California’s Housing Crisis Reaches a ‘Breaking Point’
nytimes.com
nytimes.com
There is no sensible logic in why real estate is treated like the stock market.
It's what we do though. Mortgage loan interest deductible to get people to purchase homes, capital gains tax is low to encourage longer-term investing....
In other words, it is an externality just like pollution that the producers don't want to internalize.
Still, this density of housing is only going to put more pressure on the already strained highways that take people north to the jobs.
Next year the article will read, "California's Commuting Crisis Reaches a 'Breaking Point'."
A lot of people live in the Bay Area. The 9 county area has 7.68 million people [0], enough that it would be the 102nd (of 234) most populus country in the world if it were its own country [1]. Countries with similar populations include Switzerland, Israel, and Hong Kong (all relatively small and dense).
Anecdotally, I dont see much vacancy in commercial/retail real estate (mini malls or otherwise) in the Bay Area, and with nearly 8 million people living here, there is an obvious need for quite a bit of commercial space.
[0] https://en.wikipedia.org/wiki/San_Francisco_Bay_Area
[1] https://en.wikipedia.org/wiki/List_of_countries_by_populatio...
And from my anecdotal experience when visiting, the older mini malls surrounding it have less foot traffic. Which makes sense, because everyone wants to go to the new shiny places. And it's not like these places were overly crowded in the first place.
Anarchists in SF don't protest mountain view homeowners, don't demand opening the door to high rises on Potrero Hill but rather block buses taking tech workers to work - morons. Confusion reigns!
I've been researching buying some land to put up affordable housing. I can buy the land. The permits and regulations? Almost impossible to deal with. Every single contractor I've spoken to has advised has echoed my findings.
Seems to work well in other countries
https://shift.newco.co/letter-of-resignation-from-the-palo-a...
Best bet is probably statewide initiatives such as those proposed by Scott Weiner. https://twitter.com/scott_wiener
Is it the business people who own businesses there? Yes.
Is it the people who live there? Yes, them too.
Is it the people who don't live there, but want to move there? No, it's not. That's the problem.
Didn't the good folks of Palo Alto vote out the council members that voted for a 60-unit retiree building?
They can bring a bulldozer to Dolores when I can take one to Stanford.
Real estate is slow. Apple has its new spaceship in Cupertino. Apple paid $300 million for HP's 100 acre former campus in 2010. Apple's adjacent parcel was acquired in 2006. Even without regarding how long it probably took to close the first parcel, that's more than a decade ago. For a straight up office building with no need for sales and marketing. And office buildings are what Cupertino wants on its tax rolls.
Suppose that 100 acres went to housing instead. At $3million per acre and 30 units gross per acre, there's $100,000 per unit in land cost. At a low end 4:1 improvement to land cost ratio, the construction of each unit runs out to $400,000 and the unit cost is $500,000. Throw in 20% for carrying costs and 20% for developer profit and units hit the market at $720,000.
Sure a person can play with the numbers and get them lower or higher. But even at 30 dwelling units per acre, that's only an addition of only 3000 units over ten years to the overall Bay Area market. And it took more than $1 billion in capital and a decade worth of work. If it were easy, it would have happened.
Much of today's housing crisis is a direct result of blatantly racist policies that were implemented to keep out PoC out of white neighborhoods.
Ordinances like minimum lot sizes, heigh restrictions etc. are the very same tools used by NIMBYs to keep new developments out of their neighborhoods, and choking the US economy.
Why are none of the 'big 4' based out of middle-of-nowhere-America? Because nobody want's to live in a place where the idea of culture is TGI Friday's and an old navy outlet.
They should be able to live where they want and not waste 2 hours a day burning fossil fuel.
There are a whole lot of jobs that don't really fit into that. Programmer-sphere is pretty unique there. And not all programmers (certainly a minority) map well to remote work.
From a practical standpoint, it seems like a large percentage of people in the Bay Area would prefer to live in the City or very near it. Yet, this is a physical impossibility. The ways to allocate scarce resources comes down to two methods: let the market decide or let government decide. Either way, folks will be left out.
Personally, I believe that is an artifact of zoning laws + commute distance.
Most people I know rationally choose housing based on commute distance for an individual/couple + price.
I suspect that the people you know are not representative of the whole population; there's plenty of evidence people consider factors other than price and commute-to-work distance in setting preference of where to live.
I don't have all that much experience with remote work, but I'd prefer a company that started around remote work instead of being a remote worker at an established company.
OK, that's a load of crap. I don't know what you're doing with your money, but you can definitely live in SF on $180k. And if you can't, well, name your destination that's within two hours, it'll be cheaper than most of SF. I'm guessing she needed/found the perfect home.
It's rush hour now. Google Maps, which tends to be pretty accurate, says 2:15, right now.
And rush hour may or may not be actual commute hours for a nurse; not everyone works typical hours and commute decisions based on your actual work patterns rather than average work patterns that aren't actually yours are quite sensible.
Guess what? You need to save for a few years to get that, which is easy when you're making $15K pre tax a month and living in Manteca.
What happens to someone with a $100K-200K down payment and a bank willing to cover another $900K on top of that is that they put in a $1.1M offer with the required bank contingencies and then someone puts in a $1.1M offer with no contingencies and the cash offer wins.
Having a bank willing to lend you money has not been sufficient to purchase a home in most areas since the housing collapse because there's so much speculation in cash.
Just because you are getting a mortgage doesn't mean you need a mortgage contingency in your offer. You are taking on the added risk of actually closing on the loan, but that doesn't mean it had to be in the offer letter. If you know what the house is worth and what your credit score is and how the underwriting works, just make a "cash" offer like everyone else. It's not like you literally show up with a briefcase of cash in any case.
Required banking contingencies usually fall around home inspection and other verification efforts that the bank undertakes to validate the value of the security being offered for the loan (the house).
The bank doesn't just give you a check and say "go for it," they have a set of contingencies (incl. inspections) in order for them to shell out the money. Otherwise people could readily defraud the loan process by borrowing more than the security (the house) is worth.
Typically both parties enter into escrow with the expectation that the contingencies will be met during that period and for that period the money is held in trust along with the deed while all of the contingencies are validated.
A cash offer is a check, it requires no escrow period. Frequently home deals fall apart during escrow for a wide variety of reasons, this is a time-value risk on the appreciation of a million-dollar asset. Any sensible home seller would take the offer with no escrow period and equivalent dollar value.
The house I purchased (in a much less desirable region of California) would've been a lot nicer if it wasn't for this phenomenon.
I've never had an underwriter ask for a home inspection report.
But in any case that doesn't mean you need to write a contingency into an offer that the house will appraise for a certain amount or else the deal is off.
Even in "cash" offers there is the offer letter with a check with a deposit amount, but there's still a time period for you execute a purchase and sale agreement and make the final payment. This is where you do things like title search, prepare the P&S agreement, prepare other documents like fire certificate, septic certificate, etc. This always takes at least 30 days anyway, so if there's an appraiser ready to go on Day #2 there's time to get your loan closed before closing day even on a "cash" offer with a quick close.
I'm not quite sure what you mean "no escrow period" but in no case does anyone simply show up at Open House day with a check for the full offer amount and expect to close on the house that day... that's simply not what "cash offer" means.
A "cash" offer with no contingencies simply means your offer amount will not change even if the house appraises for less (requiring a larger down payment to achieve the same LTV) or if there are issues discovered by a home inspector (e.g. roof needs to be replaced).
Note even in a "cash" offer there's still plenty of room to negotiate if non-obvious things are discovered about the house because the seller is still providing a property condition statement (at least in any state I've done business in) where they attest to the overall condition and any adverse issues like septic failing certification or prior insurance claim for flooding or things like that which you discover after making a "cash" offer -- all of it the seller had a duty to disclose and frees you from the offer if you decide to walk away before signing the Purchase and Sale and accepting the quitclaim deed.
$180,000 is over RMB 1mm, which is way above what an average Chinese white collar can earn in a year. And an apartment can cost much more than $500,000, with a 30%~60% down payment.
People do afford the apartments, with life's saving from parents. I am not saying it's a good thing, but it is possible that people afford housing even with a ridiculous price.
The example in the article may be a bit extreme but the article is not much off base.
I've watched astonished as friends of mine buy homes that end up eating 60%+ of their post-tax income. That is what is being called "affordable" these days.
Buying: in SF at 180k? Not a hope. A decent place not TIC, and where you safely put your kid in public school - is low 1.3million. Step one: come up with 260k cash + now your 4k rent is 5200 morgage with nutty property taxes. Plus play the lottery of schools because you can't afford private.
If you're serious, show your math.
The MITC is a hugely regressive policy.
Really comes down to how long you intend to stay in the home.
How do you figure that? What about cost stability? What about not losing 100% of your payment (that is, retaining some as equity)?
I'm not saying there is always an incentive; some markets favor renting over buying in spite of the MITD. However, saying the only reason buying is financially attractive makes no sense.
Edit: corrected C (credit) to D (deduction), since it is technically correct and makes a big difference in it's usefulness.
In what world? I have never seen a market where rents were below P&I for a comparably-priced house[1]. I would love to see a real example of this.
[1] Note that this does not automatically make buying better, as rent factors many costs P&I does not.
For instance, after a 1980s crash, Tokyo's housing norms shifted and the result seems really healthy: https://www.ft.com/content/023562e2-54a6-11e6-befd-2fc0c26b3...
I'm thinking a lot about land tax.
https://www.reddit.com/r/dredmorbius/comments/608w97/asset_p...
Interesting article. I wonder if any Japanese (or someone familiar enough with the culture) could comment.
The only time your'd fully realize any gains or losses (outside of being upside down) is when you downsize or move to an apartment. That's never really anyone's goal. A house is a terrible investment tool and shouldn't be seen as one.
Whatever the unemployment rate, the present level of "economic growth" is very much a product of a lot of money being pumped into the "real economy" and large portion of this money leaking out into investments like houses that are perceived as more solid and reliable than companies engaged in production [1].
The old effect of printing was a consumption-goods price spiral but the new, more hidden effect is capital-good price spiral (housing bubbles etc). But, of course, if wages aren't increasing and costs of living are, a little bit of increase goes a long to making people's lives unlivable.
And it's worth noting that rent-increases are happening in a wide variety of town in the US. Everywhere they're attributed to local factors and that further muddies the wasters concerning the root cause.
From your linked article, QE in the US lasted approximately 2008-2014, with some of the steepest decrease in home prices occurring during that period, and steepest increases occurring after it ended.
I'm not entirely sure there is compelling evidence QE contributed to housing price increases in California or the Bay Area, but I'd be interested if anyone had data to the contrary.
[0] http://www.lao.ca.gov/reports/2015/3305/Bay-Area-Home-Prices...
The processes involved here are much larger scale than the particulars of the California housing market (indeed, if you read my original you'll I already mentioned that California is just one blip in world-wide trend). California just happens to be a place which attracts money when money is being "manufacturer". Whether one has quantitative easing in particular or too-big-to-fail banks issuing bonds or simple bubble-dynamics, you have a process where money flows from productive assets to stores of value.
If someone wished to learn something about the current financial climate, I would refer that someone to Doug Noland's Credit Bubble Bulletin.
http://creditbubblebulletin.blogspot.com/p/credit-bubble-bul...
[1]: http://www.bbc.com/news/magazine-35913577
[2]: According to James Tracy, training institute coordinator at San Francisco's Community Housing Partnership, only by organizing did North Beach residents win a guarantee from the San Francisco Housing Authority and Bridge Housing that all of the units would be replaced. In fact, North Beach Place actually added units, from 229 units in the original project to 341 units today. (At Plaza East in the Western Addition, 276 high-rise units were replaced by 193 townhouses and flats; Hayes Valley saw 294 units demolished and 193 rebuilt; Bernal Dwellings replaced 208 units with 160.) "The success of Hope VI depends on your standard," Tracy said. "For the housing authority and developer, once a new building is up, that defines success. But from a standpoint of community preservation, losing units in the San Francisco housing market is not a successful project." http://www.spur.org/publications/urbanist-article/2005-03-01...
http://eyeonhousing.org/2014/01/average-size-of-new-single-f...
According to data from the Census the Quarterly Starts and Completions by Purpose and Design survey, the average and median size of single-family homes that began construction rose during 2013. For the third quarter alone, the average single-family square footage increased from 2,646 to 2,701, while the median rose from 2,446 to 2,491.
In the 1950s, average size of a new home was less than half that, at around 1200 sq ft. It also held, on average, more people.
I strongly suspect this is partly driven by tax incentives that are aimed at upper class families and help create or fuel a growing divide between the Have and Have Nots.
In LA there's new luxury condos being built, but I've been in half a dozen apartments in the 12 years I've lived here and the newest was built in the 80's. You can definitely see the living space increases since the 20's, but it hasn't ballooned to the size of new construction in most of the rest of the country.
Looking at my peers in houses, it's fairly similar. They all moved far out of the city, but none of it is new construction.
I am currently at the research stage for trying to buy a house. My magic 8 ball increasingly suggests "not in California -- please move elsewhere, since you have portable income."
I am envious of people with a bedroom for each kid and a back yard, but I have heard anecdotes of people who move from a place perceived as high tax, like California, to a place perceived as low tax, like Texas, and their tax liability went up (because property taxes are much higher even though income taxes are lower).
There's no simple solution to this crisis and I'd bet we'll see several more states go through this sooner than later.
Wages and rent most especially.
The reason for the discussion is that the price behaviours are, well, interesting. Economic rent (not quite the same as what you pay for an apartment) in particular, rises to absorb surplus value, whilst wages fall to the bare minimum necessary for survival (if that -- Smith's story of economic decline is bleak).
https://en.m.wikisource.org/wiki/The_Wealth_of_Nations
There's an added dynamic -- one I've only just realised, though I'm sure it shows up in the literature, of the tendency for those holding any given economic asset (some store of value) to do what they can to see that its value increases. And why not: free money!
This becomes quite problematic where those assets are themselves productive, or worse, Maslovian (that is, essential) goods:
https://www.reddit.com/r/dredmorbius/comments/608w97/asset_p...
The upshot is that the prices of such goods, including housing, tends to increase.
(This applies as well to professional certifications and licenses, taxi medallions (viz: Lyft, Uber), guilds, educational access, etc. etc.)
The classic response suggested has been a land tax: a tax which applies to the unimproved value of a given lot.
The economic notion is that the supply of land is inelastic (that is: suppliers cannot provide more of it, and won't withdraw from the market). The tax increases the costs of carrying unimproved land, or occupying land below its full utilisation. By tweaking the rate of tax reduction as land value falls (based on income-earning potential), it would be possible to encourage or discourage sprawl (slightly underpace value decline to concentrate development, overpace value decline to encourage wider development).
The idea is most associated with Henry George (who came up with the idea ... faced with skyrocketing rents in San Francisco), but is absolutely grounded in classical economics and economists.
What I'm slowly coming to realise is that what's almost certainly required is a joint policy which targets wages, on the one hand, and rents (or land value) on the other (and probably a few others). In addition to a land tax, some sort of employer of last resort which would pay at least a minimum living wage (possibly then bidding out labour to other entities, or utilising it for itself). Some form of UBI or needs-based support (children, elderly, disabled, students) would cover other cases. Without a land tax, this income is simply pocketed by rentiers. The combination of EoLR/UBI and Land Tax puts the income back into flow within the real (that is, commodities and services) economy.
https://en.m.wikipedia.org/wiki/Land_tax
I've also learnt just earlier today that the Lincoln Institute of Land Policy started as a Georgian Land Tax advocacy organisation, though I'm not sure if they continue to pursue this interest.
And yes, California's Prop 13 legacy is one hell of an albatross.
https://ballotpedia.org/Article_XIII_A,_California_Constitut...