23 May 2006
A roof way over your head
With the possible exception of Dubai where even if you could afford the purchase price you couldn't afford the air conditioning the one place on earth where the real-estate prices seem most out of whack is the San Francisco Bay area. (I say "seem" because I'm really not in a position to judge the market at this great a distance; still, if a mediocre one-bedroom condo in Mountain View, half the size of my house, sells for over $300,000, I daresay someone is getting screwed, and I don't think it's me.)
Enter Boycott Housing, which suggests you do exactly that:
By all agreeing to boycott buying a house for a period of time, and telling our friends to boycott buying a house, we CAN make a difference. We can show that once people stop paying insane prices, the insanity goes away. It's going to happen anyway let's just speed it up so more people don't get hurt, and so we can get our house sooner!
Were I the cynical type, I'd suspect that the bubble is about to burst anyway and these folks would like to be able to take credit for it. And we all know how well other people's boycotts work, which is to say "not very." Still, California housing prices have tanked before, and at least some observers expect them to do so again, more likely sooner than later. The question then becomes "How long can you hold out?"
(Via Burbed.com, which offers some tongue-in-cheek (I think) suggestions for giving the bubble a few sharp stabs.)
Posted at 7:30 AM to Dyssynergy
I've been boycotting Bay Area housing for over 40 years and it hasn't made a dent.
They've been hoping that bubble would burst for about two decades now. California housing markets have an additional economic factor that people outside the state often fail to consider: Proposition 13.
The 1978 initiative to "fight rising property taxes" mandates that assessed real estate taxes on property can be no more than 1% of the house's assessed value, and that the assessed value can rise no more than 2% per year - until the property is sold. When you sell a house, it gets reassessed, establishing the new baseline for property taxes until the house is sold again.
While this sounds really good from a homeowner's perspective, the result has been that, unlike other markets, people don't "move up" in housing once they buy a house. Sure, they can get more for their old house than they paid for it, but the property taxes on the new place may be double or triple what they're paying now. Houses don't change hands as often, and with a huge influx of people to Silicon Valley, demand staggeringly outstrips supply.
It's not "just" that more people want to live there than there are houses, it's also that people who have houses don't buy new houses when they add kids or want a family room or whatever. Older people who have owned houses for decades pay tiny property taxes (as do corporations who "sell" buildings without transferring the deeds to avoid the reassessment), but new college graduates coming into the valley can barely afford mediocre one-bedroom condos 30 miles from their work.
The last friends of mine to move out there (last year) saved up a six-figure bank account from a high-paying job in a low-cost state (TN) before even thinking about making the move, and that was with huge signing bonuses and moving allowances. At one point, they owned homes in two states and made the payments on both. Now they rent an apartment in Mountain View while awaiting their first child. It will probably be 5 years or more before they can afford a house, and that's with generous stock options from the hugely-growing company that you're probably thinking it is.
Prop 13, by the way, has also led some cities to overuse "eminent domain" to turn "blighted" neighborhoods of low-tax houses into revenue-generating shopping malls and retail stores. And let's not forget that the drastic decline in revenue to the schools led California to start its lottery specifically to enhance education funding.
It also led to the 1988 vote for Proposition 98, the one that finally forced the legislature not to cut school funding even though property tax money to pay for rising costs was not available, thanks to Prop. 13. That had its own unintended consequences: since the measure prohibits reducing funding for next year from this year's levels, the "minimum" it guarantees is now a de facto maximum, because if the legislature gives the schools more money than required this year, it has to do so for every future year as well, or that would be "reducing funding."
Prop 13 is a huge contributor to the housing problems in California's boomiest (?) areas, but repealing it would mean that property taxes would shoot up so high that literally millions of people would lose their homes. Changing the rates wouldn't solve the problem, just reset it at a different point.
This is what happens when "starve the beast" fans get to play in the state constitution.
Well, let's hope it's hugely growing. When I was in California (late 1980s), things were largely in retreat, though homes were selling at an astonishing clip. (One agent told me that in parts of Orange County, the average house stayed on the market for six hours; I think she might have been exaggerating slightly, but only slightly.) A "market correction" followed, but things seem to have recovered and then some.
A Massachusetts perspective here, from a place where the bubble has been flourishing despite an actual decline in population.