Friday, March 9, 2012

Gimme Shelter

Lloyd Alter points out that house sizes are once again increasing, because the only people who can afford new houses are the super-rich:
In fact, house sizes did decline, slightly, after the wild rise of the last forty years, but they have started creeping up again. According to the Urban Land Institute, it has grown 141 square feet in the last year, and is even bigger than the record average of 2007 by 18 square feet. There are a couple of reasons that might be in play; construction costs and land costs are way down (they are selling big box houses in Florida for $60 per square foot all in).

But what appears to be really happening in real estate is the same thing that is happened in the job market: the middle class has disappeared, and the only people buying are the rich. According to the ULI:

Even as builders were putting up the fewest houses since World War II last year, they also were erecting the largest ones—with more bedrooms, bathrooms, and finished basements than ever before.

Why more instead of less? First-time buyers—the purchasers who tend to go for smaller, less expensive houses with fewer features and amenities—were largely ignored by homebuilders in favor of people moving up to their second, third, and fourth houses, explains Rose Quint, a research specialist at the NAHB. Those are the people who have well-documented incomes, strong employment histories, great credit, and lots of cash for a downpayment. And those are also the people who tend to go for a lot of splash and flash.

Brad Plumer writes in the Washington Post:

Last year, after all, saw the fewest number of new houses built since World War II, and the market was dominated by a relatively small number of people who want large houses. If the economy keeps improving and banks start lending more freely, those trends could change and the new craze for smaller homes might finally catch on. But it hasn’t yet.

I wouldn't bet on it. As Derek Thompson points out in the Atlantic, the collapse of the housing market is killing the recovery and destroying local tax revenues.

The recovery has been a drag because housing has provided a monstrous anchor, dragging down construction, local tax revenues, service jobs, entrepreneurship, credit availability and overall spending.

The housing industry needs a strong middle class with stable, well-paying jobs. Until that comes back, the only houses that will be built are going to be monsters for the 1%. So I suspect that we will see house sizes continue to grow, that's where the money is.
American Houses Are Getting Bigger Again, Because The Only People Buying Are The 1% (Treehugger)

And it's not just houses - Matt Yglesias points out that real estate for the one percent is booming around the world:
We've seen Brazilians buying up Manhattan, and now it's Russians taking luxury property in Miami:

Six homes sold on Star in 2011, Ms. Hertzberg said. The cheapest sale was a piece of land that went for about $6 million, and the most expensive was a 9-bedroom 11-bath home to Roustam Tariko, the founder of Russian Standard vodka, for $25.5 million.

Throughout Miami, about 15 single-family homes sold for more than $6 million apiece in 2011, Ms. Hertzberg said. Of those, about 40 percent were sold to Russians, with the remainder split about evenly between Americans and South Americans, brokers said.

The fact that very rich people buy very expensive property isn't news, but the recovery in high end Miami real estate is notable since on the mass level the Florida market (along with Arizona, Nevada, and the Inland Empire in Southern California) is one of the areas most glutted with foreclosures. But the kind of people able to spend $6 million on what's probably a second or third home are playing a whole different game from the rest of us.
Real Estate Is Booming for the Global 1 Percent (Slate)

Meanwhile, renters are getting creamed. As a victim of raised rents myself, I can personally attest to this:
If you've been apartment hunting in the last few months in the U.S., you've probably noticed that many apartments seem overpriced. And with good reason: America is currently experiencing something of an apartment shortage.

According to Slate, "We’re now facing a perfect storm of demand, thanks to a growing population of empty nesters with busted 401(k)s looking to downsize and the huge backlog of twentysomethings who still need their first place."

More and more, Americans are shying away from the housing market, which has been volatile in recent years thanks to the sub-prime mortgage crisis. Rather than risk investing in a home that might lose its value, many Americans feel more secure living in an apartment setting.

Okay, here is where I have to interrupt for a moment, because I would really like to know what basis the author of this piece has for asserting that the reason so many more Americans are renting rather than buying is because they "feel more secure living in an apartment setting." There is no reason to believe that people who can still afford to buy a house won't do so, since home ownership still, despite the housing crash, represents the very cornerstone of the ever more tatttered American Dream. It is far more likely that people cannot AFFORD to buy, especially given the tightened post-crash lending standards.

But, please continue:

The collapse in house-building since 2006 has been massive. Meanwhile, the population has kept on growing. The only reason we have enough space for everyone to live in is that so many broke young people are living with their parents. According to a recent Goldman Sachs analytic note, during the past four years, America has added 2.7 million “shadow” households—young people living with parents or siblings who under normal conditions we’d expect to be heading their own households.
The cause of this decline in household formation isn’t mysterious: It’s the joblessness, stupid. But now that the economy’s back to creating jobs, people are going to want to get places of their own.

That’s going to mean even more demand for rental apartments at a time when vacancy rates are at their lowest level since the dot-com era. During ’90s and aughts, we consistently built fewer buildings with five units or more than were normal in the ’70s and ’80s. The country has been on a decades-long drought of large-apartment-building construction. We’re now facing a perfect storm of demand, thanks to a growing population of empty nesters with busted 401(k)s looking to downsize and the huge backlog of twentysomethings who still need their first place.

That sentence I bolded at the end of the first paragraph is a good indicator of what is really happening during this so-called "recovery." Yes, jobs are being created, but they are mostly lower paying positions without good benefits. If that were not true, the people who have been hired would no doubt be out there looking to buy rather than rent. It's a cruel irony that those same folks are being squeezed by a shortage of apartments when there are so many vacant houses out there.
Housing Crash Porn: America Is Becoming A Nation Of Renters (The Downward Spiral)

And see Matt Yglesias again : Why the Rent Is Too Damn High: How America’s ridiculous shortage of apartment buildings and the decent economy are pushing rents even higher.

Of course, these articles all blame the supposedly "recovering" economy rather than the fact that no matter what people need a roof over their heads and no one can afford to buy as jobs disappear and incomes plummet. As I noted earlier, saddling your highest earners with massive unrepayable, nondischargeable debt even before they buy a house is sure to drag that down further - even those with jobs better than head cashier can't afford to buy!

A few days ago when I posted Allison Arieff's article about writing about architecture, I read through many of the comments. Many of them were quite excellent. One that struck me though, was a commenter who read through many of the comments from architects and concluded that the profession seems mired in malaise. I couldn't have said it better myself. And now you know why. Condos are being built on beachfront property around the world, and McMansions are getting ever bigger as the second, third, fourth and fifth homes for the one percent, while the rest of the U.S. struggles with a shortage of rentals, because we've put all our resources into home building for the last fifty years, and now no one can afford to buy anymore. Buildings for the one percent, by the one percent (since you need to be to afford to become an architect nowadays), while the rest of us live in ever more cramped quarters, if we even have a roof over our head at all.

The DIY Architecture of a Squatter Colony (Atlantic Cities)

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.