Welcome to China!

We arrived at Dalian (a large harbor city close to Beijing) on a cruise ship in late one evening in October, 2005. Berthed next to us is a barge unloading scrap metal. A huge claw descends into its hold, pulls out a load and the drops it on a large pile with a horrendous clatter.

Across the dock from us stands a squalid, three story building in desperate need of repair. Weeds sprout from cracks on the trash-strewn roof. Raw brick and mortar stand exposed where the plaster has fallen away. Rust stains weep down the walls.

Below us handful of Chinese soldiers patrol the dock the gangway. They stand alertly despite the late hour, the cold, and the dim lighting.

Somone familiar with mainland China says that our captain must not have properly bribed the inspectors with food, wine and red bags. But who can blame him? To get into Japan or Korea, only three customs inspectors came aboard. Since China has many more people, they apparently also have many more inspectors; they sent thirty. It was a little humorous watching them tour the ship. They looked more like tourists than the passengers. So they had to eat at the buffet line, and didn't get any free hootch, and to show their displeasure we had to dock at this garden spot instead of the much nicer berth at another pier. Maybe the captain would have hospitably received a small delegation; hosting a busload would be off-putting.

As I watched the guards mill about and the barge being unloaded, a shiny white car raced down the dock and close to the gangway. "Ooh, someone important has arrived."

No one got out for a while, then the driver emerged. He was here to pick up someone important, not drop them off. He paced the length of the ship. He didn't see the passengers watching him from above (cruise ships are pretty tall). As he drew closer to the ship, he boosted up on tippy toe and tried to peek in through the lower portholes. "What's the pervert looking at?" I asked, sotto voce. My fellow passengers laughed. The driver noticed us and wandered away from our ship.

Another passenger asked why they needed soldiers on the dock. "They are concerned that we may try to sneak off the ship and illegally migrate to this Worker's Paradise."

Before disembarking I had to fill out a health questionnare (have you ever been treated for psychosis? Have you ever been diagnosed with a venereal disease?), and when I handed the form over to those kind and caring Chinese officials, they demonstrated their concern for my health by taking my temperature.

To take our temperatures, they used a little thermal scanner waved over the right thumb. I'm left handed, and was corrected when I offered the wrong thumb. Maybe these scanners are more accurate with right thumbs than left? I wondered what would happen if I clutched a bit of ice in my hand before getting scanned. "This fellow can't go ashore. He's dead!"

Of course, once you get past the officials and the ugly dockside architecture, the city is quite nice. And I have to say, all the passengers I saw and talked to took the whole thing very much in stride. It's almost as if they felt sorry for these poor benighted Chinese officials, stooping to such silly behavior.

What I Did Today

Today I have developed a new branch of mathematics related to set theory. I call it infinite transgressions.

The California Real Estate Market

I originally wrote this post in 2006. We've hit the major correction I mentioned in the article, but I think many of these issues are still relevant, given a market that is defined by high costs and low liquidity.

When we first moved to the Bay Area, we searched for a new home for several years. The real estate market had a single, unwritten rule:

Rule #1: Screw the Buyer

I've seen what must be hundreds of houses and I've talked with dozens of real estate agents. I finally found one broker who was willing to work with us as an agent's buyer for a flat fee, on the premise that my wife and I would do all the legwork. He'd only be involved in writing offer letters and any final contract negotiation. This was perhaps one of the smartest moves we could have made.

Here's how buyers get screwed in this market.

1) Your agent doesn't really represent your best interests. Buyers' agents are paid a percentage of the gross. They have a strong incentive to get the deal done as quickly as possible, not to get you the lowest possible price on a house. We've had agents pressure us to make offers way above asking "to be sure we got in while we could". In one case we backed off from a deal where the agent tried to strong-arm us into increasing a good offer by another $50,000. Angry, we walked away. The house eventually sold for $50,000 less than what we'd originally offered.

2) Agents on both sides can withhold and distort price information. A free market is based on the free exchange of information, or at least I thought so. If real estate is a free market, then as a potential buyer shouldn't I be allowed to know what other bids have been placed on a house, and the amount of those bids? Apparently not. In fact, I was told by one seller's agent that it's unethical to provide this information. Less profitable perhaps, but unethical?

3) The press pumps up buyer's frenzy. Reading the papers here (before 2008), you'd think every house you walk into is going to be a multiple bid death-match, with the biggest wallet winning. Horror stories of twenty offers and final prices 30% above asking abound. Yet on the ground, this doesn't happen all that often, and there are certain segments of the market that are soft.

4) The construction cost here runs $100 to $200 per square foot. This is greater than the retail cost per-square-foot of many other regions. Labor costs may be a bit higher, as well as insurance and permits, but that much more expensive?

4) The state and communities of California use zoning laws and restrictive ordinances to help keep prices high. Land is relatively scarce, but zoning forces houses to be single occupancy. So if a decent-sized lot costs $600K, the builder has an incentive to put up the largest single family home that zoning will allow, and sell it for $1.3 million to maximize his profit. Changing the zoning laws would reduce sprawl and increase available housing, but that would negatively impact real estate values. Can't have that.

Here, the tax rate on a home is based on the last purchase price. The higher the price, the higher the tax revenues. In fact, unless I get very lucky when I finally do buy a home, I'll be paying more in property taxes than I will be paying in state income taxes.