June 23, 2004

Affordable Housing...
Posted by Jon Henke

This may explain why home-ownership rates have been skyrocketing...

Nationwide, 17.8 percent of the median family income was used to buy a single-family home at the median price in 2003, down from 18.5 percent the previous year, according to a study to be released today by the Center for Housing Research at Virginia Tech and the Virginia Association of Realtors.
John Kerry, who--per his campaign site--"has been a strong proponent of preserving and expanding affordable housing and homeownership opportunities for the American people, is probably just tickled pink.

UPDATE: Of course, the media still sees the black lining in that silver cloud.

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Comments

I haven't looked at the statistical facts yet, so this is pure opinionted blather. BUT:

It appears the coastal BLUE states are suffering a "bubble" in which housing prices are going up. The RED states are enjoying affordable housing and ownership rates are going up.

Coincidence, a Rovian plot to reward supporters and punish opponents, or (reversing causality) are the folks suffering high housing costs blaming Republicans for such bubble-inflators as rent control, zoning restrictions, and environmentalism?

Posted by: Pouncer at June 23, 2004 09:48 AM

The only people suffereing higher housing costs in the Blue states are those buying now. The rest are having their wealth increased. They may cash out with bigger refinancings or they may just enjoy seeing the value of their asset increase. Either way, most of the blues do not have the blues about housing prices.

I wish I could remember where I read it, perhaps the print WSJ, but the reason most of the blue states are seeing rapid price increases is due to limited supply. This is certainly true in the Bay Area where I live. The author stated that when you constrain supply and demand rises you get rapid price increases. This is created by multiple offer situations when people have to have a house but get out bid several times. A certain irrationality then sets in to the bidding. Incomes in blue states are higher, so they can afford to engage in this behavior.

The reverse is true on the down side, though in most of these markets my experience has been that what happens is not so much price erosion but longer days on market until a property is sold. A fair amount of selling is discretionary, particularly among those leaving the housing market. Properties can continue to be lived in or kept as renters until the market returns.

The author's point that constraining supply increases volatility is a good one.

One other point is that what we are really discussing is not housing costs but land costs. House construction costs tend to be the same nationwide. Labor cost may vary by location, but I'd be surprised if it constitutes more than 10% of construction costs. And a variance of 20% in labor rates would only result in a 2% difference in house construction cost. The big ticket costs are lumber, plywood, windows, roofing, appliances, flooring, and plumbing. The markets for these products are national and price does not vary by much region to region. Blue staters may buy upscale products but the cost to build a blue state house in a red state will not be much different than in the blue state. The big difference is blue land costing $5-10 million per acre versus red land costing $100,000 per acre.

Posted by: Richard Heddleson at June 23, 2004 12:11 PM