A Journal for Western Man

 

The Three Big Expenses: Real Estate

G. Stolyarov II

Issue CXXII - October 11, 2007

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Statement of Policy

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This article was originally published on GrasstopsUSA.com.

This is the last article in Mr. Stolyarov's "The Three Big Expenses" series. Read his articles on college education and health care here.

            Real estate prices are through the roof. Even with the recent quite welcome collapse of the real estate bubble, they are still through the roof. Some might consider high real estate prices an indicator of economic prosperity, but they are in fact a sign of a deep underlying malaise: the inability of most hard-working, thrifty Americans to obtain one of the most basic human necessities – shelter.  

            Here are the facts. The average American earns about $40,000 per year. Let us assume, quite conservatively, that his take-home pay is about $30,000 per year, and he is frugal enough to live on only half of that and put the rest aside in a savings account that earns an extremely generous 5% per year. In 2005, the median home price in the United States was $213,900. This is quite a low price by comparison to the median price in certain regions of the country. California, for instance, had a median home price of $548,000 is 2005. With yearly deposits of $15,000 in a 5%-interest-earning account, it would take the average American a little over 11 years to purchase the median U. S. home if he spent his entire savings on the home and on nothing else. It would take the same person more than 21 years to purchase the median home in California.

Assuming, of course, that most people want some kind of monetary reserves on hand in the event of emergencies or illnesses or as sources of passive income, in reality it would take most people much longer to amass the money needed to own their own homes. Moreover, real estate prices over the long term tend to increase much faster than wages, implying that by the time one has saved enough money to buy a home, that particular home will likely have become much more expensive. To add to the trouble, the above calculations do not take considerable long-term monetary inflation into account. As a result, heavy mortgage debt is among the only options available to most Americans who wish to live in houses anytime soon. Astronomical real estate prices turn America into a nation of debtors, with the prospect of foreclosure and financial ruin looming over them in the event of unforeseen job losses or other unfortunate occurrences. The only other option is renting a residence, which, too, places one on a precarious footing anytime income suddenly dries up. 

            Unaffordable housing is not an outcome of the free market. The free-market solution to high prices of a good is for profit-seeking producers to seek ways to increase the supply of the good in question, thereby eventually bringing the prices back down to a level affordable for most. The chronically high real estate prices are a sign that some force is preventing this natural market mechanism from taking place. This is the result of numerous burdensome and damaging government interventions that greatly diminish the supply of housing, thereby artificially raising its price.

            Zoning restrictions dictate where various kinds of housing can and cannot be built. Separating a community into residential, commercial, and industrial zones implies that even if one wanted or needed to, one could not build a house next to a factory or a shopping mall, or a factory next to a series of houses, or a shopping mall next to a factory. These laws inanely restrict what people may do with their own property and thus inhibit a huge number of individuals from following their dreams. The quite wealthy authors of these laws might have esthetic objections to living near a factory, and they ought to be free to personally act on those sentiments and pay higher home prices accordingly. But they have no business imposing these preferences on lower-income individuals, whose only realistic choices might be a less expensive home near a factory or no home at all.

            Furthermore, environmental regulations place much of the land on which housing can be built off-limits to development. The United States Federal Government and various state governments already own over 90 percent of the land in some western states, and considerable swaths of land elsewhere in the country. Unlike the U. S. government of earlier times – which would sell land to private developers as a source of revenue or even allow it to be homesteaded by ambitious pioneers – the current government policy is to disallow human development there for the purpose of disallowing human development. It seems that the effort to conserve endangered slugs and the “pristine” chaos of the wilderness – which fails to bring about any actual meaningful environmental improvement – is more important than allowing good, hard-working humans the opportunity to find an affordable place to live.

            Eminent domain regulations, especially as fortified by the disastrous 2005 Supreme Court Kelo v. New London decision, make it possible for local, state, and federal governments to expropriate any piece of private property if this suits any manner of “public” purpose – including raising the tax revenues of the expropriating government. What kind of incentive does this policy give to prospective builders of new homes? Common sense suggests that they would be greatly discouraged from building when faced with the prospect that the fruit of their labor would be confiscated and they would in return receive some ridiculously low amount of money that the government deems “just compensation.”

            To add to the amassing array of regulations, building codes apply even where the government does decide to allow residential housing to be built. Everything from the height, style, coloration, and materials of a home to the layout of its rooms, the number of smoke detectors, and the kinds of piping and appliances that may (or must) be installed is regulated at a prohibitive cost to taxpayers and homebuilders. Not only does this pose a tremendous obstacle for anybody who can comply with the codes – since even those individuals would need to spend considerable time and money just learning what the regulations are. It also excludes lower-income individuals from building or owning a home.

            Americans who earn less than the average or are just starting out often do not care if their home has the latest or fanciest amenities, or even if it looks particularly attractive. They simply desire a decent place to live – and their definition of “decent” does not correspond to the government officials’, who often equate decency with an unrealistically high standard of near-perfection. If the free market were given a chance to operate, numerous producers would emerge to meet the demands of this consumer demographic. Some organizations might put out mass-produced housing from inexpensive materials and sell either pre-built homes or parts for self-assembly at prices in the low tens of thousands of dollars.

A similar state of affairs actually existed in the early 20th century, when one could mail-order an inexpensive home from the Sears catalog and would receive all the blueprints and parts needed for assembly. Imagine how much more abundant and accessible housing would be to Americans if these kinds of ingenious arrangements were permitted today. Not all of these homes would look pretty, but they would be livable, and this is a far more basic and crucial consideration.

            Government controls are making American housing scarcer and Americans’ lives dramatically harder. We urgently need to repeal these regulations and allow the free market to give people a chance to own their own homes and their own lives.    

G. Stolyarov II is a science fiction novelist, independent philosophical essayist, poet, amateur mathematician, composer, contributor to Enter Stage Right, Le Quebecois Libre,  Rebirth of Reason, and the Ludwig von Mises Institute, Senior Writer for The Liberal Institute, weekly columnist for GrasstopsUSA.com, and Editor-in-Chief of The Rational Argumentator, a magazine championing the principles of reason, rights, and progress. Mr. Stolyarov also publishes his articles on Helium.com and Associated Content to assist the spread of rational ideas. His newest science fiction novel is Eden against the Colossus. His latest non-fiction treatise is A Rational Cosmology. His most recent play is Implied Consent. Mr. Stolyarov can be contacted at gennadystolyarovii@yahoo.com.

 

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This TRA feature has been edited in accordance with TRA’s Statement of Policy.

Click here to return to TRA's Issue CXXII Index.

Learn about Mr. Stolyarov's novel, Eden against the Colossus, here..

Read Mr. Stolyarov's new comprehensive treatise, A Rational Cosmology, explicating such terms as the universe, matter, space, time, sound, light, life, consciousness, and volition, here.

Read Mr. Stolyarov's new four-act play, Implied Consent, a futuristic intellectual drama on the sanctity of human life, here.