Housing: Local Problems, National Problems
This is how HUD (Housing an Urban Development) describes affordable housing:
The generally accepted definition of affordability is for a household to pay no more than 30 percent of its annual income on housing. Families who pay more than 30 percent of their income for housing are considered cost burdened and may have difficulty affording necessities such as food, clothing, transportation and medical care.
For a person on the low end of an SSI pay out, around $674 dollars, affordable housing means paying $200 dollars for rent. Does that even exist in Missoula?
In this post I linked to a NARPM report that put Missoula’s vacancy rate in the rental market at 3-5%, well below the national average of 10%. The report also indicated around half of Missoula’s households rent their homes, that’s 30,000 people, 10,000 of them being students of UM.
Right now housing is again making headlines in Missoula, but not whether it’s affordable. No, the big controversy is supposedly about the zoning of Additional Dwelling Units, but the more I follow this issue, the more I’m beginning to realize it’s not about ADU’s at all. Instead I think what this issue boils down to is what kinds of people live where.
I may be oversimplifying this, but it seems to me those who oppose ADU’s want to make sure city government retains the regulatory power to socially engineer neighborhoods to keep those trashy, irresponsible renters from destroying nice, upstanding, single family neighborhoods with their ugly couches in the alley and their un-shoveled sidewalks in the winter.
Another facet of this issue is the role of property management companies and absentee landlords.
Will relaxing zoning for ADU’s exacerbate the problem of properties that aren’t being taken care of because the people or entities that own them aren’t doing their part to maintain them? Will they attract the bad kind of renters that have apparently stigmatized the entire renting population in this town in the minds of many? Will they help address the tight rental market that desperately needs more AFFORDABLE housing?
Lots of questions, lots of uncertainty.
As a National issue, the question of housing is a big one, considering the most recent bubble to burst and ripple out global economic contagion was the US-based housing bubble. Owning a home may have sounded like the American Dream when Bush was pimping his Ownership Society, but the reality of unchecked greed—from casino banks to Americans using their homes like ATM’s—resulted in a cataclysmic economic meltdown we still haven’t recovered from.
To understand what’s been happening in the housing market since Obama took office, I’ve relied heavily on Mike Whitney, featured primarily at Counterpunch.
Today his piece was front and center: Obama’s Secret Plan to Prop Up Housing Prices.
If University District home owners think absentee landlords letting unruly college kids run amok is bad, I wonder what they would think about foreign investors getting dibs on bundles of properties for 40-60% mark downs.
But that’s not even half the story. Here’s the opening:
Private Equity firms are piling in to the housing market to take advantage of bargain basement prices on distressed inventory. The Obama administration is stealthily selling homes to big investors who are required to sign non-disclosure agreements to ensure that the public remains in the dark as to the magnitude of the giveaway. Aside from the steep discounts on the homes themselves, the government is also providing “synthetic financing to reduce the up-front capital required if they agree to form a joint venture with Fannie Mae and share proceeds from the rental or sale of properties.” (Businessweek)
In other words, US-taxpayers are providing extravagant financing for deep-pocket speculators who want to reduce their risk while maximizing their profits via additional leverage. The plan resembles Treasury Secretary Timothy Geithner’s Public-Private Partnership Investment Program, (PPIP) which Columbia University professor Joseph Stiglitz denounced in an op-ed in the New York Times. Here’s what he said:
“The Obama administration’s $500 billion or more proposal to deal with America’s ailing banks has been described by some in the financial markets as a win-win-win proposal. Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.”
The same rule applies here. Speculators are getting lavish incentives (gov financing, low rates, and severe discounts) in secret deals to buy distressed inventory which should be available to the public at market prices. If that’s not a ripoff, then what is?
A bit further in the piece, here’s Whitney bookending a citation from Michael Olenick from Naked Capitalism:
As we have noted in previous articles, housing prices are going up for two reasons. First, because the banks are withholding their distressed inventory (delaying foreclosures) to keep prices artificially high. And, second, because of Private Equity firms are buying up the available stock of distressed homes in special “bulk sales” deals that are pushing up prices on lower-end homes. Housing analyst Michael Olenick sheds a bit of light on these secret transactions in a recent post on Naked Capitalism. Here’s a clip:
“Besides lower foreclosure activity, the government is going all out to give away houses to private equity firms. Recently Fannie Mae sold 275 properties across metro Phoenix in one sale to a mystery buyer, according to a report by Catherine Reagor of the Arizon Republic. All Fannie disclosed is the buyer is an LLC, which Fannie apparently helped create, based at 135 N. Los Robles Ave., in Pasadena, CA. Google shows that is the US address of EastWest Bank, a bank whose tagline is “Your Financial Bridge,” presumably between Asian money and Phoenix real estate. Fannie’s decision to sell Phoenix to Asian investors keeps 275 houses off the local market, which drives up prices for Phoenix homes people intend to actually live in, rather than flip. (Update: Nick Timiraos points out by e-mail that Fannie’s address in Pasadena is the same as EastWest’s, and Bloomberg has reported that Colony is the buyer. But this still raises the question of why Fannie cooperate with what appears to be an effort to hide the identity of the buyer.) (“Still Looking for a Housing Bottom”, Michael Olenick, naked capitalism)
So, why all the cloak and dagger? Why is the public being kept in the dark? And, most importantly, why are taxpayers providing financing for moneybags PE firms on discounted homes that would sell on Day 1 if they offered to the general public? This whole operation stinks to high-heaven.
It’s important to understand why this is happening: the big banks are still insolvent. LIBOR manipulation and quantitative easing and China fanning the debt clock is just life support for what is ultimately unsustainable.
Speaking of that debt clock, we are officially at 16 trillion.
At Zero Hedge, a really good question: Did the Financial Crisis Start with the End of the Gold Standard?
Lots of questions, lots of uncertainty.
And for the rest of the week, choreography.