Tag Archives: Housing

Democrats Desire for Regulation Increases Inequality

Yes, you read the title of this blog correctly but you wont accept the point. It so happens that one small data point represents a major contributing factor to inequality. Since WWII the availability of affordable housing has declined. First both left and right drove increase affordable housing. It was good for the wider population as it led to a wider base on which the American Dream was driven. However, the plan backfired.

Over time more and more lower income families took up the opportunity and more and more subsidies were driven into the market. This even led to aspects of the financial crisis that sits at the root of our current economic malaise. But the key is that an effective level of affordable housing around the US supports the need of workers to move to where there was work. This is one of the factors that drove growth and even productivity. That is, until the late 1980s. Since then productivity has been slowing, and it turns out, the stock of affordable housing. At the same time, Americans move less, and the baby boomers have started to retire.

But the odd part is not that left and right supported the goal, it is the left that have fought against themselves. In the US print edition of the WSJ on Sept 30-Oct 1, there is an Opinion piece title, “Why Housing is Unaffordable in California“. This article nicely captures the facts that democrats, in control of Californian legislature, have passed land regulation that limits how land can be used. This has contributed to continuing and driving land prices up and at the same time pricing lower paid workers out of the region. Yet at the same time the state legislature encourages its population to bass bonds to fund new affordable housing plans. It is thus fighting against itself. The rich are getting richer and the poorer are unable to get a hold on the work that would help them close the inequality gap.

Why don’t our politicians stop being politicians and get out of the way of real decision makers that work together and in the same direction?

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US Economy Not Out of the Woods – Beware the Hype that Says Otherwise

You would think that, given the press coverage, much of the US economy is making great progress.  Apparently interest rates will continue to rise in response to the Fed’s feeling that the economy is doing well; near-full employment, GDP recovery, stock market growth, bond and dollar strength and all that jazz.  But these data points mask some other troubling items that suggest any recovery will likely be lopsided and even short-term based.  You only have to look under the covers at, say, unemployment, credit, or housing.  

  • Unemployment: despite low levels of reported unemployment many economists are concerned that the participation rate is at very low levels.  In other words, there is a lot of unemployed that is not being reported in the official KPI.  Some economists suggest that real effective unemployment maybe nearer 6 or even 9 percent.  Thus the result of economic growth may not lead to wage price pressure so soon, since the participation rate may improve the so pick up some of the slack.  This is good news overall but not if the Fed believes that they need to head off wage inflation likely to appear due to pressure on a really tight labor market
  • Consumer Credit:  Student and auto loans are running ahead at full steam, and mortgage debt continues apace.  While many firms have cleared their balance sheets of bad debts, consumers – which drive a massive part of the US economy – are amassing debt easier than looking for a hot meal.  On February 27th the US print edtion of the Financial Times carried an article, More US car owners behind on loan payments than at any time since 2009.  What is realy funky here is that if you go into the market now to look for a new or used car, you will be offered a loan for repayment now past the 5 year window.  It used to be that 5 years was the maximum and this was only a few years ago.  Now you can get a loan over 6 years or longer.  So the consumer part of the market is building up a nice bad-debt situation.
  • House prices: Yes, house prices have recovered, so we are told, to near pre-crisis levels.  So that part of the market is secure, right?  Wrong.  Home ownership is a its lowest levels in years.  It turns out that the buyers that are driving up prices are investment firms and conglomerates that are snapping up property then leasing them to. So first time buyers are being squeezed out.  The housing market has not recovered in the way we would want it or need it to for effective sustainment.

So we have a very lopsided economic recovery.  It is not stable and even the strong shoots are some challenging weeds hiding just under the covers.  Even if Trump can delivery on +2% GDP growth, I am not altogether sure that woudl mask the issues that are building up today.