Open up the classified section in your local newspaper and you, unlike the most esteemed economic minds in the country, might notice two things. Number one, though I will not dwell on it here, is that there are not enough jobs to go around. Number two is that the amount of real estate in the market has reached gargantuan proportions.
From one perspective there is no shortage of housing; certainly there are enough houses, condos, luxury apartments and expensive high-rises for everyone. If your neighborhood is anything like mine, you won’t have to look in the classified for proof of this assertion; evidence abounds … the open house signs are everywhere!
But if, like me, you make less then $100,000 a year, then you might realize that all those great bargain apartments at $1,800 a month, the fabulous low-cost condos for only $150,000, and the inexpensive townhomes starting at only $350,000 are not affordable for most working people. Yet during a time of record unemployment, astounding homelessness, and growing poverty, more and more high-priced housing is flooding the market.
The highly profitable real estate market has been booming for 40 years. With the recent recession, investment in real estate is at an all-time high, and profits are still rolling in. Developers hope that the sky’s the limit. But modest working-class people cannot afford to be anything but cynical toward this optimism.
The continued investment in the housing market is providing homes only to those with money enough. However, there is a great and unquenchable thirst for affordable housing.
While the supply is glutted with only over-priced housing, affordable housing is scarce. In fact, housing prices have risen twice as fast as inflation since the 1960s. The rapid increase in the high-priced supply has added to the lack of affordable housing. The accumulation of so much investment creates an over-supply, which can not sustain demand.
In addition, broader economic factors are starting to work against real estate profits. The market, which was already crowded with profit-driven suppliers, is becoming more crowded as developers and investors try to get in before the bust. This creates a situation where new housing starts look higher and increasing, giving the image of a market without limits.
But sooner or later, the amount of people able to afford housing at these excessive levels will become less than the amount of housing. Already this may be happening, as one real estate observer recently commented, “I’ve been watching homes in the $350,000-400,000 range and they are sitting much longer than they have in the past two years.”
A recent article in Barron’s by Jonathan Laing warned that “If the housing bubble bursts, instead of gently deflating, the nation’s economy could be in for a major meltdown.”
Real estate is an especially sensitive area in the economy because it is a source of equity, holding down debt, and because it produces so many jobs. Thus, if it were to bust people who already have mortgages and those with jobs connected to the real estate market would be hurt. The combined impact may be too much to take.
For those of us who might be hurt – those looking for affordable housing, those working in housing, and those who have invested their lives in their homes – we might find out that if we don’t start fight soon for a sustainable and affordable housing market in our own communities, we might be left up a creek … without an affordable place to dry off.
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