The reader writes:

Housing supply is a lot more than just ground to build on. The real inventory is (a) what’s built already or under construction and (b) what’s entitled. That’s all that really matters.

This 100,000 units of zoning capacity is no measure of housing supply because most of those units are not mapped yet. Zoning doesn’t mean anything until it is implemented through the mapping process. Will the housing affordability problem ever be fixed? You know, I have no friggin’ idea. I think that the first step is creating a more competitive environment for the developers. Make them compete with more developers, more projects that are approved. The units will get built. Maps expire, bonds expire, options are due, loans get expensive, and investors want return on investment. Once we have an adequate inventory of housing that is ready to be built, maybe we’ll see some downward pressure on the price of land, which in turn will push down the price of the finished product.

Isn’t it “funny” that what the state mandates we measure doesn’t matter? Maybe that’s why no matter how many times the politicians cry housing crisis, nothing impacts it. Ya think? And then they don’t even seem to notice and certainly don’t seem to know what to do except wring their hands and claim they care. And we’re all sure that they really do care a lot. But so what? The government spends a lot of money completely missing the target because they refuse to define the problem correctly or measure the effectiveness. One of the points I tried to make at the hearing is that it’s the bigger financial conditions that impact the price – and therefore the affordability of housing. The price of money and the availability of capital – including the job market and take-home pay – are way more important than the number of units. And let’s not forget that other key human factor of economics: psychology!

In a place like California, we may never again see any real devaluation in real estate values again.

Another point I was trying to make is that it’s not in the public good to promote real devaluations in real estate values since that’s the major source of wealth and property taxes as well as an important measure of a kind of stability – both psychological and real. It’s called real estate because when the cycles bust, you’re left with something, but psychology is key to any market and how it moves.

What we have an opportunity to do is slow the escalation. So while I agree with some of your points, I think it is easy to draw conclusions that seem like they match our recent experience but in reality they may not be all that correct. Think Newtonian Physics versus Relativity.

Think the things we have control over vs. the things we don’t. Are real estate prices more like science or gambling? Independent of all theoretical factors that civilization has designed, including politics and economics, every human being needs a safe place to live. That – and not economics or anything else is driving the good intentions for the government to manipulate housing prices. Yet markets are not designed to provide for those who cannot keep up with the financial schemes of those using housing to make money vs. those needing housing for shelter. So attempting to manipulate the market to provide for those who cannot afford market-priced housing is fundamentally flawed. How can depressing prices for the entire market to benefit a small segment be a good thing? On its face it’s tremendously expensive and practically ineffective. It seems to me that the cheapest approach for everyone is to determine how to efficiently subsidize those who need it. That’s why housing vouchers work pretty well. You give those who need it, funds to compete in the market.

The model actually works quite well in other parts of the country that are not as out of balance as we are. But this doesn’t mean that those same economic principles that drive housing affordability in other parts of the country are some how not at work or relevant here.

I’ve come to understand that the term “housing affordability” is political propaganda because it’s only a marketing term for housing pricing and is completely meaningless until you ask affordable to who? What’s the real problem? Not the price of a house for purchase – which is the only metric the media seems to report – but the problem is those who cannot find shelter. Much of the public – along with lenders – are cheering on housing prices because it means increases in equity for them. So it seems to me that trying to reduce the price of housing is a losing strategy both practically and politically.

A major point I didn’t make yesterday that I meant to was that the so-called metric of affordability that is reported everywhere by the media including a reference on the first page of the draft Housing Element: “Today a large majority of San Diegans cannot afford to purchase the median price home in this city or region” is manipulative because “a large majority” of people aren’t trying to buy one! Some 50 percent already own one.

Another percentage are really permanent renters and that’s not a bad thing. And consider this: a huge percentage of homeowners are in essence really permanent renters from lenders – those that will expire before they pay off their mortgages! In other places it states, “Only 21.6 of the homes sold in the San Diego metro area were affordable to the median family.” Don’t you love that term: “The median family?” This actually tells you nothing about who did afford what! Statistics are easy to quote and not as easy to understand what they mean and don’t mean. Think of this way. Every house both below and above the median did sell. There are 20,000 units for sale right now and I’m told another 20,000 units for rent. The real question is how many are trying to buy and more importantly in terms of who need government help – how many cannot afford a place to rent?

The issue as the Building Industry Association stated in their letter really is, “the relationship between various housing subsidy programs and the identified need.” As the development rep from the Chamber of Commerce also correctly testified – looking at income alone is also incorrect. I’d qualify for most subsidy programs if you only looked at my income! But I’m living in a frickin’ million dollar house … that I expect to fluctuate up and down. And know very, very few people who get into houses in coastal cities who don’t do it without family help – either inheritance or loans or via marriage. I know I never would have. This is a condition of how financial systems use real estate to make money.

Again, who believes it would be a good thing to drag housing prices down by a few hundred thousand so that they would truly be “more affordable?” In most places that would be called a “crash,” and would devastate thousands because of the way the financial system has been set-up. So let’s be careful what we are asking for when we say we want housing to be “more affordable.” That’s political speak for reducing housing prices. Something I asked at the hearing: Is it city or state policy to reduce housing prices? I got a garbled answer because the entire system is garbled by political and emotional brinksmanship.

If the issue is truly affordability, why aren’t we pushing for higher wages? When people earn more, they can afford more. This is the side of the market equation that the Chamber of Commerce never wants to discuss yet it’s just as valid as promotion of reducing housing prices and would make much more of a difference since it would help those who can afford housing the least and not threaten the equity of existing homeowners and lenders. Yesterday a member of the public pointed out that linkage fees on low-wage industries would be the most direct way to help those who couldn’t afford housing. IMO that is much more of a direct nexus than what’s put on the new housing industry. After all, the reason people cannot afford housing is that they don’t make enough money, right? So, if employers either had to pay a living wage or pay a fee that would subsidize housing for their workers who cannot afford it, that would be a direct economic connection. But when I asked about this after the hearing, I was told it would almost certainly be a non-starter for the mayor. Yet during the hearing we were told that “workforce housing” was a high priority for this administration. Those two don’t add up except when you factor in the politics of where you do – or don’t do – your political interventions. The key here appears to be that the emphasis is on the housing and not on the workforce.

Many real solutions are not considered and the government mandates expensive studies that tell us little and in the end only increases the cost of the system for everyone. While the politicians wring their hands and claim they care. In the meantime, the programs that do make a different – direct aid to the poor – have been cut by the feds and state government. Watch what they do, not what they say. Of course, it’s much more difficult to follow what they actually do when what they are best at is producing thousands of pages of complex prose that doesn’t add up very well. If they kept it simple so as to actually define and address the problems directly, well, let’s just say there’s very little constituency for that. The insiders have to justify all that writing and the lobbyists have to justify all their time in defending their clients. No one is really paid to solve the problems or really define them well. That would be too costly for everyone making out from the status quo.

PS: Did you know that nationally over the last 100 years, after inflation, housing has seen ZERO appreciation in value (according to a UCLA economist that also predicts a rather sobering correction in So Cal). Food for thought. 😉

Yeah well, economists!? Dark art. You can’t trust any conclusions from any economic studies without understanding what all the assumptions are as well as the philosophies of who’s doing – and paying for – the studies (Think pension crisis here. Check out the debate about a new airport). Talking in aggregate statistics means little to those who can’t afford the rent. Probably means little to everyone else too!

I hear there’s evidently a lot of land in between the coasts … because as you know economic activity is based upon competition for resources and neither the weather nor the culture seems to be all that appealing in lots of those places. I keep running into folks from the Midwest and South and East…. HERE!

What’s up with that? After all – why would anyone want to move to California? It’s expensive and we’re crazy and as you are always telling everyone the costs are high to live here. If it were all about the money, i.e. if economics were a science, then no one would live here.

CAROLYN CHASE

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