Back to the 50’s …

Implications: Changes to housing, autos, urban planning, public transportation, carpooling, consumer goods and retailing, manufacturing, restaurants, agriculture, mining and utility providers are coming.  There will be suppliers close to the ultimate user, zero or virtual mobility for workers and local vacations or recreation, we are told.  

Analysis:  Lately I’ve been thinking about attached Townhouses, Mini Coopers, Sedona & the Grand Canyon as opposed to Mini Mansions, SUV’s, the Rockies and Hawaii.  But really the issue is amending urban plans to allow adequate modern health, safety & welfare, a denser housing stock, modern manufacturing facilities, more efficient retailing, more productive healthcare, utilities producing from more efficient fuels, more public transportation and water conservation.   Since we’re now at $ 140 a barrel and oil shortages still loom, no real estate investor can ignore this threat to feasibility.  If you’re thinking about investing on the perimeter of the Megalopolis’, you better know how you’re going to entice buyers who will incur an enormous transportation bill.  At the same time, that buyer may have less efficient power systems clogging the budget and repairing the homestead with oil based products may cost a fortune.   The big oil producers are still not believers, if you are seeking company in misery.  Their production budgets will not allow further development unless the pencil can work it out at $60 per barrel or less.   So the latest numbers show a lack of crude resources around the world and neither the heart nor the allocated capital to explore new unknowns.  How do you invest in perimeter raw land under these conditions?  The answer is very cautiously.  I will define very cautiously as way under the 18% of original cost some are now paying the big builders for acreage and more like max 5% of those original purchases.  Impossible pricing, you say, and I say in return, not as I remember!    How about investing in the inner city?  Ok, but remember to make your affordability projections for the market after you consider the new realities of household budgets.  You’re not going to move product at 40% of income and maybe not at 30% either, think about going back to the 50’s and early 60’s at ratios down to 25% for principal and interest, taxes and insurance.  Proceed otherwise at your own risk, and my opinion is that risk is too high for prudent investors.