Are Affordable Housing And Rising Home Values Mutually Exclusive Goals?

wallyj84

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Are affordable housing and rising home values mutually exclusive goals?

In the US, I think a lot of the system is built around protecting home prices. Many local and hyperlocal laws about zoning and building ordinances exist solely to protect home prices. Government programs promoting home ownership focus on the demand side of the equation, which keeps prices high.

Is it possible that houses being an investment and our attempts to protect that investment is the true cause of the housing crisis? What do you think?
 

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Are affordable housing and rising home values mutually exclusive goals?

In the US, I think a lot of the system is built around protecting home prices. Many local and hyperlocal laws about zoning and building ordinances exist solely to protect home prices. Government programs promoting home ownership focus on the demand side of the equation, which keeps prices high.

Is it possible that houses being an investment and our attempts to protect that investment is the true cause of the housing crisis? What do you think?
No, try again. Home ownership is not the enemy.
 
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keenobserver

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Didn't say that it was. You can have home ownership without homes being a huge investment.

That can be true - it often is not the case. Demand and supply are issues. I sold R.E. when I was in college and afterward for a while in the D.C. area. Most people choose to live at the extreme edge if their means. When their situation changes they are locked in because they were already at a limit, assuming they would always earn more and more and sooner or later get caught up or have more of a cushion to protect them.

Young people starting out wanted the most they could afford to impress themselves and their families and friends. The FHA even had (possibly still do) a loan program that escalated payments every year for 6 years. This allowed people to buy more than the qualified for based on payment as a percentage of income. In loan qualification one only needs to be qualified for one year. The first year of this loan the homebuyer owes more at the end of the first year than he borrowed. This trend continues until year three when the payment of principle and interest grows to where the balance is declining. Keep in mind property taxes often rise annually as sales prices drive up assessments. In Montgomery County Maryland, one of the richest in the nation taxes were for many years reassessed every six months to reflect rising values. They no longer do that, but it is a rising cost people lose sight of. The D.C. area was a hot market that was considered bullet proof in real estate. More and more people moved there to work for government or government related companies and a large number of major colleges and universities are in the area. People come to go to school and stay. Amazingly God stopped making more land for these people to live so scarcity drive prices upward.

In my now 'golden' years I live in a rural area that has been decimated economically for a couple generations. Housing here is mixed, but a lot of it is cheap. While an average home in town sells for about 125,000., you can get homes, livable homes for as little as 34,000 in some areas. The highest price here is a home on sale for 775,000 in a nice, older neighborhood. It is huge, a Tudor style home with slate roof, grand foyers and woodwork. In Montgomery county Md., the price would be just a bit above the median price, which is around 550,000. It all depends on where you need to live and how you want to live.

A number of my friends have high paying jobs with the railroad. A number of them bought lower cost homes than their salary qualified them for and they live below their means, investing well and building a nice portfolio - but these folks are rare. A lot of people when they begin earning feel that going all out is something they are entitled to do, and that it will all work out in the end.

You are absolutely right you can have home ownership without having to make a huge investment. More people need to realize it when they are in an area where they are comfortable and safe in doing so. For some segments it is very hard to do.
 
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wallyj84

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I have no idea what this means.

You're right, I wasn't clear in that sentence.

I think you can have home ownership without homes being treated as an investment that must hold or increase in value. The point of this thread is that I think that kind of approach to homes leads people to take actions that restrict the housing market and cause housing crisis.
 

wallyj84

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That can be true - it often is not the case. Demand and supply are issues. I sold R.E. when I was in college and afterward for a while in the D.C. area. Most people choose to live at the extreme edge if their means. When their situation changes they are locked in because they were already at a limit, assuming they would always earn more and more and sooner or later get caught up or have more of a cushion to protect them.

Young people starting out wanted the most they could afford to impress themselves and their families and friends. The FHA even had (possibly still do) a loan program that escalated payments every year for 6 years. This allowed people to buy more than the qualified for based on payment as a percentage of income. In loan qualification one only needs to be qualified for one year. The first year of this loan the homebuyer owes more at the end of the first year than he borrowed. This trend continues until year three when the payment of principle and interest grows to where the balance is declining. Keep in mind property taxes often rise annually as sales prices drive up assessments. In Montgomery County Maryland, one of the richest in the nation taxes were for many years reassessed every six months to reflect rising values. They no longer do that, but it is a rising cost people lose sight of. The D.C. area was a hot market that was considered bullet proof in real estate. More and more people moved there to work for government or government related companies and a large number of major colleges and universities are in the area. People come to go to school and stay. Amazingly God stopped making more land for these people to live so scarcity drive prices upward.

In my now 'golden' years I live in a rural area that has been decimated economically for a couple generations. Housing here is mixed, but a lot of it is cheap. While an average home in town sells for about 125,000., you can get homes, livable homes for as little as 34,000 in some areas. The highest price here is a home on sale for 775,000 in a nice, older neighborhood. It is huge, a Tudor style home with slate roof, grand foyers and woodwork. In Montgomery county Md., the price would be just a bit above the median price, which is around 550,000. It all depends on where you need to live and how you want to live.

A number of my friends have high paying jobs with the railroad. A number of them bought lower cost homes than their salary qualified them for and they live below their means, investing well and building a nice portfolio - but these folks are rare. A lot of people when they begin earning feel that going all out is something they are entitled to do, and that it will all work out in the end.

You are absolutely right you can have home ownership without having to make a huge investment. More people need to realize it when they are in an area where they are comfortable and safe in doing so. For some segments it is very hard to do.

The FHA program that you're talking about is exactly the kind of demand side example I was thinking of when I made this thread. Thank you for bringing it up.

This is all supply and demand, isn't it? When the supply is higher than the demand prices drop. When the demand is higher than the supply, prices increase. This is why I think the only way to really solve the housing crisis is to just increase the supply of homes. But if you increase the supply, it will decrease the value of the homes in general. You can't fix one problem, without creating another.
 

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The FHA program that you're talking about is exactly the kind of demand side example I was thinking of when I made this thread. Thank you for bringing it up.

This is all supply and demand, isn't it? When the supply is higher than the demand prices drop. When the demand is higher than the supply, prices increase. This is why I think the only way to really solve the housing crisis is to just increase the supply of homes. But if you increase the supply, it will decrease the value of the homes in general. You can't fix one problem, without creating another.

Yeah. You have nailed the conundrum exactly. More affordable units create more demand because it artificially opens the market for people priced out. When I was selling if we had a couple or an individual that was income limited to what the closer in areas offered, we took them to Gaithersburg Maryland. Gaithersburg at that time was a rural backwater at the northern end of Montgomery county and was undergoing development from farms to condos and planned communities. The condos were cheap to buy - 25,000 bought a huge three bedroom or townhouse way out in the sticks with a long commute to work in DC or the adjacent 'burbs. We would sell these folks a home and pray they did not needs to sell it for a number of years because the value would be stagnant. As long as the developer was building more and more units the value of the now 'old' units stayed the same. Why buy used when new is available? Same price. Once all the farms were converted - it took about 15 years property values took off like crazy. The 25K condos suddenly were worth 250K. Values were up and down - but mostly up. Affordable housing does not stay affordable for long.
 

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The FHA program that you're talking about is exactly the kind of demand side example I was thinking of when I made this thread. Thank you for bringing it up.

This is all supply and demand, isn't it? When the supply is higher than the demand prices drop. When the demand is higher than the supply, prices increase. This is why I think the only way to really solve the housing crisis is to just increase the supply of homes. But if you increase the supply, it will decrease the value of the homes in general. You can't fix one problem, without creating another.
Who is "you?"
 

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Are affordable housing and rising home values mutually exclusive goals?

In the US, I think a lot of the system is built around protecting home prices. Many local and hyperlocal laws about zoning and building ordinances exist solely to protect home prices. Government programs promoting home ownership focus on the demand side of the equation, which keeps prices high.

Is it possible that houses being an investment and our attempts to protect that investment is the true cause of the housing crisis? What do you think?

It's a bit complicated, but before I can even take a stab at responding, I have a question for you.

When you introduce the term "affordable housing" above, does it refer to housing that any person could buy, because its free market price is affordable for the many? Or does it refer to housing whose price is artificially deflated by government regulations?
 
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wallyj84

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It's a bit complicated, but before I can even take a stab at responding, I have a question for you.

When you introduce the term "affordable housing" above, does it refer to housing that any person could buy, because its free market price is affordable for the many? Or does it refer to housing whose price is artificially deflated by government regulations?

That is a good question. I think affordable housing means different things to different people and that is one of the problems with the discussion around this problem. To answer your question, I am referring to the former.
 

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That is a good question. I think affordable housing means different things to different people and that is one of the problems with the discussion around this problem. To answer your question, I am referring to the former.

Well, there are places where a plethora of affordable housing exists in the United States. The problem is, that affordable housing is not where many people want to live.

Eventually, the end of reasonable commuting distances / times from high-paying job centers / cities mark the end of affordable housing. Anything inside the circle is only going to up in price once the line is drawn. You can't build inside the line and sell the housing as "affordable", because the land you need to build that housing on is all gone, or costs so much that you'd lose money building a "Levitt" house on it.

Politicians like to see increasing property values, don't let them kid you, because higher properties results in higher tax collections, which feeds their pet projects.
 

wallyj84

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Well, there are places where a plethora of affordable housing exists in the United States. The problem is, that affordable housing is not where many people want to live.

Eventually, the end of reasonable commuting distances / times from high-paying job centers / cities mark the end of affordable housing. Anything inside the circle is only going to up in price once the line is drawn. You can't build inside the line and sell the housing as "affordable", because the land you need to build that housing on is all gone, or costs so much that you'd lose money building a "Levitt" house on it.

Politicians like to see increasing property values, don't let them kid you, because higher properties results in higher tax collections, which feeds their pet projects.

The thing is, I think more can be done to increase the housing stock in popular cities. I think it is kept lower than it would be if we had different writing zoning laws and such.
 

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The massively rising home values are basically a housing bubble, and bubbles burst. It's an artificial construct created by speculators, similar to the oil speculators who drove up oil prices only to see them collapse while we were under lockdown.

Real estate, to me, should be a steady investment. One that doesn't rise too fast and doesn't fall. That's something that can still exist with with a fordable housing though. Small house are cheap, big houses or mansions will always have some intrinsic value especially if they sit on more land. People who make a lot of money will always want to flex it.

One thing to remember is the population is always increasing so demand for shelter isn't going to go away, really it will always increase. So there's not really a supply and demand conundrum as demand will always be there.
 

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The thing is, I think more can be done to increase the housing stock in popular cities. I think it is kept lower than it would be if we had different writing zoning laws and such.

I disagree. If you own a 60 x 100 plot of land in New York City, the land alone without a structure on it is already "not affordable".

You are seeing "not affordable" units being built in New York City because:
1. The land on which to build is pretty much exhausted. They only way is up.
2. The cost of building (materials and labor) in New York City is pretty much twice whatever it is elsewhere. Unions will do that.
3. No builder wants to build rental units, which if priced "affordably", will have their rates dictated by the NYC Rental Board. Their property taxes aren't capped, but the rent they can charge is, so the best move, from a builder's point of view, is to make sure the units aren't regulated (and therefore "affordable")
4. The only affordable units built in NYC today are the ones that a builder throws in as a condition to get the building / zoning code waiver to build their taller building.

Sure you can increase the housing stock in popular cities, but it won't be affordable...
 

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I'm not sure whether people in US realise how unbelievably cheap property prices seem from a UK perspective. In many towns and cities of UK there is no way $300k (£240k) would buy a house or even a flat. In the UK we have run out of space. The population is rocketing upwards, and there are restrictions on building anything, anywhere.

UK salaries after tax are on average quite a lot lower than those in USA. Accommodation is a cost that is just shocking, whether bought or rented.
 

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I'm not sure whether people in US realise how unbelievably cheap property prices seem from a UK perspective. In many towns and cities of UK there is no way $300k (£240k) would buy a house or even a flat. In the UK we have run out of space. The population is rocketing upwards, and there are restrictions on building anything, anywhere.

UK salaries after tax are on average quite a lot lower than those in USA. Accommodation is a cost that is just shocking, whether bought or rented.

I recall mates of mine in Germany telling a similar tale. What is green must remain green, and the only way is up... up to a limit... and that drives up the cost of housing.

High prices of accommodation are an unintended consequence of being green....
 

wallyj84

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I disagree. If you own a 60 x 100 plot of land in New York City, the land alone without a structure on it is already "not affordable".

You are seeing "not affordable" units being built in New York City because:
1. The land on which to build is pretty much exhausted. They only way is up.
2. The cost of building (materials and labor) in New York City is pretty much twice whatever it is elsewhere. Unions will do that.
3. No builder wants to build rental units, which if priced "affordably", will have their rates dictated by the NYC Rental Board. Their property taxes aren't capped, but the rent they can charge is, so the best move, from a builder's point of view, is to make sure the units aren't regulated (and therefore "affordable")
4. The only affordable units built in NYC today are the ones that a builder throws in as a condition to get the building / zoning code waiver to build their taller building.

Sure you can increase the housing stock in popular cities, but it won't be affordable...

It might be physically impossible to increase the housing stock in New York, I'm not a civil engineer so I have no idea, but let's say for a second that they did drastically increase the housing stock. If the housing stock is increased so much that it is greater than the demand then prices will fall and due to competition between the various sellers in the market. None of them are going to want to be left with unsold property, so they will lower their prices perhaps even if it means selling at a loss. That is just the law of supply and demand.