|Economic naivete||<– Date –> <– Thread –>|
|From: biow (biowcs.UMD.EDU)|
|Date: Mon, 3 Jan 1994 12:23:02 -0500 (EST)|
The recent thread on limited equity gains tempts me to begin my old Usenet rant on naive economics, which I fear will ruin the cohousing movement in the US (the naivete, that is, not neccesarily my ranting). So I'll make it short: There is a simple solution to affordable housing. Move to the Redneck Riviera on the Gulf Coast. $50,000 will get you a three bedroom home in a medium sized town (e.g. Biloxi) on a quarter acre within three blocks of one of the most beautiful, unpolluted beaches in the world. Several states in that area recently applied for INS permission to import computer geeks from other countries, because they can't fill the available computer jobs. Engineering jobs are also readily available in the area. Okay, so much for affordable housing issues. Now let's talk coho prices. It appears, from experiences so far, that coho real estate does not lose value, relative to conventional single family dwellings. IE, it encounters the same ups and downs as residential real estate in general. And real estate sees lots of such ups and downs, as it involves a government subsidized (mortgage interest deduction, FHA, VA, FNMA, FHLMC, and other gov't backed organizations), good with unlimited supply (given a relatively minor initial investment--development). The raw material, undeveloped land, is in abundant supply, which is why most developable land in the US is almost valueless. Once developed, a piece of residential real estate sees its price affected by national economics, regional economics, government policy and law at all levels. If we are ever to see our deficit cured, we may lose the mortgage interest deduction, resulting in a one-off loss of 20-40% in the value of residential real estate. To attempt to divorce equity gain from ownership is to do two things: 1) Take almost all of the risk upon the community, rather than the individuals. This is not only foolish, but it can also lead to owner apathy about the land value. An owner who knows he is going to leave in the next few years becomes careless about appearance and condition of his real estate--just when he would be most concerned if his equity were at stake. No wonder FNMA won't touch such arrangements with a ten foot pole! And no wonder rental real estate may be depreciated, whereas owner-occupied may not! 2) Predict the future of real estate values, either in the absolute, or in relation to some other investment (e.g. T-bills). Anyone who knew how to do that wouldn't need to worry about affordability--he'd be worrying about how many yachts to buy. To sum up, we are trying to do something radical with co-housing: we are trying to change the nature of our living arrangments and communities. Let's not complicate things by tying our fate to an attempt to solve possibly unsolvable economic problems.
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