Economic naivete
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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