Are high housing prices a good thing?
If you listen to the media, the politicians and the financial industry when asked about the housing crisis - overall you'd come away with the impression that this is true. And all of their "solutions" come down to finding a way to maintain those high prices no matter what!
However, if we delve into the pre-bubble mentality. High housing prices are often seen as a liability for a community.
I live in Santa Fe, NM, which has always had a certain cache - it's considered a highly desirable place to live (and retire to). Because of this, it's always had high housing prices. There are other places like this including Aspen, Colorado and Jackson Hole, Wyoming.
1. The biggest problem with high housing prices is that it makes it very difficult to attract businesses and develop the local economy. Employers aren't that eager to have to pay above market wages to compensate for the high cost of living. In Santa Fe's case, we are the state capital, so there are lots of government jobs. Likewise, we have a large tourist economy that is highly dependent upon the economy. Housing is the third biggest employer in the city (and we know how that's going right now). We have no major employers outside of these sectors (Thornburg Investments and Thornburg Mortgage are probably the single largest private employers in the city, but Thornburg Mortgage is on the verge of going bankrupt because of margin calls and that could result in 400+ high paying jobs evaporating and further damage a struggling housing market).
Because we have no industry, wages in Santa Fe are not good. We often have a problem with teachers, policemen and firemen being able to afford houses in the city where they work. If you want to find "affordable housing" in Santa Fe you have to go to the ghetto-like southwest side (where, according to an article in the paper today, affordable is $250,000+), buy a mobile home and live in a trailer park, or buy an affordable house in Albuquerque and commute 60 miles each way to work.
Likewise, we have a brain drain where the smartest kids in our city can't wait to leave because the opportunities in this city are so limited. We are also saddled with a high dropout rate amongst the disenfranchised kids and minorities.
2. Another big negative for high housing prices is high property taxes. One good thing about New Mexico is that we have very, very low property taxes (most of our school funding is paid for by our "gross receipts tax" which is like a sales tax on everything except medical care and food). On the house I owned until last year, my annual taxes were only about $1,200 on a home that I eventually sold for $345,000. However, in most parts of the country, property taxes come to about 1% of assessed value. That means that over the past 5 years the average person's tax burden on their home doubled or more, even if they didn't do anything to the property. When you talk about someone paying $3,000/year in property taxes on their home when a few years ago their taxes were only $1,500/year - that creates financial pressure on homeowners, especially when wages have been stagnant like they have been this past decade.
3. Then there's the whole maintenance issue. If you have all your money going toward a high house payment with high property taxes, how are you going to be able to afford to pay for the upkeep of your property? When it comes to budgeting for the purchase of a home, they say that you will spend about 1% of the cost of your house on maintenance and upkeep each year. Then, every 10-15 years expect a major repair, like a new roof or the house needs to be restuccoed. Major repairs can set you back $10,000 or more. High housing prices hurt the homeowner's ability to properly maintain their property.
So, that's what you get with inflated housing prices:
Communities can't attract businesses
Brain Drain and high dropout rates
People who work in the community can't afford to live in the community.
Depressed wage base
High property taxes
On the flip side, lower housing prices aren't the end of the world. People will be able to afford houses again without having to take on a toxic mortgage. Property taxes will come down. People won't have to commute hundreds of miles a week to their job. Maintenance issues will be a minor nuisance as opposed to a financial crisis. Finally, you and your partner won't have to work 80 hours a week at multiple jobs in order to afford a home.
That doesn't seem so bad to me.
If you listen to the media, the politicians and the financial industry when asked about the housing crisis - overall you'd come away with the impression that this is true. And all of their "solutions" come down to finding a way to maintain those high prices no matter what!
However, if we delve into the pre-bubble mentality. High housing prices are often seen as a liability for a community.
I live in Santa Fe, NM, which has always had a certain cache - it's considered a highly desirable place to live (and retire to). Because of this, it's always had high housing prices. There are other places like this including Aspen, Colorado and Jackson Hole, Wyoming.
1. The biggest problem with high housing prices is that it makes it very difficult to attract businesses and develop the local economy. Employers aren't that eager to have to pay above market wages to compensate for the high cost of living. In Santa Fe's case, we are the state capital, so there are lots of government jobs. Likewise, we have a large tourist economy that is highly dependent upon the economy. Housing is the third biggest employer in the city (and we know how that's going right now). We have no major employers outside of these sectors (Thornburg Investments and Thornburg Mortgage are probably the single largest private employers in the city, but Thornburg Mortgage is on the verge of going bankrupt because of margin calls and that could result in 400+ high paying jobs evaporating and further damage a struggling housing market).
Because we have no industry, wages in Santa Fe are not good. We often have a problem with teachers, policemen and firemen being able to afford houses in the city where they work. If you want to find "affordable housing" in Santa Fe you have to go to the ghetto-like southwest side (where, according to an article in the paper today, affordable is $250,000+), buy a mobile home and live in a trailer park, or buy an affordable house in Albuquerque and commute 60 miles each way to work.
Likewise, we have a brain drain where the smartest kids in our city can't wait to leave because the opportunities in this city are so limited. We are also saddled with a high dropout rate amongst the disenfranchised kids and minorities.
2. Another big negative for high housing prices is high property taxes. One good thing about New Mexico is that we have very, very low property taxes (most of our school funding is paid for by our "gross receipts tax" which is like a sales tax on everything except medical care and food). On the house I owned until last year, my annual taxes were only about $1,200 on a home that I eventually sold for $345,000. However, in most parts of the country, property taxes come to about 1% of assessed value. That means that over the past 5 years the average person's tax burden on their home doubled or more, even if they didn't do anything to the property. When you talk about someone paying $3,000/year in property taxes on their home when a few years ago their taxes were only $1,500/year - that creates financial pressure on homeowners, especially when wages have been stagnant like they have been this past decade.
3. Then there's the whole maintenance issue. If you have all your money going toward a high house payment with high property taxes, how are you going to be able to afford to pay for the upkeep of your property? When it comes to budgeting for the purchase of a home, they say that you will spend about 1% of the cost of your house on maintenance and upkeep each year. Then, every 10-15 years expect a major repair, like a new roof or the house needs to be restuccoed. Major repairs can set you back $10,000 or more. High housing prices hurt the homeowner's ability to properly maintain their property.
So, that's what you get with inflated housing prices:
Communities can't attract businesses
Brain Drain and high dropout rates
People who work in the community can't afford to live in the community.
Depressed wage base
High property taxes
On the flip side, lower housing prices aren't the end of the world. People will be able to afford houses again without having to take on a toxic mortgage. Property taxes will come down. People won't have to commute hundreds of miles a week to their job. Maintenance issues will be a minor nuisance as opposed to a financial crisis. Finally, you and your partner won't have to work 80 hours a week at multiple jobs in order to afford a home.
That doesn't seem so bad to me.
No comments:
Post a Comment