Horizon, Host: Ted Simons

April 17, 2008


Host: Ted Simons

Condo Market

  |   Video
  • While the lower-end condo market is doing well, it's not the same story for higher-end high rise condos. Economist Elliot Pollack will talk about the condo market.
Guests:
  • Elliot Pollock - Economist, Elliot D. Pollock and Associates
Category: Business/Economy

View Transcript
>>Ted Simons:
Well, sales of condominiums peaked in Arizona in 2005, with over 178,000 units sold, That according to figures compiled by Arizona State University Economist Jay Butler. Last year, just over 95,000 condo units were sold, reflecting the weaker Real Estate market. That's the lowest rate of sales since 1998. High-rise condo sales: even slower. I talked about the condo market with economist Elliot Pollock of Elliot D. Pollock and Associates.

>>Ted Simons:
Elliot Pollock, thank you so much for joining us on "Horizon."

>>Elliot Pollock:
Thanks for having me on.

>>Ted Simons:
Let's talk about the condo market. I want to you compare and contrast condos in general with the Real Estate market overall.

>>Elliot Pollock:
In general, it's about the same trend, about 10\% of all transactions involve condos. That's high-rise condos, it's townhouses -- condos go down, even condos in the $80, $90,000 range. The ones that are less expensive, under $150,000, let's say, have come down in terms of volume, but haven't come down as far as, let's say, housing overall. Housing, overall, is down about 50\%. Inexpensive condos, probably down about 40\%. But it's pretty close.

>>Ted Simons:
OK, inexpensive condos, apparently, I would guess, better than luxury condos. Correct?

>>Elliot Pollock:
Better than luxury condos, and better than high-rise condos. Most inexpensive condos are single story, or at the most, two-story. A lot of luxury condos, a lot of high-rise condos being built, and they have to be luxury condos by definition, because they're so expensive to build.

>>Ted Simons:
OK, let's talk about some of these luxury condos. A lot of folks in Phoenix, here in Tempe, in Scottsdale, now you're talking Glendale as well, all these projects, 30 stories here, 40 stories there, some of them are up, some of them are still dirt lots. Those that are dirt lots, they are going to go up?

>>Elliot Pollock:
At some point, but they'll be dirt lots for a long time. The housing market is in no condition to absorb many more of these. There are many of the units, especially the ones coming on-stream now that do not have a lot of sales on them. They will be see-through buildings for a while, and it's gonna be almost impossible to get financing. The ones that are either built now, or coming on-stream now, are the ones that got financing during the Real Estate boom. Right now, you're not going to get financing for these unless they're a tremendous -- there's tremendous amount of pre-sales, and that's just not going to happen in this environment.

>>Ted Simons:
Talking about luxury sky rise especially, that market, because it's one that people hear the big blown projects, and they wait around and nothing seems to be happening in certain parts of town. Is there a demand for high-rise condo living in the Valley?

>>Elliot Pollock:
There's a demand, but it's a very shallow demand. What you hear from people who favor them is, one, the Post-War Baby Boom, the kids are leaving home, they're going to want to move from their homes, and into a "lock and leave" places. Two, that there's a lot of people moving here from other parts of the country where they're used to that type of living. They're gonna have demand because of that. But the fact is, it's a very shallow market. I'll give you an example. In March of 2005, the Scottsdale Waterfront, which are two buildings at Scottsdale Road and Camelback, in my opinion, one of the best locations in the Valley, had 2,500 reservations for 198 units. It's three years later, there are still two units unsold, and about 40\% of the units were sold to investors. So, there's about another 40 units or so that are back on the market, in terms of resales. So there weren't a lot of actual users. The same thing is true with the Optima Project at around the same location, where about 40\% of the sales were to investors., rather than to people who will actually live in them. There aren't a lot of investors right now, and as a result, again, the market is very thin. Same thing could be said of the project the Centerpoint Project, where there have been very few real sales, relative to the number of units available. That may change over time, but until it does, you're not going to see many more of these built. You're going to see completions of the ones that are under construction, but after that it just stops.

>>Ted Simons:
OK, let's say you're living near a project that was ballyhooed for years, it's still a dirt lot, nothing has happened. Does that remain a dirt lot? Does the developer try to permit something different, maybe a 10-story or four-story -- what happens to these barren areas?

>>Elliot Pollock:
It's an -- It's on a project-by-project basis. First of all, depending on what you paid for the land, he might decide to hold on until he can build something that's more dense, because he paid an awful lot for the land. Land Values are based on the density of what goes on them, and obviously, there's almost nothing more dense than the high-rise condominium. Secondly, he might try to get off zoning, Non-Residential zoning because there's still demand for that, or the demand will be there sooner than Residential, or three, he will lose the land, and the second or third owner down the road will have it at a basis less expensive, and will be able to build something that is more market-driven right now, which is a low-rise or mid-rise project.

>>Ted Simons:
Once it goes through the permit process, which takes us to the municipalities. Did they jump too quickly for the idea of Urban Living?

>>Elliot Pollock:
The -- there's a bias on the part of municipalities to have that. They love the density, it gives them an excuse for the Light Rail. They think this is the way Phoenix should be. Obviously, the people in Phoenix tend to disagree, because otherwise, you wouldn't have this many vacant. But there's a lot more demand than there was historically. It's just the Real Estate market is in disarray right now. People are holding off buying. There's a huge excess supply, and I think it's gonna be a while before A: the ones that are built are absorbed and B: before you see another one built.

>>Ted Simons:
OK, the idea of the market being down so low, some folks say, now is the time to get these projects underway, because in a year or two, if things start cycling up, you're sitting pretty. Anyone following this logic?

>>Elliot Pollock:
Well, the only trouble is, you can't get financing for these projects right now. And so the lenders are not following that logic. They want to see pre-sales, and a lot of them, before they'll even consider giving you money, if you can get it in this environment. And two, there's a large excess supply out there already. They want to see those absorbed before they're going to start lending again.

>>Ted Simons: OK, real quickly, let's go city by city. Tempe: in trouble?

>>Elliot Pollock: Tempe, I wouldn't call it in trouble. The good news for Tempe is these projects are built or near built. Now, whether the existing developer survives or not, somebody will ultimately live in those places. It might be at a lower cost than they're now asking. It might be at the cost they're now asking, I don't know. But ultimately they'll be high-rise living in Downtown Tempe at some price.

>>Ted Simons: OK, Scottsdale.

>>Elliot Pollock:
Scottsdale, same thing. The Optima Project is pretty well sold out, Scottsdale Waterfront is pretty well sold out, but there are a lot of resales in each. The Safari Project, for example, they're taking it one building at a time, they're doing it very slowly, and they have to do that to get the financing. But overall, it's going to be a limited market. High-rise and mid-rise will be a limited market for a while.

>>Ted Simons:
Same thing, Downtown Phoenix and Glendale?

>>Elliot Pollock:
Same thing. A lot of the places Downtown have been put on the backburner, which is a nice way of saying they may just be indefinitely postponed, or done away with. The Glendale Project, I think, right now, is for the next cycle. It's not for this cycle.

>>Ted Simons:
Alright, Elliot, thank you so much for joining us.

>>Elliot Pollock:
Thank you.

Illegal Immigrant Barometer

  |   Video
  • Are illegal aliens an economic indicator? ASU Economist Dawn McLaren says they are. She says when apprehensions of illegal immigrants are down, that indicates a suffering economy. McLaren will talk about the issue and the Arizona economy.
Guests:
  • Dawn McLaren - Economist, W.P. Carey School of Business Research, Arizona State University
Category: Immigration   |   Keywords: Economy,

View Transcript
>>Ted Simons:
There are leading economic indicators that help tell economist that a downturn is coming. Dawn McLaren says one of those indicators is from a most unlikely source -- illegal immigrants. McLaren says fewer apprehensions along the border a few months ago pointed to a slowing economy now. Here to talk about that, and the economy in general, is ASU W.P. Carey School of Business Research Economist Dawn McLaren. Dawn, good to have you on "Horizon", thanks for joining us.

>>Dawn McLaren:
Thank you. It's nice to be here.

>>Ted Simons:
So illegal aliens are an economic indicator. Do tell.

>>Dawn McLaren:
Isn't that nice? What's nice about Illegal Immigrants, no matter how you feel about it, the political spectrum, it's nice for economists because they're reacting to Labor Market conditions. They're coming across when there are jobs for them to have over here, when the economic conditions are ripe for them to do so, not when the State Department or the USCIS says, "we finally have your paperwork ready, come now". That's why I look at illegal immigrants versus legal immigrants. I look at the apprehensions on the border because even if people are coming across more than one time, which they generally do try a few times, it shows an intensity of trying to get across, and how many people are coming across.

>>Ted Simons: How much does security efforts, do these efforts, I should say, along the border factor into your data?

>>Dawn McLaren:
Well, there is some difference from time to time. For instance, it may take now three times, instead of two times to get across. So you may see one person getting apprehended more than one time. But in general, once you've got it seasonally adjusted, once you've adjusted for the things we need to look at, it works quite well. And what happened was, on a seasonally adjusted basis, I saw apprehensions in, oh, January 2006, December 2005. They hit a peak, and they started to hit downwards, down, down, down. And I said, well, looking at what happened previously in this, about a year later, we could expect to see a peak and a starting of a downturn in the US economy. And sure enough, about a year later is when we hit that peak in our housing market, and all of that started to fall apart, and we got worse and worse and worse when it came to that.

>>Ted Simons:
So, a leading indicator, as opposed to a lagging indicator. And again, when you look at things like Border Security, you look at things like the Employer Sanctions Law here in Arizona, you look at the overall climate, the political climate in America.

>>Dawn McLaren:
It's the economy. It really -- it comes down to the people, the wage differential is so high that no matter how much you put more Border Security, no matter how many of these other things you put there, that differential is so big, because think about the Minimum Wage in Mexico. $5 a day, and a day is not necessarily eight hours long. Then you look at our wage here, where you could be earning $10 an hour. Never mind $5 a long, hard day, but $10 an hour. To reach that differential, our Border Security would have to be so difficult that it would take away that economic incentive to come across. So as long as the economy is running OK, now, when you look at things like the Employer Sanctions Law, that's a State thing, and not a nationwide thing. So that's a different issue. That means people would come across, but they may not necessarily stay in Arizona.

>>Ted Simons:
So, crackdowns and these sorts of things don't necessarily matter, A: if the economy goes south, and they're not going to necessarily matter if the economy speeds back up again?

>>Dawn McLaren:
Right. Exactly.

>>Ted Simons:
OK. I gotta ask you, what are you seeing right now, as far as your research regarding apprehensions?

>>Dawn McLaren:
Well, this is the problem. I have been looking at a lot of leading indicators. You can't just take one on its own.

>>Ted Simons:
What else do you look at? Real quickly, what else do you look at?

>>Dawn McLaren:
We have a consensus forecast that we do, we have our Arizona Business Conditions Index, an index I put together each month. And that's still showing we're in a recession territory for Arizona specifically, not even just the country, but Arizona specifically. So we look at a number of different ones. None of them, unfortunately, have done a turn around. None of them looked like they have bottomed out and starting to come back up. I'm really hoping that they start to do that soon.

>>Ted Simons:
And I was gonna say. You are putting folks in a difficult position of saying, "Gee, I can't wait for more apprehension and more folks coming over here undocumented because that means the economy is back up and going".

>>Dawn McLaren:
[Chuckles] See, if our economy is running well, yes, it's an attraction for people to come here. And like I said, with illegal immigrants, they are reacting to the Labor Market and Labor Market conditions here are well connected. They're also very easily hired and fired. You don't have to worry about where they're going to go if you need to let them go, because they're not like an American citizen, or someone who is here legally who might need to collect benefits, and those types of things. They'll just go.

>>Ted Simons:
So again, I just wonder, though, if there can be a question here regarding what seems to be a moving target, in terms of verifying that a worker is here legally, the climate in Arizona, the climate across the country in general. I just wonder how accurate and how much you can pinpoint something like that.

>>Dawn McLaren:
Well, see, remember, this is a big country. So when we look at the averages across the country, it's very different from looking at one particular state. One of the things we do in the unit that I work for is the job growth update. We do blue chip job growth updates. Every month we're looking at the rankings of the States. And Arizona used to rank really really well. We were in the top -- we were number one, we were number two, in the top five until very recently. In February, we ranked 42. So there can be better or worse climates for doing business. And the Arizona climate right now is not as good as perhaps it is, for instance, in Texas, which is in the top -- I think it ranks second in February.

>>Ted Simons:
Hmm. Before we let you go, I gotta ask you, in terms of the nation's overall economy, are we in a recession?

>>Dawn McLaren:
OK, now we have to say, "define a recession". For some people, we might say no, we're not in a recession because we haven't yet seen two quarters of declining GDP, and this type of thing. When we look at Arizona, we're pretty close. When we look at just the Arizona economy, we say, well, we do it by job growth. What does our job growth look like? For Arizona, it was 0.1 for February. So we're not doing -- we're very, very close. As soon as that drops off into the negative, we can say yes. This is what we could technically call a recession on a statewide basis. As for GDP going that way, well, we'll have to see what happens, but again, things don't look very good for the nation as a whole, but it is averages, and some places are doing quite well.

>>Ted Simons:
Alright. Well, it's an interesting Leading Economic Indicator, something we will all watch. Thank you so much for joining us. We appreciate it.

>>Dawn McLaren:
Thank you.

Legislative Update

  |   Video
  • Join Arizona Republic columnist Bob Robb as he brings us up to date on the latest developments from the state capitol.
Guests:
  • Bob Robb - Columnist, Arizona Republic
Category: Legislature

View Transcript
>>Ted Simons:
State lawmakers and the governor reportedly have reached a budget agreement for this year. The agreement would draw about half a billion dollars from the state's rainy day fund, cut 310 million in spending and sweep another 300 million from State funds. The budget solution would not include borrowing for school construction, something the Governor had wanted. And the war of words continues between Sheriff Joe Arpaio and Phoenix Mayor Phil Gordon. The Sheriff told the Mayor to put up or shut up. Arpaio also said the mayor, quote, has no power except his tongue and talking. Arpaio also said Gordon's call for the Federal Government to investigate him on allegations of Racial Profiling is without merit.

>>Ted Simons:
A group of Hispanic lawmakers are joining Mayor Gordon in calling for a federal investigation into Sheriff Arpaio's crime suppression sweeps. Speaking for the Arizona Legislative Latino Caucus, state lawmaker said-- quote -- we've seen plenty of examples of people being victims of racial profiling and people who have been victims of serious violations of civil rights. Sheriff Arpaio's response-- quote -- I will not be intimidated by minority groups.

>>Ted Simons:
Also at the capitol, the Governor set off some fireworks earlier this week by vetoing a bill that would have permanently repealed a State Property Tax. That led to calls for the measure to be put on the ballot. And the Governor let go into effect, without her signature, funding for English Language Learners. Here to talk about the activity at the Capitol is Arizona Republic columnist Bob Robb. Bob, good to have you on the program. Thanks for joining us.

>>Bob Robb:
Good to be with you.

>>Ted Simons:
Well, let's talk about this reported agreement now with the Budget. '08 only, correct?

>>Bob Robb:
That's correct, and one of the questions, which we will see, perhaps even later on tonight, is the extent to which it's truly an agreement. But the Republicans are moving forward tonight with a fix to the '08 Budget. The extent to which it attracts Democratic votes, the extent to which it's acceptable to the Governor, remains to be seen. It's reported that there's general agreement, but sources that I talk to this afternoon indicated that might not be as certain as it's being reported.

>>Ted Simons:
The Governor, last night, on this program, and in a press briefing yesterday, kind of lambasted lawmakers, again, saying, do something, I'm waiting for something to get done, do something. All of a sudden today, something seems to happen. Coincidence? What's going on here?

>>Bob Robb:
Well, maybe she did trigger it. This is basically the spending freeze that the Legislature sent up to the Governor several weeks ago, which the Governor vetoed. It is -- it has been described to me, an approach for '08 that the Governor was tentatively willing to accept, in the context of also having an agreement on next year's budget, the '09 Budget. Obviously, lawmakers are only going forward with the '08 part of it, and maybe that was triggered, in part, by her challenge. I think there's also been a growing restlessness among Republican lawmakers over not tackling the '08 problem and getting on with it. And I also think that the negotiations for '09 are going to be even more protracted and time is running out to the extent that spending cuts will be part of the picture to take any action in '08.

>>Ted Simons:
You talk about '09 being a factor here in the '08 budget. No school bonding here in '08. Is that because all eyes are focused on '09?

>>Bob Robb:
I think it's because there was an ability to get to an '08 solution, at least on paper, involving not paying a month's worth of what's owed to the School Districts in State Aid. That's $272 million. And if you dip into the Rainy Day Fund by about $500 million, you get to the number that's anticipated for '08. I'm told that there are those who believe you can actually, after '08 ends, make a decision to, in effect, have bonded for '08. So the extent to which bonding for school construction ultimately plays a role, not only for '09, perhaps also for '08, I think remains a matter of discussion. Needless to say, I didn't quite follow the explanation of how you can make the decision on '09 to have bonded for what you spent cash for in '08, but apparently, the budget gurus believe that is technically a possible answer.

>>Ted Simons:
It does sound like a stretch of the space-time continuum there, but do you think lawmakers know what's going on as well? Are the budget folks working circles around some of those folks there at the Capitol. where they're not going to be able to understand this or go along with it?

>>Bob Robb:
The '08 solution is pretty straightforward. And the bill has been drafted, has been provided to lawmakers, and it is about $310 million in spending reductions, about $300 million in funds sweeps. Not paying a month's worth of what's due to the School Districts, and dipping into the Rainy Day Fund by close to $500 million. So there's nothing in this package that's particularly complex. The guts of it, the spending cuts and the fund sweeps, have been before the Legislature and voted on before. So I don't think there's a sense of, "I don't think I understand this" on behalf of the legislators. There may be a sense of "I don't quite understand how this fits into '09", but I don't think that makes them any different than the people negotiating the '09 budget. I don't think anyone knows what's going to happen for '09.

>>Ted Simons:
Where we are right now, and again, we should get votes in the House and Senate later on this evening, winners and losers, from where you sit, and from what you know.

>>Bob Robb:
It's certainly, if the Governor accepts it, is basically accepting the Republican approach to the '08 Budget. It involves spending cuts, it involves fund sweeps, and it involves dipping more deeply into the Rainy Day Fund than the Governor proposed. It includes no financing. The extent to which those gains are consolidated in the discussion of the '09 Budget, and reduce the extent to which financing is used to solve the '09 problem, is a game for another day.

>>Ted Simons:
All right. Speaking of winners and losers, State Property Tax repeal, definitely a loser as far as the Governor is concerned. Went ahead and vetoed that. Not a surprise?

>>Bob Robb:
No. She had expressed opposition to it. But then again, she's expressed opposition to many tax cuts which she ended up signing once it reached her desk. Ordinarily she's taken the position that I'm not willing to consider tax cuts except in the context of an overall budget solution. In this case, that's not possible, because we're talking about tax cuts that will expire in the Fiscal Year '10 budget. So these are tax cuts that are designed to go into effect beyond the current budget negotiations.

>>Ted Simons:
Is this something that can be revived, either by way of lawmakers trying to get it somehow involved in the budget, or putting the doggone thing on the ballot?

>>Bob Robb:
It certainly has the potential to be a bargaining chip for Republican votes for an '09 budget that's more to the Governor's liking than probably the '08 interim solution is. And there are some lawmakers that are talking about referring a permanent repeal of what amounts to a State Property Tax to the November ballot. So I don't think we've heard the last of the subject.

>>Ted Simons:
And I know, I just know we have not heard the last of ELL, even though we got to 40-some-odd million. They're through, the Governor says I'm not gonna sign it, let it go. Are the courts going to go along with this?

>>Bob Robb:
There's certainly ample ability for Judge Collins, who is Superintending the lawsuit, to decide it either way. On the one hand, this is a funding amount which results from a new program for ELL learning adopted by the State, and an evaluation of the needs to fund that by Tom Horne, the Superintendent of Public Instruction. So to the extent, the Court was looking for a solution that was based upon a rational analysis of need, the Judge could conclude this meets that test. On the other hand, it does not get large sums of money into the hands of School Districts that have large numbers of English Language Learners. It's substantially less money than some studies have indicated, and the approach that's used doesn't fully square with the Judge's previous orders. So it's really sort of a test for him. He inherited this case, he didn't make the original decision. If he wants out of it, I think there's the opportunity for him to get out of it. On the other hand, I think there is the ability to say this doesn't comply with what was decided in 2000, in which the State did not appeal.

>>Ted Simons:
Alright Bob, busy times at the Capitol. Thank you so much for joining us.

>>Bob Robb:
Good to be with you.

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