Where "Housing" is Taking Us:
A Call for Action

Edward J. Dodson

[Reprinted from GroundSwell, May-June, 2005]

The media and most analysts have been talking about the prolonged "housing" boom that has been going on across the United States now for more than a decade. Millions of homeowners have experienced huge gains on the sale of property, often "cashing out" in an area where land prices have skyrocketed most to move to a part of the country (or another country) where land costs are far lower. The gain experienced is put into the bank and into conservative investments, the interest and dividends supplementing other sources of retirement income.

Few GroundSwell readers would be surprised to learn that for most households in the United States, housing and land equity represents the major portion of household net worth. Savings and investment accounts are generally insufficient to support the same lifestyle experienced during one's peak earning years of employment.

The United States is not yet -- and is unlikely to ever become -- one great big land market. Regional differences in weather, culture, economic activity, and natural amenities affect locational decisions and population concentrations. If one does not need to work to obtain income, there are many comparatively low-cost towns and cities one can move to -- still. At the same time, land and housing prices have increased almost everywhere. The price of the median-price house nationally has increased at an average rate of over 8 percent over the last five years.

Two-thirds of all households in the United States own the homes in which they live, three out of four subject to some amount of mortgage debt. Yet, with the land markets operating as they do, millions of people are essentially reimbursed for a significant portion of their life-long housing-related expenses. There are two annual subsidies. Mortgage interest payments and local property taxes are deductible under the Federal income tax regulations. Additionally, any gain experienced on the sale of one's primary residence is not subject to taxation (up to a cumulative maximum of around $600,000, which travels with you as you sell and buy a new residential property). This system has created a huge constituency for complexity without any thought to the impact on the broader economy or on future generations.

A few years ago, I came across a startling statistic: nearly one-half of all college graduates under the age of 30 were living at home with parents. The urge to get out on one's own is, today, countered by the absence of affordable rental housing. Or, when young adults have sufficient income to lease an apartment, the resulting housing-related expenses prevent the accumulation of savings toward the purchase of a home. Living at home with parents affords the young adult the opportunity to enjoy a high level of non-housing consumption and still put funds aside. Even so, many parents end up digging into their own savings to provide adult children with a financial gift to use for a down payment and toward closing costs for the purchase of a home. For those young adults whose parents cannot provide gift funds, many communities offer some level of down payment and closing cost assistance (often in the form of a zero interest, forgivable loan). The nation's mortgage finance sector has also come up with innovative approaches to lending risk that allow "qualified" homebuyers to borrow 100 percent of the purchase price of a home.