Where Housing is Taking Us: A Call for Action
Edward J. Dodson
GroundSwell, May-June 2005]
The media and most analysts have been talking about the prolonged "housing"
boom that has been going on across the United States now for more
than a decade. Millions of homeowners have experienced huge gains on
the sale of property, often "cashing out" in an area where
land prices have skyrocketed most to move to a part of the country (
or another country) where land costs are far lower. The gain
experienced is put into the bank and into conservative investments,
the interest and dividends supplementing other sources of retirement
Few GroundSwell readers would be surprised to learn that for most
households in the United States, housing and land equity represents
the major portion of household net worth. Savings and investment
accounts are generally insufficient to support the same lifestyle
experienced during one's peak earning years of employment.
The United States is not yet -- and is unlikely to ever become --
one great big land market. Regional differences in weather, culture,
economic activity, and natural amenities affect locational decisions
and population concentrations. If one does not need to work to
obtain income, there are many comparatively low-cost towns and
cities one can move to -- still. At the same time, land and housing
prices have increased almost everywhere. The price of the
median-price house nationally has increased at an average rate of
over 8 percent over the last five years.
Two-thirds of all households in the United States own the homes
in which they live, three out of four subject to some amount of
mortgage debt. Yet, with the land markets operating as they do,
millions of people are essentially reimbursed for a significant
portion of their life-long housing-related expenses. There are two
annual subsidies. Mortgage interest payments and local property
taxes are deductible under the Federal income tax regulations.
Additionally, any gain experienced on the sale of one's primary
residence is not subject to taxation (up to a cumulative maximum of
around $600,000, which travels with you as you sell and buy a new
residential property). This system has created a huge constituency
for complexity without any thought to the impact on the broader
economy or on future generations.
A few years ago, I came across a startling statistic: nearly
one-half of all college graduates under the age of 30 were living at
home with parents. The urge to get out on one's own is, today,
countered by the absence of affordable rental housing. Or, when
young adults have sufficient income to lease an apartment, the
resulting housing-related expenses prevent the accumulation of
savings toward the purchase of a home. Living at home with parents
affords the young adult the opportunity to enjoy a high level of
non-housing consumption and still put funds aside.
Even so, many parents end up digging into their own savings to
provide adult children with a financial gift to use for a down
payment and toward closing costs for the purchase of a home. For
those young adults whose parents cannot provide gift funds, many
communities offer some level of down payment and closing cost
assistance (often in the form of a zero interest, forgiveable loan).
The nation's mortgage finance sector has also come up with
innovative approaches to lending risk that allow "qualified"
homebuyers to borrow 100 percent of the purchase price of a home.
All of this creativity has kept the housing boom alive at a time
when the underlying economy is weakening. The stresses are there.
Fred Harrison has issued a stern warning to governments around the
globe in his new book, Boom Bust: Housing Prices, Banking And The
Depression Of 2010, that is likely to fall on deaf ears. He has also
called upon thoughtful people everywhere to rise up to rid ourselves
of the root causes of what plagues our societies:
"We, the property-owning people, have the democratic power
to insist on changes to those laws and institutions that conspire to
defeat the legitimate aspirations of all of us. But the temptations
to remain silent are great. Homeowners, in particular, have been
enriched beyond their wildest dreams by the injustices that are
built into the principles of governance. The increase in the equity
in their homes, however, has its dark side: the escalation of debt
that hangs around the necks of millions of people."
Fred's new book is required reading -- not only or primarily for
Common Ground USA members -- but for thoughtful people who have not
yet come to understand the critical importance of resolving the land
question. My suggestion is to get a copy of Fred's book into the
hands of at least one local journalist you respect for objectivity
and open-mindedness. Maybe just maybe, this could stimulate a
national -- even international - discussion on the issues Fred has
so meticulously described.