LOS ANGELES — Southern California beachfront property that was taken from a Black couple through eminent domain a century ago and returned to their heirs last year will be sold back to Los Angeles County for nearly $20 million, officials said Tuesday.
The heirs’ decision to sell what was once known as Bruce’s Beach was announced by Janice Hahn, chair of the county Board of Supervisors, and state Sen. Steven Bradford, who led local and state governmental efforts to undo the long-ago injustice.
“This fight has always been about what is best for the Bruce family, and they feel what is best for them is selling this property back to the County for nearly $20 million and finally rebuilding the generational wealth they were denied for nearly a century,” Hahn said in a statement.
Bradford, who authored the state legislation that enabled the land’s return, said he supported the heirs’ decision to sell it to the county because current zoning regulations would prevent them from developing it in an economically beneficial manner.
The land in the city of Manhattan Beach was purchased in 1912 by Willa and Charles Bruce, who built a small resort for African Americans on the south shore of Santa Monica Bay.
The Bruces suffered racist harassment from white neighbors, and in the 1920s the Manhattan Beach City Council condemned the property and took it through eminent domain. The city did nothing with the property, and it was transferred to the state of California and then to Los Angeles County.
The county built its lifeguard training headquarters on the land, which includes a small parking lot.
Hahn learned about the property’s history and launched the complex process of returning the property, including determining that two great-grandsons of the Bruces are their legal heirs.
Terms of the transfer agreement completed last June called for the property to be leased back to the county for 24 months, with an annual rent of $413,000 plus all operation and maintenance costs, and a possible sale back to the county for nearly $20 million, the estimated value.
After years of sidelining its economy as rigid anti-COVID policies trumped all else, China seems — at least on paper — set for a robust 2023.
Investors and analysts see a promising landscape for several reasons.
Last year’s weak growth should provide a low baseline for comparatively rapid expansion. Removing the crushing first year of the pandemic, China’s economy in 2022 likely grew at its slowest rate in nearly 50 years.
Second, policy makers in recent weeks have hammered home that the economy is now priority No. 1. At last month’s top annual economic summit, President Xi Jinping and other leaders promised that a steady and ongoing economic recovery would kick off this year — with ample government support.
On Thursday, China’s finance ministry said it would accelerate spending to boost growth, particularly in tech and other nationally strategic sectors.
Other measures, such as tax cuts for businesses and issuance of special bonds to fund targeted projects, alongside increased fiscal transfers to local governments, are to be rolled out as well, the ministry said.
Most important in reviving China’s beleaguered economy, however, is last month’s sudden dismantling of “zero-COVID” measures that have crippled business activity for more than a year.
It is “certain” that China’s economy will recover this year, said Lu Ting, chief China economist at Nomura. ”The question is how much.”
Yet for Beijing-based economist Michael Pettis, a senior fellow at the Carnegie Endowment, what matters most is which parts of the economy grow, and which the government chooses to stimulate.
For him, any rebound is only significant through healthy domestic demand — namely, consumption and business investment — and how sustainable that demand becomes.
“Analysts must stop interpreting Chinese economic data in the same way they interpret data from other countries. In China, where so much growth is driven by soft-budget spending, GDP does not mean what it means abroad, where most spending is limited by hard-budget constraints,” he said.
Whether China moves to permanently shift the structure of domestic demand will determine if this year’s economy regains its health — “and more importantly, how costly China’s longer-term adjustment is likely to be,” Pettis said.
Policy makers may finally be moving in that direction.
At last month’s summit, Chinese leaders stressed that expanding domestic demand was vital, and for the first time prioritized consumption higher than investment and infrastructure.
Part of stimulating domestic spending will be allaying rattled consumers, who have been saving rather than buying amidst the uncertainty of last year’s COVID restrictions and the losses of jobs and businesses.
Stimulating consumer confidence and domestic demand will lead Beijing’s economic policies this year, China International Capital Corp.
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said in a recent note. The investment-management firm said various short- and long-term policies will be rolled out to stabilize the sector.
China faces a few caveats for its recovery hopes, however. The explosion in COVID cases since it opened up is ongoing, and the death toll and pressure on the health-care system are clouded by the Communist Party’s characteristic lack of transparency in releasing data and other potentially sensitive information.
Moreover, economists are predicting a potentially sharp global slowdown this year, with the chance of recessions in the U.S. and Europe, which would dampen trading with and investment into China.
And with COVID restrictions largely out of the way, the long-struggling property market has returned as the economic elephant in the room.
While the sector is suffering a record contraction, with every subsector from housing to commercial property in distress, new credit data offers a glimmer of hope, said Shehzad Qazi, managing director of consultancy China Beige Book.
“Borrowing and bond sales are picking up, which suggests the much talked about policy turn may finally be approaching,” he said in an emailed statement.
“But forget a return to days of old: It will take considerable policy support in 2023 just to pull property out of the gutter.”
After China’s most economically and politically turbulent year in more than three decades, investors are keen to see how 2023 will unfold for the world’s second largest economy.
The country is experiencing an explosion of COVID infections, after authorities earlier this month suddenly dropped most of the notoriously draconian restrictions that have shackled business activity and daily life through much of the pandemic.
But so far, experts’ predictions of widespread deaths and a nationwide overwhelming of hospitals have yet to materialize. More than 90% of Chinese are fully vaccinated, compared with 68% of Americans, according to the countries’ respective health authorities.
Officials have said publicly that they now deem the virus weak enough to weather a surge of infections as rapidly as possible — with the hope of then reviving the country’s economic doldrums.
The following are the stories to watch over the coming year as we gauge just how successful — or unsuccessful — this approach becomes.
Opening up
Loosening of internal COVID restrictions surprised citizens with its suddenness. Meanwhile, China is moving more slowly — but steadily — toward reopening to foreign travelers and businesspeople. Next month, it will abolish a centralized quarantine for arrivals, and require only three days of isolation at home or in a hotel, Chinese media reported Wednesday.
Hong Kong last week scrapped all quarantine requirements for international arrivals.
But don’t expect the prepandemic wave of outbound Chinese travelers to resume quickly. More than half of respondents to a survey of 4,000 Chinese consumers by consultancy Oliver Wyman said they would not travel abroad for several months, if not more than a year.
Consumption rebound
For much of the pandemic, unlike many developed countries, China refrained from large-scale stimulus measures, mostly rolling out supply-side support such as boosting infrastructure projects. This neglect of stimulating domestic consumption was compounded by citizens’ reluctance to spend amid times of uncertainty.
But that appears to be changing. At China’s annual economic summit last week — chaired by Xi Jinping, given a norm-busting third presidential term this autumn — officials declared that “the recovery and expansion of consumption should be given top priority,” according to an official readout. Measures include boosting incomes as well as providing subsidies and incentives in a range of categories such as alternative-energy vehicles, housing renovations and elder services.
“Consumer demand is now quickly moving up Beijing’s policy agenda,” consultancy Trivium wrote Tuesday in response to the announcements.
Property
China’s beleaguered property sector — which last year was on the verge of collapse — has been receiving steadily rising government support. Xi last month said that a raft of new measures would be forthcoming, including requiring lenders to up their loans to developers as well as support for bond issuances by private real-estate firms.
Banks have also slashed average mortgage rates by more than a percentage point in the last several months, and mortgage requirements have eased, while processing times have shortened.
“This pragmatic course correction should lead to a gradual, steady recovery in new-home sales in the second half of 2023,” Matthews Asia investment strategist Andy Rothman said in an emailed statement.
Trivium analysts concurred. “We expect more policies in the new year to restore demand for new housing and to boost construction,” they wrote.
These revitalization moves, if successful, bode well for the beginning of a Chinese recovery next year, analysts said.
Through COVID relaxations and proactive fiscal measures, consumer mobility and rising sentiment will help reinvigorate China’s growth in the second quarter and foster expansion even further in the year’s second half, said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle.
Pang expects China’s economy to grow more than 5% in 2023, a forecast other analysts are revising their own estimates toward. “And don’t forget, China is likely the only major economy with a serious [monetary] policy easing stance, while much of the world is tightening,” he said.
The U.S. Department of Energy is expected on Tuesday morning to announce a breakthrough in ongoing research for nuclear fusion, long heralded for its potential as a source of zero-emissions and essentially, limitless, energy.
The announcement is scheduled for 10 a.m. Eastern time.
Nuclear fusion, if it can be produced at scale, has long been considered the Holy Grail in the push for clean energy and slowing the global warming that is intensifying natural disasters, acidifying oceans and bringing extreme heat and drought. The U.S. and much of the rest of the developed world have been promoting a combination of solar, wind
ICLN,
hydrogren and nuclear energy to replace the coal, oil
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and natural gas
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that send atmosphere-warming emissions into the air.
Many nations, including the U.S., have said their economies must cut emissions by half as soon as 2030 and hit net-zero emissions by 2050.
On Sunday, the Financial Times reported that federally-funded scientists with the Lawrence Livermore National Laboratory produced more energy than was consumed in a fusion reaction for the first time. Other major news outlets confirmed that reporting, although the lab has said it will wait until Tuesday to discuss the project.
“The recent experiment is a first-of-its-kind feat that could lead to an effective process for producing a zero-carbon alternative to fossil fuels and [traditional] nuclear energy,” said Frank Maisano, senior principal focused on energy with the Policy Resolution Group in Washington.
Nuclear fusion is the process of fusing two or more atoms into one larger one, a process that unleashes potentially usable energy as heat, in much the same way the sun heats the Earth. Nuclear power used today is created by a different process, called fission, which relies on splitting atoms and harnessing that energy, while also producing radioactive waste.
Currently, traditional nuclear plants using fission produce about 10% of the world’s electricity, but their proponents have also pushed their expansion as a key to a diverse portfolio of alternative energy.
Daniel Kammen, a professor of energy and society at the University of California at Berkeley, told the Associated Press that nuclear fusion offers the possibility of “basically unlimited” fuel, but only when the technology can be made commercially viable. The basic elements are easily accessible; in fact, they’re available in seawater.
The Livermore lab isn’t the only effort toward a fusion breakthrough, which scientists have worked on for decades.
In Europe earlier this year, a large, doughnut-shaped machine known as a tokamak, developed by scientists working in the English village of Culham, near Oxford, generated a record-breaking 59 megajoules of sustained nuclear fusion energy over five seconds during trials, the scientists revealed. That more than doubled the previous record for generating and sustaining fusion.
While scientists have generated fusion energy before it is sustaining the power that has been difficult to achieve. A magnetic field is required to contain the high temperatures created by the fusion process — some 150 million degrees Celsius, 10 times hotter than the center of the sun.
The Livermore lab uses a different technique than the tokamak, with researchers firing a 192-beam laser at a small capsule filled with deuterium-tritium fuel. The lab reported that an August 2021 test produced 1.35 megajoules of fusion energy — about 70% of the energy fired at the target. The lab said several subsequent experiments showed declining results, but researchers believed they had identified ways to improve the quality of the fuel capsule and the lasers’ symmetry.
In Orange County, California, another contender in the fusion race, TAE Technologies, is on track to develop the first commercial prototype power plant for clean fusion energy by 2030, its CEO Michl Binderbauer told MarketWatch earlier this year. Binderbauer had just attended the first-ever White House Fusion Summit.
At that event, administration officials announced what they called a “bold decadal vision” to accelerate the development of commercial fusion energy.
“There’s a fallacy in thinking that solar and wind can solve everything,” said Binderbauer. “Absolutely, they’re wonderful sources of power where it fits. But there are also limitations. There’s no world that can run on 100% renewables.”
Nuclear industry analysts remind that it will take sustaining and repeating the process, and at scale, for the development to change traditional energy markets anytime soon.
“This doesn’t mean it’s not a big deal, but I still doubt how much this impacts the efforts to bring fusion closer to commercial reality. My sense is fusion is at least a decade or more away from any commercialization,” said Jonathan Hinze, president of UxC, LLC, which tracks the uranium and nuclear markets, in an email to MarketWatch.
The Associated Press contributed.
By James Glynn
SYDNEY–The Australian government’s budget for 2022-2023 reveals a solid bottom-line improvement as surging commodity prices and the strongest job market in half-a-century boost revenues, but the outlook remains grim as spending demands are expected to surge, while inflation stays higher for longer and global recession risks grow.
“The global economy teeters again, on the edge, with a war that isn’t ending, a global energy crisis that is escalating, inflationary pressures persisting, and economies slowing–some of them already in reverse,” Treasurer Jim Chalmers said in a speech to parliament on Tuesday.
Mr. Chalmers said the budget deficit in the current fiscal year will fall to 36.90 billion Australian dollars (US$23.30 billion), less than half of what was forecast in May, but also confirmed that gross government debt will balloon to around A$1.004 trillion, or 40.8% of national output in 2023-2024, before climbing to 43.1% of GDP in 2025-2026.
The short-term improvement in the budget has been helped by gains in a broad basket of commodity prices, including iron ore, which accounts for around one quarter of export earnings. The benchmark price of iron ore has averaged roughly US$125 a metric ton in the year to date, according to S&P Global Commodity Insights.
The budget faces growing spending pressures as costs in areas such as healthcare, defense and aged care spiral over the coming years. The budget’s cash balance will deteriorate in that time, peaking at a deficit of A$51.3 billion, or 2.0% of GDP in 2024-2025.
“While the temporary revenue boosts were are getting from higher employment and higher commodity prices will fade and fall, the profound and permanent spending pressures on the budget are forecast to grow and grow,” Mr. Chalmers said.
The budget is the Labor Party’s first since coming to power in May, with Mr. Chalmers focused on delivering election promises, easing living-cost pressures, while also acknowledging a rapidly deteriorating global economic environment that could drag Australia back into recession, its first since the start of the pandemic.
Still, the resource-rich economy is expected to avoid with recession as growth slows to 1.5% in 2023-2024 from 3.25% in 2022-2023.
“While we intend to avoid the worst of the turbulence from overseas, we cannot escape it completely,” Mr. Chalmers said.
Critically, inflation is expected to remain higher for longer, potentially challenging the Reserve Bank of Australia’s recent decision to slow the pace at which it is raising official interest rates.
The inflation rate is expected to peak at 7.75% in the fourth quarter of this year, but remain above the RBA’s 2% to 3% inflation target until 2024-25.
The RBA has been raising interest rates since May at the fastest pace since the mid-1990s, but chose to slow the speed at which it is tightening the policy screws this month amid accelerated falls in house prices.
If inflation lingers above the RBA’s target band until 2025, pressure could build on the central bank to keep raising rates for longer or even reaccelerate the pace of hikes.
A silver lining in the budget is in expectations for unemployment.
While the government expects the unemployment rate to rise to 4.5% in 2023-2024 from the current 3.5%, joblessness will still be at historically low levels, a key support for consumers facing spiraling living costs.
As pressure on government spending builds over the coming years, Labor looks set to come under increasing demands to reform the tax system.
“This is just the beginning of our budget repair work, and it’s just the beginning of the conversation we need to have as a country,” Mr. Chalmers said.
The government has retained income-tax cuts slated for mid-2024, despite widening calls for them to be abandoned on the grounds that they are too weighted toward the higher-paid and come with the budget still well short of repair following huge pandemic-related stimulus spending.
Mr. Chalmers was pressured to consider ditching the income-tax cuts given the backdrop of financial instability and political upheavals that followed the UK government’s ill-fated plans to boost growth by massively lowering taxes.
The budget directly targets rising cost of living pressures in the economy, directing funding toward cheaper child care, expanding paid parental leave, cheaper medicines, more affordable housing and efforts to boost wages growth.
Write to James Glynn at james.glynn@wsj.com; @JamesGlynnWSJ
Washington
CNN
—
The Biden administration has launched a full-scale pressure campaign in a last-ditch effort to dissuade Middle Eastern allies from dramatically cutting oil production, according to multiple sources familiar with the matter.
The push comes ahead of Wednesday’s crucial meeting of OPEC+, the international cartel of oil producers that is widely expected to announce a significant cut to output in an effort to raise oil prices. That in turn would cause US gasoline prices to rise at a precarious time for the Biden administration, just five weeks before the midterm elections.
For the past several days, President Joe Biden’s senior-most energy, economic and foreign policy officials have been enlisted to lobby their foreign counterparts in Middle Eastern allied countries including Kuwait, Saudi Arabia, and the UAE to vote against cutting oil production.
Members of the Saudi-led oil cartel and its allies including Russia, known as OPEC+, are expected to announce production cuts potentially up to more than one million barrels per day. That would be the largest cut since the beginning of the pandemic and could lead to a dramatic spike in oil prices.
Some of the draft talking points circulated by the White House to the Treasury Department on Monday that were obtained by CNN framed the prospect of a production cut as a “total disaster” and warned that it could be taken as a “hostile act.”
“It’s important everyone is aware of just how high the stakes are,” said a US official of what was framed as a broad administration effort that is expected to continue in the lead up to the Wednesday OPEC+ meeting.
The White House is “having a spasm and panicking,” another US official said, describing this latest administration effort as “taking the gloves off.” According to a White House official, the talking points were being drafted and exchanged by staffers and not approved by White House leadership or used with foreign partners.
In a statement to CNN, National Security Council spokesperson Adrienne Watson said, “We’ve been clear that energy supply should meet demand to support economic growth and lower prices for consumers around the world and we will continue to talk with our partners about that.”
For Biden, a dramatic cut in oil production could not come at a worse time. The administration has for months engaged in an intensive domestic and foreign policy effort to mitigate soaring energy prices in the wake of Russia’s invasion of Ukraine. That work appeared to pay off, with US gasoline prices falling for almost 100 days in a row.
But with just a month to go before the critical midterm elections, US gasoline prices have begun to creep up again, posing a political risk the White House is desperately trying to avoid. As US officials have moved to gauge potential domestic options to head off gradual increases over the last several weeks, the news of major OPEC+ action presents a particularly acute challenge.
Watson, the NSC spokesperson declined to comment on the midterms, saying instead, “Thanks to the President’s efforts, energy prices have declined sharply from their highs and American consumers are paying far less at the pump.”
Amos Hochstein, Biden’s top energy envoy, has played a leading role in the lobbying effort, which has been far more extensive than previously reported amid extreme concern in the White House over the potential cut. Hochstein, along with top national security official Brett McGurk and the administration’s special envoy to Yemen Tim Lenderking, traveled to Jeddah late last month to discuss a range of energy and security issues as a follow up to Biden’s high-profile visit to Saudi Arabia in July.

Officials across the administration’s economic and foreign policy teams have also been involved with reaching out to OPEC governments as part of the latest effort to stave off a production cut.
The White House has asked Treasury Secretary Janet Yellen to make the case personally to some Gulf state finance ministers, including from Kuwait and the UAE, and try to convince them that a production cut would be extremely damaging to the global economy. The US has argued that in the long-run a cut in oil production would create more downward pressure on prices – the opposite of what a significant cut would be designed to accomplish. Their logic is that “cutting right now would increase risks of inflation,” lead to higher interest rates and ultimately a greater risk of recession.
“There is great political risk to your reputation and relations with the United States and the west if you move forward,” the White House draft talking points suggested Yellen communicate to her foreign counterparts.
A senior US official acknowledged that the administration has been lobbying the Saudi-led coalition for weeks to try to convince them not to cut oil production.
It comes less than three months after President Joe Biden traveled to Saudi Arabia and met with Crown Prince Mohammed bin Salman on a trip that was driven in part by a desire to convince Saudi Arabia, the de facto leader of OPEC, to increase oil production which would help bring down the then-skyrocketing gas prices.

When OPEC+ agreed a few weeks later to a modest 100,000 barrel increase in production, critics argued Biden had gotten little out of the trip.
The trip was billed as a meeting with regional leaders about issues critical to US national security, including Iran, Israel and Yemen. It was criticized for its lack of results and for rehabbing the image of the crown prince who had been directly blamed by Biden for orchestrating the killing of Washington Post columnist Jamal Khashoggi.
In the months leading up to the meeting, Biden’s top aides for the Middle East and energy, McGurk and Hochstein, shuttled between Washington and Saudi Arabia planning and coordinating the visit.
One diplomatic official in the region described the US campaign to block production cuts as less of a hard sell, and more of an effort to underscore a critical international moment given the economic fragility and ongoing war in Ukraine. Though another source familiar with the discussions told CNN it was described by a diplomat from one of the countries approached as “desperate.”
A source familiar with the outreach says a call was planned with the UAE but the effort was rebuffed by Kuwait. Kuwait’s embassy in Washington did not immediately respond to a request for comment. Neither did Saudi Arabia’s. The UAE embassy declined to comment.
Publicly, the White House has cautiously avoided weighing in on the possibility of a dramatic oil production cut.
“We are not members of OPEC+, and so I don’t want to get ahead of what could potentially come out of that meeting,” White House press secretary Karine Jean-Pierre told reporters Monday. The US focus, Jean-Pierre said, remains “taking every step to ensure markets are sufficiently supplied to meet demand for a growing global economy.”
OPEC+ members are weighing a more dramatic cut due to what has been a precipitous decline in prices, which have dropped sharply to below $90 per barrel in recent months.
Hanging over Wednesday’s OPEC+ meeting in Vienna will also be the looming oil price cap that European nations intend to impose on Russian oil exports as punishment for Russia’s invasion of Ukraine. Many OPEC+ members, not only Russia, have expressed unhappiness with the prospect of a price cap because of the precedent it could set for consumers, rather than the market, to dictate the price of oil.
Included in the White House talking points to Treasury was a US proposal that if OPEC+ decides against a cut this week the US will announce a buyback of up to 200 million barrels to refill its Strategic Petroleum Reserve (SPR), an emergency stockpile of petroleum that the US has been tapping into this year to help lower oil prices.
The administration has made it clear to OPEC+ for months, the senior US official said, that the US is willing to buy OPEC’s oil to replenish the SPR. The idea has been to convey to OPEC+ that the US “won’t leave them hanging dry” if they invest money in production, the official said, and therefore, that prices won’t collapse if global demand decreases.
One outcome of the COVID-19 pandemic was a significant rise in house prices. Prices rose by 13.5% from March 2020 to March 2021 and by an additional 20.6% from March 2021 to March 2022, as measured by the Case-Shiller U.S. national house price index. This has intensified the focus on the lack of affordable housing in the United States.
While there are numerous factors driving the rise in house prices, the increasing scarcity of housing units has risen to the top. This problem has been building (or not, as the case maybe) for decades. But the pandemic took it to a whole new level.
Rex Nutting: Home prices have risen 100 times faster than usual during the COVID-19 pandemic
The U.S. has been building fewer housing units relative to the number of households over the past three decades than historical trends.

Econofact.org
The Facts:
The United States faces a housing stock gap. While estimates of the shortfall vary, analysts agree that the available supply of housing in the United States has not been large enough to adequately meet existing demand. An analysis from Freddie Mac, for instance, estimated the housing stock gap to be 3.8 million units in 2020, up from 2.5 million units in 2018.
We have been building fewer units relative to the number of households over the past three decades than historical trends. The annualized number of housing starts per 1,000 households was 22.2 between 1960 and 1990, but it dropped to 12.2 housing starts per 1,000 households between 1990 and April 2022 (see chart). It is important to note that this drop predates the significant decline in housing starts during the Great Recession.
A key to understanding this housing supply shortage is the role of local zoning and land-use restrictions. Having ceded the control of zoning to local jurisdictions has meant that homeowners have been able to persuade their local officials to restrict the supply of housing.
This is particularly the case for the construction of lower-priced starter homes and multifamily housing in U.S. suburbs. The prevalence of this so-called “NIMBY (Not in My Backyard)” syndrome has led to a large increase in restrictive zoning that has limited the construction of new housing and raised prices.
For instance, the share of jurisdictions that limited the maximum number of dwelling units allowed in the highest residential zone to less than 8 per acre rose from 15.5% in 1994 to 16.0% in 2003 and to 22.4% in 2019 based on data from the National Longitudinal Land Use Survey (1994, 2003, 2019), for jurisdictions that responded to all three surveys.
Two land-use regulations have had a particularly significant effect on reducing the supply of housing: minimum lot-size restrictions and single-family-only zoning. If the minimum lot-size restriction (MLR) is one acre, then any new construction must be on a lot size of at least an acre. In research with Maurice Dalton, we find that increasing the size of the minimum lot required led to a large and significant rise in house prices using data for the Greater Boston Area.
The fact that single-family-only zoning has also limited housing supply has only recently become apparent and this has led cities like Minneapolis and states such as Oregon and California to prohibit single-family-only zoning.
There are other constraints on new housing supply that have been exacerbated by the COVID-19 pandemic and will take some time to resolve. New construction has been hampered by a shortage of construction workers.
The tightness in the supply of construction workers is illustrated by a significant rise in construction-sector job openings: Monthly construction sector job openings have risen from a low of 24,000 in 2009 to 434,000 in May 2022 (see here). And a 2020 survey by the Associated General Contractors of America found that 81% of construction firms reported having trouble filling positions, and 72% anticipated labor shortages to be the biggest hurdle in the next year.
In addition to the worker shortage, there has been a dramatic rise in the cost of building materials since the beginning of the COVID-19 Pandemic (see chart below). It is very likely that the worker shortage will take longer to fix than the high materials costs. But the scarcity of workers and the high cost of inputs could already be putting a dent in construction: privately owned housing starts in May were 14.4% below the number in April.

Econofact.org
Are large-investor purchases also driving the rise in housing prices? The share of home purchases represented by large investors has been rising and reached a peak of 28% of all single-family homes purchased in February 2022. There is a view that these investors have squeezed out first-time home buyers through their purchases and by raising house prices.
The increase in large-investor purchases comes from investors who then rent out the units versus flip them, which is the focus of these concerns. However, the percent of first-time home buyers among all home buyers was 34% in 2021 and it has been at or close to this level since 2014 (it was around 40% prior to the Great Recession). There is no evidence (yet) that this recent rise in large investor purchases has increased house prices (it could be that the increase in large investors is a reaction to the large price increases versus the reverse).
And on a positive note, there is evidence that the increase in large investors helped support the recovery after the Great Recession through the purchase of real estate owned (REO) properties in distressed local housing markets (see here and here).
How the recent sharp rise in mortgage interest rates will impact the supply of housing is unclear. As the Federal Reserve began a series of increases in the discount rate in its efforts to rein in inflation, mortgage interest rates have seen one of the fastest increases in decades: the average 30-year fixed-rate mortgage went from 3.2% at the beginning of 2022 to 5.8% in mid-June. This is primarily a demand-side issue as it increases the cost of borrowing. The drop in demand from higher mortgage rates should reduce future house-price growth rate increases. But rental rates have also been rising so the alternative of renting versus owning (for first-time home buyers) is not great. How this will affect the supply side of the housing market is unclear.
What This Means:
In May, the Biden-Harris administration announced the housing supply action plan to address this housing shortage. The Biden-Harris plan includes policies to address restrictive zoning and provide additional financing for the construction of affordable housing. It proposes partnering with the private sector to address supply-chain disruptions for building materials, promoting manufactured housing and construction R&D, and recruiting more workers into good-paying construction jobs.
The plan also involves addressing the rise of large investors by taking steps to direct the purchase of houses to owner-occupants and nonprofits instead of large investors, but it is not clear how this would be achieved. The administration plan claims that the housing supply gap is 1.5 million units, well below the estimate of 3.8 million units from Freddie Mac and that its plan will close the housing supply gap in five years.
While the plan is comprehensive, it will likely take much longer to fully resolve our housing shortage, particularly since many of the programs the administration is pushing must go through Congress and almost all will take years to begin to show any significant results.
Jeffrey Zabel is a professor of economics at Tufts University. His research interests include housing economics, the valuation of environmental goods, the economics of brownfields, the economics of education, and welfare analysis.
More on housing
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JERUSALEM — There’s no plaque on the gate of the U.S. ambassador’s new residence in Jerusalem, no Stars and Stripes visible, no official listing as a notable overseas property.
The official residence of the American envoy is a rental and temporary, officials said, secured after two years of house-hunting in the wake of then-President Donald Trump’s controversial decision to move the U.S. Embassy from Tel Aviv to Jerusalem.
Ambassador Tom Nides moved into the sleekly renovated villa in west Jerusalem’s leafy German Colony sometime last spring. Local real estate agents estimate its value at around $23 million, and its owner and the embassy confirmed it is being leased as the U.S. envoy’s official residence.
Emek Refaim Street is the latest stop for the American ambassador’s home on a more than three-year migration from the seaside cliffs north of Tel Aviv to tension-filled Jerusalem. The journey reflects the Trump administration’s divisive legacy and the reluctance of President Joe Biden — who will visit the region next month — to roil relations with Israel over the issue.
Trump upended decades of U.S. policy by recognizing Jerusalem as Israel’s capital in 2017, drawing plaudits from many Israelis and infuriating the Palestinians.
Israel captured east Jerusalem in the 1967 Mideast war and annexed it in a move not recognized internationally. The Palestinians want east Jerusalem to be the capital of their future state. Most countries maintain embassies in Tel Aviv because of the long-running dispute.
Trump moved the U.S. Embassy from Tel Aviv, and with it the storied residence of the U.S. ambassador. Under various presidents, the envoy had previously been housed in a sprawling, five-bedroom seaside compound built on an acre (nearly one-half hectare) of land, which Israel gave the United States soon after independence in 1948.
The previous residence was a social hub for relations between the two close allies. It was known for its July Fourth blowouts, when thousands of specially invited guests would watch the sunset and fireworks over the Mediterranean Sea.
Trump’s move put an end to all that. The United States sold the property for more than $67 million, according to official Israeli records. The State Department refused to release key details of the sale, but the Israeli business newspaper Globes identified the buyer as one of Trump’s biggest contributors: U.S. casino magnate Sheldon Adelson, who died in 2021.
The cliffside compound appeared little changed from outside the walls on a recent day. Two Israeli flags waved from the flagpoles in the sea breeze. A spokesman for the Adelson family declined to comment.
The decision to sell the residence appears to have been aimed at preventing any future president from reversing the embassy move, something Biden has long ruled out.
But it also forced U.S. diplomats stationed in the region — most of whom continued working in Tel Aviv — to embark on a difficult search for new digs.
When Nides arrived last December, the plight of the “homeless ambassador” was the talk of diplomatic circles. There simply weren’t many options in crowded Jerusalem for a compound large and secure enough to serve as a U.S. ambassador’s official residence.
In most countries, the official residence is not only the ambassador’s home, but a place for official ceremonies and social gatherings. A cramped apartment simply won’t do.
Nides initially moved into the Waldorf Astoria in Jerusalem, a tony enough address but not living quarters suited for entertaining. Sometime this past spring, he moved to the property in the German Colony, one of the most sought-after neighborhoods in Jerusalem.
The U.S. is leasing it and has notified Israel that the property will be the official residence for the American envoy, according to the embassy. Other terms of the arrangement have not been made public, but there are no plans to move the ambassador to another site. Officials from both countries, as well as the owner, declined to comment on the property’s value or its monthly rent.
If the intent was to keep the residence low-profile, that’s over too. On June 8, Nides tweeted a photo from his “new neighborhood coffee shop in the German colony.” His residence is surrounded by a tall white fence and dotted with security cameras. Guards can often be seen, according to local shop owners. When a gate opens, looky-loos can catch glimpses of a parking area and courtyard.
Arielle Cohen, legal counsel for the owner, Blue Marble Ltd., doesn’t dispute local reports that the company spent 50 million shekels (about $14.5 million) on the historic restoration. Her father, Avi Ruimi, grew up in the German Colony and founded the company, which specializes in historic restorations and owns several other addresses on the street.
Blue Marble bought the property in 2004. Construction lasted six years and finished in 2020, as it became clear that the U.S. ambassador would need a new home.
“We knew it was a possibility,” Cohen said in an interview. She declined to comment on the signing process but called the contract a “wonderful milestone.” She said the residence itself is about 570 square meters (about 6,000 square feet) with a second building that roughly doubles the size.
A gallery on the company’s website says one building includes two apartments and commercial space. The second is “a beautiful private villa.” A portfolio on Blue Marble’s web site shows a sleekly renovated interior, with a modern kitchen, fixtures and high ceilings.
Local media have reported that the property dates to 1930 and was built by a wealthy Palestinian family. West Jerusalem was home to a number of upscale Palestinian neighborhoods known for their stone villas before the 1948 war surrounding Israel’s creation, when most Palestinians on that side of the city fled or were driven out.
The residence housed unmarried British police officers during the British mandate prior to 1948, and has also been used as a fire station, school and flower shop over the years.
It’s unclear whether Biden will visit the residence during his brief stopover in Israel next month.
His discussions with Israeli and Palestinian leaders are likely to focus on another consequence of Trump’s embassy move — the shuttering of a U.S. Consulate in Jerusalem that served Palestinians.
The Palestinians have called on the Biden administration to deliver on its pledge to reopen the consulate, which would reinforce their claim to part of the city and help mend U.S.-Palestinian ties ruptured during the Trump years.
Israel is staunchly opposed to any reopening of the consulate for the same reason — another real-estate dispute in a region where they seem to multiply with every passing year.
Fed Policy Is Driving Rising Housing Prices Despite Recession Indicators
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A new home under construction in Monterey Park, California
Frederic J. Brown/AFP via Getty Images
About the author: Susan Wachter is the Sussman professor of Real Estate and professor of Finance at The Wharton School of the University of Pennsylvania and co-director of the Penn Institute for Urban Research. She is currently an advisory committee member of the Bureau of Economic Analysis of the Department of Commerce.
The U.S. housing market has entered an unusual and confusing phase. House prices and rents year over year continue to grow at historically high rates. But construction and sales activity are at the kind of lows that normally characterize a recession. Rents and housing-cost equivalents are more than 40% of the consumer price index and their rises are big contributors to inflation. Despite high prices, developers are walking away from deals, and firms are halting production mid-process. Sales activity is also falling. What is causing these seemingly contradictory outcomes?
Construction-industry profits are at a low, due to high input costs. Supply shortages are driving profits down by causing construction costs to rise faster than prices. New-construction inventory is growing. But the major source of for-sale home inventory is the pool of existing homes, and this inventory is still low.
The reason inventory is low is monetary policy. In an unintended result of the Federal Reserve’s ongoing round of rate increases, monetary policy is causing a locked-in effect that motivates existing homeowners to stay put. When interest rates rise, homeowners frequently decide to retain their attractive mortgage rate and not move to another home. Instead, they may do a home improvement, or simply stay in their current living situation.
Expected inflation contributes to demand, particularly from investors, who often use housing as an inflation hedge. But it also motivates homebuyers who wish to take advantage of still relatively low mortgage rates. While the average mortgage rate of nearly 5.9% may seem high, for those who are motivated to buy, mortgages are a one-way bet that they cannot lose. If rates continue to rise, borrowers can lock in at today’s rates and if they fall, they can refinance. Moreover, although rates have doubled since March, and are now the highest since November 2008, they are still low historically and, adjusted for inflation, lower. Rates and prices are making it harder for the average person to afford a home, but demand is high for those who can qualify. The share of the U.S. population ages 32-36, the largest segment, is at the prime age for home buying.
For home buyers who can afford monthly mortgage payments based on their income, coming up with a down payment is typically the hardest barrier to overcome. But that’s less so at the moment. Since the onset of the pandemic, households have accumulated several trillion dollars in incremental savings. This savings increase has enabled many households to weather the initial increase in inflation, and it has given them a buffer against the effect of rising prices. In addition, the investor share of home purchases, which is not affected by either constraint, is at an all-time high.
Nonetheless, existing home sales fell 20.2% from July 2021 to July 2022. Mortgage applications for purchase are down 23% as of early September. Many would-be buyers are finding it difficult to qualify for the standard mortgage, with affordability, in the National Association of Realtors index, at a 33-year low. For June 2022, the most recent Case Shiller data shows year over year house price rises of 18%, but Black Knight data show the national market is turning, with prices falling nearly 0.8% for the month of July. The median sales price, which reflects the composition of sales, is also decreasing. The median price reached $440,000 in the second quarter of 2022. In July, the median existing-home sales price was $403,800. Although this represents a 10.8% increase from a year earlier it reflects a $10,000 decline from June 2022’s record high of $413,800.
Amid this dynamic, Fed Chair Jay Powell indicated last month at Jackson Hole, Wyo., that monetary restraint would continue until it works. The Fed’s position matters because a decline in inflationary expectations and an overall slowing of the economy provide the path to easing housing markets’ supply shortages. When that happens, buyers will face potential price declines, with a whiplash effect in previous high-growth markets. A recession will cause mortgage rates to fall and will ease the lock-in effect, driving some homeowners to sell, since they will no longer fear losing their advantageously priced mortgages. Inventories will then grow in a self-reinforcing rise, as there no longer will be a reason to wait to list due to the lack of inventory. Inventory shortages are likely to reverse quickly and with that, price rises will reverse as well.
Already we see inventory of newly constructed homes rising to new highs, which is why the construction industry is in recession and new home prices are falling. The only good news is the resulting lower owners’ equivalent housing costs and rents will equate to a lower rise in the CPI. The resulting inflation relief will get us back to economic growth.
Guest commentaries like this one are written by authors outside the Barron’s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to ideas@barrons.com.
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