explain to me why, if people are having a hard time selling the "26,313 homes and condos (that) were listed for sale last month just in the core Orlando market," we need to build another 6,200 more?
Like Hedge Funds there is more money to be made in doing the deal, i.e. transaction costs, than there is often in making anything. However, we must keep in mind that all great cities were built upon corruption, Tammy Hall in NYC, Paris under Napolean III, etc. what we need in FL is a real economy like in CA, NC-to a limited extent, and the Northeast to justify all this building.
real economy?
American Economy: R.I.P.
By PAUL CRAIG ROBERTS
The US economy continues its slow death before our eyes, but economists, policymakers, and most of the public are blind to the tottering fabled land of opportunity.
In August jobs in goods-producing industries declined by 64,000. The US economy lost 4,000 jobs overall. The private sector created a mere 24,000 jobs, all of which could be attributed to the 24,100 new jobs for waitresses and bartenders. The government sector lost 28,000 jobs.
In the 21st century the US economy has ceased to create jobs in export industries and in industries that compete with imports. US job growth has been confined to domestic services, principally to food services and drinking places (waitresses and bartenders), private education and health services (ambulatory health care and hospital orderlies), and construction (which now has tanked). The lack of job growth in higher productivity, higher paid occupations associated with the American middle and upper middle classes will eventually kill the US consumer market.
The unemployment rate held steady, but that is because 340,000 Americans unable to find jobs dropped out of the labor force in August. The US measures unemployment only among the active work force, which includes those seeking jobs. Those who are discouraged and have given up are not counted as unemployed.
With goods producing industries in long term decline as more and more production of US firms is moved offshore, the engineering professions are in decline. Managerial jobs are primarily confined to retail trade and financial services.
Franchises and chains have curtailed opportunities for independent family businesses, and the US government’s open borders policy denies unskilled jobs to the displaced members of the middle class.
When US companies offshore their production for US markets, the consequences for the US economy are highly detrimental. One consequence is that foreign labor is substituted for US labor, resulting in a shriveling of career opportunities and income growth in the US. Another is that US Gross Domestic Product is turned into imports. By turning US brand names into imports, offshoring has a double whammy on the US trade deficit. Simultaneously, imports rise by the amount of offshored production, and the supply of exportable manufactured goods declines by the same amount.
The US now has a trade deficit with every part of the world. In 2006 (the latest annual data), the US had a trade deficit totaling $838,271,000,000.
The US trade deficit with Europe was $142,538,000,000. With Canada the deficit was $75,085,000,000. With Latin America it was $112,579,000,000 (of which $67,303,000,000 was with Mexico). The deficit with Asia and Pacific was $409,765,000,000 (of which $233,087,000,000 was with China and $90,966,000,000 was with Japan). With the Middle East the deficit was $36,112,000,000, and with Africa the US trade deficit was $62,192,000,000.
Public worry for three decades about the US oil deficit has created a false impression among Americans that a self-sufficient America is impaired only by dependence on Middle East oil. The fact of the matter is that the total US deficit with OPEC, an organization that includes as many countries outside the Middle East as within it, is $106,260,000,000, or about one-eighth of the annual US trade deficit.
Moreover, the US gets most of its oil from outside the Middle East, and the US trade deficit reflects this fact. The US deficit with Nigeria, Mexico, and Venezuela is 3.3 times larger than the US trade deficit with the Middle East despite the fact that the US sells more to Venezuela and 18 times more to Mexico than it does to Saudi Arabia.
What is striking about US dependency on imports is that it is practically across the board. Americans are dependent on imports of foreign foods, feeds, and beverages in the amount of $8,975,000,000.
Americans are dependent on imports of foreign Industrial supplies and materials in the amount of $326,459,000,000--more than three times US dependency on OPEC.
Americans can no longer provide their own transportation. They are dependent on imports of automotive vehicles, parts, and engines in the amount of $149,499,000,000, or 1.5 times greater than the US dependency on OPEC.
In addition to the automobile dependency, Americans are 3.4 times more dependent on imports of manufactured consumer durable and nondurable goods than they are on OPEC. Americans no longer can produce their own clothes, shoes, or household appliances and have a trade deficit in consumer manufactured goods in the amount of $336,118,000,000.
The US “superpower” even has a deficit in capital goods, including machinery, electric generating machinery, machine tools, computers, and telecommunications equipment.
What does it mean that the US has a $800 billion trade deficit?
It means that Americans are consuming $800 billion more than they are producing.
How do Americans pay for it?
They pay for it by giving up ownership of existing assets--stocks, bonds, companies, real estate, commodities. America used to be a creditor nation. Now America is a debtor nation. Foreigners own $2.5 trillion more of American assets than Americans own of foreign assets. When foreigners acquire ownership of US assets, they also acquire ownership of the future income streams that the assets produce. More income shifts away from Americans.
How long can Americans consume more than they can produce?
American over-consumption can continue for as long as Americans can find ways to go deeper in personal debt in order to finance their consumption and for as long as the US dollar can remain the world reserve currency.
The 21st century has brought Americans (with the exception of CEOs, hedge fund managers and investment bankers) no growth in real median household income. Americans have increased their consumption by dropping their saving rate to the depression level of 1933 when there was massive unemployment and by spending their home equity and running up credit card bills. The ability of a population, severely impacted by the loss of good jobs to foreigners as a result of offshoring and H-1B work visas and by the bursting of the housing bubble, to continue to accumulate more personal debt is limited to say the least.
Foreigners accept US dollars in exchange for their real goods and services, because dollars can be used to settle every country’s international accounts. By running a trade deficit, the US insures the financing of its government budget deficit as the surplus dollars in foreign hands are invested in US Treasuries and other dollar-denominated assets.
The ability of the US dollar to retain its reserve currency status is eroding due to the continuous increases in US budget and trade deficits. Today the world is literally flooded with dollars. In attempts to reduce the rate at which they are accumulating dollars, foreign governments and investors are diversifying into other traded currencies. As a result, the dollar prices of the Euro, UK pound, Canadian dollar, Thai baht, and other currencies have been bid up. In the 21st century, the US dollar has declined about 33 percent against other currencies. The US dollar remains the reserve currency primarily due to habit and the lack of a clear alternative.
The data used in this article is freely available. It can be found at two official US government sites: http://www.bea.gov/international/bp_web/simple.cfm?anon=71&table_id=20&area_id=3 and http://www.bls.gov/news.release/empsit.t14.htm
The jobs data and the absence of growth in real income for most of the population are inconsistent with reports of US GDP and productivity growth. Economists take for granted that the work force is paid in keeping with its productivity. A rise in productivity thus translates into a rise in real incomes of workers. Yet, we have had years of reported strong productivity growth but stagnant or declining household incomes. And somehow the GDP is rising, but not the incomes of the work force.
Something is wrong here. Either the data indicating productivity and GDP growth are wrong or Karl Marx was right that capitalism works to concentrate income in the hands of the few capitalists. A case can be made for both explanations.
Recently an economist, Susan Houseman, discovered that the reliability of some US economics statistics has been impaired by offshoring. Houseman found that cost reductions achieved by US firms shifting production offshore are being miscounted as GDP growth in the US and that productivity gains achieved by US firms when they move design, research, and development offshore are showing up as increases in US productivity. Obviously, production and productivity that occur abroad are not part of the US domestic economy.
Houseman’s discovery rated a Business Week cover story last June 18, but her important discovery seems already to have gone down the memory hole. The economics profession has over-committed itself to the “benefits” of offshoring, globalism, and the non-existent “New Economy.” Houseman’s discovery is too much of a threat to economists’ human capital, corporate research grants, and free market ideology.
The media have likewise let the story go, because in the 1990s the Clinton administration and Congress permitted a few mega-corporations to concentrate in their hands the ownership of the US media, which reports in keeping with corporate and government interests.
The case for Marx is that offshoring has boosted corporate earnings by lowering labor costs, thereby concentrating income growth in the hands of the owners and managers of capital. According to Forbes magazine, the top 20 earners among private equity and hedge fund managers are earning average yearly compensation of $657,500,000, with four actually earning more than $1 billion annually. The otherwise excessive $36,400,000 average annual pay of the 20 top earners among CEOs of publicly-held companies looks paltry by comparison. The careers and financial prospects of many Americans were destroyed to achieve these lofty earnings for the few.
Hubris prevents realization that Americans are losing their economic future along with their civil liberties and are on the verge of enserfment.
Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@yahoo.com
And where will this "real economy" be when there is nothing left to build?
And where will this "real economy" be when there is nothing left to build?
I am starting to panic over our housing rates. The cost just increased 4 times what my cost of living raise was. That puts us in the hole.
Ah. The cost increase due to taxes and insurance was 4 times what my cost of living raise was. I can't imagine an adjustable mortgage.
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