Homes Still Cost Too Much
by John F. Wasik
You would think with home prices still dropping like hailstones in
most areas, that homes would be bargains.
The present buyer's market obscures a key fact about the housing
crisis though: millions sought the refuge of cheap credit, subprime
and adjustable loans during the boom because they were the easiest
routes to homeownership in a time when house prices far outpaced
The sad fact is that the Great American Dream is still out of reach
for far too many and it was the declining affordability of decent
houses that was one of the triggers of the housing bust.
It's not that home prices haven't plummeted as banks unload foreclosed homes at fire-sale prices. The national median home price fell to
$169,000 in the first quarter, according to the National Association
of Realtors. Bank-owned properties are selling at 20-percent to 50
"Contrary to popular belief," says Jeffrey Lubell, executive director
of the Center for Housing Policy, "the recent decline in home prices
has not resolved the nation's housing affordability problem."
Homes cost too much even before the bubble, so home buyers were
willing to do anything to get into the domicile of their dreams. After
all, homeownership is an American birthright, or at least that promise
was sold to Americans starting in 1946. "Buy as much house as you can
afford!" That's what the bankers and real estate agents were telling
us for generations because of generous tax breaks and easy, often
Unfortunately the cost of land, homebuilding, taxes and homeownership
far exceed what millions of households are able to cover with nearly
stagnant personal income growth in this century. Inflation simply ate
away at wages that just weren't enough to pay ever-rising bills for
property taxes, maintenance, health care, education and energy.
Even at the height of the boom, Harvard researchers at their Joint
Center for Housing Studies found that almost 18 million households
were paying more than half of their incomes for housing (about one-
third is considered reasonable). They were also hit hard by rising energy costs, which rose twice as fast as total spending from 2004-2006.
That wasn't always the best advice. The Harvard group last year found
that "nowhere in America does a full-time minimum wage job cover the
cost of a modest two-bedroom rental at 30 percent of income." Those
stranded in the low-wage service economy, left behind by the
technological revolution of the 1990s, could barely afford to rent a
decent place in most cities, much less buy.
Those families who are paying more than half of their budget for
housing have little to nothing left over for healthcare, food,
clothing and education. That hurts more than 14 million children
living in low-income households, whose families had less than $600 per
month on average for other essential expenses.
So was anyone surprised when brokers and subprime lenders targeted
minority and low-to middle-income neighborhoods then walked away when
they sold trillions of these mortgages to Wall Street and the largest
banks? They were selling the American Dream!
From sparkling new suburbs in the Sun Belt to inner cities, cheap
money and neutron-bomb adjustable loans meant nobody had to be house
poor -- at least for a year or two. Then the explosion hit and we're
still feeling the aftershocks.
Further exacerbating the affordability crisis was the tendency for
municipalities to favor upscale, sprawling home developments over
middle- and low-income housing. Since home values are directly fueling
property tax income in most places, nearly every community can get
more money for schools and public services. When you base property tax
revenue on home valuations, bigger price tags translate into better equipped schools, fire stations and libraries.
Yet building McMansion subdivisions only inflated the housing bubble
and reduced the stock of affordable homes. From 2002-2005, home prices
soared 45 percent in areas restricted to upscale building, versus 24
percent in unrestricted areas. Moreover, by creating these "spurbs,"
sprawling urban areas unconnected to transportation and city centers
except by endless highways, homeowners costs rose to catch up with
needed infrastructure, schools and other public services.
The housing crisis has given us a rare opportunity to re-evaluate and
re-invent the American Dream. As I note in my new book The Cul-de-Sac
Syndrome, if we're to increase the homeownership rate, government will
have to create incentives to build more affordable housing.
We'll also have to find a way to de-link property taxes from funding
local services to reduce the number of overpriced homes in a handful
of areas. Perhaps even eliminating tax breaks for mortgage interest
would keep prices at realistic levels because you wouldn't be
subsidizing ever-larger mortgages.
Ultimately, though, the American home and community will have to be re-
invented. Houses will need to be ultra-energy efficient to reduce long-
term ownership costs and even produce their own energy. This can be
done with factory-built, green homes.
Then we'll have to build -- or re-build -- high density, walkable
communities that are close to jobs and retail outlets. This is already
happening throughout the U.S., although building and zoning codes need
to change to allow this to happen on a large scale. Even more federal
incentives are needed for green building.
We've just experienced a great teaching moment in history. The
American Dream as we know it was not sustainable. Now we have the
chance to make it affordable, ecologically sound and socially
beneficial. It's a rare opportunity.
©2009 John F. Wasik, author of Cul-de-Sac Syndrome: Turning
Around the Unsustainable American Dream
John F. Wasik, author of Cul-de-Sac Syndrome: Turning Around the
Unsustainable American Dream, is a personal finance columnist for
Bloomberg News and the author of several books. His most recent book,
The Merchant of Power, was praised by Studs Terkel and well reviewed
by the New York Times. Wasik has won more than fifteen awards for
consumer journalism including the 2008 Lisagor and several from the
National Press Club. He has appeared on such national media as NBC,
NPR, and PBS. He lives in Chicago.
For more information please visit www.johnwasik.com