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Study urges cooperation, innovation; No quick end to struggles

2011 Clark County Fair by the numbers

Clark County business briefs

Clark County business briefs

Clark County business briefs

Other business news of note

In the headlines in 2011

By Troy Wayrynen

Farwest Steel and BHP Billiton both have plans to add jobs at the Port of Vancouver’s Terminal 5.

By Steven Lane

PeaceHealth is moving its headquarters to the east Vancouver site that has housed Nautilus. Hewlett-Packard has also moved Vancouver operations into the building, while Nautilus plans to leave by late 2012 for a smaller headquarters at Southeast 177th Avenue and Southeast Sixth Way.
Steven Lane/Columbian files.

Contributed by Vancouver Housing

Though new-home construction dropped 33.5 percent, year-over-year, in the first 11 months of 2011, apartment building boomed. Camas Ridge Apartment Homes opened its doors on Prune Hill in August.

By Troy Wayrynen

Jeanne Firstenburg, left, president and chief operating officer of First Independent Bank, discusses the sale of the Vancouver bank to Sterling Financial Corp. Seated next to Firstenburg is Ezra Eckhardt, president and chief operating officer for Sterling, and Greg Seibly, president and chief executive officer for Sterling.

By Zachary Kaufman

Persistently high unemployment made job fairs a major draw in 2011. In September, more than 1,600 applicants waited in line for hours outside to interview when New Seasons held a job fair at Life Point Church in east Vancouver.

Saying that high unemployment and a housing market in the doldrums overshadowed the good news stories of 2011 is kind of like saying the elephant in the room made it awfully hard to notice the mouse.

When people are worried about job security or can’t find work at all, owe more on their homes than they can sell them for, and don’t know when these problems are going to be fixed, it can be hard for them to celebrate a few new jobs here and the promise of other jobs there in the future.

Yet 2011 did have a few bright spots, and there’s promise of more to come. PeaceHealth’s merger with Southwest Washington Medical Center started with a name change for the local hospital, but as the chain moves its headquarters to Vancouver there are hundreds of jobs on the horizon. Port of Vancouver investments in rail and wooing of new tenants will take time to pay off, but could ultimately create 1,000 new jobs.

Future job creation is of small comfort for those who need help now. These incremental developments, along with other top stories of 2011, are like a mouse overshadowed by an elephant. But one of these days, the mouse could learn to roar.

Brother, can you spare a job?

On the surface, Clark County’s jobs situation seemed to improve over the course of 2011. The year ended with 11 percent unemployment, a big improvement over January’s 13.2 percent jobless rate. Dig deeper, however, and the data’s not so pretty. At the same time as businesses picked up hiring, cash-strapped state and local government groups were delivering pink slips. And about 3,000 Clark County residents left the labor force, including many long-term unemployed residents of the county who gave up the search for work.

What’s more, first-time claims for unemployment insurance remained at high levels, according to Scott Bailey, regional labor economist with the Washington Employment Security Department.

“While there are net job gains, there’s still considerable job loss being generated,” he reported.

Redefining ‘home’

Just a few years back, Clark County hosted a booming home construction industry, with rising property values that made longtime residents feel well-to-do. Those days are long gone. In 2011, a years-long pattern continued to play out: Construction was low, foreclosures were high, home sales — though up some from the bottom — were low, and property values were depressed. Sales of single-family homes may not resume healthier levels until the county’s high unemployment rate comes down.

Many local people reacted by changing how they define “home.”

Growing numbers opted to rent, rather than buy, driving down vacancies at Clark County apartment complexes. That spurred new investment in multiunit housing, with a 418-unit complex proposed at Southeast 177th Avenue between Mill Plain and Southeast First Street, a 100-apartment complex planned east of

Southeast 192nd Avenue south of 20th Street, and 92 residential units slated to take up a full downtown Vancouver block bordered by Mill Plain Boulevard, D, C and 13th streets.

Port of opportunity

Someone seems to have forgotten to tell the businesses and leaders at the Port of Vancouver that these are tough economic times.

While other government bodies spent much of 2011 cutting back, the port continued to win grants and loans to fund its West Vancouver Freight Access project. The $150 million, 27-mile expansion of rail tracks is already speeding cargo handling, and will allow port tenants to move even more goods more quickly by its completion in 2017. Port officials estimate the project will contribute to creation of 1,000 jobs in the next five to 10 years.

Business investments at the port suggest a private-sector vote of confidence in that vision. Farwest Steel Corp. broke ground this summer on a Vancouver steel fabrication plant after buying 20 acres. It expects to bring about 230 new and relocated jobs to Clark County. Sapa Extrusions, a subsidiary of Norwegian industrial conglomerate Orkla, plans to bring up to 100 existing and new jobs to Vancouver by expanding operations into a 142,800-square-foot building it leased from the port. And BHP Billiton, one of the world’s largest companies, reaffirmed its plans to start exporting potash, a fertilizer ingredient, from the port by 2015.

With United Grain Corp. also expanding, the port’s on track to triple its freight handling to around 15 million metric tons within the next decade, according to Larry Paulson, the port’s executive director. Paulson will not lead all of that change. He announced in 2011 that he’ll be retiring in April; second-in-command Todd Coleman will take his place.

PeaceHealth merger

PeaceHealth’s plans to take over Southwest Washington Medical Center and move its headquarters from Bellevue to Vancouver were cemented in 2011. That should bring about 340 new jobs to Vancouver by 2014, and 300-400 more by the end of the decade.

The local hospital has adopted a new name, PeaceHealth Southwest, and PeaceHealth has inked an agreement to move into Columbia Center at Columbia Tech Center, 1115 S.E. 164th Ave., the former Nautilus headquarters. Though the site is shared with Hewlett-Packard now, PeaceHealth could ultimately occupy the entire building as it grows, said Alan Yordy, president and chief mission officer.

“We’re delighted to be part of this community,” Yordy said.

First Independent’s last days

After more than a century in Clark County, First Independent Bank’s last full year in operation was 2011. Late in the year, First Indy leaders announced that they were selling banking operations to Spokane-based Sterling Savings Bank.

Sterling’s purchase spells an end to one of the nation’s few remaining family-owned banks, and leaves Clark County with only one remaining locally headquartered bank, Riverview.

Founded as Ridgefield State Bank 101 years ago, First Independent had since the 1930s been run by the Firstenburg family, which built its reputation in the business and philanthropy worlds. But community giving by the bank had dropped in recent years as financial hardship ate into profits.

Sterling will acquire $691 million of First Independent’s core deposits and 14 branches in Clark and Skamania counties, in addition to $455 million of assets under management from First Independent’s wealth and trust businesses.

It remains to be seen how local jobs and philanthropy will be affected by the transition.

Staff writers Cami Joner, Aaron Corvin and Gordon Oliver contributed to this story.

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STAMFORD — The quiet cluster of opulent houses at the tip of Shippan Point sees plenty of foot traffic throughout the year, with joggers and dog walkers strolling to the end of the street for a view of the small, rocky beach and undulating waters of Long Island Sound.

But on Christmas Day, the final stretch of Shippan Avenue was crowded with fire engines and emergency trucks, which later gave way to hordes of news vans and a steady stream of curious, mournful onlookers.

One week after a horrific fire killed three Stamford children and their grandparents in their old Victorian home near the water, the police barricades and camera crews are gone but the people are still coming. In cars or on foot, they bring rosaries, flowers, stuffed animals and artwork. Many of the people are praying, almost all are crying.

New York advertising executive Madonna Badger moved to Stamford, with her three daughters Lily, 9, and 7-year-old twins Grace and Sarah, about a year ago and was in the middle of renovating her $1.7 million home at the time of the fire. Michael Borcina, of Tiberias Construction, was in charge of the remodeling and escaped the house with Badger after discarded fireplace embers sparked a blaze that quickly engulfed the entire house. The three Badger girls died in the fire along with their grandparents, Pauline and Lomer Johnson.

The neighbors who frantically dialed 911 after hearing Badger’s screams for help shortly before 5 a.m. Sunday now live next to a blackened pile of rubble, encircled by a chain-linked fence. The 3,349-square-foot house, built in 1895, was razed for safety reasons the day following the fire. All that remains of 2267 Shippan Avenue now is a white mailbox, which members of the community have turned into a makeshift memorial, and haunting memories.

Sam Cingari, who lives across the street from the Badger property, said he’ll never be able to forget this Christmas morning.

“It was devastating,” he said. “I opened up the drape and the house — the first floor, second floor and third floor — was completely ablaze. We are absolutely devastated, as neighbors.”

Cingari said he didn’t know Madonna Badger, and that his wife only met her once, when she came to their door with her daughters on Halloween. He said his neighborhood has been filled with city officials, media and onlookers since the tragedy. Looking out his window across the street is different, now.

“It’s terrible,” Cingari said. “That house has been there about 125 years. I always saw the house, but now I just see an empty lot. It’s not a good sight, when you know what happened there.”

On Saturday, Stamford native Kris Fitzpatrick said a prayer in front of the property with her 7-year-old son, Riley. Fitzpatrick, who now lives in Florida, grew up in Shippan and said she spent many summer hours as a child playing near the water at the end of Shippan Point.

“You get choked up, even after not being here,” said Fitzpatrick, who is in Connecticut this week visiting friends and family. “You take things for granted and then something tragic like this happens and it really brings everyone back to their roots.”

Fitzpatrick said she always shows her son around the neighborhood she grew up in when they visit Stamford. Riley fidgeted in the cold as he looked at what remained of the house, a stone foundation covered in rubble. He knelt in front of the mailbox, before getting in his mother’s car, to say a prayer.

His prayer: “That Jesus can take care of everybody that died in this house,” he said.

Kim Fitzpatrick’s uncle, Al Koproski, lives on Ocean Drive East and said it has been difficult to drive past the Badger property since the fire. The fact that the family only recently moved to Stamford makes it harder for the neighborhood to know how to grieve, he said.

“Nobody really knew them,” Koproski said by phone. “The sad part of it is, even though they are part of the community, they are strangers.”

About 60 miles north of Stamford, another Connecticut community has spent years struggling to heal from a tragedy that terrified and devastated the quiet town. In July 2007, Cheshire resident Jennifer Hawke-Petit and her two daughters, Hayley and Michaela, were held captive and then killed when two men set fire to their house during a home invasion. William Petit, who was severely beaten, was the only survivor of the attack that killed his family. Two ex-convicts, Steven Hayes and Joshua Komisarjevsky, were convicted of the murders and recently sentenced to death.

Cheshire resident Kim Ferraiolo lived next door to the Petit family for years and witnessed the trauma the home invasion inflicted on the community. The partially-burned house remained standing for several months after the murders, and many of her neighbors didn’t like to drive by the property, Ferraiolo said.

“They would dread it,” she said. “If they had to come up the hill.”

William Petit eventually decided to tear the house down and asked that a memorial garden be built in its place. Cheshire families and a local landscaper worked with the town’s United Methodist Church to fill the property with flowers, shrubs and small trees, Ferraiolo said.

“For me, being the next-door neighbor, I couldn’t imagine another house going up,” she said. “This is a way everybody can come and kind of pay tribute.”

The Petits’ friends and neighbors planted the Petit Memorial Garden on July 23, 2008, one year after the home invasion. The community works together to keep the property maintained and decorate it at Christmas, Ferraiolo said.

“People come here every anniversary, they come here every holiday,” she said. “They come here birthdays. They came here throughout the trials. They leave plants, they leave flowers, they leave letters and statues. There’s a bench where you can sit and reflect.”

The Cheshire and Stamford tragedies are markedly different. Hawke-Petit and her daughters, longtime members of the Cheshire community, were murdered, while the Badgers perished in an accidental fire at a home they had recently moved into. The Badgers were new to Stamford, but the city will still find a way to memorialize Lily, Grace and Sarah and their grandparents, Mayor Michael Pavia said.

“An event like this does not occur, and shouldn’t occur, anywhere,” Pavia said Saturday. “It happened to occur in Stamford, Connecticut. I know the personality of our city and I know how caring people who live and work in Stamford are. The hurt and the tragedy has been felt by everyone.”

Pavia said the Shippan Point Association is hoping to hold a candlelight vigil for the Badger family. Stamford firefighters, some of whom were injured trying to save the family, have received counseling from New York City firefighters over the past week.

“We’re going to need to talk about it,” Pavia said. “We’re going to find out how we’re going to take — however small — tidbits that are positive, and make it so this tragedy does not go unforgotten in any way. We need to figure out where we go from here and how we help the community heal and also understand what we need to do to prevent it in the future.”

Lindsey Niegelberg contributed to this report. Staff Writer Kate King can be reached at kate.king@scni.com or at 203-964-2263.

KARACHI: The real estate and construction sector strives on sentiments and 2011 was another disastrous year for builders and developers as the nation failed to curb its security issues, experts related to the industry informed The News.

They also said that concerns such as low gas supply (which compelled the government to stop fresh gas connections to new high-rise buildings), energy crisis, rising cost of input such as cement and iron and the imposition of sales tax under the Sindh Sales Tax on Services Act 2011 impacted the real estate sector adversely.

Federation of Pakistan Chambers of Commerce and Industry Standing Committee on Real Estate Chairman Munir Sultan said that 2011 had been another dismal year for the industry when both local and foreign investments remained at bay.

Comparing over the previous years, he said, in 2009 the representation of the construction sector had been more than 28 percent in the gross domestic product, which in 2010/11 crashed down to a mere four percent.

Uncertainty, land grabbing and political turmoil had been the main causes for the real estate sector’s nosedive, he said.

“All over the world, port cities have the most expensive housing rates, whereas in Pakistan, Lahore happens to be more expensive than Karachi,” he said.

Referring to the house financing and the performance of House Building Finance Corporation (HBFC) in Pakistan, Sultan said that both had been dismal in 2011 as the financing institution had itself remained troubled with fund issues.

However, the Association of Builders and Developers (ABAD) of Pakistan former chairman said that though 2011 had not been generally good for the real estate sector, it had seen investments in single-storey and one unit bungalows, which had been resounding successes.

Four to five big projects had been launched in the country, which was all successes, example the Naya Nazimabad project, he said, adding that a greater number of smaller projects had also been launched.

“Projects were launched where there was a demand for housing,” he said. Most of the projects had been launched in the urban cities of Pakistan, namely, Karachi, Lahore, Islamabad and Dera Ghazi Khan etc, he added.

Another prominent builder who wished to remain anonymous said that 2011 had also seen a rise in the ‘Bhatta’ mafia (extortionists) and builders had to deal with the rising “bribe rates” and land grabbers.

“It’s a misperception that builders and developers have powerful backups and they remain unharmed by elements such as encroachers and land grabbers,” he said. Karachi had the worst cases of land mafia, he added.

When the experts were asked how they perceive 2012 to be for the construction industry, most said that builders and developers are playing a wait and watch game and taking cautious steps at the moment since 2012 will be an election year.

“We don’t know as yet what will happen in 2012 and how the year will go by. The real estate sector involves millions of rupees worth of investments and any decisions made will be much thought over,” said Sultan.

However, the former chairman of ABAD said that the housing projects will continue to be introduced in the country as the demand for them is very high.

According to a World Bank report, the backlog for housing units was eight million in 2008, which jumped several-fold since then.

According to ABAD Vice Chairman Arif Siddik, the annual demand for housing is 600,000 to 700,000 units, while only 300,000 to 400,000 units are being built. This means that the demand remains unfulfilled by at least 300,000 units every year, which adds onto the already existing backlog of the country, he said.

By David K. Randall

NEW YORK |
Fri Dec 30, 2011 7:52am EST

NEW YORK (Reuters) – Could the U.S. housing market finally be on the mend?

Recent reports paint a mixed picture. In a sign of renewed demand, sales of existing homes hit a one-and-a-half year high in November. Still, home prices have fallen for 13 consecutive months and any recovery would come from a very low level.

In the past there have been false signs that the worst of the housing bust had passed, but if housing is finally improving, it could be a boon for investors. Here are targeted real estate plays for the new year.

BE A LANDLORD

Apartment buildings, rather than single-family homes, could remain the housing sector’s growth market in the next few years.

Builders are only now starting to address a large imbalance in the market. Construction of multi-family buildings lagged in the 2000s because easy financing turned many would-be renters into homeowners.

Cheaper labor costs and lower property values compared with 2006 and 2007 have convinced developers to begin work on apartment buildings, said Jacob Frydman, chief executive at United Realty Partners, a real estate advisory firm based in New York. Apartment building projects are up 60 percent in 2011 compared with last year. Single-family home starts, meanwhile, have fallen by 10 percent.

Trouble in the single-family home market will also lift the apartment business, noted Oliver Chang, an analyst at Morgan Stanley. Current homeowners who will soon go through a short-sale or foreclosure will most likely turn into renters, he said. Tight lending requirements by banks will mean that “households should move toward rentals in greater numbers than in the past” because fewer potential buyers can qualify for loans, he wrote in a recent note to clients.

Equity Residential and UDR are two of the largest publicly traded REITS that specialize in apartment buildings. EQR may be in a better position because of the quality of its assets, analysts said.

Holdings in the New York metropolitan region – a part of the country where housing has held up relatively well – make up EQR’s largest market with 13 percent of assets. Battered markets like California’s Inland Empire and Orlando, Florida constitute a much smaller portion of its portfolio than at rival UDR.

EQR is up 10 percent so far this year. It yields nearly 4 percent.

Funds are another option for investors who don’t want to wade through the holdings of individual trusts. The Vanguard REIT Index fund currently yields 3.4 percent. The index fund holds a variety of REITs not just those that focus

on apartment buildings. EQR makes up 5 percent of its total assets.

EQR makes up 8 percent of the assets of the Fidelity Real Estate Investment fund. The fund is up 7.8 percent in 2011, after dividends..

Richard Milligan, an analyst at Raymond James, said self-storage REITs should outperform the broader market again in 2012 as publicly-traded companies continue to take market share from smaller independent operators. He expects foreclosures and short sales to boost the rental industry as downsizing families decide to store excess furniture and belongings rather than sell them.

Public Storage, the largest self-storage REIT, is costly at 44 times earnings. But it could be a momentum play. Shares are up 33 percent in 2011 and hit a 52-week high on December 27.

BUYING THE BIG BANKS

Bad mortgages, along with the prospects of more to come, sunk financial companies in 2011. Foreclosures and short sales should remain steady for the first six months of 2012 as well.

Low share prices and hopes that the recent drop in the unemployment rate will lead to a real estate turnaround have some investors looking at financial stocks as a value play.

“The only double-digit return you’ll be able to get in 2012 will be in banks,” said Jamie Cox, managing partner at Harris Financial Group in Colonial Heights, Virginia. “Of course, it’s easier to say that now they’ve all fallen 30 percent. But nothing will make banking a more favorable place to invest than to have real estate improve.”

Cox, who owns shares of Bank of America and JP Morgan Chase Co, is buying large banks because they are trading at low book values — the estimated worth of a company’s assets on its balance sheet. Bank of America, for instance, trades a price to book value of just 0.24 percent.

He’s staying away from regional banks like SunTrust and Zions Bancorp because their businesses are centered in areas like Arizona and Florida that were epicenters of the real estate bust, he said.

Value investors have ETF options as well. Large banks are the top holdings in the iShares Dow Jones US Financials, which has fallen 15 percent in 2011. Wells Fargo and JP Morgan each make up approximately 6.5 percent of assets.

Vanguard’s Financials ETF has similar holdings but includes residential REITs along with banks.

(Reporting By David K. Randall; Editing by David Gaffen)

Huang Qifan is the mayor of the southwestern China metropolis Chongqing and one of the country’s most well-known voices on property market issues. He is now spearheading one of the largest buildups of subsidized housing in China, which itself is undertaking one of the world’s largest-ever such projects. It is important for social and economic stability in the world’s most-populous nation. (Watch a related video here.)

Agence France-Presse/Getty Images
A worker on a construction site on the waterfront of the Jialing River in Chongqing.

The 59-year-old has been Chongqing mayor since January 2010, following around nine years as vice mayor of the sprawling municipality of 30 million people. Previously, he was deputy Communist Party Secretary of Shanghai, where he was an important force in the development of the city’s Pudong New District.

Mr. Huang was born in the eastern province of Zhejiang.

Over two hours on Nov. 25, 2011, the mayor spoke with Wall Street Journal reporter James T. Areddy in a boardroom adjacent to his office in the Chongqing municipal government’s leafy riverside compound. Wearing a black polo shirt, he discussed Chongqing’s goals for real-estate affordability, regulation and development, supporting his technocratic arguments with an array of figures and by making comparisons with the situation in the U.S. property market.

He concluded the interview by lighting a large cigar.

Here are translated excerpts:

WSJ: PLEASE EXPLAIN YOUR PHILOSOPHY IN TERMS OF GOVERNMENT REGULATION OF THE PROPERTY MARKET?

Mayor Huang: I think the pattern of property products should be based on two tracks, the first one is the commercial housing the second is public housing. No matter what measures and controls will be adopted in the commercial sector, six or seven years of family income will be enough to support a family to purchase a house.

(Even so) there are still a large number of low-income people who cannot afford housing. So I think it comes to the government to show its responsibility to provide them this housing. In any city or nation, I think the dual track system is very important: 60-70% commercial housing and 30-40%  public housing.

So this is our philosophy to provide housing to the general public through these two tracks.

For a reasonable pricing regime, it should take a family six or seven years of annual income to buy outright commercial housing. This is a directional pattern. Of course, there are some high income people who can afford to buy a villa. In general, I think it is rational and reasonable for a family to spend six or seven years of annual income to buy a house. This is also a target of the government adjustment and control measures in the commercial housing sector.

Property products also belong to the category of consumer goods. So it comes to a supply and demand driven relationship. If there is an oversupply I think the price will be dragged down, and vice versa. The government should shoulder its due responsibility strike a balance in this relationship between supply and demand.

The other nature of property products is that they are also capital goods, since the family would usually like to hold this asset for a very long term. It is a very important issue for us to consider whether to collect tax by treating the property as consumer goods or as family assets.

It is different from, for example, cosmetic products which are purely consumer goods and the tax should naturally be collected during the process of production and transaction. But when you collect tax from the transaction process this process will push up higher the price of the products.

We should have a clear view of the nature of the property products as a capital good. By collecting property tax, I think we will be able to dampen the speculation in the market. Today in China, the tax is only collected in the transaction. When it comes to the property market, this is something different from the United States. We know in the U.S., you have the property tax and for that reason we should really learn the experience from the United States.

Property products are also financial goods. Bank loans are heavily involved during the whole process starting with construction to purchasing. The market is very much affected by monetary policy. So I think in carrying out government macro control and adjustment we should rely on financial tools.

I think the most important tool for us to regulate and adjust the property market is the leverage ratio of the mortgage loan.

If the pressure is purely made through mortgage loans, which means zero down-payment, I think it will be the worst case scenario for the market and create excessive bubbles. I think is also one of the reasons triggering the sub-prime loan crisis in the United States.

And if the situation goes the other extreme, take this for example zero-mortgage and 100% down-payment, I think 90% of the potential buyers could not afford the purchasing homes, and this is only a market serving the rich people. This would be a disaster for the national property market. What I mean here is a proper balance to be found between these two extremes.

We have already adopted four specific measures to regulate and address the property market in Chongqing. First of all we look at property as consumer goods, so we struck a balance between the supply and demand. Each year the government investment in the property market will be no larger than 20% of government investment in fixed assets. Thirdly, we have already initiated some pilot projects here in Chongqing in collecting property tax. Fourthly, we also came up with a rational leverage ratio in terms of mortgage loans. The first time buyers have to pay 30% down payment, the second home needs you to pay 60% down payment and purchasing the third home you have to pay fully.

I think my model here covering these four aspects is really working very well here in Chongqing and I think it will also work very well in China at large, and even I think we can provide this model to the United States for its reference.

I think with these four measures effectively implemented we will accomplish that objective to enable the home buyers to buy a home with six or seven years of family income. If there is any one of these four measures that fails to be properly implemented I think there will be two kinds of scenarios: first of all excessive bubbles on the market and secondly sluggishness of the market.

In the past 10 years in the United States we saw that around the year 2000 the financial companies came up with the sub-prime loan products and it only took six or seven years to create excessive bubbles on the market, which led to the crisis in 2008. That crisis cut the value of the market by 30%. I think this is something triggered by the policy of zero down payment.

WSJ: IF THE PRICES IN CHONGQING GET TO 6-7 YEARS OF FAMILY INCOME, PRICES NEED TO FALL. AS YOU IMPLEMENT THIS POLICY, WHO DO YOU EXPECT TO BE HURT: DEVELOPERS, HOMEOWNERS, BANKS OR GOVERNMENT? AND DO YOU HAVE A GOAL TO CRASH THE PROPERTY MARKET?

MAYOR HUANG: I think I mentioned the four measures have already been effectively adopted and implemented here in Chongqing. This has already been something taking place on the market that they buy their home with six or seven years of income. This is not an objective that we are going to obtain. Actually this is the reality.

In September of this year, the average property price here in Chongqing was 6,300 yuan per square meter (about $985). I think if a three-person family, for them to buy a 60-square-meter condominium, according to this average price it will cost them 500,000 yuan. In the major urban area, the average annual income per person is 20,000 yuan so a three-person family earns about 70,000 yuan per year. If you look at Chongqing Municipality as a whole, because there are some rural areas, the average family income is 60,000 yuan.

So if you do some math here you will find it will cause them really seven years to buy a condo priced at 500,000 yuan. Of course in the years ahead there will be increases of GDP, increases of family income and the price of property will also go up. But I think balance will always be there.

In some other Chinese cities you will find it takes a family 20 years of income to buy a house. That is because they do not have those four measures effectively implemented.

We don’t hope to see the bubbles, nor do we hope to see the collapse of the market. This is in the interest of no one, not in the interest of the government, not developers, not the homeowners. So I think this is a very sacred responsibility of the government to accomplish that objective: six or seven years of family annual income to buy a house.

I think another objective of the government macro-control and management efforts is to strike a proper balance between the property market value with GDP. If the market value to GDP ratio is one to one I think our objective to buy a house with six or seven years of family income will be realized.

There are 300 million people in the United States and the average living area is 40 square meters, according to our statistics. You will find that if the average price is $2,600 per square meter and for a three-person family 120 square meters of living area it will cost a family $300,000 in total to buy that house. And if you look at the GDP of the United States in per capita terms, the per capita GDP is $50,000 each year. But 60% is the government revenues and corporate profits, so it means that the net cash income per head is $20,000. If you do some calculations for a three-person family the annual income is perhaps $50,000 or $60,000.

So if you check these figures you will see it takes these families six years to buy a house the total value of which is $300,000.

If we go back to the year 2007 we saw that year the GDP of the United States was roughly $13 trillion. But due to the later occurrence of sub-prime loan crisis, bubbles were created on the market. That same year the property market value was $17 trillion. So the property market value was 50% higher than the GDP size. In this case, you will see the creation of bubbles.

Now the prices have bottomed out and during the past years we saw the value of the property market went down another 30%. So based on statistics, the market value currently in the United States is $14 trillion and the GDP size is roughly around $14 trillion. I think the bubbles have been squeezed out. I think this balance should be properly maintained in the future.

Perhaps you will find that provincial mayors would like to provide their wisdom to the United States. I’m one of them.

WSJ: THERE IS NO PLACE IN THE UNITED STATES THAT LOOKS LIKE CHONGQING. I DON’T THINK MOST AMERICANS COULD IMAGINE A CITY LIKE CHONGQING. BUT ONE THING WE SEE COMING HERE IS THAT IT LOOKS VERY BUILT UP, IN FACT OVERBUILT. IT LOOKS LIKE THERE IS TOO MUCH SUPPLY. DOES THE GOVERNMENT KNOW WHAT IT IS DOING APPROVING AND IN SOME CASES FUNDING SO MANY APARTMENT BUILDINGS?

MAYOR HUANG: With these four measures in place we have already found the proper pace of the property market and the rational relationship between supply and demand.

Talking about the overall size of the (residential) construction, I think we always deal with five ratios. The first one is the per capita gross floor area is maintained below 40 square meters. (In rural parts of) Chongqing Municipality this figure is maintained below 30 square meters. (In areas) consisting of a population above 10 million, the total construction area needed will be 400 million square meters…We keep a very well measured pace. We do not hope to see the construction of all those well needed houses within a concentrated period say two or five years.

When it comes to office buildings there is a ratio that we bear in mind. For every 10,000 yuan of GDP the office building area needed is 0.5 square meter. And if we have 1 trillion yuan GDP it means that the office area needed will be 50 million square meters. If the GDP expands to 2 trillion yuan GDP it means that the office area needed will also be expanded to 100 million square meters.

I’m asked why there are prices of 20,000 yuan per square meter on the market, I’d like to say the reason is very simple…50% of the GDP is generated through the service industry. If you take the economic structure at large, the average price of all the factors, taking into consideration the average price on the market will be 20,000 yuan per square meter.

And there is also a ratio governing the commercial sector, for example the department stores in the shopping malls. It depends on the retail sales. We have annual retail sales of 300 billion yuan, so we need 30 million square meters of commercial house.

And our fifth ratio is about the renovation of shanty towns. For example, in various areas we have knocked down a big area of shabby houses. There is a ratio. Each 10,000 square meters of those shabby houses knocked down will be compensated by newly constructed areas of 15,000 square meters.

You’ll find that all these measures are done according to the market philosophies and we are very good at mathematics here. We always take into consideration the people’s demand, the economic capacity in building these housing products. We do not hope to see those newly built houses just left empty.

WSJ: WHAT DO YOU THINK FOREIGN ANALYSTS ARE MISUNDERSTANDING ABOUT CHINA’S PROPERTY MARKET POLICY? YOU TALK AS IF THE MARKET IS UNDER CONTROL. THERE IS A WIDESPREAD FEELING THAT THERE IS SOMETHING SERIOUSLY WRONG WITH THE PROPERTY MARKET. WHAT DO CRITICS NOT UNDERSTAND ABOUT YOUR POLICIES?

MAYOR HUANG: We cannot say that with all this evidence the foreign analysts are totally wrong. But sometimes they do not have the first-hand data on the local situation. For example they do not have the full access to the figures and data here in Chongqing’s market.

Perhaps they just look at the data of other Chinese cities, for example the city of Hangzhou. And by using those data to analyze the situation here in Chongqing of course they will come to a wrong conclusion. It is just like you could not blame Europe for the problems in the United States.

Since you asked me my assessment of the Chinese property market…as a whole whether I am as pessimistic as some foreign analysts in the Chinese market. Actually I think some assessments from foreign analysts come to an extreme. Indeed there are three major problems in the Chinese property market and we will correct these three problems and solve these problems in the future. But I don’t think the situation is as pessimistic as some foreign analysts said.

In the Tier 1 (Chinese) cities indeed there are problems of excessively high prices. In those cities you’ll also find a very high empty ratio of the property markets because many home buyers just come to buy the products out of speculative purposes. There are too many speculative purchases. In those Tier 1 cities, you’ll find that sometimes after the tendering process concluded the land price was even higher than the house-price itself. And when it comes to the financial regulation, I don’t think the authorities have come up with an accurate and appropriate leverage ratio. Indeed there are quite a lot of bubbles on the market.

In some big and medium cities in coastal China, due to these several factors — the high price, the high empty rate and the high land and inappropriate leverage ratio — there are indeed bubbles emerging on the market and basically something that we must probably address in the future.

I think there are three fundamentals that cannot be overlooked otherwise we will come to a wrong conclusion about the market prospects in the next 10 years. We have to understand that in some Tier 2 or  Tier 3 cities in inland China — for example Chongqing, Chengdu, Xian and Wuhan — I think the price is rather rational. There wasn’t too much bubble.

Currently the urbanization rate in China is 40%. In the next 10 to 20 years, the urbanization rate will continue to grow to 50% or even 60%. It means that farmers will be moving to the cities and becoming city residents. And during this process there is a very rapid increase in the demand of the property products. And this is rigid demand. For example each person needs on average 30 square meters of living area. If there an incoming of 100 million farmers into cities it means hundreds of millions of newly built housing areas are needed.

In the United States and Europe the situation is broadly different. The urbanization rate has been approaching 80%. The property market has been saturated. This is not the story in China. If you compare China with the United States and Europe you will find a lot of differences.

Secondly, presently China’s GDP per capita stands at $4,000. And in the next 10 years the per capita GDP will be increasing to $10,000 and in the next 20 years $20,000. It represents a huge demand for better homes, high-end apartments because during this process people would like to improve their housing conditions. So it means its huge and sustained demand in the next 10 years, or even to 20 years. When the per capita GDP comes to a stage ranging between $30,000 and $50,000 houses are no longer the priority for residents. But when we are moving up from the per capita GDP of $4,000 to $20,000, houses are the most preferred consumer goods by the residents. Thirdly I think the Chinese government is very good at macro control and regulation. It is also very good at sizing up the situation and correcting the deviation to the right path. Perhaps in the past the government was inexperienced because such restrictive measures were adopted on the real-estate market and restraining the access to the get the loans. But now we come to such an understanding that it will be fine only if we come up with an appropriate leverage ratio of the mortgage loan. And in the past, the tax was collected during the transaction process, now we are paying greater attention to collect tax from owning the products. The same is also true to regulating the land price. All in all we are summarizing the previous experience and trying to do a better job…

In any country, I think it is true that the real-estate industry is the pillar industry of the national economy. It is about the social well-being of the people and it creates social assets, or wealth. So I think I have the confidence to see the house development of the property market of China. So we should not be that pessimistic.

WSJ: WE VISITED SOCIAL HOUSING. THE APARTMENTS WERE WELL PRICED, ACCORDING TO RESIDENTS. BUT IN A PROJECT NEAR THE NEWLY CONSTRUCTED UNIVERSITY DISTRICT, THEY APPEARED TO BE HAVING TROUBLE FILLING IT UP. IN ANOTHER PROJECT CLOSER TO TOWN, RESIDENTS WHO HAD JUST MOVED IN WERE COMPLAINING ABOUT POORLY MADE HOUSES. IS THIS GOVERNMENT-LED EFFORT A BIT OUT OF SYNC WITH WHAT THE PEOPLE WANT?

MAYOR HUANG: Talking about the university district, we are indeed seeing an increasing number of students and ordinary residents moving in. So there is a growing demand for housing products there. Next year, we will extend the subway light rail line to that district. Now there has already been one highway linking the district with the downtown. Next year there will be another two. In terms of bus service, there are only a few nowadays but there will be more and more bus lines in the years to come. If you only look at the situation now because there is only a limited number of people moved in perhaps there are some problems. There are inadequacies we must make up.

But we need a process. If you only look at the complaints for those tenants who only lived there one day or one month or even one year, perhaps you are magnifying the problem. But on the government side if there were no measures taken to improve the situation in 10 or 20 years I can call this government irresponsible. I think in the next three to five years the expansion of the subways, the buses, the other services like the banks, movie theaters, schools, hospitals.

But not everything could be put there overnight. It is not a magic game. And if say in 10 years there is no improvement at all in the local situation I strongly encourage the residents to raise their complaints and I even encourage them to go to the streets to protest.

If you only look at the current problem, I think it is just like using a magnifying glass to check the quality of the skin of a beautiful lady. Here I could say in such a way, we have already done a very good job. If you look at the situation in the subway in the United States I think we are much better.

We have already put in place a comprehensive checking system to check whether these public housing sites are up to the demand of local residents. In about 20 public housing sites in Chongqing when the construction started we already required the builders to provide the services at the same time, at the same pace. Usually within a half year or year all of those service facilities will be on the ground.

We particularly focus on five areas in providing public services to the residents: the first is transportation convenience, for example whether the site will be served by public transportation means subways, buses. Second, the public facilities: gas, running water, electricity and sewage treatment facilities. Thirdly: schools, theaters and other cultural facilities. Fourthly, the shops and retail stores should be there.

Fifthly, we have to provide people employment opportunities in the surrounding areas. For example ,the sites should be located close to the factories and the job opportunities. We do not hope to see that people travel back and forth from their homes and workplaces like the rising and falling of sea waves. From the very beginning of the construction of these sites we have already taken in consideration all of these issues.

I was just talking about the government facilities. Families have different levels of demand. Those demands should be fulfilled by the market forces. I’m confident that after the sites are put to use in three or five years, this place will prosper because of the market forces.

–James T. Areddy; follow him on Twitter @jamestareddy