Did the Schools pay too much for the land? Read the following article and you decide.

Toll, Centex, Lennar Join `Moron' Speculators in Land Grab Bust
By Bob Ivry

Feb. 7 (Bloomberg) -- Brian Tuttle owns so much land that he paid $3.6 million to get rid of 125 acres ready for development in the middle of Florida's Palm Beach County.

``In 2005, I was a brain surgeon, and in 2006, I was a moron,'' said Tuttle, who walked away from his deposit on the land rather than lose even more money buying it and building homes on it. ``The only good news is that I'm not alone.''

The worst housing slump in 16 years made a lot of smart money vanish. D.R. Horton Inc., Pulte Homes Inc., Lennar Corp., Centex Corp. and Toll Brothers Inc., the five biggest U.S. homebuilders, said plummeting land prices cost them a combined $1.47 billion in the fourth quarter.

Builders paid more for land during the boom because home prices were rising, too. They didn't realize speculators were pumping up demand by buying houses to sell quickly. When prices reached a point where speculators quit buying, homebuilders were forced to abandon so much property they helped create a glut that drove down land prices more than 9 percent last year, according to data compiled by New York-based research firm Real Capital Analytics Inc.

``Homebuilders allowed their own enthusiasm for price increases on houses to affect their decisions on what they would pay for land,'' said Mike Inselmann, president of Metrostudy, a real estate research firm in Houston.

The decline in land values reveals the role short-term buyers played in the housing boom, when the median U.S. home price rose to $276,000 last June from $177,000 in February 2001. Industry executives, including Toll Brothers Chief Executive Officer Robert Toll, estimated that about a quarter of their houses were bought by people interested only in flipping them -- buying and selling quickly rather than moving in.

`Dried Up'

Louis Genuario Jr., a regional builder in Alexandria, Virginia, said speculators may have made up about 40 percent of housing customers. In some new condominium complexes in suburban Washington, every buyer was a speculator, Genuario said.

``When land came on the market, you competed against national homebuilders who were flush with money and speculators who were jumping into the market and trying to resell it immediately,'' Genuario said. ``The price was high and the supply became limited. Then the market stopped when you couldn't get people to buy because it exceeded their ability to pay. Now we see land that's been on the market for months.''

These days, the speculators are looking foolish, too. In Florida, where they helped inflate land values as much as 10-fold from 2000 to 2005, prices have dropped by as much as 50 percent.

``The land market has dried up,'' said Alex Barron, an analyst at San Francisco-based JMP Securities LLC. ``Most builders are on the sidelines because they expect prices to go down another 30 percent.''

Florida Market

St. Joe Co., Florida's biggest private landowner, said yesterday the average price per acre of land it sold in the fourth quarter dropped to $1,900 from $4,100 in the third quarter.
Jack McCabe, a real estate consultant in Deerfield Beach, Florida, said land prices in his region will keep falling. He said investors are waiting for prices to hit bottom, probably in the second half of this year.

``It's going to be pretty ugly,'' McCabe said. ``Lots of people will lose money and a lot of paper wealth will be going away.''

Henry George wrote in his 1879 book ``Progress and Poverty'' that land's boom-and-bust cycle is natural because land isn't produced by human labor and prices can be manipulated by owners who are able to delay selling to get higher prices.

Speculators discovered Florida real estate in the 1920s, when the low cost of borrowing and improved transportation made second homes in the warm climate attractive to wealthy Northerners.

Tokyo Palace

At one point, a third of Miami residents were real estate agents, according to economist Jacob Freifeld. Some prospered by selling swampland to unsuspecting speculators. After a hurricane swept through the region, causing property prices to drop, many speculators left the Florida market and sunk their money into the stock market in the years before 1929.

Japan's land prices skyrocketed in the late 1980s, fueled by low interest rates and easy credit. The peak came in 1991, when some Japanese boasted that the land under the Imperial Palace in Tokyo, home of the Japanese emperor, was worth more than the gross domestic product of Canada.

After the bubble burst, Japan was stuck in the mire of a stagnant economy for at least a decade, said Mark Thornton, an economist in Auburn, Alabama, with the Ludwig von Mises Institute.

``Japan in the 1990s tried to prevent the collapse of the bubble, so the correction took much longer,'' Thornton said.

Polo Club

Brian Tuttle's latest deal to go bad was a housing development he planned on the site of the Gulfstream Polo Club in Lake Worth, Florida, on what he calls the largest undeveloped tract in the 40 miles between Boca Raton and Jupiter on the state's Atlantic coast.

Tuttle owns about 100 acres of the land, and he put down a $3.6 million deposit to reserve an additional 125 acres in 2005. If he chose to buy the land, he would pay $310,000 an acre, almost 10 times more than the $33,000 an acre he paid for his first parcel there in 2000. The land represents about 2 percent of his total acreage.

Two years later, land values have fallen by as much as 40 percent. Tuttle said it was impossible for him to make enough on the deal, so he chose to give up the deposit rather than buy the land.

``I'm just this humble guy and I didn't see prices going this low,'' Tuttle said. ``The big guys didn't see it either.''

In the last three months of 2006, the publicly traded homebuilders were forced to write down the value of their land, a practice mandated by accounting rules. When a company expects to lose money on a budget item such as land, it must account for the loss at that time rather than incurring the losses in the future.

Option Costs

Fort Worth, Texas-based D.R. Horton, the biggest U.S. homebuilder, took inventory impairments and land option write- downs of $270.9 million in fiscal 2006, up from the $17.1 million that it claimed during the prior year.

Lennar of Miami, the third-biggest U.S. homebuilder by market value, incurred costs of $494 million for land write-downs and canceled options in the last three months of 2006.

Homebuilders typically buy options to purchase land from landowners like Tuttle. In exchange for paying a percentage up front, builders can decide whether to develop the property without the expense of owning it.

Pulte, the second-biggest homebuilder, wrote down $350 million last quarter on the sliding value of land and deposits it won't exercise.

The unpredictable outlook for land prices is hurting Pulte's ability to plan ahead.
Tighter Rules

``Our earnings visibility going forward remains limited due to rapidly changing market conditions and uncertainty regarding possible future land-related charges,'' CEO Richard Dugas Jr. said in a Jan. 31 statement. ``Given this fluid environment, we aren't in a position at this
time to provide full-year guidance for 2007.''

Horsham, Pennsylvania-based Toll Brothers, the biggest U.S. builder of luxury homes, reduced the land it controlled by 19 percent in the second half of 2006.

Centex, a Dallas homebuilder that's the fourth largest in the U.S., disposed of 56 percent of the land it controlled between March and December 2006.

Shares of homebuilders rose 28 percent in the past six months, based on the Standard & Poor's Supercomposite Homebuilders' Index, as investors anticipate a recovery in the housing market later this year.

Florida Widow

Lenders have been less bullish. They've toughened loan requirements and tightened the availability of funds, said John Levy, a real estate investment banker in Richmond, Virginia.

``Six months or a year ago if you wanted to do a development deal on land, all you had to do was walk into any bank and they couldn't do it soon enough,'' Levy said. ``The music on that has stopped incredibly quickly. Now you walk into the bank and they say, `We don't do that.'''

Margie Bushnell is one land speculator who said she's willing to wait to get the price she desires. The 77-year-old widow from Flagler County, Florida, owns a half-acre parcel on Highway A1A in the coastal town of Hammock. The carrying costs are killing her, she said. She's paying property taxes of $4,500, triple what she paid when she made the purchase three years ago.

``It's an extremely lot of money,'' Bushnell said. ``I'm retired and it's hard for me to come up with that.''

Bushnell is offering the land on Craigslist.com, a free on- line advertising site. A year ago, her price was $699,000. Now she's asking $650,000. She said in a half-whisper that the land, zoned mixed commercial and residential, could be had for $595,000. She's ready to wait another year for a buyer at that price.

How much did Bushnell pay for the half-acre in 2004?
$80,000.

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net .
http://www.bloomberg.com/apps/news?pid=20601109&sid=aA90FVv3DDrY&refer=home

$34.06 an Hour That's how much the average public school teachers makes. Is that "underpaid"? BY JAY P. GREENE AND MARCUS A. WINTERS
Friday, February 2, 2007 12:01 a.m.

Who, on average, is better paid--public school teachers or architects? How about teachers or economists? You might be surprised to learn that public school teachers are better paid than these and many other professionals. According to the Bureau of Labor Statistics, public school teachers earned $34.06 per hour in 2005, 36% more than the hourly wage of the average white-collar worker and 11% more than the average professional specialty or technical worker.

In the popular imagination, however, public school teachers are underpaid. "Salaries are too low. We all know that," noted First Lady Laura Bush, expressing the consensus view. "We need to figure out a way to pay teachers more." Indeed, our efforts to hire more teachers and raise their salaries account for the bulk of public school spending increases over the last four decades.

During that time per-pupil spending, adjusted for inflation, has more than doubled; overall we now annually spend more than $500 billion on public education.

The perception that we underpay teachers is likely to play a significant role in the debate to reauthorize No Child Left Behind. The new Democratic majority intends to push for greater education funding, much of which would likely to go toward increasing teacher compensation. It would be beneficial if the debate focused on the actual salaries teachers are already paid.

It would also be beneficial if the debate touched on the correlation between teacher pay and actual results. To wit, higher teacher pay seems to have no effect on raising student achievement. Metropolitan areas with higher teacher pay do not graduate a higher percentage of their students than areas with lower teacher pay.

In fact, the urban areas with the highest teacher pay are famous for their abysmal outcomes. Metro Detroit leads the nation, paying its public school teachers, on average, $47.28 per hour. That's 61% more than the average white-collar worker in the Detroit area and 36% more than the average professional worker. In metro New York, public school teachers make $45.79 per hour, 20% more than the average professional worker in that area. And in Los Angeles teachers earn $44.03 per hour, 23% higher than other professionals in the area.

Evidence suggests that the way we pay teachers is more important than simply what they take home. Currently salaries are determined almost entirely by seniority--the number of years in the classroom--and the number of advanced degrees accumulated. Neither has much to do with student improvement.

There is evidence that providing bonuses to teachers who improve the performance of their students does raise academic proficiency. With our colleagues at the University of Arkansas we found that a Little Rock program providing bonuses to teachers based on student gains on standardized tests substantially increased math proficiency. Researchers at the University of Florida recently found similar results in a nationwide evaluation.

Of course, public school teacher earnings look less impressive when viewed on an annual basis than on an hourly basis. This is because teachers tend to work fewer hours per year, with breaks during the summer, winter and spring. But comparing earnings on an annual basis would be inappropriate when teachers work significantly fewer hours than do other workers. Teachers can use that time to be with family, to engage in activities that they enjoy, or to earn additional money from other employment. That time off is worth money and cannot simply be ignored when comparing earnings. The appropriate way to compare earnings in this circumstance is to focus on hourly rates.

Moreover, the earnings data reported here, which are taken directly from the National Compensation Survey conducted by the Bureau of Labor Statistics, do not include retirement and health benefits, which tend to be quite generous for public school teachers relative to other workers. Nor do they include the nonmonetary benefit of greater job security due to the tenure that most public school teachers enjoy.

Educators sometimes object that hourly earnings calculations do not capture the additional hours they work outside of school, but this objection is not very compelling. First, the National Compensation Survey is designed to capture all hours actually worked. And teachers are hardly the only wage earners who take work home with them.

The fact is that teachers are better paid than most other professionals. What matters is the way that we pay public school teachers, not the amount. The next time politicians call for tax increases to address the problem of terribly underpaid public school teachers, they might be reminded of these facts.

Mr. Greene holds the endowed chair of education reform at the University of Arkansas and is a senior fellow at the Manhattan Institute, where Mr. Winters is a senior research associate. Their report, "How Much Are Public School Teachers Paid?," was released this week.

Copyright © 2007 Dow Jones & Company, Inc. All Rights Reserved.
http://www.opinionjournal.com/editorial/feature.html?id=110009612