Why Can't We Build an Affordable House?
wilsoncenter.org
wilsoncenter.org
Here are some more points:
- building restrictions are overturned or overruled, but only after expensive lawsuits. These are impossible for small builders to do but routine for large builders. They are also better financed and more experienced than the municipalities they are suing, so they eventually win after several years and millions of dollars.
- With or without a lawsuit, it's easier to build get bigger houses on bigger lots approved. That's fine for the builder - all they need is an ROI - but it eliminates the low-end option.
- People move often so resale value is a very high priority, especially for first time buyers. I live in the suburbs and would love to have a condo, but I would never want to try to sell a condo in the suburbs so I bought a house instead. Condos and townhouses are cheaper and would serve many people's needs better, but these are marginal properties that will suffer most in a down market.
- External factors (proximity to transit, good public schools, proximity to workplaces, etc) reduce total cost of living and increase home prices by roughly the same amount. In Chicago suburbs, Naperville has excellent schools, Aurora not so much. Identical houses across the school district boundary are over $100K different. Being close enough to walk to transit saves (at least) $40/mo on parking but more like $100 when you include gas,etc, which corresponds to about $10-15K in house prices. But it saves time, which can be valued very highly, so a house 1/3 mile from a commuter rail station would cost $75-150K more than a house a mile from the station. (probably a bigger deal in Chicago/NYC/Boston more than anywhere else). Ditto if you don't need private schools.
- As supply goes down (or grows slowly), houses are competing for a smaller slice of the upper end of buyers. If only the top 50% of potential buyers can afford a house, the needs of the bottom 50% are ignored. If only the top 10% can afford it, the bottom 90% are ignored. So if most potential buyers are DINKs (dual income, no kids), then new construction will be 1-2BR condos/townhomes, with very few 3BR. The 3BR units will be much more expensive both because they are larger but also rarer. If most buyers are families, the sizes might start at 3BR and go up and there probably won't be any 1-2BR at any price.
There are actually still affordable new homes going up in areas with lots of land and few regulations on construction. As you can see, you can easily find a new home in the Houston area for little more than $100K: http://www.lennar.com/findhome/city.aspx?CITYID=HOU&_kk=...
I'm sure you could buy an older house for much less.
The difference in cost between building a smallish 3 bedroom house and a hugeish five-bedroom house is quite small as a portion of the total cost (<$100K). On the other hand, in any major metropolitan area the difference between having a small backyard and a big one is huge. Hence, new construction tends to be huge houses on tiny lots.
1. Asthetics: While people are comfortable all looking alike with an iPod, they don't want their homes to look alike. Such customization demands increase the price dramatically.
2. Land. People want to live in places already built-up. You aren't going to be creating new housing in a desirable Boston neighborhood without knocking something down first (assuming you could ever get permission to knock a building in Boston). For this reason, most property purchases are trades of currently erected buildings rather than construction of new buildings.
3. Labor. On one side, it's hard to find skilled construction workers today. The 20-somethings of today have been programmed that it's college or bust. That has left a short supply of electricians, plumbers, carpenters, etc. As such, wages are huge because property is valuable and people who want to build can't find enough workers. On the other side, we're a lot safer in our construction than we used to. Workplace injuries aren't as common and that's a good thing.
4. Regulations. There are a lot of them and they are meant to improve the quality of houses, but they cost money.
5. Improvements in Quality. Do you think you're going to build a house today without cable and Cat-5 jacks everywhere? Of course not! Old homes have similarly been retrofitted with such amenities. Double-paned windows are now the norm in colder climates, dishwashers and garbage disposals, garage door openers, etc. all add to the price of homes. Heck, even the number of electrical outlets in new homes is quite different from homes built in the 70s.
5. US tax laws. It makes sense to buy as much house as you possibly can scrimp for due to US tax laws which treat home ownership as this panacea of good citizenship. That drives prices sky high.
So, housing prices are a combination of factors.
Pairs of copper wire is, if anything, a proven technology. And it's not like we're anywhere near pushing the limit of Ethernet technology for domestic purposes.
Even if a new technology will come along, the fact that entire cites are wired from top to bottom with cat-5, you're guaranteed that any new technology wil be heavily biased towards backwards compability on the physical layer.
I would jump at the chance to live in something like a Dymaxion house* in a walkable community.
*http://en.wikipedia.org/wiki/Dymaxion_House
EDIT: For more awesome houses, have a look at http://en.wikipedia.org/wiki/Autonomous_building
That, and when a lot of people think "I'm going to buy a house," they are thinking of that one house that's in every single suburb. That one that is functionally the same but might have a different room layout.
I think the trend may be shifting (part of me thinks that the trend will have to shift), and that would be good. I know that I, and most of the people I know, would like to be living in a walkable community in housing that is as sustainable as possible.
I mean, if I had the capital for it, I'd get on building an awesome little town. I don't though, and probably won't for a while - maybe someday though.
I love how this 'crisis' is blamed on over-reaching Americans, but only one side of the transaction. It takes two to tango, but don't forget the millions of Americans who made billions selling homes at grossly inflated values.
Here in the UK there are lots of people complaining that locals are being priced out of their own coastal towns, as city folk are buying up properties as second homes. But when the time comes to sell, those locals are perfectly happy to take the money.
Most of today's problems are caused by people who want to have their cake and eat it.
I'm for taxing "nth-homes" exponentially to n. It would only hurt speculators who overall destroy value anyway. If you'll be using a house for two weeks a year, you should rent it.
How do you want to distinguish between 'nth-homes' and landlords?
However, a huge fraction of the "stay there two weeks a year" folks try to rent the other weeks. So you distinguishing between folks who try to rent a secondary house all but two weeks a year and folks who try to rent a secondary house all but two weeks a year.
That seems a bit subtle. Perhaps you can elaborate.
a huge fraction of the "stay there two weeks a year" folks try to rent the other weeks
I disagree. Few people maintain a property only to rent it for two weeks a year. Once you bother to rent it, you try to do it for as long as possible. On the other hand, people who buy one, two, ... n houses for vacationing or speculating purposes can often afford to have them empty.
In any event, that's irrelevant to my point. Be them a huge or tiny fraction, I'm not so much against those. A house that gets occupied, by owners or renters, for most of the year, serves a genuine need.
Care to elaborate how that works for urbanism, esp. in coastal zones?
"Discovery" is not even an apt word to use here. It connotes there is some "optimal" price towards which supply and demand will converge no matter what, just speculation will help that happen faster. In the real world, urbanistic speculation promotes overdevelopment, which greatly affects quality of landscape and living environment, thus effectively -and, what's worse, irreversibly- changing the value of the land.
Does "Tragedy of the Commons" ring a bell?
Who are they supposed to rent from?
How much time do I have to spend in a second or third residence to make you happy? Does it matter what I'm doing when I'm there?
BTW - Intel designs processors in the hope that folks will want to buy them and let Intel make a profit. How is housing speculation any different?
If they can't pay for their houses, they can't afford said houses, no matter what said houses are worth or how said worth changes.
Mortgages aren't "called" when a house's value changes. Mortgages aren't "called" when the lender goes bankrupt (someone else buys the mortgage). The terms don't change when the house value changes.
They're losing their houses because they can't afford to pay for them.
The distinguishing feature of most subprime loans is that the interest rate changes after a few years. A typical subprime loan could be 3 years at 8%, then 27 years at 12%. The assumption (made by bankers to justify the subprime model) was that after paying lower prices for a few years, the borrower would have some equity built up in the house, so they would be a better credit risk, and they could refinance at that point for a lower rate.
But, when housing prices dropped, many of these houses were now worth less than the outstanding amount on the mortgage, even after a few years of paying down the loan. So the plan of refinancing after a few years didn't work any more.
Basically, it is easier to afford a house if it maintains its value after you buy it, because the equity gives you more flexibility in refinancing.
Sorry if this is too boring ;-) But if you are curious to read more about the particular characteristics of subprime mortgages I recommend this paper -
http://www.kc.frb.org/publicat/sympos/2008/Gorton.08.04.08.p...
No, that's not what happened. Folks got loans where they could afford the teaser rate but not the regular rate. Even if they'd put down 20% and the house didn't go down in value, they couldn't afford what they'd bought.
If housing prices had continued to appreciate, they could have done a cash-out refinance and used that money to help them pay for the new loan, but that just delays the inevitable. ($50k doesn't go very far when a payment that you can't afford goes up by $1k/month.)
Or, they could have sold and taken the equity to buy something that they could afford.
The only way that they could have kept those houses (without significantly increasing their income) is if they'd been able to do no-cost refis with teaser rates until they were paid off. Since many/most of those loans were interest-only....
Note that most of the teaser-rate loans had prepayment penalties.
The amount of equity that one has in a house has very little effect on the interest rate. The big driver is interest rates in general.
If you look at the loan amortization table for a 30 year fixed loan, you'll see that there's very little pay-down in the first several years. There's zero pay-down with interest-only loans, which many of the teaser-programs were. There's NEGATIVE pay-down with interest-deferred loans (which many of the teaser-programs were).
> Basically, it is easier to afford a house if it maintains its value after you buy it, because the equity gives you more flexibility in refinancing.
Refinancing makes a house more affordable only if interest rates decline, and then only if you don't take money out.
I don't understand the distinction. If you pay half a million bucks for a house, and you can't afford to pay half a million bucks for a house, you're buying something you can't afford.
As for "40-50% inflated", well, there's no "natural" value for a house, and they're worth whatever people are willing to pay for 'em.
http://seattletimes.nwsource.com/html/businesstechnology/200...
> Between 1989 and 2006, the median inflation-adjusted price of a Seattle house rose from $221,000 to $447,800. Fully $200,000 of that increase was the result of land-use regulations, says Theo Eicher — twice the financial impact that regulation has had on other major U.S. cities.
I would be interested in connecting with more people who understand and want to realize Christopher Alexander's ideas, and encourage anyone who reads Hacker News to get A Pattern Language. It's not really made to be a straight read. It's more like a library of architectural functions with comments on how to apply them. Good to have at hand. The problem is that to fully realize what is clearly a better solution than the burbs, you would need to collaborate with dozens of other people, who all understand the ideas.
Here's a couple of starting points for those unfamiliar with the architectural ideas:
"Another Pattern Language: Real Life Patterns Chez Christopher Alexander"
Alexander goes beyond the drought-resistant, no-maintenance yard to the maintenance-free, barren yard. Natural as a hippy’s armpit, this hardscrabble, lifeless expanse, especially in the midst of neighboring houses with specimen plants and lush yards trumpets the owner’s iconoclastic avant-guard design sensibility. It screams, “I’m different.” ...
Alexander does both himself and his neighbors a favor by dumping the detritus of past projects in his front yard. Neighbors report that property values (and therefore property taxes) are lower when they have line-of-sight to the Alexander home. ...
Pattern No. 12: DISHEVELED ENTRANCE
You know you can get away with wearing blue jeans inside when you pass by this funky collection of neglected plants and broken fence just before getting to the door.
Have you read the book? Its merits are fairly self-evident if you read a few pages, regardless of the author's choice of paint colors for his own house.
I know the creator of the presentation, and do not see him as someone who tears down the famous for cheap notoriety, as you accuse. He truly lives not far from Alexander; his professional reputation as an author/consultant/educator is secure; he hasn't promoted his wry little parody widely.
I suspect neighbors did resent the 'curb appeal' of Alexander's property (and still do if circumstances remain similar). The Berkeley hills are fairly upscale real estate.
First: look at more economical design philosophies: Rob Roy of Sauna fame, Lester Walker who wrote tiny houses, and somewhat less of Sarah Susanka. Oh, and who can leave a pioneer hacker out: R. Buckminster Fuller - who thought of practical solutions to house humanity and called our planet space ship earth. Bucky was so innovative he was taken as a quack by many.
The main ideas are simple: maximize volume and reduce surface skin - this makes for cheaper building and less heating/cooling energy. There are trade offs between the sphere and livability - but cubes(with slanted roofs) beat most conventional designs by far. Really think about the floorplan: rooms can serve two purposes or more, get the plumbing reduced to the minimum, bathrooms adjacent, and directly above on the next floor - these are worthwhile design constraints. All the while aesthetics can be improved - which I see evidently contributes greatly to quality of life. There is a science to living.
Then on to land. You know for all the worshiping architects and media give to Frank Lloyd Wright they don't mention his hatred of cities, and his explanations for why the rural life rules. I think there are strong media influences to keep people in the cities - while it may not be good for the majority it does keep more open land available to me. It's ridiculous to pay more than half the building cost of a home to land prices. I understand people need to work and that is an artificial draw of the city. But, maybe we need to reorganize the way we live to make everything more efficient. The centralized industrial economy where we need cities of work camps is passed. Most jobs can allow people to telecommute, and we will find more physical and service jobs done by increasingly intelligent machines.
Second: the system is designed to make us debt indentured servants. Mortgages are often no more than the chains of slaves in their sheet rock cages. Look at how the housing market is manipulated by lending: if the majority can borrow more money to out bid for houses then the price of housing will go up. And they have.
Third. Standardization. We build houses like custom artwork. I'm not saying we need to live in prefab trailers, but we can economize buildings by far.
Think of your money in terms of sheets of plywood(currently under $20 a 4"x8" section for CDX) and drywall($8) and realize what you could build. The average taxpayer could build a house with money the government demands and uses to prop up housing prices.
The bottom line is that there is no constraint on building things affordably yourself unless it's imposed the government of the powerful in the form of publicly acceptable zoning, banking, and miss-education in the public schools - what would be a more valuable lesson than learning how to shelter yourself? I'd much prefer kids learn that than fluff social studies and all the other time wasting crap they feed them.
However he does not follow through on the regulatory costs and sort of buries them in the article.
It seems to be mostly wrong about _why_ land is more expensive than it's ever been, blaming it on various policy initiatives. Really though, land is more expensive than ever before because there are more people than ever before. Also, because we're richer than ever before (in terms of the amount we have left over after paying for groceries etc) and hence are willing to spend a higher portion of our income to secure one of the limited number of blocks of land which are in a convenient location.