Some Personal Observations Inspired by President Obama's Visit

by Stephen Malpezzi, Professor and Lorin and Marjorie Tiefenthaler Distinguished Chair in Real Estate

Tuesday night I took a break from catching up on emails and letters (nope, still not caught up!) and on the spur of the moment called my wife Joan, who works across the street, to see if we could catch President Obama's speech a block away at library mall. (Obama's University Visit Was Not Simple, NYT 9/28/10; Obama rallies Democrats in Madison, Wisconsin State Journal 9/28/10)

As we had guessed, at 5:45 it was way past the time you could actually get to the mall around the fountain, between Memorial and Historical Society Libraries. So we headed up Bascom Hill, and found a nice spot about half way up. We could hear (barely). We couldn't see, of course, except we had a very clear view of the heavily armed security forces atop Memorial Library. (To some, the sight might remind them of 9/11, but to those of us of a certain age, it brings back an equally searing memory of 1963; the security's so necessary, more's the pity).

It was a perfectly crisp night, and the crowd was in a good mood, even those carrying Scott Walker signs (the Republican candidate for Wisconsin governor) in the middle of a crowd comprised (I am sure) mostly of Obama supporters.

It was billed as a campaign speech, of course. As a professional economist, when I listen to a political speech, whether Republican or Democrat, liberal or conservative, I go prepared to be disappointed by the level of discourse and policy prescriptions. As usual, my expectations were fulfilled. As far as I could tell from the speech, the major issue facing the republic -- other than excessive numbers of Republicans -- was the availability of student loans. While the sound was garbled at times, I think the financing of higher education rated at least 3 and maybe 4 mentions; an important issue to be sure, but I didn't know it was so important that it left no time for lesser issues like funding social security and medicare, or the right course for our efforts in Afghanistan.

Lest you think, "I knew it, Malpezzi's a raging tool of Karl Rove, I've even seen tea bags in his office"--well, no. I can dish it out equally when confronted with, say, John Boehner's recent speech on "economic policy" which contained little in the way of either economics or policy (Boehner Urges Ax For Economy Team, WSJ 8/25/10). (Although I must admit to some sympathy to his idea of showing Treasury Secretary Tim Geithner the door, given Treasury's repeated and willful refusal to do replace HAMP and its variations with an effective program to stem the huge external costs from record foreclosures--see our proposed Wisconsin Foreclosure and Unemployment Relief plan.)

In class, I often comment on public policy ideas, and on how to think about decisions, whether in business or the public arena, rationally and thoughtfully. I pride myself on choosing examples of good and bad ideas from across the political spectrum. Especially when I'm looking for bad ideas, I suffer from an embarrassment of riches, served up to our class by Republicans and Democrats alike. Maybe I don't always succeed in my goal of political even-handedness, but when I gave a class of 200 the chance to guess my vote in the 1991 election, they came within 5 votes of an even 3-way split between Bush, Clinton and Perot. (No, I won't tell you my vote. Well, I'll give you this one -- I didn't vote for Perot, and even I was a little surprised that I could mask my views enough for a third of the class to think I voted for him).

This posting might seem cranky so far, but I'm not really feeling cranky. Despite the disappointments on the policy side, I enjoyed the hour I spent on Bascom Hill with Joan and 26,000 of our closest friends. It was good to see a crowd revved up, yet -- dare I say it -- respectful? Maybe I need to adjust my expectations -- would I really want a world where politics was the province of economists? Should I really get cranky about the fact that we so often drop the gloves in political arguments and go all ad hominem on our opponents? It's a long tradition in our politics. If you think we're un-civil now, go read up on the raging fights, calumnies even, whenever some combination of Adams, Jefferson, Hamilton, Madison were in the room. Even Washington, trying so hard to stay above the fray, threw some elbows now and then. And Burr shot Hamilton, for heaven's sake. In the run-up to the Civil War, congressmen beat each other with sticks on the floor of the house. They had some real issues to fight about, not least slavery. And -- wait a minute -- we had a civil war! Bad as our recent wars have been, more Americans were killed in that combat than all our other wars combined, if we exclude World War II. So maybe I should get a little perspective. We're robust. Our country has survived worse than what's being thrown at it now, from within, and without. That doesn't mean we shouldn't push to raise our standards, but despite my frequent complaints about this or that policy decision, there's every reason for some optimism.

Of course the U.S. is not the only "robust society." I'll tackle a few international comparisons in a future post.

Honoring Fred Petri, tireless supporter of real estate education at Wisconsin

On Wednesday September 15, 2010, members of the Graaskamp Center Board of Advisors honored Fred Petri, President of Housing Capital Co., lifetime member of the board and long-time supporter of the real estate program at the Wisconsin School of Business. Professor François Ortalo-Magné, chairman of the department of real estate and urban land economics at the Wisconsin School of Business delivered the following remarks.

“I would like my words to convey to Fred Petri my utmost gratitude for his quiet and humble contribution to the real estate program here at the Wisconsin School of Business. In deference to his wishes, we are honoring him tonight by simply being here, around him; no roast, no toast, no lifetime achievement award. Any such award would be unfair because we cannot yet measure the full impact of his contribution.

We would not be here tonight if he had not worked tirelessly and successfully, by himself and with his friends, to convince the UW and the School of Business to stay involved in real estate education once Jim Graaskamp passed away. Fred set the foundation for the post-Graaskamp era, putting us on a path whereby today we have a legitimate claim at global leadership in real estate education.

Once the program was secure, he innovated with his friend Jim Curtis to create and fund (with additional help from E.J. Plesko) the Applied Real Estate Investment Trust (AREIT) training program, one of the distinguishing features of our real estate MBA program. This program is so valuable that last year we extended its reach to include undergraduate students – a gift that keeps on giving.

Fred Petri has done much more for us, some of it only the chairman of the department will ever get to measure and appreciate.

Personally, I want to thank you, Fred, for two things. First, a month after I started at Wisconsin, we bumped into each other at the Madison airport. You sat me down and gave me the lay of the land. I left twenty minutes later thinking: these guys are really passionate about their real estate program, I’d better do my best. Second, today I am here as chair of possibly the best real estate program in the U.S., arguably the best in the world. Through the Global Real Estate Master (GREM) partnership, we are establishing ourselves as the real estate department to the number one business schools in Asia, Latin America and Europe. Without your inspiration to my career here, without your influence on the program, I would not have the privilege today to share the evening with you and so many of your friends dedicated to training the most competent, professional and passionate real estate leaders around the world.

So on behalf of all of us, on behalf of our Dean Mike Knetter who could not be here tonight, and on behalf of the university, thank you.”

Photo by Martha Busse of Fred Petri (center) with friends and family at the fall meeting of the Graaskamp Center Board of Advisors.

Well begun is half done: Pleasant surprises in Madison

The new school year has begun, and we are continuing a series that we started last year called Meet Our Current Students where we hear from current real estate MBA students about their experiences in the program. We kick things off in fall 2010 with a post from Class of 2012 MBA candidate Julia Xia:

This was my first trip to the U.S., and I had expected that adjusting to things would be more difficult for me. However, Madison has had this magic power to make me feel at home, and I fell in love with this city at first sight. In fact, it has never stopped giving me little pleasant surprises throughout my first month on campus.

The first surprise is the high quality of the students and the close-knit community. This year, the Graaskamp Center has recruited 3 international students to the real estate MBA program, all graduates from top colleges in their home countries. All first-year real estate MBA students have strong and diverse professional backgrounds in the real estate industry. They hail from private equity funds, development companies, and consulting firms. During the first week, the second-year real estate MBA students welcomed us with a party at a classmate’s home where I got a detailed introduction to school life. I felt that we were already closely connected, and I am glad to be studying along side these smart people.

The school year started with a nice orientation to help familiarize us with the campus, classmates, professors and resources. During the orientation, we had a great night at a welcome reception hosted by Graaskamp Center Assistant Director Sharon McCabe’s home, meeting and talking to the faculty of the Center. I was impressed by their insightful views about the real estate market not only in the U.S. but also in other emerging markets such as China. We have a small group of real estate MBAs which allows the Center to help me reevaluate my career path one-on-one and set the direction for future improvement.

The supportive alumni of the Wisconsin Real Estate Program also gave me a warm surprise. We had a nice welcome party with local alumni during the orientation week, and we connected with some other alumni after that. They took us to a football game; it was the first time I watched an American football game. It’s a great game and has helped me understand the tradition and culture of Wisconsin better. During the recent meeting of the Graaskamp Center Board of Advisors, I had the chance to talk with several leaders about their fruitful experience in the real estate industry. Again to my surprise, everyone was very patient and helpful and shared knowledge from their real estate practice, which I can’t learn anywhere else.

The class schedule is busy but very useful. In the first semester, we are taking general business courses plus one course within the real estate specialization. I feel that all the courses are designed with a purpose to guide us in the real business world and to help us to make effective decisions in our future careers. I especially like Real Estate Finance and Investment. Professor Abdullah Yavas is skilled at teaching the real world applications of our curriculum.

As we say in my country, “Well begun is half done!” I have had a good start, and I’m looking forward to the next two years of life studying here in Madison!

Julia Xia is a first-year MBA student in the James A. Graaskamp Center for Real Estate. Formerly a real estate consultant and asset manager in Beijing, Julia graduated from Peking University with a bachelor's degree in finance and banking.

Professor Riddiough Returns from Sabbatical

The fall 2010 semester is underway, and the Graaskamp Center's busy calendar of events has already checked off a meeting with our Board of Advisors and the alumni biennial conference with the WREAA. Also busy are our faculty.

Professor and E.J. Plesko Chair of Real Estate and Urban Land Economics Tim Riddiough is back on campus after an ambitious agenda of research, presentations and discussions among the international real estate community during a year-long sabbatical. He had served previously for five years as academic director for the Center.

Among his accomplishments this past year:

• Cutting-edge research and global research connections
• Speaking opportunities
• Teaching
• Leadership in the real estate industry

This fall, Tim is advising students in the Applied Real Estate Investment Track (AREIT) program, a demanding and highly-selective program within the Wisconsin Real Estate MBA. Through the program, students develop fundamental research and portfolio management skills by combining a theoretical foundation with the first-hand experience and challenges of managing real money in a live REIT portfolio.

Read more about Tim's activities in the September edition of our newsletter. (Join our mailing list with Constant Contact to receive our newsletter in your inbox every month!)


You can also read about the summer activities of other faculty members Stephen Malpezzi and François Ortalo-Magné in previous blog entries.

Join the Millenium Graduates Challenge Campaign!

The Millennium Graduates Challenge Campaign is heating up in the last few days before the real estate alumni biennial conference in Madison on Thursday and Friday.

The results for each class year will be announced at the meeting later this week. You can see how your class stacks up against pledges made by other years by clicking through to the campaign website.

There is still time to participate! Make your pledge today. Help your class and help the next generation of real estate leaders who benefit from the world-class Wisconsin Real Estate Program which was again ranked #2 by U.S. News & World Report.

On Wisconsin!

Honoring Cambridge's Professor Christine Whitehead

by Stephen Malpezzi, Professor and Lorin and Marjorie Tiefenthaler Distinguished Chair in Real Estate

September 15-17, I'll be joining a hundred other economists and social scientists at a conference at Cambridge University to honor Professor Christine Whitehead, one of Europe's leading lights on a range of housing and urban related topics. Christine is particularly known for her work on housing finance, for research on the effects of land use regulation on housing markets, and for working tirelessly to improve housing policy in the UK and around the globe. In addition to her academic reputation and awards, in recognition of her accomplishments Professor Whitehead has been honored by Queen Elizabeth with the Order of the British Empire.

For much of her career Christine has held simultaneous academic appointments at Cambridge University, and at the London School of Economics; at the former university, she was for a time the colleague of long-time UW Real Estate professor Jim Shilling when he taught at Cambridge; and our own Professor and Department Chair François Ortalo-Magné while he was on the faculty of the London School of Economics.

But where she's been has not been nearly so important as what Christine has accomplished; the thumbnail sketch above only hints at her contributions to research and policy. For example, in 1974 she published a seminal econometric model of the UK housing market. Her research productivity has never flagged; she's still undertaking important work on the effects of the current economic downturn on local public finance, for example. In addition to her institution-building work, keeping the flame of housing and real estate economics alive at Cambridge and LSE, Christine has been one of the driving forces behind the European Network for Housing Research, about which I may share more in another post. She has also been coauthor and mentor to many junior (and for that matter, senior!) faculty and researchers. While physically far removed from us, Professor Whitehead clearly embodies the Wisconsin Tradition of combining rigorous scholarship with a concern for real world problems.

I am proud to count myself as one of Professor Whitehead's many friends, and am honored to join with another good friend, Professor Kyung-Hwan Kim of Sogang University, to present our ongoing work comparing the volatility of housing markets around the world, to Christine and to the conference. Appropriately, the meeting is held under the auspices of the Cambridge Centre for Housing and Planning Research, which Professor Whitehead founded and headed for many years.

Professor Whitehead will soon be stepping down from her formal academic appointments, but all of us in housing economics and related fields look forward to continuing to benefit from her future thoughts and writings, and her continued participation in venues like ENHR; and of course her continued friendship.

I'll report back in a few weeks on the conference, and some of the research presented there. For now, from Wisconsin, we have no OBE to give, but we say, Christine, thank you and well done.

Photo of Professor Whitehead, flanked by Stephen Malpezzi (right), and by the late Professor Bengt Turner (left). Courtesy of European Network for Housing Research.

Looking back for signs of trouble

by François Ortalo-Magné, Department Chair, Professor and Robert E. Wangard Chair of Real Estate

Now that the housing boom is over, it is incumbent upon us to look back for signs of trouble to which the market could (and should) have paid attention before it all got too crazy. Monika Piazzesi and Martin Schneider, both at Stanford University, propose evidence from the Michigan Survey of Consumers. The survey asks “Generally speaking, do you think now is a good time or a bad time to buy a house?” A follow-up question asks households the rationale behind their answer. These figures are reproduced (with permission) from their paper.


Allow me to point out the following key features:

• The proportion of households who thought it was a good time to buy peaked way before the end of the boom (2003Q2). The proportion at the peak was not higher than in previous booms.
• The main rationale for the good time to buy was “credit is cheap” but again with a peak in mid 2003 at a level similar to peak levels in past boom.
• What was new this time? From 2003Q2 onward, the popularity of the good time to buy answer started declining but not as fast as in past cycles because of a very unusual increase in households feeling that housing prices would continue to go up, that housing was a good investment.

Piazzesi and Schneider go on to make the point that the proportion of such optimists (called momentum traders) does not need to be high to drive prices to an unsustainably high level.

Lessons for the future should be obvious!

Reference: Piazzesi, Monika, and Martin Schneider, “Momentum Traders in the Housing Market: Survey Evidence and a Search Model,” American Economics Review: Papers & Proceedings, 2009, 99:2, 406-411

Ben Bernanke's "Reading for Life"?

The New York Times' Economix blog last week highlighted some readings on the financial crisis recommended by Fed Chairman Ben Bernanke. One recommendation in particular, Liaquat Ahamed’s “Lords of Finance: The Bankers Who Broke the World,” seemed familiar.

Our own Stephen Malpezzi, professor and academic director of the Graaskamp Center, included Ahamed's book on his Dynamic Dozen list of top books in his 2010 Reading for Life list.

Dr. Ahamed is a polymath who used to work at the World Bank; we overlapped there though our paths did not really cross. Anyone who has read World Bank reports will be stunned to find out that he writes beautifully.

We've highlighted some entries from his list in previous posts, and I highly recommend checking out the list in its entirety for a wide range of worthwhile reads.

Speed networking at the Fall Real Estate Alumni Biennial

Today is the last day to register online for the WREAA Fall Biennial Conference: New Foundations September 16-18th at UW-Madison. Be sure to check out the speed networking session coordinated by faculty member and alum Sharon McCabe. Visit wreaa.org today!