What if there is no Housing Bubble?
I just finished reading this article. It is by some random financial self-help guru, so I took it with a large grain of salt, but his idea was interesting. He basically argues that the insane housing prices in markets like San Francisco, Boston, Los Angeles, NYC and Chicago are not part of a bubble, which may exist locally in some markets (Las Vegas and the south for example). The reason housing prices have become stratospheric in the author’s opinion is because the rich have gotten so much richer than everyone else. In San Francisco LA and New York the wealthiest people in America congregate and they will be able to afford a mortgage worth much, much, much more than anyone else. So what happens is that regular “middle class” people are priced completely out of the market.
In this vision, which seems plausible, the problem isn’t speculation but the rapidly growing income disparity in this country. A family that makes $150k a year in SF is pretty much priced out of the housing market, even though this would be considered an “upper middle class” income based on the local median. That same family is competing with someone like Kenneth Lewis ( ceo of US Bank) who makes in excess of a hundred million dollars a year.
Do we really want a situation where cities become places that only the impossibly wealthy can live? Because that is what is happening right now.
April 5th, 2007 15:53
it’s interesting, but it’s just not right. you have to remember that the cost of a house doesn’t neatly map to household income. and the primary reason is because mortgage thresholds don’t necessarily track ability to pay (especially in the recent past with suprime loans). a lot of the overdevelopment was fueled by people like this: http://www.iamfacingforeclosure.com/. and cities were all to willing to let these people in with minimal scrutiny. further, organizations like fannie mae have made ownership such a priority, that a lot of working class people convinced of this became vulnerable to predatory lenders. of course, there were plenty of institutional investors who helped fuel the bubble. but these people were savvy enough to know when to get out (they have the resources to do this).
in Chicago in particular, they are neighborhoods that are way overbuilt and houses have been sitting unoccupied for almost five years now.
part of the story, of course, has been that cities have become more attractive to the affluent and as these people came into the city, housing prices naturally would rise. but the stratospheric rises that we saw even priced out a lot of the people coming into cities (it’s virtually impossible, rich or poor, to own property in new york unless you are filthy filthy rich).
I do think it’s a problem that cities are becoming playgrounds for the rich. and I think housing bubble is an example of how mayors abrogated their duty to poor citizens and basically pimped themselves to the highest bidder.
April 7th, 2007 15:21
This trend can only go so far — a city can’t function with only impossibly rich people. Somebody’s gotta foam the soy for the chai lattes. It just turns into a transportation problem if there’s a shortage of housing that “the rest of us” can afford.
April 7th, 2007 15:28
That is very true. What is amazing is that people will travel a long way for work. Construction and service workers in SF travel three hours to work from homes way out toward Sacramento or Fresno. What happens in the “third world” is that most people live in abject poverty while wealthy people almost don’t interact with them at all. The non-super rich live in very poor housing in inner-ring suburbs, which seems to be the direction that US cities are headed. Clearly nothing can be done about that, poor people need to live somewhere and they can’t live in million dollar condos.