The recent apartment boom is great for California
By providing more housing units, apartment developers will lower housing costs over time and relieve the pressure on Californian’s personal budgets.
Combating the chronic shortage of available housing in California requires building more places to live. It matters little if these new housing units are small apartments or large mansions. As developers build more, all segments of the housing market will be more affordable to everyone in California.
How to lower housing costs
Imagine what would happen if California legislators found the political will to actually solve the housing crisis in California rather than giving in to the Nimbys. If Governor Brown formed a committee and charged them with crafting a policy to bring housing costs down as quickly as possible without wrecking the economy, what recommendations would that committee make?
Many developing and third-world countries face this problem, and the solution most often implemented is not token affordability incentives or affordable housing allocations. No, the solution most governments implement is to build copious quantities of high-density housing. The best recommendation to lower housing costs is to build, build, build.
The housing bust’s silver lining
When the housing market went bust, single-family residential home construction declined 90% or more, and multi-family slowed as well. However, Californians didn’t stop having babies, so the need for housing continued to increase. The collapse of the ownership market spawned a resurgence of the multi-family market, and for the last eight years, developers have been building large numbers of apartments.
Building apartments are the best way of lowering housing costs because apartment development provides the largest number of units in the quickest time while using the smallest parcels of land. While the housing bust and the market’s response to it was not the implementation of a carefully crafted policy designed to reduce housing costs, the results are the same.
The new supply hasn’t made resale prices or rents go down, so it it really helping? Well, the problem would be far worse if the thousands of two bedroom apartments built over the last several years weren’t on the market. And building these units didn’t cause an economic upheaval.
Over the long term, building more market-rate apartments will slow the growth of rents to something below the growth of wages. Over time, wage growth must exceed the growth in housing costs if we are ever to see improvement in California.
August 25, 2016 By Catherine Rampell, The Washington Post
Millennial homeownership rates are way, way down. And believe it or not, that’s probably a good thing.
Across all age groups, the U.S. homeownership rate — at 62.9 percent — has now fallen to its lowest level in more than five decades. Among younger Americans only, things look especially paltry.
Young people, it seems, are finding themselves falling further and further away from the American dream of homeownership. …
Many colorful theories abound for millennials’ abandonment of homeownership. There are, for example, lots of think pieces about millennials’ purported love of the sharing economy and associated communitarian disavowal of all kinds of ownership — whether that be of houses, cars, or even clothes.
But this explanation is wrong, at least when it comes to housing. …
So why are young people delaying getting that deed?
One, they’re putting off getting married, which many still see as a prerequisite to homeownership. (Though a large chunk of millennials, I should note, instead view homeownership as a prerequisite to marriage.)
Two — and this is part of the reason they’re delaying marriage, too — is that they’re poor.
Relative to earlier generations, today’s cohort of young people is making less money, given their levels of education; more indebted with student loans; more likely to be underemployed; struggling harder to sock away savings; and facing shallower income-growth trajectories.
In short: Millennials want to buy houses, but they simply can’t afford to.
Millennials are forced to rethink the American Dream because the affordability problem and the lack of housing availability caused by Generation X being trapped in their starter homes. Many Millennials are choosing renting as a lifestyle choice, and many of them may rent for life.
Prior to the housing bust, most apartment complexes were cheaply built low-quality housing that people considered temporary. Millennials are changing that. Many of the apartment complexes built over the last eight years have outstanding amenities, and they offer a quality of life not found in many complexes prior to the bust.
Perhaps some developers are getting a bit carried away with this idea …
LOS ANGELES (KABC) — A 40-story, 283-unit luxury apartment complex bordering Century City and Beverly Hills will cost renters a pretty penny for some high-end amenities.
The complex, named Ten Thousand, will open in January and feature rental prices around $25,000. The property will offer two- and three-bedroom luxury apartments along with a large recreation area and service program.
Ten Thousand will feature private drivers in Rolls Royces and Bentleys, as well as dog walking, pet grooming, personal shopping and child care services, among many others.
The complex’s developer said Ten Thousand already has a list of about 2,000 people who expressed interest in the luxury apartments.
Can people still afford to live like that without free money?
Accommodating the renting lifestyle
Government policy toward retirement assumes people will become homeowners and avail themselves of the various tax breaks and incentives that choice entails. Since the supporting basis for the policy is now in question, perhaps it’s time to think outside the box and look for other ways people can build wealth outside of home ownership.
I noted that Renters can acquire wealth as well as homeowners. And while renters can acquire wealth, the system of tax incentives and government policies doesn’t make it easy. Perhaps now that the idea that real-estate-always-goes-up is exposed as a dangerous illusion, the family home can no longer be relied upon to anchor the middle class’s retirement and wealth-building plans. The middle class learned painfully the folly of putting their entire nest-egg in the wrong basket.
Perhaps we should subsidize savings by giving it a tax break. We already do this with retirement savings to some degree, but it has many caps and restrictions that could be relaxed.
What if we had retirement savings matching up to some threshold paid by the government, similar to 401K employer plans?
We could exempt the interest on savings from income tax up to certain thresholds.
I don’t necessarily advocate any or all of these ideas, but it demonstrates that there are many ways we could encourage saving and wealth building without subsidizing or encouraging home ownership.
Perhaps it’s time for a change.