Developers profit from the poor through affordable housing programs
Affordable housing programs are intended to provide good homes to low wage earners; instead, they provide government handouts to developers.
Russ Wetherill, May 31, 2014
If there’s one thing I can’t stand…
[full-disclosure: there’s actually a lot of things I tolerate, but don’t really like very much, like stop lights – what are those good for? Sure they prevent accidents, and save lives, but I probably waste an hour a week just sitting there fish-eyeing the people in the next car for signs of instability.]
… but one thing that irks me more than most is phony compassion for the poor. The poor aren’t particularly wealthy, and thus generally not a very good source of revenue. In an ordinary universe, where up and down retain their normal directions, a business plan based on constructing a million housing units for the segment of the population with the least ability to pay for them would be unwise. Luckily for them, we live in an alternate reality, a stupidiverse if you will, where normal economic laws are only limited by the number of pigs that can crowd round the trough.
So how do you get overtaxed taxpayers to fund this venture with even more taxation? You commission a study on how poor poor-people are and don’t forget to push as many emotional buttons as you can.
Whenever a humanitarian cause needs money, they always trot out the bleeding children. “Look,” they say, “they’re children, and they’re bleeding. Give us money.” Heartless, I know. But they started it, not me.
Businessweek: By Karen Weise May 29, 2014
California’s housing market has long been among the most expensive in the country, and the economic downturn has only made the situation worse. That’s one of the findings in a new report from the California Housing Partnership Corporation, a nonprofit group set up by the state, that determined that Los Angeles County needs at least 490,340 more affordable homes to ease the housing burden on the state’s poorest residents. The county-level results echo the group’s February report that found Californians need almost 1 million additional affordable housing units statewide.
Affordable to whom? That is the question. Affordable to the person living there, or to the person paying for it? Who has the responsibility to pay? And, how affordable is affordable, anyway? If these 1 million additional affordable housing units aren’t built, where will these people live? Where they are already living, that’s where.
I find it suspicious that this non-profit was set up by the state and the report is associated with the Southern California Association of NonProfit Housing (SCANPH). Which is a trade association dedicated to advocating the interests of “those dedicated to the DEVELOPMENT of affordable homes.” In other words a developer wants tax dollars to build and MAINTAIN one million homes. Great! How much is this going to cost me?
The CHPC’s reports are, frankly, devastating. The problem they lay out is that the financial crisis turned owners into renters while driving wages down at the same time. In Los Angeles County, rents went up 25 percent from 2000 to 2012, but incomes fell 9 percent over the same period. (This includes adjustments for inflation.)
How can rents rise 25% when incomes are falling 9%? I feel like I’m not being told something here; maybe, low-income population is expanding “devastatingly,” for instance.
Los Angeles has almost a million workers who earn less than half of the county’s median income of $37,950 but only enough units available to house about half of them affordably. To keep rent at an manageable level, which has generally been considered 30 percent of income, Angelenos would need to make $55,920 a year at the going rental prices for a two-bedroom apartment.
First of all, why would a single worker on the bottom rung of the economic ladder be living in a two-bedroom apartment? There’s no shame in being on the bottom rung, you have to start somewhere, right? But you don’t have to stay there, either. Minimum wage jobs aren’t meant to raise families on. They’re meant as stepping stones, not corner stones to build financial empires on.
Second, a two-income couple earning the median 38k each is 76k combined. This is more than enough to afford a one-bedroom apartment, which is all you really need as a single couple. Before our first child, we lived in a one-bedroom apartment just fine, and we were making a lot more than 76k combined. The extra savings went to retirement savings and vacations. A two-bedroom seemed like throwing money away. Someone at this stage shouldn’t be buying a house or renting more than they need, they should be scrapping together every cent they can and building up some financial security for themselves.
Once you decide to raise a family, expenses are going to rise, dramatically. Even if you continue on two-incomes, it will be the same as one income when you consider child care. The fact is that when you choose to raise a family in California, you choose between financial discomfort and financial distress. A three-bedroom apartment or SFR is much more expensive than a one-bedroom apartment. Unless you both make over the median $38k it will probably make sense for one spouse to stay home, and then you’re living on 38K! That means you will have to make do on less money to cover rising expenses. Reality. Better save up 5-7 years extra expenses to cover extras until the kids go to school.
Not only is renting expensive, but buying is largely out of reach, too. Statewide, someone making the average wage of renters ($17.99/hr) would need to work 66 hours a week to afford a median-rent home, CHPC says. If a person earning that average wage wanted to buy a place, he or she would have to devote more than 60 percent of income to owning the home. And that assumes she could qualify for a 4.5 percent interest rate and could scrape together even a 10 percent down payment for a loan like those available from the FHA.
With all due respect, that person is never going to make it in California unless they start to earn a lot more. They better be going to college, starting a business, selling kidneys, or something. Working 66 hours a week to make rent, or paying 60% of gross income in PITI is not a viable long-term plan. It’s not even viable short-term. Living off the generosity of others is also not a viable long-term plan. Oh wait, we are in California, so maybe it is!
To make housing more affordable, either prices can go down, or income can go up. California is already raising the minimum wage to $10 an hour, and Los Angeles is considering increasing pay to $15.37 for hotel workers. But that’s no magic wand. As CHPC wrote, “The gap between housing cost and income is so great that just raising the minimum hourly wage by a few dollars will not significantly reduce the shortfall of affordable homes in most counties.”
Uh. Ugh. Raising the minimum wage won’t change anything regarding affordability. All wages are relative. You can’t talk in absolute minimums or absolute maximums when you’re discussing wages. If you raise the floor, you raise all the wages above the floor, too. What happens then? Everything becomes more expensive as all the prices adjust upwards to reflect the new floor in wages. Every job has a value based on the skill and demand.
Using the hotel industry as an example: let’s say you have a pay structure as follows: maids: $10/hr; front-desk: $15/hr; assistant manager $20/hr; manager $25/hr. If you start paying the maids $16/hr, you are going to have to pay the front desk $21/hr; and the assistant manager can’t manage someone making less than he/she, so he gets a bump in pay too, and the manager isn’t going to pay himself less than the assistant, so his pay goes up. At the end of the month, all the personnel decide they want to upgrade their apartments, so they go shopping. Since inventory is tight, they all bid up the price of all the apartments in the area to new highs. Affordability is still unaffordable and new complaints about minimum wages arise.
This example assumes that the hotel revenue somehow jumps up to compensate for the higher salaries. Prices would have to rise, or profits fall. If prices jump, then customer wages would have to rise to compensate or vacancies rise and profits fall, and so on and so on. If not, then the number of maids and front-desk personnel would be reduced to keep salaries from affecting prices and profits. There’s no free lunch.
That means prices would need to go down in a meaningful way to ease affordability. As I reported earlier this month, the price crunch for buying is likely here to stay in coastal areas such as California, and CHPC says the state isn’t doing enough to build more affordable rental units that could bring rates down. The state’s four major sources of funding to build affordable housing have fallen a collective 79 percent since the housing crisis kicked in.
Wait, I think I have a solution: there are entire “ghost” cities in China. Why don’t we just pay the poor to move there? Problem solved. Actually, two problems solved: 1) the poor have brand new houses to live in, and 2) we no longer have to pay for their EBT cards and the diabetes care from the junk food they buy with them. We can call it a “worker exchange” in the spirit of international unity. And Chinese workers are used to cramped living conditions, so they won’t complain so much! Brilliant, I say. Brilliant! The best part is that we don’t have to use our tax dollars to build one million homes. The Chinese already did it for us!
CHPC says there are some things the state can do, such as allocating more funds to build affordable homes and making it easy for cities to raise their own money for housing. Southern California is already one of the most overcrowded regions in the country. If wages don’t rise quickly, or enough affordable units don’t hit the market, even more people will need to cram into small spaces just to get by.
The nine scariest words in the English language are “I’m from the government and I’m here to help”; with a close second of: “… such as allocating more funds to build affordable homes…”
“Such as” is the worst part of this phrase since it empowers taking of one person’s wealth for the benefit of another. And it does it in an off-hand matter, like it’s so commonplace that it’s presumed to be acceptable. For example, we could say that we can fund our child’s college education by doing some simple things, SUCH AS clubbing a rich guy in the head and taking his money, or robbing a widow’s retirement fund. They both had it coming, so it’s perfectly alright.
“Allocating more funds” obviously means raising taxes or diverting tax revenue from somewhere else, or more correctly, someone else.
“To build more affordable homes” is a very strange prepositional phrase. Is the problem that homes cost too much to build or that they cost the residents of the home too much to live there? If the former is true, then we need to reduce the cost to build. But the largest cost of a home is the land on which it’s built. The poor generally already occupy the least expensive areas, so where are they going to get the land? From the Metro Transit Authority, that’s who. The developers want to get free land from the LACMTA next to transit lines. They are using anthropogenic global warming as the carrot/stick via green-house gas emission reduction claims based on locating high-density housing adjacent to mass transit. Crafty, but transparent to those who can see.
The second largest cost in constructing a house is wages. So we should pay construction workers less to make homes more affordable? How will that work? We make homes more affordable by further lowering prevailing wages. I get it. Well, not really.
The next largest cost is the materials mandated by the California building code. Are we going to allow substandard materials and construction processes to house the poor? That certainly isn’t ethical, but is it even legal? How exactly does the author propose “to build more affordable homes”, anyway? We could build them to the sky to reduce land costs, but good luck passing an earthquake study.
I assume the author means the latter, i.e. that the homes should be subsidized in their construction or rental price. But does it make sense to do this? Are we short of workers with these critical skill sets? Resort communities run into this same problem of lack of “workforce housing” to house the workers needed to keep the hotels, ski areas, restaurants and other amenities functioning. The appeal of a resort is the lack of overbuilt infrastructure encroaching on the wilderness.
Now “workforce housing” isn’t the same as “affordable housing” which is more of a Federal Section 8, deal. With high unemployment rates amongst the working poor and the 9% drop in wages, I don’t think we have a lack of workforce housing in California. What we have is an excess of low-wage workers to fill the required positions.
As housing prices rise, these workers will naturally relocate to other parts of the country where there skills are more valued. If we build more “affordable” houses then we only perpetuate the problem, we don’t solve it. In fact, we also make the problem worse by discouraging workers from relocating to areas with better jobs. And, we drain off seed capital through taxes that could be invested elsewhere, like creating jobs.
This also does a disservice to those in the “workforce housing” category who can’t find a place to live since the homes are either unaffordable or unavailable (since they make too much money). They find themselves in a Laodicean neutrality wedged between the beach and the ghetto with both sides expanding rapidly.
But the whole point of this article is to generate public monetary support for a private “non-profit” trade group to build “low-cost” housing that is really expensive to tax payers. I’m not opposed to low-cost housing as long as the cost isn’t to tax payers. If a private entity wants to risk their own money on this misadventure; design, build, staff, rent, and maintain the housing based on what the residents can pay, then go ahead. By all means. Make it so. I imagine their profit margins will be rather bleak, but non-profits are by definition, just that.
Meet with us to register at Orchard Hills and save money
Orchard Hills is having a grand opening this weekend. We expect a big turnout to see this much anticipated debut.
We are offering buyers a refund of anything over 1.5% back on new construction from our fee that is paid to us by the builder.
Contact Shevy at 949.769.1599, and he will arrange to meet you at the opening to register. He must accompany you to registration in order to secure your rebate.