There is an infinite demand for basic housing. This demand replenishes itself every year. Every year there is a certain number of people who reached an age where they want to own their own home. This demand is always growing. There is a basic finite supply of housing. This supply shrinks every year in ratio to the demand. The article regarding zoning, permitting etc as a big part of the problem is exactly correct. Supply can not keep up with demand in those locations!! Location is the key, DUH!! SteveD
http://www.nytimes.com/2005/08/12/opinion/12krugman.html?pagewanted=print August 12, 2005 Safe as Houses By PAUL KRUGMAN I used to live next door to a Russian émigré. One day he asked me to explain something that puzzled him about his new country. "This place seems very rich," he said, "but I never see anyone making anything. How does the country earn its money?" The answer, these days, is that we make a living by selling each other houses. Since December 2000 employment in U.S. manufacturing has fallen 17 percent, but membership in the National Association of Realtors has risen 58 percent. The housing boom has created jobs in two ways. Many jobs have been created, directly and indirectly, by a surge in housing construction. And rising home values have fueled a simultaneous surge in consumer spending. Let's start with home building. Between 1980 and 2000, which was before the housing boom, spending on the construction of new homes averaged 4.25 percent of G.D.P. In the most recent quarter, however, the figure was 5.98 percent. That difference is equivalent to about $200 billion a year in additional spending, generating roughly two million extra jobs. Then there's the jump in house prices. Over the past five years housing prices have grown much faster than the overall cost of living, adding about $5 trillion to the public's wealth. Typical estimates say that each additional dollar of housing wealth adds about 3 cents to annual consumer spending, as families reduce their savings and borrow against their newly valuable homes. So we're talking about an additional $150 billion in spending, and roughly 1.5 million more jobs. Does anything else in the U.S. economy rival housing as a source of job creation? Well, there's also the military buildup. The Economic Policy Institute estimates that increased military spending over the past four years has created 1.3 million private-sector jobs. And, yes, there are the Bush tax cuts, which the administration insists are the source of everything good in the economy. And it's true that some portion of the tax cuts, which amounted to $225 billion this year, must have been spent in ways that created jobs. Given reasonable estimates of the effect of tax cuts on spending, however, they were probably a smaller force for job creation than the military buildup, and dwarfed by the housing boom. So it's an economy driven by real estate. What's wrong with that? One answer is that it has been a pretty disappointing recovery. Two new reports, one from the Center on Budget and Policy Priorities and one from the Congressional Budget Office, compare the current economic expansion with other postwar recoveries. By any measure except corporate profits, which have done very well, this one comes up short. Even the good months would have been considered subpar in the past: the administration hailed last month's job growth as something wondrous to behold, yet there were 68 months during the Clinton years when employment grew faster. Still, the economy is expanding. But because that expansion depends so much on real estate - without the housing boom, the economic picture would look dismal indeed - you have to wonder how much to trust it. I've written before about the reasons to believe that current house prices in much of the country represent a bubble. When that bubble begins to deflate, so will housing-related employment. Beyond that, there's the disturbing point that we're paying for the housing boom (and the military buildup and tax cuts) with money borrowed from foreigners. Now, any economics textbook will tell you that it's fine to borrow from abroad if the money is used to expand the economy's productive capacity. When 19th-century America borrowed from Europe to build railroads, it was also enhancing its ability to repay its debts later. But we aren't borrowing to build productive capacity. As a share of G.D.P., investment other than housing construction is below its average between 1980 and 2000, and way below its level at the end of the 1990's. In other words, a fuller answer to my former neighbor would be that these days, Americans make a living selling each other houses, paid for with money borrowed from the Chinese. Somehow, that doesn't seem like a sustainable lifestyle. How solid, then, is America's economic recovery? The British have a phrase that applies: "safe as houses." Our economy is as safe as houses. Unfortunately, given current prices and our dependence on foreign lenders, houses aren't safe at all.
Hmmm ... Infinite demand ? Always Growing ? There is a very large demand for housing in california: less that 25 percent of the families can afford the median price home. Its a pretty simple equation: In california at least 75 % (or more) of households will be renters in the future or housing prices will reduce. Which do you think is the most likely scenario ?
Those people will move to where they can afford to buy a house. Simple as that. This migration has been going on in this country for over 200 years. It will most assuredly continue. Retirees moving out of high priced NY to Florida years ago. Great weather and cheaper cost of living. Sacramento has been a big beneficiary of the high prices of San Francisco. Demand: Add up the number of young people getting married every year. Those are all candidates to purchase a home. Demand!!! The world is a very mobile place now. If home prices keep going up in certain locations then businesses will move as they are unable to keep employees. They will move to a more friendly environment. Just my humble opinion, of course SteveD
You find another job that may pay less however disposable income minus housing costs would be higher than the first location and place of employment.
The mystery component spoken of in the article is the risk in my opinion . Examples: The town has sewer system problems and bans new hookups to the sewer lines for 2 years. Refusal by the town to issue building permits based on environmental issues. Changes in banks policy and not willing to lend the construction money anymore or commitment expires.
US demographics over the next 5 to ten years are against your demand prediction unless you expect an influx of afluent immigration - which is actually occuring in areas of california real estate with international marketing of properties. In california the business equation is clear: You just cant locate employees in the state and retain them unless you offer some type of housing assistance beyond normal compensation. Very few companies have done this however and have let their california employees languish as they have been priced out of the housing market in most areas. The companies solution ? Move the jobs out of state or out of country and offer relocation assistance to the displaced and retained employees.
This is exactly the case in california: people are leaving the state when the opportunity arises. This makes it extremely difficult for california employers to keep talent. Some large companies located in california have essentailly transformed to executive only offices within the state. Nearly everyone that is below senior management is located out of state - either at the initial hiring or through forced relocation.
The home builders are producing 2 million units a year and cannot keep up with demand. This will go on into the foreseeable future. The US had very little immigration 40 years ago (1965). Now look at it. Here, (Houston) we have street signs in other languages. We have a huge population of Vietnamese in this area of Texas. Every motel west of the Mississippi is owned by a person from India. The construction trade, restaurant, landscape and many other endeavors are performed by Hispanic workers, mostly from Mexico. The Pakistan entrepreneurs are very active in the "C" store, real estate, cleaners and other small retail jobs. The children of the baby boomers are coming of age, getting married and looking for that first house. So, no the demand is not shrinking, it is increasing. Don't forget there is about 300,00-400,000 homes destroyed each year. If cities and states are not pro-active they will suffer in their tax base. That is a very simple fact. Because the competition is going to be very pro-active to get that company to move to their locale and will offer a lot of incentives. Look at the big fight over the closing of US bases around the country. People will move to where the jobs are but only if they can afford to live somewhere close by. SteveD