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October 10, 2015

Supply's down, demand's up, better get the state involved!

Filed under: Uncategorized — @ 12:00 a.m.
Supply's down, demand's up, better get the state involved!

Or: "Let the dekulakization begin!"

Most of the many publications in town have bought the "Portland is in a manmade state of emergency because there aren't enough houses for poor people!" line. Pamplin's Tribune stands alone as the sole publication unwilling to repeat the line themselves, publishing such gems as:

The City Council officially declared a "housing emergency" Wednesday, even though most members admitted they didn't know exactly what they would do in coming months to address it.

Council declares "Housing Emergency"

The Trib: a pretty bad rag, but at least not outright communist sympathizers.

The Portland Renters Assembly and Portland's Community Alliance of Tenants are pushing the "housing state of emergency" line because under Oregon law:

Except as provided in subsections (3) to (5) of this section, a city or county shall not enact any ordinance or resolution which controls the rent that may be charged for the rental of any dwelling unit.

ORS 91.225

So of course the ever-growing and utterly indistinguishable mire of Sapiens who want to be treated well for the grand achievement of having been squeezed through some woman's birth canal have latched onto the notion that if they can just get the municipalities to declare a state of emergency, they can also get rent control passed! No, it doesn't make sense, and the rallying-behind of ideas like this should be all the evidence a thinking man needs that these people deserve their lot in life and everything that will downhill to them over the next decade as their handout system flies apart under its own inertia. Not that the idiots couldn't get 91.225 repealed, and some abomination instated in its place, but those efforts are doomed to fail, and the idiots believe that if they all get together and believe really hard that their dream solution of free food and housing for everyone is viable, they can have it! What they'll get instead are more of the classic American "projects", and a replay of the whole "white flight" saga that plays out in this country let's say just about once per generation or two.

Let us examine the causes for high rent in the Portland area:

For at least a decade, Portland's been the Mecca for over-educated (and equivalently debt-burdened) individuals lacking marketable skills beyond the completely fungible knowledge of how to make coffee a few different ways1 (visit Col. Summers Park of a Monday in August2, and you'll actually see people orbiting the central box thing clockwise!). The influx of overeducated and debt-burdened has been a downright boon to the area! It's allowed landlords to stack bodies in ancient, poorly-maintained houses, to continue to defer maintenance, and to charge market rates even in a market with a household formation rate of very nearly nil! The "service economy" of the place has benefited tremendously as well, with new trainees bearing all the proper work permits entering the dishwashing and bar-backing labor force at unprecedented rates. All of which translates into excellent coffee, delicious food, and a sea of fetching young ladies dismayed at the near-complete absence of men with life goals beyond renting a room in a house, working at the café, and burning what little savings they have "on tour" once a quarter.

The Urban Growth Boundary is the funniest part of the whole "rent's too damn high!" saga: it and it alone is responsible for the high human density of the metro area relative to its surrounding farms and forests, and the failure of our little polis to degenerate into untamed or limited sprawl as in the suburbs of our neighbors to the north and south. It is also the driving force keeping the Masters of Shot Pulling living 5 to a house—without it, the homebuilders would simply crap down more house-shaped pressed-shitboard edifices until even a shot-puller could theoretically afford to rent one (or buy if the individual were exceptionally thrifty)3. The UGB is also responsible for the excellent quality of life in this town! Because it keeps people so tightly packed, street-level business can rely on foot traffic in this town in a way they cannot in the rest of the auto-centric States. Remember, for all of its apparent density, Portland is a large town in small city clothing.

The final piece of the puzzle is a bonkers fiscal environment driving capital misallocation on a scale that tiny shot-pulling brains simply cannot wrap themselves around. Take Adam, Bill, and Charlie: three young men who all attended Harvard together, and went into finance seperately. Adam works for a massive retirement fund, Bill works for an investment bank, and Charlie is a full partner at what Americans call a "venture capital" firm. Adam has great big huge piles of money to swing around, and is tasked with at least matching market returns on it. Bill's job is to manage the investment of piles of cash that companies like Adam's stick with them, because Adam and co. simply have too much money to actually invest themselves for all sorts of reasons4. Charlie has what the mainstream American considers the most "interesting" and "exciting" job: he's tasked with taking a much smaller pile of money than Adam or Bill and turning it into 10x or 100x returns by betting on early stage companies.

Because Adam and his peers are such brilliant individuals (they graduated from Harvard, you see, and now they all work at a highfalutin financial operation, immune somehow to mean reversion by dint of coming from the blessed class or some other self-delusion) that they couldn't possibly just index the market, or take a set of positions that is relatively conservative (as a retirement fund should be investing) and have a good shot at matching overall market returns without shooting for outsize returns (this is a criminal simplification, but bear with me). No, they're smart, and they have to make the odd forex bet, the odd oil bet, the odd blue chip investment, and while by and large they come out ahead on these individual trades, a few of them are reeeheheheally expensive. So expensive in fact, that Adam finds himself compelled to call up Bill and ask Bill to trade a couple hundred million of the umpty-billion under Adam's management5. Adam finds himself so compelled, because to impress his bosses he needs returns that he cannot actually achieve on his own, and so he must turn to someone that he knows to be a quality trader (or run a quality trading desk, or have access to insider information, or whatever it is that Bill does to maintain his lead in the great information-asymmetry wars).

And some of the time, this works! In the same way that betting on Satoshi Dice works—sometimes! Just enough to convince the players that a) they know what they're doing and b) that they're doing it correctly. Bill got great statistics for the past three years! Let's all put a pile of money with Bill and ruin his operating procedure. Anyways, Bill now has this giant pile of money that he has to trade, none of his regular markets or players can really handle the volume that Adam wants him to push, and so he makes the same mistakes that Adam made, just at a smaller level. And maybe not immediately. But you can bet that handmade leather corset you never got the gumption up to squeeze your wife into that Bill will eventually want some more of that precious 'alpha' that he was originally contracted to provide on his own.

And so he sticks 10 million gen-yew-ine American Greenbacks into Charlie's next fund. Charlie's just the bottom of the chain of accidental sports-touts scammers: while some investors in small companies actually know what they're doing and reap a fortune by being right a few times, Charlie instead had the fortune to graduate from Harvard a really smart and sociable cookie right at the beginning of a rager of a bull market. He went into a venture capital firm as an associate, made friends in the firm, shepherded a few good deals through that were "good" in the sense that investors got out at a premium by selling the "startup" to some "enterprise" for a pretty penny while hosing the staff and founders, and over time achieved the vaunted title and position of Partner (see http://trilema.com/2015/you-know-what-gets-no-airplay-unflattering-truth/ for details). Now, while his returns don't match Sand Hill's finest, he never has a problem with procuring subscriptions when he's putting a fund together, because while Charlie's Sweet Fund rarely returns 100X, it has on occasion yielded 10X and can be relied upon to provide 2X.

It does this by dumping money into local economies. These "investments" must hit some actual economy at some point and buy some actual turkeys at some point. The trouble is that there are a bunch of Charlies out there, all doing the exact same thing: placing 100K-2M with some nerds to build an app.

Those nerds live in Portland. All of a sudden, a very small number of young (because who else would throw their time away on mobile moonshots), uneducated (because if you're educated in America, you can't throw it all out and "learn to code". How would you justify all the money you wasted on your college degree if all it took to get an entry-level job doing webdev was…three months of dedicated independent study?), people are now making 5-8X what the typical shot-puller (or other "service sector economy" employee) could ever dream of making6. And for what? Nothing that the service sector economy can really understand.

The touching down of the financial system's risk probiscus in your neighborhood means that rents are going to go up. Smarter, cuter, and more sought-after individuals than you are moving into your neighborhood (if they didn't grow up there scheming to buy the neighborhood), and you're just going to have to deal. These increased rents (and the increased prices I expect to see once there's no more steak to substitute ground beef for) are an entirely predictable side-effect of all of the statal interventions that you've asked for over the past hundred years: state control of the monetary supply, a staunch commitment to bailing out incompetent organizations that metastasized into a countrywide inability to let Bad Things happen, the Urban Growth Boundary's oh-so-pleasant distortion of the local housing market. All of the above is the fault of people who demand that the world recognize housing as a "human right".

It's all your fault, and it's going to go away. Frantic activity to the contrary notwithstanding, Bitcoin exists.

Footnotes:

1

People are by no means fungible. If your contributions to an endeavour are fungible, you are also fungible and ipso facto not a person in that context. That your boss and superiors at work are too nice to make you deal with this fact of life is not because they are "nice" and "fun to work with", but because you were so unfortunate as to be born in a time when improving people is the state's responsibility—not their masters' (consider how the word "master" makes you feel). That you haven't found a boss who thinks you're worth improving should tell you that you're not worth improving, not that you slithered forth from your mother's amniotic sack unblemished and unimprovable.

2

Before Burning Man, of course. During the 'Burn, the only people left at CSM are those who are so broke and poorly networked they can't even get into Burning Man. Which is of course turning into a great party for the elite and well-networked and a miserable exercise in coping with personal failure for everyone else.

The opacity of the Burning Man ticket market is an excellent example of how transparent markets that anyone can access are bullshit and to be avoided. The BORG retains a vast number of tickets for distribution to their friends and family (the "theme camps" and "mutant vehicle" groups, various other volunteers), and then effects a "sale" of the remaining tickets to the public at large. This leaves the general attendee with no inside information absolutely no way to get in but by refreshing a web page and praying that the shitshow takes their card this year.

Net result: all of the cool kids and their hot friends get in trivially, and Joe Public has to sweat it out in the public ticket queues. Another triumph for the hidden power structures!

3

Of course, this doesn't account for the increased costs the Master in question would have to bear in terms of a car and gas to get to and from work, or the costs of running busses out to all of those suburbs that someone would have to bear, or any other hidden costs that come from living away from nice walkable neighborhoods.

4

Two examples: most arbitrage opportunities couldn't soak up a noticable fraction of their pile, and any trades they make naively on their own accounts are going to show up on the ticker and impose slippage (price going up as you buy, price going down as you sell) costs.

5

And while the story starts with the boys being friends, there's no actual need for that! They select each other through their networks of brahmins, accidentally, with the sports tout! Nobody has to be any good at anything for this particular failure cascade to kick in—in fact, it's a prerequisite that everyone have grown up in an inflationary environment, starved of actual education. Otherwise, they'd know how crazy the whole thing is and not be participating in the first place.

6

Even if the local socialists push through the increase of minimum wage to $15, the nerds are still going to be making at least 3X that. Whether or not they keep more of it is unclear.

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