Monday, October 7, 2019

Do Nothing....

Sometimes the best thing is to do nothing - or undo something.

Prices of almost all everyday goods have dropped dramatically in the last 40-50 years.  Nobody wants to hear this, but we are a far wealthier country that we were in the past.  A recent clickbait slideshow illustrates what I have said time and time again - ordinary everyday items such as a gas grill were two or three times more expensive - in terms of real dollars - back then as compared to today.   And much of this is a result of our trade with China.   It may have cost Cletus his job at the overpriced finger-cutting factory, but for the rest of us, it means much cheaper goods.  Fuck Cletus - he never showed up for work sober, anyway.

And with electronic devices, this is particularly true.  Consider that I bought my first telephone, a "refurbished" bakelite dial phone, at Radio Shack, back in the 1970's, for about $25.   Fast-forward 40 years, and my "refurbished" Galaxy S7 cost me $149 on eBay - two years ago.  In real terms, it cost about the same as that dial phone.  That Bakelite dial phone couldn't even run the Facebook app!  We are a far wealthier country today than in the past, but most people - depressed people who want to feel sorry for themselves - don't want to hear that.

But some things are more expensive - or cost just as much.  Food is probably cheaper, particularly today, as the USA drowns in a sea of cheap milk, orange cheese, and dollar-a-dozen eggs.  That may change, soon as farmers go bankrupt.  Cars are about the same in price, if not slightly more expensive, in real terms, but are far more complex than in the past.   In the 1970's, things like power windows, locks, and air conditioning were expensive options that few people ordered.  Today, it is nearly impossible to find a car without them - and six airbags, disc brakes, a stereo system,remote keyless entry, and so on and so forth.   Cars back then were about as sophisticated as my bakelite phone - compared to the smart phones of today.   Comparing apples and oranges is tough.

But one thing that is more expensive than in the past - and will remain so - is the cost of housing.  Since the usable land on the Earth is finite, and the population increases exponentially (or at least by a square), each year there are more people competing for a finite resource, land.  So, back in my parents' day, you could drive out to Cape Cod and buy a "cottage" by the beach, which was little more than a shack, and you could afford to leave it vacant most of the year, except for the few weeks in the summer when you occupied it.  Today, those shacks were all torn down and huge oceanfront mini-mansions have taken their place - and they are so expensive they are either occupied full-time by their owners, or rented out when not in use.

My parents had a lakefront house when I grew up, and even though I make more money than my Dad ever did, I cannot afford to live in that house.   Indeed, it was a stretch for even him to afford it, as I realize now in retrospect - which is why they quickly sold it when he lost his job.   All the lakefront is now spoken for.  The old "railroad camps" which were built in the 1920's, next to the right-of-way on many lakes in Central New York (where the family would vacation for the summer, and Dad would flag down a train on Monday morning to commute into work in the city) have long since been converted into "look-at-me!" lake homes that only the very wealthy can afford.

And there are a lot of very wealthy around these days (something else that depressed people don't want to hear, as it makes them more depressed).  We were on a lake in Alabama last week, and it was amazing how many million-dollar homes there were, just an hours' drive from Birmingham.   Maybe Alabama has a lot of poverty, but there are still a lot of people with a lot of money.  The same is true of Canada - despite its socialistic tendencies, there are a lot of Quebecois with half-million-dollar motor homes and a lot of people in BC with spectacular homes in Vancouver island - and no, not all of them are Chinese.

This does mean, however, that for the rest of us working-class schmucks, that the idea of owning a spectacular home like our parents had, is a lot further out of reach.   It costs a lot more to buy such a home and a lot more to maintain it. And like the phones, cars, and televisions, and whatnot of yesteryear, homes today are more complicated and feature-laden.   It's not just smart thermostats and doorbells, but the number of bathrooms and fancy kitchen appliances.   My first two homes had only one bathroom, and very simple, inexpensive kitchens.  Today, most home buyers would find that unacceptable.

A reader writes that he doesn't have the nice home he would like to have.  Living in the bay area, housing is expensive, and as a young engineer, he is "entitled" to more.  If rent control isn't the answer, then what is?

Well, maybe the answer is nothing, or maybe undo some things.  In addition to the underlying increase in the cost of housing due to the fixed supply of land and increasing supply of people, there are bubbles to consider - where people over-bid on houses because they think we are running out of land.   Compounding this also are often zoning restrictions that limit the amount of new construction or redevelopment of existing land to higher-density uses.

This interesting article from The New Republic argues that San Francisco's housing shortage is exacerbated in part due to antiquated zoning laws which the author claims are based on racism.  Low-density housing was preferred back in the day when much of the housing stock extant today was built, in part to keep out high-density apartment blocks and low-income (read: black) people.   It is an interesting argument.  It is, of course, from the New Republic, so take it with a grain of salt, or the whole damn shaker.

Back when I used to fly out to SFO (and later Oakland, which is a lot cheaper to fly to!) I had a friend who owned a small apartment building on the South side of San Francisco.  I forget how many units were in it - four or five as I recall.  It was built into the side of a hill, with multiple levels, two apartments on each level.   On one level, there was only one apartment, with a coin-op laundry room on the other side.   My friend realized that there was some hidden "empty space" behind the laundry room, and they broke through the wall and realized there was an entire "phantom apartment" behind it, which was basically bare walls of concrete.

He finished off this empty space into a pied à terre as they lived out in the valley and wanted a place "in town" to go to restaurants or see shows or whatever.  He explained to me that San Francisco zoning prevented him from renting it out as an apartment, as the building was zoned for only five apartments (or whatever) and if he rented out the "hidden" one, he would incur the wrath of the housing authority.  And all it would take is one bad tenant who had a grudge against him, to make his life miserable.

So there's an apartment in San Francisco, left unrented, because of zoning restrictions based on housing density.   There are other types of restrictions in some jurisdictions.  For example, I had an option to buy an up-and-down duplex in Syracuse - the type of factory worker housing so common in the Northeast.  The building was in decent shape, and I realized it had a huge attic that could easily be made into an additional apartment.   But, unfortunately, zoning rules for a duplex and a triplex were entirely different.  Even things as mundane as the size of the plumbing pipes had to be different for a three-unit building than a two-unit one.  I decided not to exercise the option and moved to the suburbs instead.

There are, of course, other reasons why housing can skyrocket in price.  As we saw in Vancouver, and to a lesser extent, in Calgary and Toronto, housing prices spiked when a lot of Chinese buyers flooded the market, hoping to get a toehold in a "safe" country, in case the Communist government decided that maybe this experiment in Capitalism wasn't such a good thing.  You can't blame them for that - and it turns out it was a wise move, for those lucky enough to get away.  When we were in Vancouver last year, we saw billboards for real estate agents entirely in Chinese - not bilingual.  Today, the Chinese government is making it hard to move capital out of the country and even detaining Chinese nationals with US and Canadian citizenship, refusing to let them leave.  That, along with occupancy taxes and other taxes enacted by the Canadian government to dampen the spiraling inflation in housing prices, has put a damper on the boom.

When prices spiral out of control, it seems like a crises - and that someone, such as the government, should "do something" about it.   Oftentimes, however, these government programs and efforts to jump-start markets or change things end up making things worse, or just lining the pockets of political cronies.

At first, it would seem housing is immune to this effect.  Land is limited, as I noted, and population increases over time.  Land will always go up in price!  "Buy land," Mark Twain (among others) was alleged to have said, "They're not making any more of it!"   But history has shown this to be bad advice in many cases.   There is an awful lot of land in the USA, and its value often depends on the location and the potential uses of the land.

As I noted in many postings, we are still hanging onto our Condo in Virginia.   We voted (84% of the owners) to abolish the condominium, and paid consultants and lawyers to have the land re-zoned to medium-high-rise medium-density residential construction.   The land - 22 acres of it - is next to the Huntington metro station and is far more valuable than the buildings on it.   We also paid for a traffic study, and the County was very helpful in this process.   Fairfax County - along with rest of Northern Virginia - is very pro-growth, and realizes that if they don't allow for higher density living in a growing city, the net result will be more sprawl into distant places like Fredricksburg.   When that happens, Fairfax County will just be a place where people drive through to get where they are going - and places like that usually devolve into ghettos.

We sold our house in Fairfax County in a similar manner.  A poorly-built crackerbox slapped up in 1949 to satisfy the post-war boom in housing, it was built on two deeded lots, because land was cheaper then. Today, there are two mini-mansions on those lots, and the housing density has doubled.  Some decry this as urbanization, but the alternative is more suburban sprawl.  Take your pick, you can have one, or both, but not neither.

The housing "shortage" after World War II wasn't solved by rent control.  Rather, huge swaths of what was agricultural land on Long Island (and elsewhere) was turned into suburbs such as Levittown.   Yes, at one time, Brooklyn was farmland - in my great-great grandfather's era.  The acreage he owned in Park Slope would be worth billions today.  Too bad he killed himself and his widow was forced to sell.   But getting back to postwar America, with new freeways going in, and the L.I.R.R., people could commute to work, and did - creating the postwar housing boom, in the suburbs, of course.

And in part, this was aided and abetted by 30-year government-backed (and interest-deductible) mortgages which required only low down payments.   Buying a house in the suburbs became possible for a lot of returning G.I.s.    However, today, this same tax deduction has only served to throw more easy money on the fire of home prices - and staggeringly low mortgage rates haven't helped much, either.  It's the same reason college has gotten so expensive - throw money around, someone will catch it.

People buy houses based on monthly payment.  And since we spend less (in real terms) on food and furniture, and clothing and televisions, and whatnot, we have more money to spend on housing.  And since you are competing - often literally bidding against - your neighbors to buy a home, prices have shot up.   But this may not last.

Already there are signs that bidding wars may be a thing of the past.  The economy is cooling off.  The latest iteration of the "dot com" bubble is fading - as people realize that the concept of subletting office space isn't a new technology worthy of a billion-dollar IPO - no matter how iconic and dynamic the founding CEO is, or how many rap stars he hires for the annual company Christmas party.

Tech companies that don't have huge amounts of capital to "burn" or are not making record profits may be inclined to move their business elsewhere.   Even Amazon is moving business to Crystal City - like I said, governments in Northern Virginia are pro-growth, and that aging office and apartment complex is in desperate need of new tenants.   Like Boyle's law, gas expands to fill the container it is in, and eventually high-pressure markets spill over into low-pressure areas, unless something is containing the gas.

And that something could be zoning, as opined in the New Republic article.   If it was easier to build new apartments in San Francisco, maybe more would be built.  Maybe, if my friend could legally rent his "phantom" apartment, he would.  Maybe instead of trying to "do something" governments should try to do less - or nothing at all.  Rent control might seem like an "answer" today, but what does it mean if Silicon Valley goes through yet another of its boom-and-bust phases, as it has so many times in the past?   It may be all much ado about nothing, as houses are foreclosed upon and rents plummet.

But like all things, you can't structure your personal life based on the premise that only changes in society and laws will improve your life.  That's loser talk. That's pot-smoking loser talk.  People who sit around and do nothing to make their own lives better, because they claim the system is stacked against them - as they tweet this to you on their new iPhone 11, while driving their leased Lexus to their six-figure salary job.  They're the real victims, here.

Similarly, you can't sit around and wait for San Francisco to amend its zoning laws, as the New Republic article suggests.   Politics are so crazy there, that you can be sure someone will show up at the zoning board meeting and chain themselves to the podium and throw red paint on the board members - or something like that.  And no, housing prices aren't the cause of homelessness in that area - drug use and craziness is.

You have to take action in your own life, and often that means making choices - and you always have choices, whether you think you do or not.   Depressed people don't think they have choices, which is why they are depressed.   You can move to one of those less-expensive cities, for example, and work for a different company (or a different division of the same company).  You can change careers and live somewhere less expensive.   You can make the conscious choice to live as frugally as possible in "the big city" and bank as much of that big paycheck, and look forward to the day when you can chuck it all and move somewhere cheaper and never work again.

The latter is a move I highly recommend, as you will be forced to retire at a time and place not of your own choosing.   There are few white-haired Engineers working in high tech and there likely never will be.  An Engineer has a half-life of five years.  Five years after graduation, half of what you've learned or know is obsolete.  Five years later, you may be shown the door.  Why do you think I became a lawyer?

But some folks don't see it that way.   They want it all now - and think that once you get a good job, or any job for that matter, the mini-mansion and the Porche, and a bank account full of money just magically appear.   Even if you make a hundred grand a year - or two or three or even ten - it takes time to accumulate wealth.   Ask Kamala Harris - she and hubby make over a million-five and they are flat fucking broke.

But people do that.  They want-it-all-now and are willing to mortgage their future so they can have convenience items today, or look-at-me houses and cars, and when it all goes horribly wrong, they whine to have the government bail them out by "adjusting" their mortgages - which historically hasn't worked, as they just end up defaulting on the new mortgage.  And guess what?  The folks who had their mortgages "adjusted" in 2009 are defaulting in droves.

But you know, that's how I made my money. The house I bought at the height of the real estate bubble of 1989 took nearly 20 years to appreciate to more than I owed on it. But the properties I bought after that bubble, during the 1990's, more than doubled in value by the mid-2000's.

If you are despairing that you will "never be able to afford a home" I wouldn't worry too much.   Live frugally, save your money and be the guy with a good credit rating and a little cash on hand when the shit hits the fan.

And the way things are going, I suspect the shit will hit the fan pretty damn soon.