I believe there's a missing component from this discussion - location. IMO, this socioeconomic aspect is worth including. There's always been markets with lower pricing (affordable housing) and those locations still exist. Are they affordable and desirable today - some maybe, most probably not.
So, how does the market bring single-family starter home prices down to the $258,000 number without harming current homeowners (sellers)? IMO, it comes down to where to do it. Re-zoning certain locations within the lower-end of the market would be a good start. These locations do not need to be impoverished neighborhoods in destitute markets, though IMO those should be a part of a larger plan. These locations are actually close to the higher or middle markets, but they have simply not participated in the redevelopment which has been occurring for decades in many high and (some) middle markets throughout the country.
How does it happen? Divide the seller's currently zoned property into two or three build-able lots and use modular single family home solutions that offer the housing type that buyers want in a location on the rise. The biggest problem - the town will have to build a few new schools as the Gen-Z'ers and younger Millennials settle in and start-up their families. I'm pretty sure anyone reading this can drive within a few miles of their home and find these locations ripe for this type of transformation.
Rob, I agree, the chances of wages increasing 70% are slim-to-none.
"Socioeconomic status is typically broken into three levels (high, middle, and low) to describe the three places a family or an individual may fall in relation to others".
I guess I'm suggesting that if we do everything you suggested, the current homeowners still get hurt -- the values of their homes have to drop. Increased supply = lower price, no matter how we got to increased supply.
That's the Big Tradeoff. We all should be eyes-wide-open about it. I'm okay with that, because I'd rather my children have the opportunity to own a home than I end up with 40% more cash at the end of my life. But not everyone is.
I don't agree. The point of my comment is that the current homeowners don't get hurt, they remain whole at market value. Here's what my experience shows me. 123 Mainstreet is a home currently zoned one parcel, single family (the lot size is 75x125). The current value is $300,000 The property gets rezoned with capabilities for up to three SFR lots. The home owner sells to a developer at $300,000. The developer puts up three SFRs using the new dimensions of 25x125 (which in the city of Chicago is a standard size). The developer puts up three modular homes (see example) at his selling cost of $150,000ea. The result is three new homes @ $250,000 each (lot cost is $100,000). $8,000 under the targeted "affordable" price of $258,000. Will, or should these home appreciate over time....they should if real estate continues to be an appreciating asset. Did I do my math wrong?
Ok, so three homes have hit the market at $250K each.
The next seller with $300K value isn't selling to an owner-occupier, right? I assume he is also selling to a developer, who then turns out 3 more $250K homes.
Repeat 100 times; 300 new homes available.
Why is the value of the 101st home seller's house still $300K?
If the strategy had been that successful (100 sold) there would be developers from all over the county chasing the next one, then the next one etc. etc. until they are all gone (the additional 300). Traditional market dynamics would tell us the price of the additional opportunities would create competition driving the prices higher. Which, of course is exactly what we didn't want to happen. The affordable becomes less affordable...kinda a catch 22 eh? I'm assuming when you say "repeat" that means the first 100 homes sold.
I don't like to comment on my own comment but it's an important clarification for your readers. I'm talking about infill here, not large subdivision developments. Under a large subdivision scenario I would agree with you. However, infill is different, 300 homes don't suddenly become available in a small or large town, certainly not in the same location at the same time. In infill markets homes come to market one at a time. Hopefully that helps. Thanks,
This is a great discussion and worth having. I have never liked the pitch of homeownership as wealth building. You can't just sell your house and move into your bag of cash. Of course, if one can sell a house they own free and clear for $500,000 and move into a place that costs $250,000 that is a somewhat different story. But so much is left out of that as well. What about all the money paid to keep up the house one owned free and clear. The true net even in that example is much less. So, I think it is right to start with thinking of a home as a place to live first and an asset a distant second.
In addition to all the considerations people have touched on- part of the reason prices have increased is that building materials have inflated greatly as well. Also, many states have passed minimum wage increases that have forced wages higher in the various trades as well. When I was a teen in the 80s, I worked construction as a laborer because I made $7 an hour while my friends made $3.35 (then minimum wage). A premium must be paid for harder labor (even though in my case, not exactly skilled). The guys who were skilled made $18-25 then. Now with minimum wage in many places $12 or more, the wage scale has only moved up. Manufactured and smaller houses may help somewhat. A 3-bedroom 2 bath house is not that small. Now we may see some reduction in the cost of materials through increased supply, but I doubt it will be enough to drop prices that much.
I guess I should have called these random thoughts - so another one many have touched on- there are "cheap" houses out there- part of the reason they are cheap is no one wants to live there. I travel through parts of Baltimore periodically with rows of unoccupied three-story federal style homes that appear 90% unoccupied because no one wants to live there. Clean up the crime and mismanagement problem and that might change. I spend time in upstate NY where you could nail down a 3 BR 2 Bath in many areas for less than $200k (found 4BR 2 Bath for $189k in no time at all). But the taxes are high and even with a $15 an hour minimum wage (check that, $16.50!), people are not flocking there (except for rich city people).
Are interests even aligned to build more SFH? Seems like many jurisdictions want to cram as much housing into as small an area as possible and slap "Smart growth" and be off to the races. Lots of rental and townhomes and more traffic lights (and traffic). Also, there seems to be little concern about corporate/Wall Street ownership of SFH and turning them into rentals. I am pretty ROB has touched on that and to give credit where credit is due, Carol Roth as well.
Finally, to provoke some thought- have the government interventions helped- subsidized mortgage through FHA and the GSEs, tax breaks on capital gains, MID, state and local tax deduction, periodic tax credits or have they served to inflate prices similar to the way subsidized college loans are thought to have done? I ask because I think we are going to hear "more cowbell" as the answer from the powers that be. I have other thoughts but will stop here. Thanks for reading.
Rob...I'm curious. Is it the role for Realtors and/or real estate agents to get involved, worry or care about affordable housing? Real estate as an industry has dozens of spokes on the wheel...one of them being affordability, one of them being sales, blah blah. Sales can be broken down further: luxury, commercial, residential, etc.
No where along the journey is affordability taught, mentioned, encouraged to get involved with while becoming a licensed agent.
Sure, it's real estate *related* but it's not real estate SALES - which is what real estate agents get licensed to do.
As a cheesy analogy, it's like saying farmers need to get involved with how beef or milk is priced on the open market. They don't. Their job is to raise beef/cattle within the guidelines set forth by regulatory bodies. Farmers don't need to (or even *should*) get involved in the commodities market, or get involved in pricing. That's not farming.
Affordability is not *sales* and real estate agents aren't trained or educated to understand the dynamics of affordability.
Regardless of anything else, real estate agents are people who advise clients about properties, not affordability.
Finally, what's the immediate benefit (financially speaking) to get involved in affordability. It's doesn't put food on the table, it doesn't pay the bills.....
Well, I believe Realtors are more than just businessmen: "Beyond ordinary commerce" is in the Preamble to the Code. So there is that.
For licensees, no -- they don't have to care about affordable housing. No hate or shame there either. Work hard, make money, put food on the table -- I have nothing but respect for that.
However... if housing remains out of reach for the majority of young people and working class, don't be shocked when legislation/regulation/whatever comes down that makes making money on real estate *exceedingly* difficult.
Hey ROB,
I believe there's a missing component from this discussion - location. IMO, this socioeconomic aspect is worth including. There's always been markets with lower pricing (affordable housing) and those locations still exist. Are they affordable and desirable today - some maybe, most probably not.
So, how does the market bring single-family starter home prices down to the $258,000 number without harming current homeowners (sellers)? IMO, it comes down to where to do it. Re-zoning certain locations within the lower-end of the market would be a good start. These locations do not need to be impoverished neighborhoods in destitute markets, though IMO those should be a part of a larger plan. These locations are actually close to the higher or middle markets, but they have simply not participated in the redevelopment which has been occurring for decades in many high and (some) middle markets throughout the country.
How does it happen? Divide the seller's currently zoned property into two or three build-able lots and use modular single family home solutions that offer the housing type that buyers want in a location on the rise. The biggest problem - the town will have to build a few new schools as the Gen-Z'ers and younger Millennials settle in and start-up their families. I'm pretty sure anyone reading this can drive within a few miles of their home and find these locations ripe for this type of transformation.
Rob, I agree, the chances of wages increasing 70% are slim-to-none.
Let's see what happens.....Thanks, Brian
Modular Homes (example): https://www.dwellito.com/browse/150k-200k
Mr. Google:
"Socioeconomic status is typically broken into three levels (high, middle, and low) to describe the three places a family or an individual may fall in relation to others".
I guess I'm suggesting that if we do everything you suggested, the current homeowners still get hurt -- the values of their homes have to drop. Increased supply = lower price, no matter how we got to increased supply.
That's the Big Tradeoff. We all should be eyes-wide-open about it. I'm okay with that, because I'd rather my children have the opportunity to own a home than I end up with 40% more cash at the end of my life. But not everyone is.
I don't agree. The point of my comment is that the current homeowners don't get hurt, they remain whole at market value. Here's what my experience shows me. 123 Mainstreet is a home currently zoned one parcel, single family (the lot size is 75x125). The current value is $300,000 The property gets rezoned with capabilities for up to three SFR lots. The home owner sells to a developer at $300,000. The developer puts up three SFRs using the new dimensions of 25x125 (which in the city of Chicago is a standard size). The developer puts up three modular homes (see example) at his selling cost of $150,000ea. The result is three new homes @ $250,000 each (lot cost is $100,000). $8,000 under the targeted "affordable" price of $258,000. Will, or should these home appreciate over time....they should if real estate continues to be an appreciating asset. Did I do my math wrong?
Ok, so three homes have hit the market at $250K each.
The next seller with $300K value isn't selling to an owner-occupier, right? I assume he is also selling to a developer, who then turns out 3 more $250K homes.
Repeat 100 times; 300 new homes available.
Why is the value of the 101st home seller's house still $300K?
Accepting your assumption:
If the strategy had been that successful (100 sold) there would be developers from all over the county chasing the next one, then the next one etc. etc. until they are all gone (the additional 300). Traditional market dynamics would tell us the price of the additional opportunities would create competition driving the prices higher. Which, of course is exactly what we didn't want to happen. The affordable becomes less affordable...kinda a catch 22 eh? I'm assuming when you say "repeat" that means the first 100 homes sold.
I don't like to comment on my own comment but it's an important clarification for your readers. I'm talking about infill here, not large subdivision developments. Under a large subdivision scenario I would agree with you. However, infill is different, 300 homes don't suddenly become available in a small or large town, certainly not in the same location at the same time. In infill markets homes come to market one at a time. Hopefully that helps. Thanks,
What happens to prices and inventory when boomers pass away
Inventory becomes more balanced...over a few decades.
So if we will have too many houses in 15 to 20 years wont inevitably this problem get solved
Who knows? Baby Boomers span almost 20 years. That's 2 decades! Every 'answer' today is pure speculation.
Younger generations will both inherit the supply and sell their inheritance as well absorb the supply as buyers.
The real question is will we have a larger population of renters if AI is deflationary and wages are stagnant
This is a great discussion and worth having. I have never liked the pitch of homeownership as wealth building. You can't just sell your house and move into your bag of cash. Of course, if one can sell a house they own free and clear for $500,000 and move into a place that costs $250,000 that is a somewhat different story. But so much is left out of that as well. What about all the money paid to keep up the house one owned free and clear. The true net even in that example is much less. So, I think it is right to start with thinking of a home as a place to live first and an asset a distant second.
In addition to all the considerations people have touched on- part of the reason prices have increased is that building materials have inflated greatly as well. Also, many states have passed minimum wage increases that have forced wages higher in the various trades as well. When I was a teen in the 80s, I worked construction as a laborer because I made $7 an hour while my friends made $3.35 (then minimum wage). A premium must be paid for harder labor (even though in my case, not exactly skilled). The guys who were skilled made $18-25 then. Now with minimum wage in many places $12 or more, the wage scale has only moved up. Manufactured and smaller houses may help somewhat. A 3-bedroom 2 bath house is not that small. Now we may see some reduction in the cost of materials through increased supply, but I doubt it will be enough to drop prices that much.
I guess I should have called these random thoughts - so another one many have touched on- there are "cheap" houses out there- part of the reason they are cheap is no one wants to live there. I travel through parts of Baltimore periodically with rows of unoccupied three-story federal style homes that appear 90% unoccupied because no one wants to live there. Clean up the crime and mismanagement problem and that might change. I spend time in upstate NY where you could nail down a 3 BR 2 Bath in many areas for less than $200k (found 4BR 2 Bath for $189k in no time at all). But the taxes are high and even with a $15 an hour minimum wage (check that, $16.50!), people are not flocking there (except for rich city people).
Are interests even aligned to build more SFH? Seems like many jurisdictions want to cram as much housing into as small an area as possible and slap "Smart growth" and be off to the races. Lots of rental and townhomes and more traffic lights (and traffic). Also, there seems to be little concern about corporate/Wall Street ownership of SFH and turning them into rentals. I am pretty ROB has touched on that and to give credit where credit is due, Carol Roth as well.
Finally, to provoke some thought- have the government interventions helped- subsidized mortgage through FHA and the GSEs, tax breaks on capital gains, MID, state and local tax deduction, periodic tax credits or have they served to inflate prices similar to the way subsidized college loans are thought to have done? I ask because I think we are going to hear "more cowbell" as the answer from the powers that be. I have other thoughts but will stop here. Thanks for reading.
Rob...I'm curious. Is it the role for Realtors and/or real estate agents to get involved, worry or care about affordable housing? Real estate as an industry has dozens of spokes on the wheel...one of them being affordability, one of them being sales, blah blah. Sales can be broken down further: luxury, commercial, residential, etc.
No where along the journey is affordability taught, mentioned, encouraged to get involved with while becoming a licensed agent.
Sure, it's real estate *related* but it's not real estate SALES - which is what real estate agents get licensed to do.
As a cheesy analogy, it's like saying farmers need to get involved with how beef or milk is priced on the open market. They don't. Their job is to raise beef/cattle within the guidelines set forth by regulatory bodies. Farmers don't need to (or even *should*) get involved in the commodities market, or get involved in pricing. That's not farming.
Affordability is not *sales* and real estate agents aren't trained or educated to understand the dynamics of affordability.
Regardless of anything else, real estate agents are people who advise clients about properties, not affordability.
Finally, what's the immediate benefit (financially speaking) to get involved in affordability. It's doesn't put food on the table, it doesn't pay the bills.....
Well, I believe Realtors are more than just businessmen: "Beyond ordinary commerce" is in the Preamble to the Code. So there is that.
For licensees, no -- they don't have to care about affordable housing. No hate or shame there either. Work hard, make money, put food on the table -- I have nothing but respect for that.
However... if housing remains out of reach for the majority of young people and working class, don't be shocked when legislation/regulation/whatever comes down that makes making money on real estate *exceedingly* difficult.