By Jon Christian Ryter
July 5, 2006
Talk to most Americans about the housing boom and skyrocketing home prices and the consensus will likely be that its simply the byproduct of the free enterprise system. In point of fact, it isn't. It's a direct result of market-tampering by government—and greedy businessmen. Blame it on Smart Growth. Blame it on the politicians who fashion the laws requested by those who filled their campaign coffers. Blame it on the bureaucrats that impose restrictive planning commission regulations on home builders—and the rezoning of farmland to artificially increase its value—and the tax assessments that force farmers to sell off land they can no longer profitably farm. But, most of all, blame it on the Utopians who claim what they are trying to do is create affordable housing for moderate income people. Nothing could be farther from the truth since the bureaucrats who created the housing regulations to expedite "affordable home" created the dilemma that resulted in "unaffordable" housing.
Ironically, the utopian planners blame the skyrocketing real estate prices on overpopulation and the demand insufficient housing creates. Nothing could be further from the truth. Skyrocketing real estate prices are the result of consummately selfish entrepreneurs, politicians and bureaucrats working together to rape the consumer. Overpopulation? San Mateo County, California was one of the top 20 real estate markets in the nation—now its the 9th most likely real estate market to implode. As housing prices pyramided since 2000, 9,000 families left San Mateo County. The same thing is happening in Anaheim, Boston, Cambridge, Framingham, Glendale, Irvine, Long Beach, Los Angeles, Nassau, Oakland Ontario, Quincy, Redwood City, Sacramento, San Diego, and Edison, New Jersey.
The people who are leaving aren't those who bought the super-inflated homes in the overheated markets. Those making the exodus are average wage earner homeowners who purchased their houses long before a $200 thousand house was selling for a half million to three-quarters of a million dollars—or more. Many of them live on fixed incomes—seniors who purchased their homes in the 1960s or 1970s. They bought long before the societal planners decided where people should live, long before the price wars began. Equally impacted are young families who purchased modest-priced starter homes in the commuter markets on the fringes of the eternally expanding, enveloping urban-suburban areas before the rural environs began to overheat. As home prices skyrocketed, so did the tax appraisals—and tax burden on both young and old with little, if any, discretionary income.
The biggest theft against the American homeowner has been perpetuated on the consumer by county's tax appraisers who make assumptions that because one home buyer is willing to pay 50% to 100% or more over market value to purchase a new or previously-owned home in a targeted-for-growth rural-suburban area that all of the homes in the immediate vicinity of the just-sold home in that market have proportionately increased in value. The tax assessors have arbitrarily decided that the aggregate worth of all of the not-for-sale homes cannot be based on what the owner paid for it, but what he could get for it if he sold it in an overheated cycle. It should come as a shock to no one that when the real estate bubble bursts, and what was previously a seller's market becomes a buyers' market, the tax appraiser will never reappraise the taxable value of your home below the price you paid for it—even if the lending institutions do. This is important, so let me say it again—when you live in an overheated real estate market, your property is taxed not based on what you paid for it, but what the real estate industry and the county government where you live thinks you could get for it if you sold it.
When the market corrects itself—as it always does—how many times, do you think, the county has refunded the taxes they overcharged the homeowner? Stop and think a moment about how much the homeowner is being overcharged. Riverside, San Bernardino and Ontario, California home prices have spiked 195.2% in four years. That means, real estate taxes have spiked 195.2% in four years. Foster City, California home prices have skyrocketed 240% in four years. So have the property taxes. Get the picture? Would you have voted yourself a 240% or 195.2% county tax increase if such a measure had been placed on the ballot? Of course not. County government is using smoke and mirrors to generate the tax revenue stream they will need to build up the infrastructure of the county to support the influx of new human capital.
New consumers will feed the mushrooming economy by purchasing consumer goods. In turn, the artificially-stimulated economy will feed the municipal, county and State governments with additional tax revenues, allowing the bureaucracy at all levels to grow. This will encourage the societal planners to continue growing the peripheral rural suburban areas that are economically tied to the urban-suburban areas, thereby creating more jobs for the human capital—and more wealth for a handful of developers, merchant princes and industrialists who, in turn, feed the petty politicians with lucrative grants that are nothing more than "community bribes," and political contributions to perpetuate prosperity for a few and a ever-increasing tax burden on everyone else.
As the housing paradigm becomes an economic nightmare for modest income Americans, most of them—if they don't own a home now—will be financially out of the mortgage loop. Skyrocketing housing prices are shutting out middle-income wage earners faster than the bureaucracy can create new financing initiatives that will allow them to qualify for mortgages. Housing prices are reaching unsustainable levels. When that happens, like a proverbial house of cards, they will come tumbling down.
Over 12 million middle-income wage earners are now paying up to half of their adjusted gross incomes on mortgage payments. As home prices continue to escalate, theoretically the market value of all homes in the community increase proportionately. That paper value is called equity. Equity is paper profit that doesn't exist because it isn't real unless you sell your home. Unfortunately, equity also translates into a bigger tax bite since the taxes on your property are based not on the price you paid for it, but the perceived value if you sold it. [Read "Whatever Happened to America?"]
The scary version of the runaway market scenario is that when the real estate boom peaks in a region, home prices should begin to correct themselves by dropping 5% to 10% a year. But they haven't. They appear to be continuing to rise at a rate of about 5% per year. The consequences of the housing paradigm is reshaping Americana in a way that will not benefit low to low-middle income wage earners. Coupled with rapidly escalating property taxes, skyrocketing insurance costs—and dramatically increased fuel costs for commuters who have even farther to travel to their jobs in the more dense urban-suburban areas.
The problem is compounded by Smart Growth planners who zone major quadrants of land "off limits" for building. Doing so artificially inflates the price of the available land, and home prices spiral dizzily upward since it is the land, not the dwelling, that makes housing astronomically expensive. In most major markets—particularly those with rent controls—landlords are converting apartment buildings into condos, creating severe rental shortages. In San Diego, apartment vacancies are around 2%. Apartment owners are still trying to covert their buildings into condominiums even though thousands of prospective tenants are on waiting lists for an apartment.
A few years ago, after her husband died, eighty-year old San Diegoian Juliane Anton—like many senior citizens all over the country—sold her home and moved into a downtown apartment because it was more convenient and it was maintenance-free living. The owner of the apartment complex evicted her because he wanted to sell the apartments as condos. In fact, in San Diego, apartment owners have petitioned the San Diego Housing Commission to convert an additional 16,000 apartments into condos. Anton moved. Now, her new landlord is doing the same thing. Anton said after she pays her $1,250.00 monthly rent for her small 2-bedroom apartment, she has $150.00 of her Social Security check left. Her medical insurance—after Medicare—eats up what's left. She lives on her savings—the "windfall" from selling her home in a boom market. Anton is one of the lucky ones.
Many elderly people aren't so fortunate. Far too many elderly people have no savings to speak of with which to meet their obligations when their Social Security checks runs out around the 10th or 15th of the month. Most of them in the overheated real estate markets couldn't afford a nice two bedroom apartment in an upscale part of the downtown area. Most of them struggle from month to month in rent-controlled one bedroom apartments or, in some cases, in a one-or two-room apartment with a shared bath. In many cases, those cheap living quarters are targeted for eminent domain seizures, bulldozed and replaced with expensive condominium complexes that the former tenement occupants could not afford. While its true that many of the razed buildings were blighted eye sores, they nevertheless provided a roof over the heads of the former occupants. This is part of the affordability crisis.
In the overheated markets the bureaucracy attempts to solve the problem by mandating that in high density condominium and town house communities, the developers set aside a certain percentage of the units for low income families under programs where the State or federal government establish housing trust funds that offer financial aid to low income wage earners. In most superheated markets, societal planners built regulations into the zoning laws that require developers to provide a certain percentage of low-income housing in every town house or condominium community they build.
Just five years ago affordable housing was so plentiful that most Americans took home ownership for granted. It would be there when we wanted it. Many young couples rented because, starting new careers as they started new families, most worked for companies that would transfer them two or three times before they settled into their permanent jobs. It would be pointless to buy a home, only to have to sell it a year or two later. Now, affordable housing for many will be a wistful memory: "Wow...do you remember when a house like this cost less than that a Cadillac?" For part 1 click below.
here for part -----> 1
© 2006 Jon C. Ryter - All Rights
[Read "Whatever Happened to America?"]
Jon Christian Ryter is the pseudonym of a former newspaper reporter with the Parkersburg, WV Sentinel. He authored a syndicated newspaper column, Answers From The Bible, from the mid-1970s until 1985. Answers From The Bible was read weekly in many suburban markets in the United States.
Today, Jon is an advertising executive with the Washington Times. His website, www.jonchristianryter.com has helped him establish a network of mid-to senior-level Washington insiders who now provide him with a steady stream of material for use both in his books and in the investigative reports that are found on his website.