Thursday, October 9, 2008

Affordable housing doesn't exist.

This economy thing is obviously big on everyone's minds. And I have to say that I don't know everything about it, and I certainly don't know how to fix it. I don't know all the causes of it. I know that banks were getting artificially high ratings that caused misplaced faith in them, and that there was too much lending to people who couldn't afford to pay back the loans, and that there was corruption and greed and high-level executives who knew they were living on the edge but didn't care because they personally were making money hand over fist, enough to live a life of luxury well after their house of cards blew up in their faces and they got fired.

But there is one side effect of all this mess that is a good thing. Of course, I am in the position of not currently owning a home, which means that I have the luxury of saying this. But house prices NEED to go down. Affordable housing doesn't exist anymore, and that needs to change. It is unacceptable that unless you want to live in the middle of nowhere, two hours from the nearest city and likely much further than that from the nearest ocean, you are going to wind up paying way more than you can afford for your house. A nice home shouldn't be a luxury reserved for the wealthy. It should be something that we all have access to.

I don't mean that the deflation of house prices is a pleasurable or even endurable process for many people. It's terrible for homeowners who suddenly owe more on their loans than their houses are even worth. It's also terrible for first-time buyers who suddenly can't get a mortgage even with a decent credit rating and a reasonable down payment. It's terrible for all of us, nobody more so than the people who can't afford to stay in their homes and also can't afford to move.

And it sucks that the economy is going down with the house prices. It sucks that there has been corruption and greed and that wealth is so unevenly distributed. It sucks that there's nothing fair about what's happening. It sucks that so many of us can't even afford to heat our homes right now.

But houses just plain cost too much. It's unreasonable to expect somebody to pay $400,000 for a nice house in a mid-sized city. It's unreasonable to expect somebody to pay seven figures for a nice house in a big city. It's unreasonable that $100,000 can buy you little more than a shack on the outskirts of town or a tiny condo that can't hold your family and is run by a slumlord. These are insane sums of money we're talking about. They are sums of money that almost nobody in this country can afford. And then we wonder why our national debt is equal to our annual GDP, and why people aren't able to make their mortgage payments.

A system that puts up such barriers to reasonable housing costs had to die eventually. Of course people are taking on loans that they couldn't afford to pay back. With a crappy job market, moving to a place where real estate is affordable means moving to a place where there are very few employment opportunities. This gives people who need a job the choice between living very far outside the city where they work, creating prohibitively high transportation costs and drastically reducing their quality of life and the amount of time they get to spend with their families, or paying through the nose for a livable house in a safe neighborhood that is somewhat close to work. Neither of these options is appealing. But lenders were willing to take the risk of giving large loans to people who couldn't afford it, so people made the choice to take the more expensive houses, and thus prices kept going up and up, and the whole thing was a vicious cycle.

And now that cycle is starting to break, which means our economy sucks, and it's looking like it may not get better for awhile. I'm not looking forward to that any more than the rest of you. But I do look forward to coming out the other side--and we WILL come out the other side, and even sooner if people can avoid having panicky reactions to the current situation and withdrawing their money from banks and stocks.

Because on the other side I see housing that people can afford. Maybe not giant mansions in the middle of downtown. But something reasonable, where everyone in a family can live comfortably. Everyone deserves a decent home, and we need to get back to a situation where that is a possibility for most people. It just sucks that our economy has to be dragged down along the way.


  1. And that is exactly why I am so happy I will not be buying a house for many many years. :)

  2. I turned to my husband just the other day, breathed a sigh of relief, and thanked our lucky stars that we didn't buy a house when we were talking about it.

    Apartment living is FINE. Plenty of people do it all their lives and are NOT scarred by it. There's something to be said for knowing that if the fridge breaks, someone else will take care of it.

    I think we need to let go of this mentality that owning a house = the American Dream. It's horseshit.

  3. I feel the same way- this bubble was bound to burst when middle-class, relatively well paid people could not afford even a 2 bedroom apartment. I don't suppose it helps that this happened all over the western world?
    Me, I'm hoping that the house prices will go down so that prices will be close to the ACTUAL worth of the buildings and not some trumped up imaginary value placed on them by market "expectations"
    The whole thing sucks... and never should have been allowed to happen. Its always the regular people that pay for the fuckups of the rich and greedy isn't it?

  4. I am SO HAPPY that we were able to buy our house when we did [May '08]. If we were trying to do this now, we probably wouldn't have been able to sell our old house!

    I believe that the American Dream is a very personal idea - your dream doesn't have to include a house that you own. Who cares if you rent for the rest of your life if that's what makes you happy!

  5. I'm hoping that along with a change in credit lending and the mortgage market, people also get over their sense of entitlement at "needing" a 6-bedroom house when it's just them and their spouse.

    I read a magazine article awhile back (can't remember from where, unfortunately) that was trying to drum up sympathy for people about to lose their homes, but I ended up getting mad because every single one of them purchased their "dream home" with all the unnecessary bells and whistles, even though they knew they would have trouble making the payments.

    They KNEW and still went ahead and did it anyway. Grrr. One woman even complained that she was going to have to "downgrade" to a 3-bedroom home, and it was just her and her baby.

  6. But house prices ARE going down! In the Twin Cities, at least, now is a pretty great time to buy a house. Good news for first-time home buyers; bad news for those of us who already have a house and keep watching its value decrease. :-(

    I know what you mean, though: prices went out of control, and even a slip downward hasn't made anything particularly cheap. Good luck to you, though!

  7. My fiance and I just closed on our house last Tuesday. We're about 10 minutes outside of the so-called "Most Livable City."
    Buying a home and qualifying for a loan isn't too hard if you know what your limits are. We may not have the biggest and most beautiful home in the city, but we love our little house and we're looking forward to raising our family there someday.
    To me, just being proud of what you have is the American Dream.

  8. I am so glad you wrote about this. I think that's one of the things that has concerned me as someone who would like to eventually settle down. It's not just housing - it's rent too that's become outrageous. I forget who it was but someone mentioned that the american dream isn't a right - it's a privilege. And far too many people are going beyond their means, especially when it comes to credit cards and such. (Was it you? I can't remember). Ultimately, I think we really need to see a shift in spending trends.

  9. Things aren't as bad here (our banking system is much different than yours in the U.S.), but the housing prices are definitely getting out of control. I totally agree with what Shauna said about people needing to lower their expectations. If you look at the houses our grandparents had (and often raised larger families in), they would fit in the open concept family rooms of most of today's homes.

  10. And the moral of the story is that capitalism is for suckers.

  11. Owning a house isn't really all it's cracked up to be. Even with the idea of "affordable" housing, with the economy crashing the way it is, people are no longer thinking of owning a home as an investment. That's where everything went awry, frankly.

    I say keep renting, personally. It will be a while before I buy something, even if our house sells (which it eventually will, because we didn't overpay for it).

    My other thought, PS, is that things went awry when people considered home ownership a right, not a privilege.

  12. I actually disagree. I think the market should dictate housing prices. And areas of greater appeal (nice homes, big lots, easy access to the city, IN the city, etc.) should cost more than something further out. For those people who want to live in the more desired areas and do not have millions stashed away, you learn to make compromises. Life is full of compromises and the housing market is a great example of it.

    People are buying more than they can afford, not because the market is unfairly inflated. But, because (a) they are uneducated about what they can afford, (b) they are given bad information about what they can afford or (c) they choose to ignore all of the available information in order to buy something they want.

    Having said that, I do support tax incentives for all home owners. And maybe that means, greater tax incentives for the people who need it most (those who simply cannot afford to buy anything). But, I largely do not believe that housing prices are flawed.

  13. I live in San Francisco and work in a museum. No matter what happens to the national housing market I will never be able to own a home here. Not unless I marry someone who makes three or four times what I do and I'm not willing to make that a determinant of whether or not I'll marry him.

  14. Nilsa: Housing prices WERE flawed at the height of the bubble. Totally and utterly flawed. Maybe not now, but you can't tell me that a condo in Nowhereville, Florida, was ever worth $600K. No.

    On your other points, I totally agree, and while housing prices don't need to be brought down proportionately so that everyone can afford to live wherever they want, it's not true that they weren't flawed.

  15. I think both Nilsa AND Du Wax are correct. Housing prices ARE incredibly stupid...nobody should be paying $1 million for a house. That's house is worth 20% of that in materials, let alone actual value.

    That being said, I do think the market properly regulates the prices, and people in the city should pay more than outlyiers. We paid around $50K for our house in 2005, but we live in a town of 800 people in the middle of nowhere Iowa, makes sense.

    Overall, you should be able to buy a house that is somewhat equivalent to one or two times your salary, give or take. Prices above that are inflated stupidly, but...I don't see that ending anytime soon.

  16. The economy is making my head hurt lately. Good post.

  17. Yup, I fall on both sides of this argument. On one hand, the cost of housing in this country borders on obscene. On the other hand, our government sets an example when it comes to spending money you don't have. That's what frightens me most of all in the latest crisis--will people LEARN that you can't have it all on credit? Will people learn not to live beyond their means? I sure hope so, I hope the lesson is not that when you are irresponsible the government will clean up after you.

  18. oh, how i agree.

    especially with:

    " A nice home shouldn't be a luxury reserved for the wealthy. It should be something that we all have access to."

    you are completely right.

    my girlfriend is currently looking to buy a condo.. the prices are ridiculous. $500,000 for a 2 bedroom condo in downtown vancouver, that's over 10 years old. half a freakin' million dollars. insane. absolutely, insane.

  19. We bought a modest 1200 sq ft 3 bedroom free standing condo 5 years ago. The same condo now is $20-$30 thousand more than ours if built; and we did NOT upgrade much. It's crazy that for us to get a slightly larger place in this neighborhood that's NOT a condo we'll be hitting close to $300K.

  20. AMEN! i make a good salary, but my home takes up an entire biweekly paycheck!

  21. Sorry Jess, I am not on the same page as you here. DC is a desirable place to know what that translates to. I think affordable housing does exist, we just don't admit that we don't want what we can afford.

    It bugs me that there is an accepted culture of entitlement to brand new housing in mid twenties in America, but the idea of entitlement to something like healthcare is always met with such hostility and cries of socialism.

    The comment complaining about the cost of housing in Vancouver is representative of our entitlement. Come on! A ten year old condo? In a city hosting the Olympics in a year? In a city considered the most beautiful and desirable place to live in Canada? Downtown? Of course it will cost $500K. No one puts a gun to our heads and says sign these mortgages. If we don't like the prices, buy elsewhere.

  22. I'm on the exact same page as you. It's hard though, because a lot of people are having a really horrible time - and low/middle income people who shouldn't have bought into the American Dream of a house in the burbs but did are having their credit torn to shreds by this.

    But like you said, there is another side. In Canada the market is doing the same thing, and as it has started to slow I was able to buy a perfect little house that I wouldn't have been able to buy otherwise.

    We have a place to live while the market does whatever it's going to do, we're in the middle of the city in a good neighborhood (my city is still small enough to have those), and we can live here as long as we need to.

  23. I've been waiting for this shoe to drop for years, and despite all the trouble it's causing, I cannot help but feel a sense of relief. Things are going to get back to normal and reasonable. Just not right away.

    Excellent post, Jess.

  24. Amen. I am actually considering moving to your fair city, but my #1 reason against it is...I'm not sure I can afford to live there on the salary range I'm looking at. It's sooo comforting to know that my career choice might be predicated on where I can afford housing.

    Thanks for the insights!