Tag Archives: Census Bureau

The Next Housing Crisis May Be Sooner Than You Think

How we could fall into another housing crisis before we’ve fully pulled out of the 2008 one.

https://i0.wp.com/cdn.citylab.com/media/img/citylab/2014/11/RTR2LDPC/lead_large.jpgby Richard Florida

When it comes to housing, sometimes it seems we never learn. Just when America appeared to be recovering from the last housing crisis—the trigger, in many ways, for 2008’s grand financial meltdown and the beginning of a three-year recession—another one may be looming on the horizon.

There are at several big red flags.

For one, the housing market never truly recovered from the recession. Trulia Chief Economist Jed Kolko points out that, while the third quarter of 2014 saw improvement in a number of housing key barometers, none have returned to normal, pre-recession levels. Existing home sales are now 80 percent of the way back to normal, while home prices are stuck at 75 percent back, remaining undervalued by 3.4 percent. More troubling, new construction is less than halfway (49 percent) back to normal. Kolko also notes that the fundamental building blocks of the economy, including employment levels, income and household formation, have also been slow to improve. “In this recovery, jobs and housing can’t get what they need from each other,” he writes.

Americans are spending more than 33 percent of their income on housing.

Second, Americans continue to overspend on housing. Even as the economy drags itself out of its recession, a spate of reports show that families are having a harder and harder time paying for housing. Part of the problem is that Americans continue to want more space in bigger homes, and not just in the suburbs but in urban areas, as well. Americans more than 33 percent of their income on housing in 2013, up nearly 13 percent from two decades ago, according to newly released data from the Bureau of Labor Statistics (BLS). The graph below plots the trend by age.

Over-spending on housing is far worse in some places than others; the housing market and its recovery remain highly uneven. Another BLS report released last month showed that households in Washington, D.C., spent nearly twice as much on housing ($17,603) as those in Cleveland, Ohio ($9,061). The chart below, from the BLS report, shows average annual expenses on housing related items:

(Bureau of Labor Statistics)

The result, of course, is that more and more American households, especially middle- and working-class people, are having a harder time affording housing. This is particularly the case in reviving urban centers, as more affluent, highly educated and creative-class workers snap up the best spaces, particularly those along convenient transit, pushing the service and working class further out.

Last but certainly not least, the rate of home ownership continues to fall, and dramatically. Home ownership has reached its lowest level in two decades—64.4 percent (as of the third quarter of 2014). Here’s the data, from the U.S. Census Bureau:

(Data from U.S. Census Bureau)

Home ownership currently hovers from the mid-50 to low-60 percent range in some of the most highly productive and innovative metros in this country—places like San Francisco, New York, and Los Angeles. This range seems “to provide the flexibility of rental and ownership options required for a fast-paced, rapidly changing knowledge economy. Widespread home ownership is no longer the key to a thriving economy,” I’ve written.

What we are going through is much more than a generational shift or simple lifestyle change. It’s a deep economic shift—I’ve called it the Great Reset. It entails a shift away from the economic system, population patterns and geographic layout of the old suburban growth model, which was deeply connected to old industrial economy, toward a new kind of denser, more urban growth more in line with today’s knowledge economy. We remain in the early stages of this reset. If history is any guide, the complete shift will take a generation or so.

It’s time to impose stricter underwriting standards and encourage the dense, mixed-use, more flexible housing options that the knowledge economy requires.

The upshot, as the Nobel Prize winner Edmund Phelps has written, is that it is time for Americans to get over their house passion. The new knowledge economy requires we spend less on housing and cars, and more on education, human capital and innovation—exactly those inputs that fuel the new economic and social system.

But we’re not moving in that direction; in fact, we appear to be going the other way. This past weekend, Peter J. Wallison pointed out in a New York Times op-ed that federal regulators moved back off tougher mortgage-underwriting standards brought on by 2010’s Dodd-Frank Act and instead relaxed them. Regulators are hoping to encourage more home ownership, but they’re essentially recreating the conditions that led to 2008’s crash.

Wallison notes that this amounts to “underwriting the next housing crisis.” He’s right: It’s time to impose stricter underwriting standards and encourage the dense, mixed-use, more flexible housing options that the knowledge economy requires.

During the depression and after World War II, this country’s leaders pioneered a series of purposeful and ultimately game-changing polices that set in motion the old suburban growth model, helping propel the industrial economy and creating a middle class of workers and owners. Now that our economy has changed again, we need to do the same for the denser urban growth model, creating more flexible housing system that can help bolster today’s economy.

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Dream housing for new economy workers
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Energy Workforce Projected To Grow 39% Through 2022

The dramatic resurgence of the oil industry over the past few years has been a notable factor in the national economic recovery. Production levels have reached totals not seen since the late 1980s and continue to increase, and rig counts are in the 1,900 range. While prices have dipped recently, it will take more than that to markedly slow the level of activity. Cycles are inevitable, but activity is forecast to remain at relatively high levels.  

An outgrowth of oil and gas activity strength is a need for additional workers. At the same time, the industry workforce is aging, and shortages are likely to emerge in key fields ranging from petroleum engineers to experienced drilling crews. I was recently asked to comment on the topic at a gathering of energy workforce professionals. Because the industry is so important to many parts of Texas, it’s an issue with relevance to future prosperity.  

 

Although direct employment in the energy industry is a small percentage of total jobs in the state, the work is often well paying. Moreover, the ripple effects through the economy of this high value-added industry are large, especially in areas which have a substantial concentration of support services.  

Petroleum Engineer

Employment in oil and gas extraction has expanded rapidly, up from 119,800 in January 2004 to 213,500 in September 2014. Strong demand for key occupations is evidenced by the high salaries; for example, median pay was $130,280 for petroleum engineers in 2012 according to the Bureau of Labor Statistics (BLS).  

Due to expansion in the industry alone, the BLS estimates employment growth of 39 percent through 2022 for petroleum engineers, which comprised 11 percent of total employment in oil and gas extraction in 2012. Other key categories (such as geoscientists, wellhead pumpers, and roustabouts) are also expected to see employment gains exceeding 15 percent. In high-activity regions, shortages are emerging in secondary fields such as welders, electricians, and truck drivers.  

The fact that the industry workforce is aging is widely recognized. The cyclical nature of the energy industry contributes to uneven entry into fields such as petroleum engineering and others which support oil and gas activity. For example, the current surge has pushed up wages, and enrollment in related fields has increased sharply. Past downturns, however, led to relatively low enrollments, and therefore relatively lower numbers of workers in some age cohorts. The loss of the large baby boom generation of experienced workers to retirement will affect all industries. This problem is compounded in the energy sector because of the long stagnation of the industry in the 1980s and 1990s resulting in a generation of workers with little incentive to enter the industry. As a result, the projected need for workers due to replacement is particularly high for key fields.

The BLS estimates that 9,800 petroleum engineers (25.5 percent of the total) working in 2012 will need to be replaced by 2022 because they retire or permanently leave the field. Replacement rates are also projected to be high for other crucial occupations including petroleum pump system operators, refinery operators, and gaugers (37.1 percent); derrick, rotary drill, and service unit operators, oil, gas, and mining (40.4 percent).  

http://jobdiagnosis.files.wordpress.com/2010/03/petroleum-engineer.jpg

Putting together the needs from industry expansion and replacement, most critical occupations will require new workers equal to 40 percent or more of the current employment levels. The total need for petroleum engineers is estimated to equal approximately 64.5 percent of the current workforce. Clearly, it will be a major challenge to deal with this rapid turnover.

Potential solutions which have been attempted or discussed present problems, and it will require cooperative efforts between the industry and higher education and training institutions to adequately deal with future workforce shortages. Universities have had problems filling open teaching positions, because private-sector jobs are more lucrative for qualified candidates. Given budget constraints and other considerations, it is not feasible for universities to compete on the basis of salary. Without additional teaching and research staff, it will be difficult to continue to expand enrollment while maintaining education quality. At the same time, high-paying jobs are enticing students into the workforce, and fewer are entering doctoral programs.  

Another option which has been suggested is for engineers who are experienced in the workplace to spend some of their time teaching. However, busy companies are naturally resistant to allowing employees to take time away from their regular duties. Innovative training and associate degree and certification programs blending classroom and hands-on experience show promise for helping deal with current and potential shortages in support occupations. Such programs can prepare students for well-paying technical jobs in the industry. Encouraging experienced professionals to work past retirement, using flexible hours and locations to appeal to Millennials, and other innovative approaches must be part of the mix, as well as encouraging the entry of females into the field (only 20 percent of the current workforce is female, but over 40 percent of the new entries).

Industry observers have long been aware of the coming “changing of the guard” in the oil and gas business. We are now approaching the crucial time period for ensuring the availability of the workers needed to fill future jobs. Cooperative efforts between the industry and higher education/training institutions will likely be required, and it’s time to act.

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Single Family Construction Expected to Boom in 2015

https://i2.wp.com/s3.amazonaws.com/static.texastribune.org/media/images/Foster_Jerod-9762.jpgKenny DeLaGarza, a building inspector for the city of Midland, at a 600-home Betenbough development.

Single-family home construction is expected to increase 26 percent in 2015, the National Association of Home Builders reported Oct. 31. NAHB expects single-family production to total 802,000 units next year and reach 1.1 million by 2016.

Economists participating in the NAHB’s 2014 Fall Construction Forecast Webinar said that a growing economy, increased household formation, low interest rates and pent-up demand should help drive the market next year. They also said they expect continued growth in multifamily starts given the nation’s rental demand.

The NAHB called the 2000-03 period a benchmark for normal housing activity; during those years, single-family production averaged 1.3 million units a year. The organization said it expects single-family starts to be at 90 percent of normal by the fourth quarter 2016.

NAHB Chief Economist David Crowe said multifamily starts currently are at normal production levels and are projected to increase 15 percent to 365,000 by the end of the year and hold steady into next year.

The NAHB Remodeling Market Index also showed increased activity, although it’s expected to be down 3.4 percent compared to last year because of sluggish activity in the first quarter 2014. Remodeling activity will continue to increase gradually in 2015 and 2016.

Moody’s Analytics Chief Economist Mark Zandi told the NAHB that he expects an undersupply of housing given increasing job growth. Currently, the nation’s supply stands at just over 1 million units annually, well below what’s considered normal; in a normal year, there should be demand for 1.7 million units.

Zandi noted that increasing housing stock by 700,000 units should help meet demand and create 2.1 million jobs. He also noted that things should level off by the end of 2017, when mortgage rates probably will  rise to around 6 percent.

“The housing market will be fine because of better employment, higher wages and solid economic growth, which will trump the effect of higher mortgage rates,” Zandi told the NAHB.

Robert Denk, NAHB assistant vice president for forecasting and analysis, said that he expects housing recovery to vary by state and region, noting that states with higher levels of payroll employment or labor market recovery are associated with healthier housing markets

States with the healthiest job growth include Louisiana, Montana, North Dakota, Texas and Wyoming, as well as farm belt states like Iowa.

Meanwhile Alabama, Arizona, Nevada, New Jersey, New Mexico and Rhode Island continue to have weaker markets.

Americans Pay More For Slower Internet

internet speeds

When it comes to Internet speeds, the U.S. lags behind much of the developed world.

That’s one of the conclusions from a new report by the Open Technology Institute at the New America Foundation, which looked at the cost and speed of Internet access in two dozen cities around the world.

Clocking in at the top of the list was Seoul, South Korea, where Internet users can get ultra-fast connections of roughly 1000 megabits per second for just $30 a month. The same speeds can be found in Hong Kong and Tokyo for $37 and $39 per month, respectively.

For comparison’s sake, the average U.S. connection speed stood at 9.8 megabits per second as of late last year, according to Akamai Technologies.

Residents of New York, Los Angeles and Washington, D.C. can get 500-megabit connections thanks to Verizon, though they come at a cost of $300 a month.

There are a few cities in the U.S. where you can find 1000-megabit connections. Chattanooga, Tenn., and Lafayette, La. have community-owned fiber networks, and Google has deployed a fiber network in Kansas City. High-speed Internet users in Chattanooga and Kansas City pay $70, while in Lafayette, it’s $110.

The problem with fiber networks is that they’re hugely expensive to install and maintain, requiring operators to lay new wiring underground and link it to individual homes. Many smaller countries with higher population density have faster average speeds than the United States.

“Especially in the U.S., many of the improved plans are at the higher speed tiers, which generally are the most expensive plans available,” the report says. “The lower speed packages—which are often more affordable for the average consumer—have not seen as much of an improvement.”

Google is exploring plans to bring high-speed fiber networks to a handful of other cities, and AT&T has also built them out in a few places, but it will be a long time before 1000-megabit speeds are an option for most Americans.

BLS: Midland Texas Again Posts Third Lowest Jobless Rate In Nation

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Midland Reporter-Telegram

For the second straight month, Midland posted the third lowest unemployment rate in the nation, according to figures released Wednesday by the Bureau of Labor Statistics.

Bismarck, North Dakota, topped the list for the fourth straight month with a jobless rate of 2.1 percent. Fargo, North Dakota, was second at 2.3. Midland and Logan, Utah, tied for third at 2.6.

 

A total of 10 metropolitan statistical areas around the nation posted unemployment rates of 3.0 percent or lower. Midland was the lone MSA in Texas at or below 3.0.

Midland again ranked near the top of the list of MSAs in the nation when it came to percentage gain in employment. Midland’s 6.4 percent growth ranked second to Muncie, Indiana (8.9 percent). In September, Midland showed a work force 100,100, an increase of nearly 5,000 from September 2013.

The following are the lowest unemployment rates in the nation during the month of September, according to the Bureau of Labor Statistics.

Bismarck, North Dakota 2.1

Fargo, North Dakota 2.3

Midland 2.6

Logan, Utah 2.6

Sioux Falls, South Dakota 2.7

Grand Forks, North Dakota 2.8

Lincoln, Nebraska 2.8

Mankato, Minnesota 2.9

Rapid City, South Dakota 2.9

Billings, Montana 3.0

Lowest rates from August

Bismarck, North Dakota 2.2, Fargo North Dakota 2.4; Midland 2.8. Also: Odessa 3.4

July

Bismarck, North Dakota, 2.4; Sioux Falls, South Dakota, 2.7; Fargo, North Dakota, 2.8; Midland 2.9. Also: Odessa 3.6

June

Bismarck, North Dakota, 2.6, Midland 2.9, Fargo, North Dakota, 3.0. Also: Odessa 3.6

May

Bismarck, North Dakota, 2.2, Fargo, North Dakota, 2.5, Logan, Utah, 2.5, Midland 2.6. Also: Odessa 3.2

April

Midland 2.3, Logan, Utah 2.5, Bismarck, North Dakota 2.6, Ames, Iowa 2.7. Also: Odessa 2.9

March

Midland 2.7, Houma-Bayou Cane-Thibodaux, La. 3.1, Bismarck, N.D. 3.1, Odessa 3.3, Fargo, N.D. 3.3, Ames, Iowa 3.3, Burlington, Vt. 3.3

February

Houma-Bayou Cane-Thibodaux, La. 2.8; Midland 3.0; Lafayette, La. 3.1

January

Midland 2.9; Logan, Utah 3.3; Bismarck, N.D. 3.4

December

Bismarck, N.D. 2.8; Logan, Utah 2.8; Midland 2.8

Assisted-Living Complexes for Young People

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by Dionne Searcey

One of the most surprising developments in the aftermath of the housing crisis is the sharp rise in apartment building construction. Evidently post-recession Americans would rather rent apartments than buy new houses.

When I noticed this trend, I wanted to see what was behind the numbers.

Is it possible Americans are giving up on the idea of home ownership, the very staple of the American dream? Now that would be a good story.

What I found was less extreme but still interesting: The American dream appears merely to be on hold.

Economists told me that many potential home buyers can’t get a down payment together because the recession forced them to chip away at their savings. Others have credit stains from foreclosures that will keep them out of the mortgage market for several years.

More surprisingly, it turns out that the millennial generation is a driving force behind the rental boom. Young adults who would have been prime candidates for first-time home ownership are busy delaying everything that has to do with becoming a grown-up. Many even still live at home, but some data shows they are slowly beginning to branch out and find their own lodgings — in rental apartments.

A quick Internet search for new apartment complexes suggests that developers across the country are seizing on this trend and doing all they can to appeal to millennials. To get a better idea of what was happening, I arranged a tour of a new apartment complex in suburban Washington that is meant to cater to the generation.

What I found made me wish I was 25 again. Scented lobbies crammed with funky antiques that led to roof decks with outdoor theaters and fire pits. The complex I visited offered Zumba classes, wine tastings, virtual golf and celebrity chefs who stop by to offer cooking lessons.

“It’s like an assisted-living facility for young people,” the photographer accompanying me said.

Economists believe that the young people currently filling up high-amenity rental apartments will eventually buy homes, and every young person I spoke with confirmed that this, in fact, was the plan. So what happens to the modern complexes when the 20-somethings start to buy homes? It’s tempting to envision ghost towns of metal and pipe wood structures with tumbleweeds blowing through the lobbies. But I’m sure developers will rehabilitate them for a new demographic looking for a renter’s lifestyle.

Why Are Chinese Millionaires Buying Mansions in an L.A. Suburb?

Why Are Chinese Millionaires Buying Mansions in an L.A. Suburb?

by Karen Weise

“Oh, hey! How ya’ doin’?” Raleigh Ornelas hollers, leaning out the window of his spotless white pickup truck. He’s recognized the man across the street, a developer standing in front of a Tuscan-style mansion under construction. “Where have you been hiding at? I call you, you don’t call me.”

Ornelas is an informal broker in Arcadia, Calif., a Los Angeles suburb at the foot of the San Gabriel mountains. He’s been keeping an eye out for the builder, an Asian man with a slight comb-over who goes by Mark. Ornelas has found two older homeowners who’ve finally agreed to sell their properties, and he knows that Mark, like all developers here, needs land on which to build mansions for an influx of rich clients from mainland China.

Ornelas rattles off addresses on a nearby street. “Three-eleven, that guy, he’s wack,” he says, shaking his head. “He wants 2.8.” He means million dollars. “And then 354, they want $2 million.”

The lot is 17,000 square feet. “Seventeen for 2 mil?” Mark asks, incredulous.

“I know,” Ornelas says. “They’re going crazy.”

A year ago the property would have gone for $1.3 million, but Arcadia is booming. Residents have become used to postcards offering immediate, all-cash deals for their property and watching as 8,000-square-foot homes go up next door to their modest split levels. For buyers from mainland China, Arcadia offers excellent schools, large lots with lenient building codes, and a place to park their money beyond the reach of the Chinese government.

The city, population 57,600, projects that about 150 older homes—53 percent more than normal—will be torn down this year and replaced with mansions. The deals happen fast and are rarely listed publicly. Often, the first indication that a megahouse is coming next door is when the lawn turns brown. That means the neighbor has stopped watering and green construction netting is about to go up.

Ornelas matches sellers with developers. Deals happen fast; many aren’t listed publicly
Damon Casarez for Bloomberg Businessweek.
Ornelas matches sellers with developers. Deals happen fast; many aren’t listed publicly.

This flood of money, arriving from China despite strict currency controls, has helped the city build a $20 million high school performing arts center and the local Mercedes dealership expand. “Thank God for them coming over here,” says Peggy Fong Chen, a broker in Arcadia for many years. “They saved our recession.” The new residents are from China’s rising millionaire class—entrepreneurs who’ve made fortunes building railroads in Tibet, converting bioenergy in Beijing, and developing real estate in Chongqing. One co-owner of a $6.5 million house is a 19-year-old college student, the daughter of the chief executive of a company the state controls.

Arcadia is a concentrated version of what’s happening across the U.S. The Hurun Report, a magazine in Shanghai about China’s wealthy elite, estimates that almost two-thirds of the country’s millionaires have already emigrated or plan to do so. They’re scooping up homes from Seattle to New York, buying luxury goods on Fifth Avenue, and paying full freight to send their kids to U.S. colleges. Chinese nationals hold roughly $660 billion in personal wealth offshore, according to Boston Consulting Group, and the National Association of Realtors says $22 billion of that was spent in the past year acquiring U.S. homes. Arcadia has become a hotbed of the buying binge in the past several years, and long-standing residents are torn—giddy at the rising property values but worried about how they’re transforming their town. And they’re increasingly nervous about what would happen to the local economy if the deluge of Chinese cash were to end.

Back on the street corner, Ornelas and Mark agree to meet for coffee to discuss other deals. Before he drives away, Ornelas asks if the developer wants to speak with a reporter. Mark declines, saying he tries to keep a low profile. “See?” Ornelas says as he pulls away, leaning toward the passenger seat and raising his eyebrows. “Everything’s hush-hush here in Arcadia.”

For almost a century after its founding in 1903, Arcadia was white and conservative. In the late 1930s more than 90 percent of the city’s property owners signed agreements, circulated by the Chamber of Commerce, to sell only to white buyers. Its Santa Anita racetrack held about 19,000 Japanese Americans as they were relocated to internment camps during World War II. In the early 1980s an influx of immigrants from Taiwan arrived, drawn in large part to the great public schools. A second wave came from Hong Kong after the 1989 Tiananmen Square protests. The city’s Asian population grew from 4 percent in 1980 to 59 percent in 2010. There were tensions at first—a letter in a local newspaper praised a proposed ban on non-English storefronts, writing, “Please leave your Asian signs in the old country and get Americanized.” Over time, the new residents got involved in civic life, joining the Rotary Club, entering local government, and opening businesses such as Din Tai Fung Dumpling House, a Taiwanese restaurant tucked in the corner of a strip mall.

Arcadia has no real downtown, only low-rise commercial stretches lined with real estate offices and boba tea shops; Din Tai Fung is the closest thing there is to a central hub. Hostesses with walkie-talkies manage the hourlong wait of people clamoring for plump soup dumplings and pork buns. It was here, a decade ago, that Ornelas broke into Chinese real estate. Leaving lunch one day, he spotted a Ferrari parked outside. “Boy, that’s a beautiful car,” he said. The owner was Chinese and asked Ornelas if he wanted to take it for a drive. Ornelas squeezed in and took a quick spin. As he returned, a white man walked by and made a racial slur about the owner.

“I said, ‘Leave the guy alone,’ ” Ornelas recalls. The talk escalated into a fistfight, which ended badly for the heckler. Ornelas is a Vietnam veteran who spent years bare-knuckle boxing for cash while working as a longshoreman. “The Chinese guy goes, ‘I’m a stranger. Why did you stick up for me?’ I said, ‘We’re all equal in this world, man.’ ” After that, Ornelas says, “I just met people from him, and then I got into different developers.”

“Obviously if your house isn’t feng shui-friendly, it’s like we’re not even going to have a conversation”

Ornelas matches them up with sellers. He swings by garage sales to chat up owners, and as he drives Arcadia’s streets, he looks for signs a homeowner may need money. On a blistering hot day in July, he goes scouting through the city’s foothills. “The roof is popping in that one there,” he says, pointing to an older ranch house. “This one, they put a new roof on, but the house is in bad shape.” Ornelas stops at a corner lot, where a property is under construction. “Look at how big that house is,” he says. “Ooof. Gigantic.”

As Ornelas tells it, last year the real estate website Zillow (Z) had estimated the property’s value at $1.2 million when he, on behalf of a developer, offered the owner $1.5 million. The owner’s brother, who worked in law enforcement, called Ornelas to ask if he was laundering money. “I told him, ‘That’s what the house is worth to me,’ you know? And he kind of investigated to see if it was dirty money. Everything was on the uppity-up, so he sold it to us.” Where Ornelas’s tales can be checked against public records, they stand up—Zillow did make the lower estimate, the house did sell for $1.5 million, and the owner’s brother is a sergeant with the county sheriff’s department. (The lawman didn’t respond to a request for comment.)

Next, Ornelas drives over to one in a string of construction sites in the city’s Upper Rancho neighborhood, where large lots line curving streets shaded by gracious oak trees. At the site, buzz saws blare, and stacks of plywood lie on a concrete foundation. Richard Smith, the sun-tanned owner of a construction company working on seven homes in Arcadia, walks over to talk shop. Smith is building the 11,000-square-foot home for a developer who expects to sell it, he says, for $8 million to $9 million. Smith grew up in Arcadia, and his company has only Asian clients. They have certain preferences. “Obviously, if your house isn’t feng shui-friendly, it’s like we’re not even going to have a conversation,” he says. That means minding the number of stairs, the directions rooms face, and how materials line up. “And understanding the value of water, that’s probably one of my key strengths,” he says. “If you go to any successful businessman in China, or even here, they generally will have a picture of water behind their desk.” He whips out his phone and swipes to photos of a project with a waterfall cascading off the top of a gazebo and into a backyard pool.

A teardown that sold for $2.75 million in July 2013Photograph by Damon Casarez for Bloomberg BusinessweekA teardown that sold for $2.75 million in July 2013

Smith says many of the newest buyers in Arcadia don’t speak English. “They’ve just come here,” he says. “They’re on that EB—what’s it called?” He means the EB-5 visas that the U.S. grants to foreigners who plow at least $500,000 into American development projects. Congress created the program in 1990 to spur investment, and demand for the visas has grown recently. This year, for the first time, the government gave away the annual allocation of 10,000 visas before the year was over, with Chinese nationals snapping up 85 percent. Brokers in the area say it’s the most common way buyers are coming to town. “Once they obtain residency, they want to bring their family over and get the United States education,” says real estate agent Ricky Seow. “They can start a new life in California.”
 
 
Taillights whiz by as 19-year-old Cheng Qianrong heads east along the freeway that runs from Los Angeles International Airport toward Arcadia, in a video she posts in June to her 22,000 Instagram followers. Later that night she stands in a marble kitchen, points a gold iPhone at a mirror, and, with a hip to the side, snaps a picture of her reflection, writing, “I’m finally home.

A sophomore studying business at the University of Oregon, Cheng, who goes by Heli in the U.S., is a minor social media celebrity in China. In selfies, her long, straight hair and wide-eyed gaze make her look younger than she is. Her followers express awe for her style and gush at photos of her enjoying a smoothie; posing with stuffed animals; and smiling with a birthday cake made to look like a stack of Tiffany boxes.

In late 2013, Cheng and her mother, Wang Jun, bought a 9,000-square-foot house with a pool and spa in Arcadia for $6.5 million. According to an L.A. property filing, Wang’s husband is Cheng Qingtao. He’s CEO of China Huayang Economic & Trade Group, one of the first state-owned companies set up by the central government, which still owns a majority stake. Heli’s two-story chateau-style home is only a few miles from one owned by her aunt, who’s married to Cheng’s older brother, Cheng Qingbo. Qingbo was the first private owner of railroads in China and, by 2013, was the country’s 257th-richest person, worth an estimated $1.06 billion, Hurun says. In June, Shanghai police arrested Qingbo for allegedly duping people into investments, including a project that, China Business News says, didn’t exist.

For most Arcadians, it would be hard to know if Heli owned the house next door. A member of one homeowners association estimates that about 20 percent of the new purchases sit empty, and for those who don’t speak Mandarin, language barriers have made it hard to share more than a wave with neighbors. For many sales, public records provide no way to understand who the new owners are. A recorded deed may show just an English transliteration of a buyer’s name, with no signature. Some public documents provide small clues: a second address in a luxury condo near Tiananmen Square; a seal if a document has been notarized at the U.S. Embassy in Guangzhou; a husband who relinquishes rights to the land to his wife; or a signature in Chinese characters.

Chinese nationals hold $660 billion in personal wealth offshore; they spent $22 billion on U.S. homes in the past year

Some of those clues match up with public documents in China. A mile north of the Chengs, Fu Youhong and Zhang Jian, a couple who founded a pharmaceutical distributor in China before starting a business converting agricultural waste into energy, bought a $3.5 million home advertised as a “spectacular brand-new French Normandy Estate.” Pesticide manufacturer Huifeng International USA got into the boom early, in 2012, and for $3.4 million bought a house with a grand circular staircase and Swedish sauna. The company says the property is used as an office for its trading business and not as a personal home. And a $3.2 million property in one of Arcadia’s rare gated communities was sold to a woman from Guangzhou named Zeng Fang, who runs a network of immigration sites, one of which, baby-usa.net, tells Chinese mothers they can deliver babies at Arcadia Methodist Hospital.

A few miles south, another new house, this one with Tuscan styling and Moorish window treatments, sold last year to a woman named Jin Liping. Her husband, Du Jianming, is the owner of one of China’s largest private builders of steel structures. His company has built bridges in Shanghai and connecting railways on the Tibetan Plateau. His wife bought the 8,000-square-foot house in Arcadia for $4.8 million in September 2013, around the same time the couple faced financial pressures at home. They lost three lawsuits in China related to unpaid loans, but their home in California looks in peak condition, with little red ribbons tied around the topiary by the front door.

Arcadia Sales Frenzy

A goldenrod-yellow house on South 6th Avenue belongs to Tao Weisheng and Du Xiaojuan, who develop homes and run hotels in Chongqing. Tao is known in China for collecting calligraphy and paintings—and for reportedly paying bribes to bureaucrats. According to state-run media, in 2004, Tao and a business partner paid a local official’s gambling debt at a Macau casino. The official had given them a land certificate they needed for a loan. In 2010 the court found the official guilty of taking a bribe and gave him a suspended death sentence. The prosecutor didn’t charge Tao and his partner. The homeowners or their representatives declined to comment or did not respond to interview requests.

Lately, groups of Chinese investors have pooled their money to buy Arcadian homes, which often aren’t occupied. More than 400 residents showed up at a community meeting with the police department this spring, in part concerned about a spate of burglaries targeting empty mansions. When there are leaks or other problems with a property, even the city struggles to identify who’s responsible. “Who do we contact? Where do we contact them?” says Jim Kasama, the community development administrator for the city’s building department. “Sometimes it’s not that easy.”
 
 
Arcadia is on track to bring in record revenue this year. In the fiscal year ended in June, fees from building permits and development reached $7.9 million, a 72 percent increase from the previous year. Its quiet streets are busy with gardeners blowing leaves and laborers laying roofs. This summer, the high school updated its gym and cafeteria. For a generation of older homeowners, the boom has created one hell of a nest egg. The Great Recession hit many retirees hard, but now they’ve sold and moved to cheaper places a few miles away. As Smith, the contractor, says, “They still live close, but they’ve got 2 million bucks in their bank account.”

With so many homes vacant and language barriers prevalent, distrust is building. There are strange rumors—local officials on the take; bridal studios as fronts for massage parlors—and stranger truths. Just steps from the Arcadia police station, a local TV news reporter uncovered a hotel being used for birth tourism. A member of one homeowners association says a developer told the local board at various meetings that three separate homes he was building were all for his own family. When the board called him on it, he said his wife couldn’t decide which one she wanted.

“The growth we’re experiencing isn’t typical,” Kasama says. “It’s not like we have new subdivisions. It’s the houses that are growing.” The city’s homeowners associations can do only so much—three years ago, the city changed a regulation that limits their ability to cap the size of houses.

Neighborhood disputes are getting intense. Dong Chang, a local dermatologist who told the Rotary Club that he left Taiwan in the early 1970s with “two bags of rice and a frying pan,” is suing the developer building a mansion next door for cutting down an old oak tree on his property. He’s seeking about $280,000, saying the harm was “intentional, fraudulent, oppressive, malicious, and despicably done.”

A red sign reading “Cannon against dogs” hangs from one of two replica cannons a developer installed pointing to his neighbor across the street
Courtesy City of Arcadia
A red sign reading “Cannon against dogs” hangs from one of two replica cannons a developer installed pointing to his neighbor across the street

Then there’s the cannon incident. That battle went down on West Las Flores Avenue, on a block with a mix of older homes and newer construction, including a house owned by David Tran, the Huy Fong sriracha magnate. A family moved into a new home in 2008 and flanked the front walkway with two waist-high lion statues, the “fu dogs” that guard imperial Chinese palaces. A few years later, a developer named Ricky Tang began building his own home across the street. Tang didn’t care for the lions, but their owners refused to remove them. In January 2011, according to city records, Tang mounted two replica cannons on top of a construction trailer in the front of his lot, aiming back at the lions. A red sign reading “Cannon against dogs” in Chinese hung from each cannon. “The neighbor across the street took offense,” Kasama says. “He felt they looked threatening.” Soon a city-owned Prius pulled up, lights flashing, with an official entreating Tang to take down the weaponry. He acquiesced after a month of haggling. Tang didn’t respond to a request for comment.

Mary Garzio, a widow who’s Tang’s neighbor, calls him “a very nice man.” She says he’s been wooing her to sell her 73-year-old house for $3 million in cash. He brings over fruit and says she can live rent-free until she gets settled elsewhere. “He says, ‘You’re a good neighbor, Mary. I don’t want you to leave, but I want your home.’ ”
 
 
Arcadia’s Chinese buyers may have made their wealth in different ways, but they face a common problem: getting their cash to America. China controls the flow of its currency, restricting residents from converting more than $50,000 in yuan into foreign denominations each year. At that pace it would take half a lifetime for a couple to buy a $4 million home.

Jeff Needham, a senior vice president at HSBC (HSBC), says it’s most common for buyers to transfer money from personal or business accounts they already have in Hong Kong, which doesn’t impose caps. “In most of our buyer situations, they have funds outside China already that they have accumulated over years,” he says, adding that the bank verifies the source of the funds.

It’s trickier for those without accounts in Hong Kong. Chen Ping, a local broker, says there’s a common workaround. “We call it ‘head-count wiring,’ ” she says. Buyers line up other people—friends, family, or, if need be, paid strangers—to each transfer a share. “I once had a customer who bought a $1.9 million house in Arcadia who said, ‘Not a problem. I have more than enough head counts,’ ” Chen says. Many buyers have legitimate ways to wire the funds, says broker Imy Dulake, but “there is no way we can have this much cash coming in legally.”

When they can’t get enough money through, property records show many get mortgages to buy the homes, often putting at least 40 percent down. Others buy with all cash and later take out home-equity loans, freeing up funds for other investments in the U.S. without going through the rigmarole of getting money across the Pacific again. Dozens of Chinese homeowners in Arcadia have loans from HSBC and East West Bancorp (EWBC), both of which have branches in China. HSBC’s Needham says the bank gives “premier” clients a discounted rate, and it can underwrite loans in the U.S. based on international credit scores and assets overseas. East West didn’t respond to requests for comment.

Even as they fret about their town, longtime Arcadians worry about a sudden end to the money. What happens if the U.S. limits visas, the Chinese government clamps down, or the émigrés pick another place to park their cash? “How high we go, we can’t foresee, because we never know the policy changes,” real estate agent Seow says. This summer, after an exposé on China Central Television, the Bank of China ended a government program that quietly let some customers convert an unlimited amount of yuan into dollars and transfer it overseas. And President Xi Jinping’s anticorruption campaign has raised the specter of a larger slowdown. “I was in escrow on a property before this crackdown, and oh my God, they could not get their money out” of China, broker Dulake says. The sale fell through.

Stig Hedlund lives on the block with the cannons, in a house built in 1937 by his grandfather, a civil engineer who laid out many of the city’s roads when everything was still alfalfa fields. Now Hedlund is wondering if he should leave. He’s received nice offers for his house, like when a broker and a couple drove up his driveway unannounced in a black Mercedes one Sunday morning; the broker knocked on the front door, saying the couple wanted to buy his home. He’d like to wait until his last son graduates from college, but he fears his “five-year plan” will make him miss the boom. When he reads news about recent protests in Hong Kong, he wonders how China’s response will ripple across the mainland. “If a communist government starts putting the kibosh, isn’t it more incentive to get money out of the country?” he asks. Or would a crackdown mean he blows his chance to sell? It’s a question central to Arcadia’s gardeners and construction workers, the car salesmen and the boba tea makers, who all rely on the money surging out of China. For now, Hedlund figures he can wait a little longer. He hears Ornelas just brokered a sale down the street for $2.8 million.