by James Stefanile, ABR, GRI, SRES, QSC, gCertified, REALTOR/Salesperson, Berkshire Hathaway Home Services New Jersey Properties, Montclair Office
Here’s a radical new approach to housing prices and inventory. It’s from The New York Times Sunday Business section of February 12, 2017.
This is going to upset a lot of people, including real estate agents and home owners – that’s two-thirds of everyone who participates in residential real estate nationwide. I will repeat this many times in this post: THIS IS NOT MY IDEA AND I NEITHER ADVOCATE NOR DISPARAGE THIS THEORY. So, please, don’t send nasty mail directed at me. If you want to vent against the idea – be my guest, but remember: THIS IS NOT MY IDEA AND I NEITHER ADVOCATE NOR DISPARAGE THIS THEORY.
Well, now that we are clear that I am merely reporting this self-described “thought experiment”, here’s the link to Conor Dougherty’s article. The title is “Why Falling Home Prices Could Be A Good Thing”:
Have you calmed down yet? Before hurling invectives like “Socialist Blather!”, remember: THIS IS NOT MY IDEA AND I NEITHER ADVOCATE NOR DISPARAGE THIS THEORY. Then, why am I making it the subject of this blog? Because it’s interesting. It’s not something I want to happen to my industry from a purely selfish point of view but it’s a novel idea and I think it’s worth a perusal if not a conversation.
In short, the idea is that most houses build for about the same price, or close to it, in every part of the country. If Americans stopped thinking of their house as an investment and regarded their primary residence (or secondary properties) the same as cars, appliances, etc., then consumers might expect prices to go down instead of up. Then builders would ramp up production focusing more on design and technology than financing and politicians would be more inclined to find a way to keep prices stable, as they have tried to do with commodities like food and gasoline.
The other piece of the pie is government regulation, mostly on a local level. I have learned in seminar after seminar how local zoning and land use ordinances are keeping large segments of the population (especially the young) out of the housing market. With uniform construction costs and designs these rules might be re-visited and untangled to the benefit of the consumer.
Bear in mind we are not talking about luxury properties. The affluent will always go their separate way and the market psychology of that segment probably won’t allow for depreciation in values. For the rest of us mere mortals who are buying pretty ordinary homes (nice, but not extraordinary) the article in The Times lays out what the author foresees as multiple advantages for the consumer and the economy.
Simply put, the theory is that lower, uniform construction costs and expectations would increase supply and thereby keep prices modest. Most of the country would not experience severe deflation in housing, according to the author. The young would be the major beneficiaries of this approach, maybe not the older, longtime homeowner, but those older folks are already making an amazing profit on houses they bought way back when and are paid off.
Finally, the author makes the point that the disparity of wealth between segments of the population and between parts of the country has a great bearing on home values. He talks about housing that is “plentiful and cheap” as the greatest way to encourage mobility, upward economic movement in the population and as a way to even out the value disparity between cities and regions. The article does not predict that housing in extremely desirable areas will deflate. It will probably still be at a healthy price and housing values in more modest regions might still appreciate but more slowly, avoiding any more housing bubbles.
At the end of the article the author says the object of this “thought experiment” is not to embrace it head on but to draw attention to the obsessive attention to housing appreciation and the laws and ordinances that make housing less accessible to many people.
So, once again: THIS IS NOT MY IDEA AND I NEITHER ADVOCATE NOR DISPARAGE THIS THEORY. You’ve got to admit, however, it does stimulate thought and, maybe, conversation. That’s always a good thing.