What I know is secondhand from my brother-in-law’s experience, for what it’s worth, but here goes:
First, the developers are highly embedded in the social fabric. Most apartment buildings have a big Samsung or Kia or other chaebol logo stamped on them (yay for industrial policy!) also there is definitely a policy of housing abundance, including greenfield cities, and it’s a saver’s culture.
To get an apartment, you have to pay like 75% of its value to the “owner,” who invests it, but it’s a deposit. You then usually pay a waaaay reduced rent. Think $80,000 refundable deposit on a 3 bedroom apartment in a mid-tier city (usually made partially by savings but also by personal loans, secured through a lien the tenants have against the property if it isn’t paid back) then like $200 monthly rent non-refundable. I believe leases are long but not expensive to break. You can paint the walls and have a cat, at least evidenced by my BIL’s red living room and phoebe his asshole cat.
The Fed's sense of urgency with respect to inflation--which is what happens when Congress floods markets with cash and there's too much money chasing too few goods--has been grossly disappointing. Pull that lever all you want. Doesn't mean the Fed is going to grow a sack. Under Reagan we saw the prime close in on 20% in an effort to stave off inflation. I'm just being a realist. Every move the Fed makes is politically charged and has the potential to damage the incumbent. Right now Biden is all they've got, as unlikely and frankly scary as that sounds. Which leads us back to--you guessed it--election reform. How else to keep bad candidates like Trump and Biden off ballots?
I think the goal should never be to "keep off ballots" ANYONE. It should be to make sure that the system overall elects sane and competent leaders, and doesn't inherently divide us.
You completely missed the point. Election reform--which you supposedly support--makes it harder for fringe candidates like Trump and doddering candidates like Biden to prevail. The bad candidates are therefore kept off the ballots because they don't survive the primary process. Get it? Electing "sane and competent leaders" means "bad candidates" aren't the only options on Election Day. The idea is to avoid a "lesser of two evils" scenario, right?
There are two conflicting schools of thought on zoning and development. The "growth machine," which is what most Norwalk homeowners believe they are subject to--a tendency towards maximization of land values facilitated by cozy relationships between elected officials & their land use appointees and large-scale developers; and the "homevoter" hypothesis, postied by economist William Fischel, professor emeritus at Dartmouth, which posits that NIMBY homeowners, also worried about maximizing their investments, are responsible for underdevelopment. Westport, where I resided for 26 years, where I raised and educated my children, falls into the Fischel camp. Norwalk is part of the "growth machine" camp. BOTH assume that real estate is an investment which generally appreciates over time. In Fischel's "The Homevoter Hypothesis" (which became a handy guide for me in 2003 when I was marshaling support for the Staples High School renovation project and was facing strong opposition from neighbors), he suggests the creation of a type of insurance against devaluation of real estate as a result of perceived LULUs. The idea never took off. But I appreciated what Fischel was trying to accomplish, an idea derived from his experience as a zoning commissioner in Darthmouth, NH. One of the reasons I turn to Fischel on zoning matters is that he is not only an economist but a zoning commissioner with real life experience dealing with NIMBY opposition to development.
With respect to your suggestion that we--developers, single-family homeowners, real estate investors, what have you--need to shift our wealth away from reliance on land value, I'm afraid that's tantamount to getting 300 million US gunsowners to surrender their weapons because someone else thinks it's a good idea. Going back to Fischel, the average American's nest egg IS tied up in home equity. How do we get that genie back into the bottle? In my opinion, once homeownership isn't worth as much as it's worth today, people--maybe even you--may come around to prefer renting. In other words, some if not most of the appeal of homeownership is the investment value.
I think you're right about the current price regime we exist in, but I think you're overestimating the transitional preference for renting. We're _already_ in a regime where people who are well-off but can't afford houses simply rent.
If houses get cheaper - or simply stay flat - then it's just a simple demand curve effect: people will buy more houses.
I think the way to "get the genie back into the bottle" is by essentially doing that. It'd take remarkable discipline, and decades of real time, but it's still worth doing -- resolving the current crisis is going to take decades ANYWAYS. But in terms of actual levers to pull, it's actually pretty simple: The Fed should target its interest rate policy to make housing stay flat for an extended period -- 10-20 years or so.
Once people stop seeing the housing market as a way to *make* money, and we're not in an enormous housing crisis, then it becomes more realistic to show them what it looks like when gentle depreciation is allowed to happen relative to the median income.
Why not seek Congressional intervention via the elimination of the mortgage interest deduction? Why not muster credible, vocal support for the least restrictive language possible on ADUs (as opposed to what Norwalk IS doing--making it harder for homeowners to build them than what the state permits)? There is one sure-fire method for making housing cheap. Flood the market. I have little (read *NO*) faith in the ability of government to do good for anything other than itself. We need less regulation, less government oversight, less NIMBYism, and less cronyism. Putting an end to SF zoning--a reasonable one that allows two dwelling units on lots currently zoned SF--will also help create the supply we need. Ger rid of minimum lot sizes. Stop letting homeowners and neighborhood groups exploit environmental legislation to stop development. EASE financing so that instead of rental fortress apartments, developers build condos again. All of these things will drive down prices and make home ownership more accessible for more Americans without grossly diminishing the single biggest asset in most American's portfolio--their primary residence. More than 65% of Americans own their own homes. Before the housing bubble burst, the figure was closer to 80%. Robust economies are consistent with rising rates of home ownership. Geography matters too. Some areas have consistently high rates of home ownership (West VA) and some low (DC--no surprise). There are so many variables that can't be accounted for in these figures--rental inventory, public housing inventory (true in DC), land values, high rates of recent arrivals (from legal to undocumented). But as a general rule, strong economies favor increased rates of home ownership. I don't believe in the Fed intervening here mostly because I don't believe in the Fed. What I do believe in is land use policies that are as advantageous to single family homeowners and would-be buyers as they are to crony developers. Get rid of the tax incentives for developers. Let homeowners divide their SF homes into two-family homes and most people will retain and maybe even grow their equity.
I agree with all of those policies. But they have to start somewhere. This is a political battle, not just "what's the right policy". You can be skeptical of the Fed all you want, but at the end of the day, in a political battle, you pull ALL the levers available to you.
Locally, crony developers hold all the cards. While they get tax abatements, homeowners get tax hikes. Rents go up based on what the market will bear. It's not like Clay Fowler and FD Rich are passing on the benefits of their tax breaks to renters. The Fed can't fix Norwalk--not with all the corruption and double dealing. And while I'm sympathetic to buyers who are priced out of the market, I'm equally sympathetic to homeowners whose burgeoning tax liability is forcing them to move. I'm in the latter category. I took a 30% hit after my remodel and another 40% hit after the reval. 20% of the cost to remodel was imposed on me by the City and FEMA. Another increase in 2023 will force me out. And then I too will not own a home which in turn will make my grown children feel deeply insecure since two of the three live in markets where they cannot afford to buy. Local housing is out of reach because somewhere along the way we believed in the ability of government to do good for others rather than just do good for itself. Add to this the fact that too few local voters have skin in the game (i.e. own homes). If anything is going to restore order here, it's going to be adding a civics exam requirement before anyone can vote. The electorate to are too ignorant and indifferent to care about how things are paid for. The City underwrote an 80k crosswalk because no one could be bothered to pay attention to everything that was wrong with that contract. We all have to pay for the cost to run the City. Renters and owners alike. The burn rate here is over 1 mil/day. How does that contribute to affordability for anyone?
This is a great piece. I think there are some interesting hybrid arrangements too, like the jeonse (key money) system in South Korea.
Care to explain it?
What I know is secondhand from my brother-in-law’s experience, for what it’s worth, but here goes:
First, the developers are highly embedded in the social fabric. Most apartment buildings have a big Samsung or Kia or other chaebol logo stamped on them (yay for industrial policy!) also there is definitely a policy of housing abundance, including greenfield cities, and it’s a saver’s culture.
To get an apartment, you have to pay like 75% of its value to the “owner,” who invests it, but it’s a deposit. You then usually pay a waaaay reduced rent. Think $80,000 refundable deposit on a 3 bedroom apartment in a mid-tier city (usually made partially by savings but also by personal loans, secured through a lien the tenants have against the property if it isn’t paid back) then like $200 monthly rent non-refundable. I believe leases are long but not expensive to break. You can paint the walls and have a cat, at least evidenced by my BIL’s red living room and phoebe his asshole cat.
So true
The Fed's sense of urgency with respect to inflation--which is what happens when Congress floods markets with cash and there's too much money chasing too few goods--has been grossly disappointing. Pull that lever all you want. Doesn't mean the Fed is going to grow a sack. Under Reagan we saw the prime close in on 20% in an effort to stave off inflation. I'm just being a realist. Every move the Fed makes is politically charged and has the potential to damage the incumbent. Right now Biden is all they've got, as unlikely and frankly scary as that sounds. Which leads us back to--you guessed it--election reform. How else to keep bad candidates like Trump and Biden off ballots?
I think the goal should never be to "keep off ballots" ANYONE. It should be to make sure that the system overall elects sane and competent leaders, and doesn't inherently divide us.
You completely missed the point. Election reform--which you supposedly support--makes it harder for fringe candidates like Trump and doddering candidates like Biden to prevail. The bad candidates are therefore kept off the ballots because they don't survive the primary process. Get it? Electing "sane and competent leaders" means "bad candidates" aren't the only options on Election Day. The idea is to avoid a "lesser of two evils" scenario, right?
There are two conflicting schools of thought on zoning and development. The "growth machine," which is what most Norwalk homeowners believe they are subject to--a tendency towards maximization of land values facilitated by cozy relationships between elected officials & their land use appointees and large-scale developers; and the "homevoter" hypothesis, postied by economist William Fischel, professor emeritus at Dartmouth, which posits that NIMBY homeowners, also worried about maximizing their investments, are responsible for underdevelopment. Westport, where I resided for 26 years, where I raised and educated my children, falls into the Fischel camp. Norwalk is part of the "growth machine" camp. BOTH assume that real estate is an investment which generally appreciates over time. In Fischel's "The Homevoter Hypothesis" (which became a handy guide for me in 2003 when I was marshaling support for the Staples High School renovation project and was facing strong opposition from neighbors), he suggests the creation of a type of insurance against devaluation of real estate as a result of perceived LULUs. The idea never took off. But I appreciated what Fischel was trying to accomplish, an idea derived from his experience as a zoning commissioner in Darthmouth, NH. One of the reasons I turn to Fischel on zoning matters is that he is not only an economist but a zoning commissioner with real life experience dealing with NIMBY opposition to development.
With respect to your suggestion that we--developers, single-family homeowners, real estate investors, what have you--need to shift our wealth away from reliance on land value, I'm afraid that's tantamount to getting 300 million US gunsowners to surrender their weapons because someone else thinks it's a good idea. Going back to Fischel, the average American's nest egg IS tied up in home equity. How do we get that genie back into the bottle? In my opinion, once homeownership isn't worth as much as it's worth today, people--maybe even you--may come around to prefer renting. In other words, some if not most of the appeal of homeownership is the investment value.
I think you're right about the current price regime we exist in, but I think you're overestimating the transitional preference for renting. We're _already_ in a regime where people who are well-off but can't afford houses simply rent.
If houses get cheaper - or simply stay flat - then it's just a simple demand curve effect: people will buy more houses.
I think the way to "get the genie back into the bottle" is by essentially doing that. It'd take remarkable discipline, and decades of real time, but it's still worth doing -- resolving the current crisis is going to take decades ANYWAYS. But in terms of actual levers to pull, it's actually pretty simple: The Fed should target its interest rate policy to make housing stay flat for an extended period -- 10-20 years or so.
Once people stop seeing the housing market as a way to *make* money, and we're not in an enormous housing crisis, then it becomes more realistic to show them what it looks like when gentle depreciation is allowed to happen relative to the median income.
Why not seek Congressional intervention via the elimination of the mortgage interest deduction? Why not muster credible, vocal support for the least restrictive language possible on ADUs (as opposed to what Norwalk IS doing--making it harder for homeowners to build them than what the state permits)? There is one sure-fire method for making housing cheap. Flood the market. I have little (read *NO*) faith in the ability of government to do good for anything other than itself. We need less regulation, less government oversight, less NIMBYism, and less cronyism. Putting an end to SF zoning--a reasonable one that allows two dwelling units on lots currently zoned SF--will also help create the supply we need. Ger rid of minimum lot sizes. Stop letting homeowners and neighborhood groups exploit environmental legislation to stop development. EASE financing so that instead of rental fortress apartments, developers build condos again. All of these things will drive down prices and make home ownership more accessible for more Americans without grossly diminishing the single biggest asset in most American's portfolio--their primary residence. More than 65% of Americans own their own homes. Before the housing bubble burst, the figure was closer to 80%. Robust economies are consistent with rising rates of home ownership. Geography matters too. Some areas have consistently high rates of home ownership (West VA) and some low (DC--no surprise). There are so many variables that can't be accounted for in these figures--rental inventory, public housing inventory (true in DC), land values, high rates of recent arrivals (from legal to undocumented). But as a general rule, strong economies favor increased rates of home ownership. I don't believe in the Fed intervening here mostly because I don't believe in the Fed. What I do believe in is land use policies that are as advantageous to single family homeowners and would-be buyers as they are to crony developers. Get rid of the tax incentives for developers. Let homeowners divide their SF homes into two-family homes and most people will retain and maybe even grow their equity.
I agree with all of those policies. But they have to start somewhere. This is a political battle, not just "what's the right policy". You can be skeptical of the Fed all you want, but at the end of the day, in a political battle, you pull ALL the levers available to you.
Locally, crony developers hold all the cards. While they get tax abatements, homeowners get tax hikes. Rents go up based on what the market will bear. It's not like Clay Fowler and FD Rich are passing on the benefits of their tax breaks to renters. The Fed can't fix Norwalk--not with all the corruption and double dealing. And while I'm sympathetic to buyers who are priced out of the market, I'm equally sympathetic to homeowners whose burgeoning tax liability is forcing them to move. I'm in the latter category. I took a 30% hit after my remodel and another 40% hit after the reval. 20% of the cost to remodel was imposed on me by the City and FEMA. Another increase in 2023 will force me out. And then I too will not own a home which in turn will make my grown children feel deeply insecure since two of the three live in markets where they cannot afford to buy. Local housing is out of reach because somewhere along the way we believed in the ability of government to do good for others rather than just do good for itself. Add to this the fact that too few local voters have skin in the game (i.e. own homes). If anything is going to restore order here, it's going to be adding a civics exam requirement before anyone can vote. The electorate to are too ignorant and indifferent to care about how things are paid for. The City underwrote an 80k crosswalk because no one could be bothered to pay attention to everything that was wrong with that contract. We all have to pay for the cost to run the City. Renters and owners alike. The burn rate here is over 1 mil/day. How does that contribute to affordability for anyone?