Unreal Estate
There is roughly 15.77 billion acres of habitable land on earth which amounts to about 80,000 square feet for every man, woman and child. There is clearly plenty of room for all of us, but not all that land is suitable for each person’s needs. People choose their domicile based on desire, convenience and necessity. The prospect of dealing up land equally is improbable when everyone wants the same land. This demand for specific dirt makes up the real estate market, the biggest market on earth by capitalization.
The value of any plot of land or structure is only worth what another individual is willing to pay for it. Valuations for homes are more than often embellished to ridiculous extents. Appraisals predicated for tax, lending, and insurance purposes will always overvalue a property for the obvious reason of higher payments from owners. Many families determine their home values from comparable sales (comps), but this is an apples to oranges fallacy since houses are unique and complex in their build or underlying issues. A home with new renovations should cost more than a dilapidated structure in need of serious repairs. The condition can make or break or a sale, so can your terrible taste in wallpaper.
Location is often the primary concern of potential buyers. Water frontage, school zones, commutability, crime rates and natural beauty are all major determinants of demand. Racial demographics have a higher correlation with price than square footage does in the United States. People can prefer to live certain areas while detesting others. That’s why developers stack boxes on top of the same piece of dirt and occupy each box. Municipal zoning creates barriers or opportunities for developers to construct a specific building for commercial/residential purposes, as well as single-family homes or multi-family apartments. Governments can facilitate or hinder the construction of homes, especially considering they are the largest steward of acreage. The U.S. federal government owns and manages ~28% of all the country’s land.
Demand for housing is rarely the issue as everyone needs somewhere to live or accommodate their business. It’s the supply of real estate that has a stranglehold on this market and makes it increasingly more expensive. Inflation obviously destroys purchasing power in aggregate, but even independent of government CPI metrics, real estate appreciates sui generis. The primary factors that elevate the price of housing beyond normal principles of supply and demand are as follows.
Risk-free lending and landlordship – various governments espouse the doctrine that everyone is entitled to home. Thus, it is the responsibility of government to subsidize housing via section 8 vouchers and taxpayer sponsored lending enterprises. Both subsidies manipulate price by guaranteeing timely payments to lenders and landlords. Entities with no risk of default will lend or rent to individuals who would otherwise not afford it. Landlords can legally raise rents for section 8 tenants annually with zero risk of losing occupants. Therefore, demand is inelastic, and price rises despite renters not making any more money.
Mortgage lenders are wholly backed by the U.S. taxpayer through Freddie Mae and Fannie Mac. Why would banks ever decline mortgages to subprime borrowers if they are guaranteed monthly checks and they acquire the property upon default anyway. There is no risk, so prices move up independently of affordability. This is what caused the 2008 financial crisis and rather than learning their lesson, the banks were bailed out and moved along with the same scheme for new borrowers.
Home Equity – In our fractional reserve banking system, lenders are entitled to create mortgages without the appropriate backing of capital. The loan is created out of thin air and still carries the burden of interest. The actual money paid onto the principle is what banks like to call equity. Of course, the “homeowner” must dish out primarily interest on the first 15ish years of payments since the interest is annualized. Loan amortization schedules should be burned into the minds of every American to engender deserved feelings of hatred toward banking institutions.
Regardless, the principle paid down accrues equity, with which, homeowners can take independent loans from. Remember, the banks never actually paid for the house, you pay for it. If you default, all that “equity” belongs to banks. The bank determines the amount of equity baked into the value of the home. If a homeowner takes out a home-equity-line-of-credit (HELOC), and the market subsequently tanks, that equity does not exist, and you still must pay both loans.
A serious dip in home values entitles banks to credit freezes, institution of liens, or even the demand full repayment and acquiescence of the property after evicting your ass. The lenders are fully backed by the law, they put up no capital nor risk, so prices must rise despite the higher possibility of default.
Developers and Investors – The expectation of profit in homeownership is a relatively new phenomenon in human civilization. Shelter is a requirement for survival and thus people would expect to pay to live. Inflated central bank issued currency creates a perpetual rise in the price of all assets. This combined with the aforementioned factors created a market that essentially guarantees profitability over time.
Boomers have been selling their mold invested derelict homes with carpeted kitchens and lead painted walls at prices five to ten times higher than what they paid for them decades ago. As a result, prudent investors want in on that action. However, the institution does not benefit from the use of a home or commercial structure, they must make more than they pay for the property for it to be a good investment.
Historically low mortgage rates courtesy of the central banks has facilitated a cheap cost of investment for developers and house flippers. The expectation that a home will be sold for higher than its purchase price will yield that very result, especially when investors are selling to investors. Any assurance of profit leads to speculative price bubbles at the expense of the people who actually intend to occupy that real estate.
These various factors make housing astoundingly unaffordable for younger generations. Based on median incomes and the median price of homes, boomers expected to buy homes three times their income, millennials must pay for homes six times their income. This market would not be remotely sustainable without the investment class and the government backing of banks. The government clearly did not ensure that everyone owned a home, but they definitely guaranteed that everyone could be subservient to a mortgage.
Homelessness still exists in the richest country in the world. The ineptitude of government has forced tax paying individuals to live alongside the parasitic class because the politicians favored the banks over their own people. To appropriately subsidize housing without negatively impacting the housing market, governments need to rezone section 8 away from city centers and illegalize homelessness. The unholy mixture of capitalist markets with socialist housing has created a system that benefits no one and degrades our cities. Everyone is entitled to a home, but no one is entitled to someone else’s home.
Real estate is a fascinating market and is truly indicative of human behavior and dispositions. To have true ownership of property, and to be a good steward of that land is what makes us uniquely human. Not all land should be developed or plastered over with concrete. God’s land in its natural rareness is the most magnificent of all and should be nurtured. Andy Warhol once said, "I think having land and not ruining it is the most beautiful art that anybody could ever want to own." It is a privilege to be intelligent beings capable of achieving private property.
We share this land with other species, our ownership is mere paper and words. The flora and fauna are the true proprietors of this earth, we are simply graced with the ability to enjoy and preserve this land. Where we live is a testament to who we are and that should never be taken for granted. Do we really want to build ugly boxes in the sky, or do we want to live among the things that make our land truly valuable. Any parcel of dirt can be given back to nature, no amount of money, titles, or concrete ever changed the ownership. Real possession comes from the establishment of residence in any habitat, or in other words, making a home.
"Woe to you who add house to house and join field to field till no space is left and you live alone in the land" (Isaiah 5:8).