June 7, 2010
Wake-Up Time for a Dream By JOE NOCERA
Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, began her week with a bit of honest heresy, the kind that only she, among all the bank regulators, seems willing to utter in the wake of the financial crisis.
Deep in a speech she delivered Monday before the Housing Association of Nonprofit Developers — a speech that got surprisingly little attention — Ms. Bair listed her three main recommendations to “put the mortgage industry on a sounder footing.” The first two were the usual suspects: better consumer education and protection, and a reformed securitization market. Her third proposal, however, was a shocker, taking dead aim at one of the most sacrosanct tenets of American politics: the lofty goal of homeownership.
“For 25 years federal policy has been primarily focused on promoting homeownership and promoting the availability of credit to home buyers,” Ms. Bair said. She mentioned some of the many subsidies home buyers get, including the home mortgage interest deduction and the ability to deduct property taxes.
She tossed in Fannie Mae and Freddie Mac, the two “G.S.E.’s” (government-sponsored entities) whose role as a guarantor and securitizer of mortgages greatly expanded the ability of mortgage originators to make loans to home buyers — and which are now, of course, in federal conservatorship, with taxpayers holding the bag for their gargantuan losses.
She also pointed out that during the bubble, when anyone with a pulse could get a mortgage, the percentage of Americans owning homes rose to an unprecedented 69 percent, a number that was greeted with bipartisan hurrahs, but which turned out to be “unsustainable,” Ms. Bair said.
She concluded: “Sustainable homeownership is a worthy national goal. But it should not be pursued to excess when there are other, equally worthy solutions that help meet the needs of people for whom homeownership may not be the right answer.” Like, you know, renting.
The point is: the financial crisis might well have been avoided if we as a culture hadn’t invested so much political and psychological capital in the idea of owning a home. After all, the subprime mortgage business’s supposed raison d’être was making homeownership possible for people who lacked the means — or the credit scores — to get a traditional mortgage. It’s also why bank regulators and politicians were so willing to avert their eyes from the predations and excesses of the subprime companies.
Yet even now, it is difficult for the body politic to face this truth squarely, so intertwined is homeownership with the American Dream. Which is why Ms. Bair’s comments were so heretical. Maybe, she seemed to be suggesting, it’s time to break that link, painful though it would be. Maybe she’s right.
•
The idealization of homeownership by both the public and the federal government is hardly a recent phenomenon, of course. The Federal Housing Authority has been around since 1934. Fannie Mae was founded in 1938. After World War II, the G.I. Bill included modest loans allowing veterans to buy their first homes, according to Michael D. Calhoun, the president of the Center for Responsible Lending. For decades, the savings and loan industry existed solely to make loans to home buyers. In return, the government gave savings and loans certain regulatory advantages over the banks. The mortgage-backed security itself — which emerged in the 1980s, and made the securitization of mortgages possible — required the passage of a handful of laws, which Congress happily provided.
And every president, Democrat and Republican alike, trumpeted the virtues of homeownership for all Americans. Bill Clinton put numerical goals on the percentage increase he wanted to see in homeownership, and greatly increased Fannie and Freddie’s affordable housing goals. (Those goals had first been in put in place during the presidency of George H. W. Bush.) George W. Bush trumpeted his “ownership society”— and increased those housing goals. Fannie Mae, for its part, explicitly wrapped itself in the American Dream; anyone who opposed Fannie Mae was quickly labeled “anti-homeownership” by the company’s lobbyists.
Indeed, conservatives tend to view the affordable housing goals imposed on Fannie and Freddie as the central reason for the credit crisis. “In order to increase homeownership, Fannie and Freddie were required to decrease their standards,” said Peter Wallison, a fellow at the American Enterprise Institute and perhaps the country’s leading critic of the G.S.E.’s. “We made a big mistake in trying to force housing onto a population that couldn’t afford housing.”
But, to my mind, that view is only half-right. Yes, people got loans who had no hope of paying them back, and that was insane. But Fannie and Freddie’s affordable housing goals — which the G.S.E.’s easily gamed — were not the main reason. Rather, it was the rise of the subprime lenders — and their ability to get even their worst loans securitized by Wall Street —that was the main culprit. Fannie and Freddie lowered their standards mostly because they were losing market share to the subprime originators.
Did government policy make the rise of the subprime lenders possible? You betcha. Over time, the federal government gradually loosened regulations and interest rate caps that allowed the business to first become viable and then to explode. And it completely bought into the idea that the subprime industry was a force for good, because it was expanding homeownership. This, of course, is something the mortgage originators encouraged. Angelo Mozilo, the founder of Countrywide Financial, was as vocal about his company making the American Dream possible as any Fannie Mae lobbyist.
But it was a lie. Gary Rivlin, my former colleague at The New York Times, has just published a scathing, important book, “Broke, USA,” which includes one shocking anecdote after another of people being conned into taking on mortgages, filled with hidden fees and adjustable rates, that they couldn’t possibly afford. The companies that did these things were not the outliers — they were the bulwarks of the industry: Household, Countrywide, New Century and a raft of others. And when state officials tried to crack down on these unseemly practices, the Office of the Comptroller of the Currency, instead of investigating, blocked their efforts. After all, homeownership was on the rise!
Somewhat to my surprise, the housing activists I spoke to — people who had been in the forefront of trying to stop the subprime lenders — generally didn’t agree that homeownership should be de-emphasized. “Let’s not throw out the baby with the bathwater,” said John Taylor, the chief executive of the National Community Reinvestment Coalition. “I think owning a home is the most common way for working-class people to join the middle class.” Mainly, he said, that was because of a home’s appreciation, which gave people the opportunity for wealth creation that would otherwise have remained out of reach. Others mentioned additional societal benefits of homeownership, like stable neighborhoods. And homeowners had every incentive to keep their homes up, precisely because of the equity in their homes.
The academics I spoke to, however, were not so convinced that homeownership offered benefits to society that were so important they demanded federal subsidies. Especially since those subsidies were so huge, and so distorting to the economy. For instance, in 2009, according to the Congressional Budget Office, government subsidies for housing amounted to a staggering $230 billion.
“You hear all this rhetoric about stability caused by homeownership,” said Richard Florida, the author of “The Great Reset,” and a professor at the University of Toronto. “But the communities that survived the housing bubble the best were the ones that had the highest percentage of renters.”
Edward Glaeser, a professor at Harvard and a contributor to The Times’s Economix blog, said that if homeownership had to be encouraged — which he was not at all convinced of — it should be through a “flat homeowners’ tax credit” rather than a home mortgage deduction that essentially “bribes people to buy bigger houses.” What he says he really believes, though, is that renters offer plenty of social good themselves, helping creating vibrant cities. “The idea that homeownership is always great and renting is un-American is an awful state of affairs,” he said.
Obviously, the country is too psychologically invested in the idea of homeownership to ever abandon completely the homeownership ideal, or to put renting on a equal footing with owning. Which is why I found the most appealing idea to be Mr. Rivlin’s.
Despite having spent the last two years of his life reporting on the destruction wrought, in part, by the government’s unthinking push for ever more homeownership, he still wasn’t willing to abandon it completely. Rather, he thought the big policy mistake we had made as a culture was in promoting policies that encourage all home purchases, under any circumstance. “Why should the government help me buy a second home? Why should it subsidize a refinancing?” he asked. (I was amazed to discover that, if you qualify, you can actually get an F.H.A. loan for a refinancing.) “We have missed the essential piece,” he added. “The social good is in helping qualified first-time buyers own a home. That should be our goal. After that, people should be on their own.”
Right now, more than two years after the fall of Bear Stearns, which represented the beginning of the financial crisis, the federal government is more involved in the mortgage industry than it has ever been in its history. As wards of the state, Fannie and Freddie are insuring three out of every four mortgages. Most of the remaining 25 percent are being guaranteed by the F.H.A. As much as you might resent the fact that the taxpayers now have to pick up behind new Fannie and Freddie, the sad truth is that without them, no one in America would be able to buy a home.
Surely, that’s the logical culmination of decades of government policy promoting homeownership. Eventually, of course, the private market will return to the mortgage business, though it is hard to know when. Fannie and Freddie will be reconfigured in some way. But unless we change the way we think as a society about the virtues of homeownership, the fundamental fact will remain: the government will always be the backstop for the mortgage business, with the taxpayers always liable for the losses.
Is that really what we want?
Showing posts with label Housing. Show all posts
Showing posts with label Housing. Show all posts
Monday, June 07, 2010
Friday, June 19, 2009
Storm season keeps roofers busy in Dallas-Fort Worth By ERIN COVERT
Storm season keeps roofers busy in Dallas-Fort Worth By ERIN COVERT
01:01 PM CDT on Friday, June 19, 2009
/ Special Contributor to The Dallas Morning News
home@dallasnews.com
The arrival of severe weather season in North Texas also means it's the season for roof repairs and replacement.
Whether choosing a roof for a new house or replacing an old one, there are new high-tech, weather-resistant products to consider; don't assume your options are limited to replacing a roof with one of similar materials. At the same time, it's as difficult as ever to choose a good installer. Knowing more about selecting materials and contractors can help a homeowner achieve a more satisfactory outcome.
Manufacturers rate roofing materials in several ways. Wind, impact and fire resistance; maximum expected life; and classifications that aggregate those factors are some of the ways a shingle is rated.
"My advice to a homeowner is to ask for the heaviest shingle with the maximum impact-resistance rating that has a 40- to 50-year warranty," says Leo Wadley, past president of the Roofing Contractors Association of Texas and owner of Fort Worth-based Leo Wadley Roofing.
Wadley says shingle impact resistance is rated on a scale from I to IV, with IV being most durable to impact, such as hailstones. Roofing materials also will typically have two wind-speed classifications, depending on the number of nails used to install each piece. Maximum wind speed ratings on shingles range from 60 miles per hour to about 150 miles per hour.
Larry Tanner, research associate at the Wind Science and Engineering Research Center at Texas Tech University, says homeowners in North Texas should install roofs specified for maximum wind speeds of 90 miles per hour or higher.
Factors that affect shingle durability in severe weather, according to Tanner, include thickness, weight, chemical composition and adhesives used to hold shingles together. Proper installation also is critical. "Poor installation is the prime reason for roof failures," Tanner says.
Common errors include using too few nails and applying nails in the wrong place on a shingle. There's also the issue of making sure the nails actually attach to the building structure.
"I've been inside attics where only 10 percent of the nails were properly attached to the roof structure," Tanner says, adding that with pneumatic nail guns it's less noticeable to the installer when the nail doesn't hit solid wood beneath.
Avoiding such problems requires hiring a reputable, qualified contractor. It's a task that can be difficult, especially here.
"Texas is one of only 12 states that does not require a roofing license," Wadley says, "and it's the only Gulf Coast state that doesn't. It's an absolute minefield out there."
Because of that lack of regulation, the onus falls on the homeowner to vet the contractor. It also means the homeowner is liable for problems that may arise out of the job. That includes when a contractor fails to pay the supplier for materials used to roof a house, says Vera Bryant, executive director of the Roofing Contractors Association of Texas.
"It's not a requirement that roofers carry a general liability insurance policy," Bryant says. "A homeowner's only recourse when something goes wrong is small claims court."
In addition to choosing a contractor who provides proof of liability insurance, Tice Enterprises roofing specialist Joe Henderson says it's important to check that contractors are members of a professional association that requires education and adherence to business practice standards.
"I would say less than 15 percent of contractors stay up to date on continuing education," Henderson says.
Erin Covert is a Dallas freelance writer.
Questions to ask
When you are interviewing a potential roofing contractor, inquire about:
•Certifications and professional association memberships
•Years of experience doing roofing jobs, specifically in North Texas
•Insurance policies. What's the coverage limit in terms of money? What aspects of the job, exactly, are insured against damage or claims?
•Credit references and local suppliers they use, to check for good standing
•Certifications from the manufacturer to install particular roofing products
More advice for choosing a contractor is available on the North Texas Roofing Contractors Association's Web site at www.NTRCA.com.
Comparing roofing materials
Roofing material Pros Cons Weather Resistance Approximate cost, including installation, to re-roof 2,000 square feet
Three-tab composition asphalt shingle •Least expensive roofing product
•High fire resistance
•Lack of aesthetic appeal
•Thinnest roof protection
•Least protection available •$4,500
Laminated composition asphalt shingle •Highly affordable, best durability value for cost
•Thicker than 3-tab material
•More aesthetically appealing than 3-tab material
•High fire resistance
•Aesthetically less attractive than premium roofing materials •From moderate to very high, depending on specific make •$5,250 and up
Premium synthetic polymer shingles
•Lightweight nature makes for easy installation compared with stone or concrete
•Realistically mimics slate and wood shingles
•Typically offer at least 50-year or lifetime warranty
•Typically offer high impact and fire resistance
•Very expensive •Very high •$16,000 and up
Concrete shingles
•Highly durable material, some with maximum impact resistance ratings
•Aesthetically mimics slate
•Popular choice for high-end, new residential construction
•Low cost compared to natural products
•Extreme weight complicates installation
•Typically only used on new construction because weight requires substantial structural support
•Very high
•$8,000, but only applies to new construction
Stone-coated steel
•Mimics the look of terra cotta or other natural tile
•Lightweight
•Can sometimes be installed over existing roofing materials
•Shingles can dent during a hailstorm, and warranties typically do not cover repair or replacement for dents
•Very high durability, with typical warranties extending to 50 years
•$8,000
Standing-seam sheet metal
•Durable material
•Unique aesthetic appeal
•As with stone-coated metal, shingles may dent during a hailstorm, damage that warranties do not typically cover
•Very high durability
$12,000
Natural slate
•Aesthetic appeal of a natural, historic architectural material
•Durable in high winds
•Difficult to install
•Heavy material requires solid infrastructure
•High durability but susceptible to impact problems due to hail
•$16,000 and up
Wood shake or shingle
•Aesthetic appeal
Natural product
•Historically accurate on homes of certain style and age
•Typically not allowed in most areas because of susceptibility to fire; if allowed, municipalities require fire-retardant treatment
•Expensive both to buy the roof and to insure it
•Low durability
•$12,000 and up
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Comments (8)
Posted by RoofingDoneRight | 3 weeks ago
Please understand that just because it says "50 year lifetime warranty", Doesnt mean it will be just that !!!!!!! It all depends on the weather people. Even if you had strong rain pass through your neighborhood, call your INS company to make a claim ! Make sure you. goose a roofer before the INS adjuster comes out ( or even before calling) to make sure a claim is needed! Also make sure your roofer is always there to meet your adjuster , Very important! Ask your roofer about Polaralum radiant barrier, and installing power vents (GAF type 3 preferably). One more thing , ask your roofers if they are bilangual just to find out if they even COMMUNICATE with the actual roof laborers on the house ! You'll be surprised to learn that one.
1 0
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Posted by News Commentator | 3 weeks ago
They're having lots of fun on the roof in 100 degree weather.
1 1
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Posted by bdkennedy1 | 3 weeks ago
Ummmm, storm season is over.
0 1
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Posted by DZOO | 3 weeks ago
blueandthru, I had the same problem with my insurance company after big hail storm hit my neighborhood. Neighbors all got new roofs paid for by insurance except for me. I called the roofer and he advised to call insurance co. and make an appt. for second inspection. He (the roofer) told me he wanted to be there to talk to insurance agent. I made appt. and he showed up to talk to insurance agent. I don't know what he said but insurance co. changed their mind and paid for my roof!! Give it a try, won't cost you anything but time.
3 0
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Posted by Jdog | 3 weeks ago
I just had a my house roofed. I went with the Malarkey 50 yr class IV shingle. The roofer installed 6 nails per shingle. If you compare the roofing material samples, Malarkey was the thickest. Plus, the article above doesn't mention this, but I paid $2500 to upgrade shingles and I will save $600/ yr on insurance :-)
2
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Posted by texvet | 1 month ago
There are many out there who claim to be roofers, tree trimmers and other types of services that are performed on your property.
Key words, "Bonded and Insured", because you could possibly be held responsible for an injury that occurs on your property if a contractor employ is injured and the contracter does not have the proper insurance.
This caution also extends to your physical property that might be damaged by a contractor.
1 0
Report Abuse
Posted by blueandthru | 1 month ago
I paid for the more expensive architectural shingle roof with a long warranty. It has really stood up to the hail we've had by not showing impacts but rather losing the grains on it and now showing fibres. Less than half way to the warranty and it needs to be replaced.
In the last 15 years, all of the homes with the lesser shingles on my street have been replaced under insurance due to ths same hail that we received. Our insurance company after three hail storms now said no apparent hail damage so no replacememnt.
So my neighbors all had their insurance cover their roof. I'm about to have to replace mine under my nickel after 16 years on what was advertised as a 40 year roof.
Want to guess what shingle I'm going to pay for? That's right - one that shows the hail.
01:01 PM CDT on Friday, June 19, 2009
/ Special Contributor to The Dallas Morning News
home@dallasnews.com
The arrival of severe weather season in North Texas also means it's the season for roof repairs and replacement.
Whether choosing a roof for a new house or replacing an old one, there are new high-tech, weather-resistant products to consider; don't assume your options are limited to replacing a roof with one of similar materials. At the same time, it's as difficult as ever to choose a good installer. Knowing more about selecting materials and contractors can help a homeowner achieve a more satisfactory outcome.
Manufacturers rate roofing materials in several ways. Wind, impact and fire resistance; maximum expected life; and classifications that aggregate those factors are some of the ways a shingle is rated.
"My advice to a homeowner is to ask for the heaviest shingle with the maximum impact-resistance rating that has a 40- to 50-year warranty," says Leo Wadley, past president of the Roofing Contractors Association of Texas and owner of Fort Worth-based Leo Wadley Roofing.
Wadley says shingle impact resistance is rated on a scale from I to IV, with IV being most durable to impact, such as hailstones. Roofing materials also will typically have two wind-speed classifications, depending on the number of nails used to install each piece. Maximum wind speed ratings on shingles range from 60 miles per hour to about 150 miles per hour.
Larry Tanner, research associate at the Wind Science and Engineering Research Center at Texas Tech University, says homeowners in North Texas should install roofs specified for maximum wind speeds of 90 miles per hour or higher.
Factors that affect shingle durability in severe weather, according to Tanner, include thickness, weight, chemical composition and adhesives used to hold shingles together. Proper installation also is critical. "Poor installation is the prime reason for roof failures," Tanner says.
Common errors include using too few nails and applying nails in the wrong place on a shingle. There's also the issue of making sure the nails actually attach to the building structure.
"I've been inside attics where only 10 percent of the nails were properly attached to the roof structure," Tanner says, adding that with pneumatic nail guns it's less noticeable to the installer when the nail doesn't hit solid wood beneath.
Avoiding such problems requires hiring a reputable, qualified contractor. It's a task that can be difficult, especially here.
"Texas is one of only 12 states that does not require a roofing license," Wadley says, "and it's the only Gulf Coast state that doesn't. It's an absolute minefield out there."
Because of that lack of regulation, the onus falls on the homeowner to vet the contractor. It also means the homeowner is liable for problems that may arise out of the job. That includes when a contractor fails to pay the supplier for materials used to roof a house, says Vera Bryant, executive director of the Roofing Contractors Association of Texas.
"It's not a requirement that roofers carry a general liability insurance policy," Bryant says. "A homeowner's only recourse when something goes wrong is small claims court."
In addition to choosing a contractor who provides proof of liability insurance, Tice Enterprises roofing specialist Joe Henderson says it's important to check that contractors are members of a professional association that requires education and adherence to business practice standards.
"I would say less than 15 percent of contractors stay up to date on continuing education," Henderson says.
Erin Covert is a Dallas freelance writer.
Questions to ask
When you are interviewing a potential roofing contractor, inquire about:
•Certifications and professional association memberships
•Years of experience doing roofing jobs, specifically in North Texas
•Insurance policies. What's the coverage limit in terms of money? What aspects of the job, exactly, are insured against damage or claims?
•Credit references and local suppliers they use, to check for good standing
•Certifications from the manufacturer to install particular roofing products
More advice for choosing a contractor is available on the North Texas Roofing Contractors Association's Web site at www.NTRCA.com.
Comparing roofing materials
Roofing material Pros Cons Weather Resistance Approximate cost, including installation, to re-roof 2,000 square feet
Three-tab composition asphalt shingle •Least expensive roofing product
•High fire resistance
•Lack of aesthetic appeal
•Thinnest roof protection
•Least protection available •$4,500
Laminated composition asphalt shingle •Highly affordable, best durability value for cost
•Thicker than 3-tab material
•More aesthetically appealing than 3-tab material
•High fire resistance
•Aesthetically less attractive than premium roofing materials •From moderate to very high, depending on specific make •$5,250 and up
Premium synthetic polymer shingles
•Lightweight nature makes for easy installation compared with stone or concrete
•Realistically mimics slate and wood shingles
•Typically offer at least 50-year or lifetime warranty
•Typically offer high impact and fire resistance
•Very expensive •Very high •$16,000 and up
Concrete shingles
•Highly durable material, some with maximum impact resistance ratings
•Aesthetically mimics slate
•Popular choice for high-end, new residential construction
•Low cost compared to natural products
•Extreme weight complicates installation
•Typically only used on new construction because weight requires substantial structural support
•Very high
•$8,000, but only applies to new construction
Stone-coated steel
•Mimics the look of terra cotta or other natural tile
•Lightweight
•Can sometimes be installed over existing roofing materials
•Shingles can dent during a hailstorm, and warranties typically do not cover repair or replacement for dents
•Very high durability, with typical warranties extending to 50 years
•$8,000
Standing-seam sheet metal
•Durable material
•Unique aesthetic appeal
•As with stone-coated metal, shingles may dent during a hailstorm, damage that warranties do not typically cover
•Very high durability
$12,000
Natural slate
•Aesthetic appeal of a natural, historic architectural material
•Durable in high winds
•Difficult to install
•Heavy material requires solid infrastructure
•High durability but susceptible to impact problems due to hail
•$16,000 and up
Wood shake or shingle
•Aesthetic appeal
Natural product
•Historically accurate on homes of certain style and age
•Typically not allowed in most areas because of susceptibility to fire; if allowed, municipalities require fire-retardant treatment
•Expensive both to buy the roof and to insure it
•Low durability
•$12,000 and up
Print | RSS | | Yahoo! Buzz | Send a news tip
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Screen names can only consist of letters and numbers.
Your screen name will appear to everyone.
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or edit your screen name once you hit "Save".
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Guidelines: We welcome your thoughts, but for the sake of all readers, please refrain from the use of obscenities, personal attacks or racial slurs. All comments are subject to our terms of service and may be removed. Repeat offenders may lose commenting privileges.
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Showing:
Comments (8)
Posted by RoofingDoneRight | 3 weeks ago
Please understand that just because it says "50 year lifetime warranty", Doesnt mean it will be just that !!!!!!! It all depends on the weather people. Even if you had strong rain pass through your neighborhood, call your INS company to make a claim ! Make sure you. goose a roofer before the INS adjuster comes out ( or even before calling) to make sure a claim is needed! Also make sure your roofer is always there to meet your adjuster , Very important! Ask your roofer about Polaralum radiant barrier, and installing power vents (GAF type 3 preferably). One more thing , ask your roofers if they are bilangual just to find out if they even COMMUNICATE with the actual roof laborers on the house ! You'll be surprised to learn that one.
1 0
Report Abuse
Posted by News Commentator | 3 weeks ago
They're having lots of fun on the roof in 100 degree weather.
1 1
Report Abuse
Posted by bdkennedy1 | 3 weeks ago
Ummmm, storm season is over.
0 1
Report Abuse
Posted by DZOO | 3 weeks ago
blueandthru, I had the same problem with my insurance company after big hail storm hit my neighborhood. Neighbors all got new roofs paid for by insurance except for me. I called the roofer and he advised to call insurance co. and make an appt. for second inspection. He (the roofer) told me he wanted to be there to talk to insurance agent. I made appt. and he showed up to talk to insurance agent. I don't know what he said but insurance co. changed their mind and paid for my roof!! Give it a try, won't cost you anything but time.
3 0
Report Abuse
Posted by Jdog | 3 weeks ago
I just had a my house roofed. I went with the Malarkey 50 yr class IV shingle. The roofer installed 6 nails per shingle. If you compare the roofing material samples, Malarkey was the thickest. Plus, the article above doesn't mention this, but I paid $2500 to upgrade shingles and I will save $600/ yr on insurance :-)
2
Report Abuse
Posted by texvet | 1 month ago
There are many out there who claim to be roofers, tree trimmers and other types of services that are performed on your property.
Key words, "Bonded and Insured", because you could possibly be held responsible for an injury that occurs on your property if a contractor employ is injured and the contracter does not have the proper insurance.
This caution also extends to your physical property that might be damaged by a contractor.
1 0
Report Abuse
Posted by blueandthru | 1 month ago
I paid for the more expensive architectural shingle roof with a long warranty. It has really stood up to the hail we've had by not showing impacts but rather losing the grains on it and now showing fibres. Less than half way to the warranty and it needs to be replaced.
In the last 15 years, all of the homes with the lesser shingles on my street have been replaced under insurance due to ths same hail that we received. Our insurance company after three hail storms now said no apparent hail damage so no replacememnt.
So my neighbors all had their insurance cover their roof. I'm about to have to replace mine under my nickel after 16 years on what was advertised as a 40 year roof.
Want to guess what shingle I'm going to pay for? That's right - one that shows the hail.
Friday, December 19, 2008
The Reckoning Tax Break May Have Helped Cause Housing Bubble By VIKAS BAJAJ and DAVID LEONHARDT
December 19, 2008
The Reckoning
Tax Break May Have Helped Cause Housing Bubble By VIKAS BAJAJ and DAVID LEONHARDT
“Tonight, I propose a new tax cut for homeownership that says to every middle-income working family in this country, if you sell your home, you will not have to pay a capital gains tax on it ever — not ever.”
— President Bill Clinton, at the 1996 Democratic National Convention
Ryan J. Wampler had never made much money selling his own homes.
Starting in 1999, however, he began to do very well. Three times in eight years, Mr. Wampler — himself a home builder and developer — sold his home in the Phoenix area, always for a nice profit. With prices in Phoenix soaring, he made almost $700,000 on the three sales.
And thanks to a tax break proposed by President Bill Clinton and approved by Congress in 1997, he did not have to pay tax on most of that profit. It was a break that had not been available to generations of Americans before him. The benefits also did not apply to other investments, be they stocks, bonds or stakes in a small business. Those gains were all taxed at rates of up to 20 percent.
The different tax treatments gave people a new incentive to plow ever more money into real estate, and they did so. “When you give that big an incentive for people to buy and sell homes,” said Mr. Wampler, 44, a mild-mannered native of Phoenix who has two children, “they are going to buy and sell homes.”
By itself, the change in the tax law did not cause the housing bubble, economists say. Several other factors — a relaxation of lending standards, a failure by regulators to intervene, a sharp decline in interest rates and a collective belief that house prices could never fall — probably played larger roles.
But many economists say that the law had a noticeable impact, allowing home sales to become tax-free windfalls. A recent study of the provision by an economist at the Federal Reserve suggests that the number of homes sold was almost 17 percent higher over the last decade than it would have been without the law.
Vernon L. Smith, a Nobel laureate and economics professor at George Mason University, has said the tax law change was responsible for “fueling the mother of all housing bubbles.”
By favoring real estate, the tax code pushed many Americans to begin thinking of their houses more as an investment than as a place to live. It helped change the national conversation about housing. Not only did real estate look like a can’t-miss investment for much of the last decade, it was also a tax-free one.
Together with the other housing subsidies that had already been in the tax code — the mortgage-interest deduction chief among them — the law gave people a motive to buy more and more real estate. Lax lending standards and low interest rates then gave people the means to do so.
Referring to the special treatment for capital gains on homes, Charles O. Rossotti, the Internal Revenue Service commissioner from 1997 to 2002, said: “Why insist in effect that they put it in housing to get that benefit? Why not let them invest in other things that might be more productive, like stocks and bonds?”
The provision — part of a sprawling bill called the Taxpayer Relief Act of 1997 — exempted most home sales from capital-gains taxes. The first $500,000 in gains from any home sale was exempt from taxes for a married couple, as long as they had lived in the home for at least two of the previous five years. (For singles, the first $250,000 was exempt.)
Mr. Wampler said he never sold a home simply because of the law’s existence, but it played a role in his decisions and also became part of his stock pitch to potential customers who were considering buying the homes he was building in the desert. He would point out that the tax benefits would increase their returns on a house, relative to stocks.
“Why not put your money on the highest-yielding investment with the highest tax benefit?” he said recently.
During the boom years, he prospered. But today he owns 80 acres of land on the outskirts of Phoenix that he cannot sell. He owes $8 million to his banks, which may soon foreclose on his land.
“I am literally dying on the vine,” he said.
The change in the tax law had its roots in a Chicago speech that Senator Bob Dole, Mr. Clinton’s Republican opponent in the 1996 presidential election, gave on Aug. 5 of that year. Trailing Mr. Clinton in the polls, Mr. Dole came out for an enormous tax cut, including an across-the-board reduction in the capital-gains tax.
The proposal made Mr. Clinton’s political advisers more nervous than almost anything else during the campaign. The campaign’s chief spokesman, Joe Lockhart, traveled to Chicago to stand outside the ballroom where Mr. Dole was speaking and make the case that the Dole tax cut would cause the deficit to soar.
At the same time, Mr. Clinton’s aides began scrambling to come up with their own tax proposal. Dick Morris, the president’s chief outside political adviser, argued that Mr. Clinton could assure his re-election by matching Mr. Dole’s call for a big cut in the capital-gains tax.
But members of Mr. Clinton’s economic team, led by Treasury Secretary Robert E. Rubin, disliked that idea. They thought it would undo the tough work the administration had done to reduce the budget deficit. So they instead went looking for smaller tax cuts that would allow their boss to campaign as both a fiscal conservative and a tax cutter.
Getting rid of capital gains on most home sales seemed like the perfect idea.
Treasury officials had become interested in that provision earlier in Mr. Clinton’s term after Jane G. Gravelle, an economist at the Congressional Research Service, had called it to their attention, according to Eric J. Toder, an official in the tax policy office at the time. He and his colleagues were looking for ways to simplify the tax code, and Ms. Gravelle told them that eliminating capital-gains taxes on houses was an excellent candidate.
The tax forced homeowners to keep track of all their renovations over many years, because the cost of those renovations could be subtracted from their taxable gain. Even renovations on previous homes often qualified, as long as people had deferred the tax in the past by buying a new house at least as valuable as their old one.
“It was very hard for people to keep track of that information,” said Leslie B. Samuels, the assistant Treasury secretary for tax policy from 1993 to 1996.
People could also avoid the tax under a one-time exemption, for profits of up to $125,000, if they were older than 55. Thus, the tax raised relatively little revenue — perhaps just a few hundred million dollars in today’s terms. “It was the worst kind of tax system,” Ms. Gravelle said recently. “It raised very little revenue, but it caused all these distortions and compliance problems.”
Three weeks after Mr. Dole’s speech, with support from top Treasury officials, the proposal made it into Mr. Clinton’s speech at the Democratic convention. During the presidential debates that followed, he used it to parry Mr. Dole’s calls for a big tax cut. The following summer, Mr. Clinton signed the provision into law.
At the time, Realtors and home builders lobbied for the provision and there was only scant opposition. Grover Norquist — a conservative activist and adviser to Newt Gingrich — said home sales did not deserve special treatment. But Republicans ended up voting for the bill by even wider margins than Democrats.
Today, it is the subject for considerably more debate. Ms. Gravelle and Mr. Samuels said they thought the law had done more good than ill. And William G. Gale, director of economic studies at the Brookings Institution, said he did not think that the change in the law was central to the bubble. Low interest rates, he said, were far more important.
The law’s defenders say that it also removed at least one tax incentive that had pushed homeowners to trade up. Before 1997, people had to buy a house that was at least as valuable as their previous one to avoid the tax, or else take the one-time exemption. Now they could buy a smaller property or move into a rental.
But many economists say the net effect of the law was clearly to inflate the real estate market. Dean Baker, co-director of the Center for Economic and Policy Research, a liberal policy group in Washington, criticized the exemption as “a backward policy” that “helped push more money into housing.”
A spokesman for Mr. Clinton declined to comment for this article.
Perhaps the most detailed analysis of the provision has been the study by a Federal Reserve economist, Hui Shan, who did the analysis while at M.I.T. Ms. Shan looked at homeowners with significant equity gains, before and after 1997, and compared the likelihood of their selling their house. Her study covered 16 towns around Boston and took into account a host of other factors, like the general rise in home prices at the time.
Among homes that had appreciated less than $500,000, she concluded that the change caused a 17 percent increase in sales in the decade after 1997. Before the law changed, many people apparently avoided paying the tax by simply staying in their homes.
Ms. Shan also found that sales actually declined among homes with more than $500,000 of gains after the law passed. (Under the new law, couples have to pay taxes on gains above $500,000, even if they roll all those gains into a new house.) Nationwide, however, less than 5 percent of home sales over the last decade had gains of more than $500,000, according to Moody’s Economy.com.
Despite the criticism, there has been little political support for trimming the tax breaks for housing. In 2005, a bipartisan panel of tax experts, which was appointed by President Bush and included Mr. Rossotti, concluded, “The tax preferences that favor housing exceed what is necessary to encourage homeownership.” Among other things, it recommended increasing to three years the amount of time people had to stay in homes to claim the tax break on a sale. But Mr. Bush and other policy makers largely ignored the panel’s report.
Geo Hartley, a lawyer who has lived in Los Angeles and Washington over the last two decades, captures the divergent effects that the law appears to have. Mr. Hartley, who is 59 and single, said he found the old law “weird,” because it led him to buy bigger houses than he wanted.
Since the law changed, Mr. Hartley has bought smaller homes. But he has also moved more frequently, knowing that most of the gains on his houses would not be taxed. He lived in one house in Los Angeles for a full decade before 2000. Since then, he has moved three times, making a handsome — and mostly tax-free — profit each time.
“It’s part of the thinking that gets you more motivated to buy and sell property,” said Mr. Hartley, who now lives in a town house in Washington that he is trying to sell, “and have the American dream of owning a home.”
The Reckoning
Tax Break May Have Helped Cause Housing Bubble By VIKAS BAJAJ and DAVID LEONHARDT
“Tonight, I propose a new tax cut for homeownership that says to every middle-income working family in this country, if you sell your home, you will not have to pay a capital gains tax on it ever — not ever.”
— President Bill Clinton, at the 1996 Democratic National Convention
Ryan J. Wampler had never made much money selling his own homes.
Starting in 1999, however, he began to do very well. Three times in eight years, Mr. Wampler — himself a home builder and developer — sold his home in the Phoenix area, always for a nice profit. With prices in Phoenix soaring, he made almost $700,000 on the three sales.
And thanks to a tax break proposed by President Bill Clinton and approved by Congress in 1997, he did not have to pay tax on most of that profit. It was a break that had not been available to generations of Americans before him. The benefits also did not apply to other investments, be they stocks, bonds or stakes in a small business. Those gains were all taxed at rates of up to 20 percent.
The different tax treatments gave people a new incentive to plow ever more money into real estate, and they did so. “When you give that big an incentive for people to buy and sell homes,” said Mr. Wampler, 44, a mild-mannered native of Phoenix who has two children, “they are going to buy and sell homes.”
By itself, the change in the tax law did not cause the housing bubble, economists say. Several other factors — a relaxation of lending standards, a failure by regulators to intervene, a sharp decline in interest rates and a collective belief that house prices could never fall — probably played larger roles.
But many economists say that the law had a noticeable impact, allowing home sales to become tax-free windfalls. A recent study of the provision by an economist at the Federal Reserve suggests that the number of homes sold was almost 17 percent higher over the last decade than it would have been without the law.
Vernon L. Smith, a Nobel laureate and economics professor at George Mason University, has said the tax law change was responsible for “fueling the mother of all housing bubbles.”
By favoring real estate, the tax code pushed many Americans to begin thinking of their houses more as an investment than as a place to live. It helped change the national conversation about housing. Not only did real estate look like a can’t-miss investment for much of the last decade, it was also a tax-free one.
Together with the other housing subsidies that had already been in the tax code — the mortgage-interest deduction chief among them — the law gave people a motive to buy more and more real estate. Lax lending standards and low interest rates then gave people the means to do so.
Referring to the special treatment for capital gains on homes, Charles O. Rossotti, the Internal Revenue Service commissioner from 1997 to 2002, said: “Why insist in effect that they put it in housing to get that benefit? Why not let them invest in other things that might be more productive, like stocks and bonds?”
The provision — part of a sprawling bill called the Taxpayer Relief Act of 1997 — exempted most home sales from capital-gains taxes. The first $500,000 in gains from any home sale was exempt from taxes for a married couple, as long as they had lived in the home for at least two of the previous five years. (For singles, the first $250,000 was exempt.)
Mr. Wampler said he never sold a home simply because of the law’s existence, but it played a role in his decisions and also became part of his stock pitch to potential customers who were considering buying the homes he was building in the desert. He would point out that the tax benefits would increase their returns on a house, relative to stocks.
“Why not put your money on the highest-yielding investment with the highest tax benefit?” he said recently.
During the boom years, he prospered. But today he owns 80 acres of land on the outskirts of Phoenix that he cannot sell. He owes $8 million to his banks, which may soon foreclose on his land.
“I am literally dying on the vine,” he said.
The change in the tax law had its roots in a Chicago speech that Senator Bob Dole, Mr. Clinton’s Republican opponent in the 1996 presidential election, gave on Aug. 5 of that year. Trailing Mr. Clinton in the polls, Mr. Dole came out for an enormous tax cut, including an across-the-board reduction in the capital-gains tax.
The proposal made Mr. Clinton’s political advisers more nervous than almost anything else during the campaign. The campaign’s chief spokesman, Joe Lockhart, traveled to Chicago to stand outside the ballroom where Mr. Dole was speaking and make the case that the Dole tax cut would cause the deficit to soar.
At the same time, Mr. Clinton’s aides began scrambling to come up with their own tax proposal. Dick Morris, the president’s chief outside political adviser, argued that Mr. Clinton could assure his re-election by matching Mr. Dole’s call for a big cut in the capital-gains tax.
But members of Mr. Clinton’s economic team, led by Treasury Secretary Robert E. Rubin, disliked that idea. They thought it would undo the tough work the administration had done to reduce the budget deficit. So they instead went looking for smaller tax cuts that would allow their boss to campaign as both a fiscal conservative and a tax cutter.
Getting rid of capital gains on most home sales seemed like the perfect idea.
Treasury officials had become interested in that provision earlier in Mr. Clinton’s term after Jane G. Gravelle, an economist at the Congressional Research Service, had called it to their attention, according to Eric J. Toder, an official in the tax policy office at the time. He and his colleagues were looking for ways to simplify the tax code, and Ms. Gravelle told them that eliminating capital-gains taxes on houses was an excellent candidate.
The tax forced homeowners to keep track of all their renovations over many years, because the cost of those renovations could be subtracted from their taxable gain. Even renovations on previous homes often qualified, as long as people had deferred the tax in the past by buying a new house at least as valuable as their old one.
“It was very hard for people to keep track of that information,” said Leslie B. Samuels, the assistant Treasury secretary for tax policy from 1993 to 1996.
People could also avoid the tax under a one-time exemption, for profits of up to $125,000, if they were older than 55. Thus, the tax raised relatively little revenue — perhaps just a few hundred million dollars in today’s terms. “It was the worst kind of tax system,” Ms. Gravelle said recently. “It raised very little revenue, but it caused all these distortions and compliance problems.”
Three weeks after Mr. Dole’s speech, with support from top Treasury officials, the proposal made it into Mr. Clinton’s speech at the Democratic convention. During the presidential debates that followed, he used it to parry Mr. Dole’s calls for a big tax cut. The following summer, Mr. Clinton signed the provision into law.
At the time, Realtors and home builders lobbied for the provision and there was only scant opposition. Grover Norquist — a conservative activist and adviser to Newt Gingrich — said home sales did not deserve special treatment. But Republicans ended up voting for the bill by even wider margins than Democrats.
Today, it is the subject for considerably more debate. Ms. Gravelle and Mr. Samuels said they thought the law had done more good than ill. And William G. Gale, director of economic studies at the Brookings Institution, said he did not think that the change in the law was central to the bubble. Low interest rates, he said, were far more important.
The law’s defenders say that it also removed at least one tax incentive that had pushed homeowners to trade up. Before 1997, people had to buy a house that was at least as valuable as their previous one to avoid the tax, or else take the one-time exemption. Now they could buy a smaller property or move into a rental.
But many economists say the net effect of the law was clearly to inflate the real estate market. Dean Baker, co-director of the Center for Economic and Policy Research, a liberal policy group in Washington, criticized the exemption as “a backward policy” that “helped push more money into housing.”
A spokesman for Mr. Clinton declined to comment for this article.
Perhaps the most detailed analysis of the provision has been the study by a Federal Reserve economist, Hui Shan, who did the analysis while at M.I.T. Ms. Shan looked at homeowners with significant equity gains, before and after 1997, and compared the likelihood of their selling their house. Her study covered 16 towns around Boston and took into account a host of other factors, like the general rise in home prices at the time.
Among homes that had appreciated less than $500,000, she concluded that the change caused a 17 percent increase in sales in the decade after 1997. Before the law changed, many people apparently avoided paying the tax by simply staying in their homes.
Ms. Shan also found that sales actually declined among homes with more than $500,000 of gains after the law passed. (Under the new law, couples have to pay taxes on gains above $500,000, even if they roll all those gains into a new house.) Nationwide, however, less than 5 percent of home sales over the last decade had gains of more than $500,000, according to Moody’s Economy.com.
Despite the criticism, there has been little political support for trimming the tax breaks for housing. In 2005, a bipartisan panel of tax experts, which was appointed by President Bush and included Mr. Rossotti, concluded, “The tax preferences that favor housing exceed what is necessary to encourage homeownership.” Among other things, it recommended increasing to three years the amount of time people had to stay in homes to claim the tax break on a sale. But Mr. Bush and other policy makers largely ignored the panel’s report.
Geo Hartley, a lawyer who has lived in Los Angeles and Washington over the last two decades, captures the divergent effects that the law appears to have. Mr. Hartley, who is 59 and single, said he found the old law “weird,” because it led him to buy bigger houses than he wanted.
Since the law changed, Mr. Hartley has bought smaller homes. But he has also moved more frequently, knowing that most of the gains on his houses would not be taxed. He lived in one house in Los Angeles for a full decade before 2000. Since then, he has moved three times, making a handsome — and mostly tax-free — profit each time.
“It’s part of the thinking that gets you more motivated to buy and sell property,” said Mr. Hartley, who now lives in a town house in Washington that he is trying to sell, “and have the American dream of owning a home.”
Monday, October 06, 2008
Why Can't We Build an Affordable House? by Witold Rybczynski
Why Can't We Build an Affordable House? by Witold Rybczynski
The housing market is in tatters, and house prices continue to fall precipitously in many parts of the country, so it might seem a strange time to bring up the subject of housing affordability. But one of the reasons we are in this mess is that people bought houses they couldn’t really afford. At some point in the future, consumer confidence will be restored and people will start buying houses again. Pent-up demand, and the inevitable delays in restarting an industry that has seen the withdrawal of many home builders, will likely produce a spike in prices, and once again the affordability issue will come to the fore.
The term “affordable housing” has come to be associated with social programs and government subsidies, but it once meant commercially built houses that ordinary working people could afford. A pioneer of affordability was the builder Levitt and Sons, whose famous “Levittowns” were the first postwar examples of large, master-planned communities. The story is well known. After World War II, as GIs came home and the peacetime economy gathered steam, the demand for housing grew dramatically. Levitt, an established Long Island builder, set its sights on this new market. William Levitt, the eldest son, applied his wartime experience building barracks with the Navy Seabees to traditional wood-frame construction. He organized the building site like an assembly line. Teams of workers performed repetitive tasks, one team laying floor slabs, another erecting framing, another applying siding, and so on. No one had ever built housing that way before.
The first Levittown was on Long Island, the second in Bucks County, Pennsylvania, and the third in New Jersey. The Long Island project, because it was the first—and the closest to New York City—is the best known, but the Bucks County development, which began in 1951, was larger and more comprehensively planned and designed. At that site, the more than 17,000 homes on nearly 6,000 acres were intended chiefly for workers employed at a nearby steel plant. The largest and most expensive of the six model homes, the Country Clubber, was for supervisors and executives, but the three-bedroom Levittowner was the workhorse of the development. It sold for $9,900, which would equal $82,000 today.
The design of the Levittowner, like the planning of the community, was the responsibility of William’s younger brother, Alfred. Though William Levitt went on to have a long and well-publicized career as a developer and builder, Alfred, who died in 1966 (at only 54), is less remembered. He was a self-taught architect who had spent an entire summer observing the construction of one of Frank Lloyd Wright’s so-called Usonian houses, in Great Neck Estates, Long Island. Many of the Levittowner’s cost-saving features were influenced by this experience: the efficient one-story plan that combined an eat-in kitchen with the living room; the concrete floor slab without a basement; the under-floor heating; the low, spreading roof with no attic; and the carport instead of a garage. (The Usonians, Wright’s answer to affordability, were beautiful, but since they were built one at a time, they were expensive—the Rebhuhn Residence, the one Alfred studied, cost a whopping $35,000 to build in 1937, the equivalent of more than half a million dollars today.)
Many of the design innovations of the Levittowner were Alfred’s own ideas. A folding basswood screen that slid on a metal track separated a so-called study-bedroom from the living room, allowing the space to be open or closed. Thermopane (insulated glass) covered a large section of the living-room wall overlooking the garden. The kitchen had a large window facing the street—an early example of a “picture window.” High window sills in the bedrooms provided privacy—and reduced cost. Locating the bathroom and the kitchen on the street side reduced the length of piping to the street mains. There was no mechanical room; instead, a specially designed furnace fit under the kitchen counter, its warm top doubling as a hot plate. The Levitts were careful to give penny-pinching buyers of the Levittowner touches of luxury: the purchase price included a kitchen exhaust fan, an electric range, a GE refrigerator, and a Bendix washing machine. The Country Clubber added a clothes dryer.
A two-way fireplace was located between the kitchen and the living room. Two-way fireplaces were a standard Usonian feature, but while the Levittowner had a low, spreading roof and clean lines, no one would mistake it for a Frank Lloyd Wright house. Yet, although Alfred Levitt’s design looks unremarkable today, in fact this early example of the so-called ranch house represented a revolution in domestic design. One-story living was new to most Americans, as was the open plan combining kitchen, eating space, and living room. The undecorated exterior was unabashedly modern. Picture windows had no precedents in traditional homes; neither did carports. Instead of brick or wood, the exterior walls of the Levittowner were covered with striated sheets of Colorbestos (asbestos cement), which had been developed especially for the Levitts by the Johns Manville Corporation. With integral color that didn’t require painting, this was an early example of low-maintenance siding.
We don’t use asbestos cement anymore, and some of the other novelties, such as under-floor heating, proved troublesome (as they did in the Usonians), but the Levitt brothers’ achievement remains impressive. They introduced the American public to modern production building and proved that standardization, mass production, and technical innovation could be successfully—and profitably—used by commercial builders to produce houses for a large market. Moreover, unlike many architectural experiments that have been dealt with harshly by the passage of time—the high-rise public-housing projects of the 1960s come to mind—Levittowns have remained desirable places to live. Even the names of the house models have survived. “Fabulous expanded Levittowner,” reads a recent Internet real estate ad for a house in the Bucks County community, “3 bedrooms, one bath, custom eat-in kitchen.” It’s listed as sold.
The continuing popularity of the Levittowner after more than half a century does not mean that the demands of home buyers haven’t changed over time. Builders found out long ago that buyers would pay the small extra cost for the additional space provided by a basement. One-story houses are still popular, especially with older owners, but two-story houses have come back into vogue. So have traditional features such as porches, dormers, shutters, and bay windows. (The spare look of Alfred Levitt’s design would be a hard sell today.) Finally, buyers of the Levittowner were not given any choices; although Colorbestos came in seven colors, and the precise location of the carport varied from one house to another, these alternatives were predetermined by Alfred Levitt to create variety on the street. But modern buyers expect to personalize their homes. In response, while today’s builders still sell predesigned models, they also offer scores of options: alternative façades, different materials, a variety of interior finishes, and “extras” such as upgraded kitchens, higher ceilings, and add-on sun rooms.
Would it be possible to build a modern version of the affordable Levittowner? It would probably be a small house, closer to the 1,000 square feet of Alfred Levitt’s design than the 2,469 square feet that is today’s national average for new houses. Building smaller houses not only reduces construction costs, it is also good for the environment, saving materials and energy—and land. The house would still have three bedrooms, but it would also have at least one and a half bathrooms, since people have come to expect a powder room, even in small houses. Closets would be bigger, and there would be more of them. There would probably not be a living room, but the house would include a family room facing the backyard. The kitchen would be larger, the hot-plate furnace would be replaced by a conventional model, and the fireplace would be optional.
What would such a house sell for? In 1951, the price of the original Levittowner ($9,900) was three times the national average annual wage ($3,300). In 2008, with an estimated national average wage of $40,500, a similarly affordable house should have a sticker price of $121,500. Yet according to the Census Bureau, even in the current declining market the median price for a new single-family house in the first quarter of 2008 approached twice that: $234,100. So, the price of a modern Levittowner would have to be nearly 50 percent cheaper than that of today’s average new house. Easy, you say, just make the house 50 percent smaller, about 1,200 instead of 2,469 square feet. But it’s not that simple. In most metropolitan areas, the selling price of such a house would still be more than $200,000, considerably more than $121,500.
So what’s keeping housing prices high? It’s not the size, and it’s not the construction costs, either. The Levittowner cost $4–$5 per square foot to build in 1951, equivalent to $30–$40 per square foot in 2008. That is approximately what an efficient, large-scale production builder spends today. Home builders have followed the Levitts’ lead in streamlining construction, introducing labor-saving techniques, and using industrialized materials. Plans are rationalized to reduce waste. Components arrive on the building site precut and preassembled so that the entire construction process for a typical house takes as little as three months. Perhaps the most important change in home building concerns scale. Since the 1980s, the industry has come to be dominated by a dozen national builders. These publicly owned companies, the largest of which produces as many as 50,000 houses a year, are able to take advantage of economies of scale that the Levitts could only dream about. Large, efficient enterprises buy materials in bulk, optimize mass production of building components such as windows and doors, and operate their own prefabrication factories. This keeps construction costs low.
What’s driving the high cost of houses today is not increased construction costs or higher profits (the Levitts made $1,000 on the sale of each house), but the cost of serviced land, which is much greater than in 1951. There are two reasons for this increase. The first is Proposition 13, the 1978 California ballot initiative that required local governments to reduce property taxes and limit future increases, and sparked similar taxpayer-driven initiatives in other states. Henceforth, municipalities were unable to finance the up-front costs of infrastructure in new communities, as they had previously done, and instead required developers to pay for roads and sewers, and often for parks and other public amenities as well. These costs were passed on to home buyers, drastically increasing the selling price of a house.
The other reason that serviced lots cost more is that there are fewer of them than the market demands. This is a result of widespread resistance to growth, the infamous not-in-my-backyard phenomenon, which is strongest in the Northeast, California, and the Northwest. Communities in growing metropolitan areas contend with increased urbanization, encroachment on open space, more neighbors, more traffic, and more school-age children. Roads have to be widened, traffic lights added, and schools expanded, all of which lead to higher taxes. Voters commonly respond to these ill effects of growth by demanding restrictions on the number of new houses that can be built. Usually this is achieved by tightening zoning, invoking environmental constraints, and generally drawing out and complicating the permit process. It is no coincidence that house prices are highest in the Northeast, California, and the Northwest. According to the research of economists Edward Glaeser of Harvard and Joseph Gyourko of the Wharton School, since 1970 the difficulty of getting regulatory approval to build new homes is the chief cause of increases in new house prices. In other words, while demand for new houses has been growing, the number of new houses that can actually be built has been shrinking.
The most common tactic communities use to restrict development is to zone for large lots. In many parts of the country, the median size of new lots now exceeds one acre; by contrast, the 70-by-100-foot Levittowner lot covered less than one-sixth of an acre. For the neighbors, requiring large lots has two advantages: It limits the numbers of houses that can be built and, since large lots are more expensive, it ensures that new houses will cost more, which drives up surrounding property values. But reducing development has another, less happy effect: It pushes growth even farther out, thus increasing sprawl. While large-lot zoning is often done in the name of preserving open space and fighting sprawl, in fact it has the opposite effect.
It is a vicious circle. Smaller houses on smaller lots are the logical solution to the problem of affordability, yet density—and less affluent neighbors—are precisely what most communities fear most. In the name of fighting sprawl, local zoning boards enact regulations that either require larger lots or restrict development, or both. These strategies decrease the supply—hence, increase the cost—of developable land. Since builders pass the cost of lots on to buyers, they justify the higher land prices by building larger and more expensive houses—McMansions. This produces more community resistance, and calls for yet more restrictive regulations. In the process, housing affordability becomes an even more distant chimera.
Witold Rybczynski is Martin and Margie Meyerson Professor of Urbanism at the University of Pennsylvania. His latest book, Last Harvest: From Cornfield to New Town, appeared in paperback this spring.
Reprinted from Summer 2008 Wilson Quarterly
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The housing market is in tatters, and house prices continue to fall precipitously in many parts of the country, so it might seem a strange time to bring up the subject of housing affordability. But one of the reasons we are in this mess is that people bought houses they couldn’t really afford. At some point in the future, consumer confidence will be restored and people will start buying houses again. Pent-up demand, and the inevitable delays in restarting an industry that has seen the withdrawal of many home builders, will likely produce a spike in prices, and once again the affordability issue will come to the fore.
The term “affordable housing” has come to be associated with social programs and government subsidies, but it once meant commercially built houses that ordinary working people could afford. A pioneer of affordability was the builder Levitt and Sons, whose famous “Levittowns” were the first postwar examples of large, master-planned communities. The story is well known. After World War II, as GIs came home and the peacetime economy gathered steam, the demand for housing grew dramatically. Levitt, an established Long Island builder, set its sights on this new market. William Levitt, the eldest son, applied his wartime experience building barracks with the Navy Seabees to traditional wood-frame construction. He organized the building site like an assembly line. Teams of workers performed repetitive tasks, one team laying floor slabs, another erecting framing, another applying siding, and so on. No one had ever built housing that way before.
The first Levittown was on Long Island, the second in Bucks County, Pennsylvania, and the third in New Jersey. The Long Island project, because it was the first—and the closest to New York City—is the best known, but the Bucks County development, which began in 1951, was larger and more comprehensively planned and designed. At that site, the more than 17,000 homes on nearly 6,000 acres were intended chiefly for workers employed at a nearby steel plant. The largest and most expensive of the six model homes, the Country Clubber, was for supervisors and executives, but the three-bedroom Levittowner was the workhorse of the development. It sold for $9,900, which would equal $82,000 today.
The design of the Levittowner, like the planning of the community, was the responsibility of William’s younger brother, Alfred. Though William Levitt went on to have a long and well-publicized career as a developer and builder, Alfred, who died in 1966 (at only 54), is less remembered. He was a self-taught architect who had spent an entire summer observing the construction of one of Frank Lloyd Wright’s so-called Usonian houses, in Great Neck Estates, Long Island. Many of the Levittowner’s cost-saving features were influenced by this experience: the efficient one-story plan that combined an eat-in kitchen with the living room; the concrete floor slab without a basement; the under-floor heating; the low, spreading roof with no attic; and the carport instead of a garage. (The Usonians, Wright’s answer to affordability, were beautiful, but since they were built one at a time, they were expensive—the Rebhuhn Residence, the one Alfred studied, cost a whopping $35,000 to build in 1937, the equivalent of more than half a million dollars today.)
Many of the design innovations of the Levittowner were Alfred’s own ideas. A folding basswood screen that slid on a metal track separated a so-called study-bedroom from the living room, allowing the space to be open or closed. Thermopane (insulated glass) covered a large section of the living-room wall overlooking the garden. The kitchen had a large window facing the street—an early example of a “picture window.” High window sills in the bedrooms provided privacy—and reduced cost. Locating the bathroom and the kitchen on the street side reduced the length of piping to the street mains. There was no mechanical room; instead, a specially designed furnace fit under the kitchen counter, its warm top doubling as a hot plate. The Levitts were careful to give penny-pinching buyers of the Levittowner touches of luxury: the purchase price included a kitchen exhaust fan, an electric range, a GE refrigerator, and a Bendix washing machine. The Country Clubber added a clothes dryer.
A two-way fireplace was located between the kitchen and the living room. Two-way fireplaces were a standard Usonian feature, but while the Levittowner had a low, spreading roof and clean lines, no one would mistake it for a Frank Lloyd Wright house. Yet, although Alfred Levitt’s design looks unremarkable today, in fact this early example of the so-called ranch house represented a revolution in domestic design. One-story living was new to most Americans, as was the open plan combining kitchen, eating space, and living room. The undecorated exterior was unabashedly modern. Picture windows had no precedents in traditional homes; neither did carports. Instead of brick or wood, the exterior walls of the Levittowner were covered with striated sheets of Colorbestos (asbestos cement), which had been developed especially for the Levitts by the Johns Manville Corporation. With integral color that didn’t require painting, this was an early example of low-maintenance siding.
We don’t use asbestos cement anymore, and some of the other novelties, such as under-floor heating, proved troublesome (as they did in the Usonians), but the Levitt brothers’ achievement remains impressive. They introduced the American public to modern production building and proved that standardization, mass production, and technical innovation could be successfully—and profitably—used by commercial builders to produce houses for a large market. Moreover, unlike many architectural experiments that have been dealt with harshly by the passage of time—the high-rise public-housing projects of the 1960s come to mind—Levittowns have remained desirable places to live. Even the names of the house models have survived. “Fabulous expanded Levittowner,” reads a recent Internet real estate ad for a house in the Bucks County community, “3 bedrooms, one bath, custom eat-in kitchen.” It’s listed as sold.
The continuing popularity of the Levittowner after more than half a century does not mean that the demands of home buyers haven’t changed over time. Builders found out long ago that buyers would pay the small extra cost for the additional space provided by a basement. One-story houses are still popular, especially with older owners, but two-story houses have come back into vogue. So have traditional features such as porches, dormers, shutters, and bay windows. (The spare look of Alfred Levitt’s design would be a hard sell today.) Finally, buyers of the Levittowner were not given any choices; although Colorbestos came in seven colors, and the precise location of the carport varied from one house to another, these alternatives were predetermined by Alfred Levitt to create variety on the street. But modern buyers expect to personalize their homes. In response, while today’s builders still sell predesigned models, they also offer scores of options: alternative façades, different materials, a variety of interior finishes, and “extras” such as upgraded kitchens, higher ceilings, and add-on sun rooms.
Would it be possible to build a modern version of the affordable Levittowner? It would probably be a small house, closer to the 1,000 square feet of Alfred Levitt’s design than the 2,469 square feet that is today’s national average for new houses. Building smaller houses not only reduces construction costs, it is also good for the environment, saving materials and energy—and land. The house would still have three bedrooms, but it would also have at least one and a half bathrooms, since people have come to expect a powder room, even in small houses. Closets would be bigger, and there would be more of them. There would probably not be a living room, but the house would include a family room facing the backyard. The kitchen would be larger, the hot-plate furnace would be replaced by a conventional model, and the fireplace would be optional.
What would such a house sell for? In 1951, the price of the original Levittowner ($9,900) was three times the national average annual wage ($3,300). In 2008, with an estimated national average wage of $40,500, a similarly affordable house should have a sticker price of $121,500. Yet according to the Census Bureau, even in the current declining market the median price for a new single-family house in the first quarter of 2008 approached twice that: $234,100. So, the price of a modern Levittowner would have to be nearly 50 percent cheaper than that of today’s average new house. Easy, you say, just make the house 50 percent smaller, about 1,200 instead of 2,469 square feet. But it’s not that simple. In most metropolitan areas, the selling price of such a house would still be more than $200,000, considerably more than $121,500.
So what’s keeping housing prices high? It’s not the size, and it’s not the construction costs, either. The Levittowner cost $4–$5 per square foot to build in 1951, equivalent to $30–$40 per square foot in 2008. That is approximately what an efficient, large-scale production builder spends today. Home builders have followed the Levitts’ lead in streamlining construction, introducing labor-saving techniques, and using industrialized materials. Plans are rationalized to reduce waste. Components arrive on the building site precut and preassembled so that the entire construction process for a typical house takes as little as three months. Perhaps the most important change in home building concerns scale. Since the 1980s, the industry has come to be dominated by a dozen national builders. These publicly owned companies, the largest of which produces as many as 50,000 houses a year, are able to take advantage of economies of scale that the Levitts could only dream about. Large, efficient enterprises buy materials in bulk, optimize mass production of building components such as windows and doors, and operate their own prefabrication factories. This keeps construction costs low.
What’s driving the high cost of houses today is not increased construction costs or higher profits (the Levitts made $1,000 on the sale of each house), but the cost of serviced land, which is much greater than in 1951. There are two reasons for this increase. The first is Proposition 13, the 1978 California ballot initiative that required local governments to reduce property taxes and limit future increases, and sparked similar taxpayer-driven initiatives in other states. Henceforth, municipalities were unable to finance the up-front costs of infrastructure in new communities, as they had previously done, and instead required developers to pay for roads and sewers, and often for parks and other public amenities as well. These costs were passed on to home buyers, drastically increasing the selling price of a house.
The other reason that serviced lots cost more is that there are fewer of them than the market demands. This is a result of widespread resistance to growth, the infamous not-in-my-backyard phenomenon, which is strongest in the Northeast, California, and the Northwest. Communities in growing metropolitan areas contend with increased urbanization, encroachment on open space, more neighbors, more traffic, and more school-age children. Roads have to be widened, traffic lights added, and schools expanded, all of which lead to higher taxes. Voters commonly respond to these ill effects of growth by demanding restrictions on the number of new houses that can be built. Usually this is achieved by tightening zoning, invoking environmental constraints, and generally drawing out and complicating the permit process. It is no coincidence that house prices are highest in the Northeast, California, and the Northwest. According to the research of economists Edward Glaeser of Harvard and Joseph Gyourko of the Wharton School, since 1970 the difficulty of getting regulatory approval to build new homes is the chief cause of increases in new house prices. In other words, while demand for new houses has been growing, the number of new houses that can actually be built has been shrinking.
The most common tactic communities use to restrict development is to zone for large lots. In many parts of the country, the median size of new lots now exceeds one acre; by contrast, the 70-by-100-foot Levittowner lot covered less than one-sixth of an acre. For the neighbors, requiring large lots has two advantages: It limits the numbers of houses that can be built and, since large lots are more expensive, it ensures that new houses will cost more, which drives up surrounding property values. But reducing development has another, less happy effect: It pushes growth even farther out, thus increasing sprawl. While large-lot zoning is often done in the name of preserving open space and fighting sprawl, in fact it has the opposite effect.
It is a vicious circle. Smaller houses on smaller lots are the logical solution to the problem of affordability, yet density—and less affluent neighbors—are precisely what most communities fear most. In the name of fighting sprawl, local zoning boards enact regulations that either require larger lots or restrict development, or both. These strategies decrease the supply—hence, increase the cost—of developable land. Since builders pass the cost of lots on to buyers, they justify the higher land prices by building larger and more expensive houses—McMansions. This produces more community resistance, and calls for yet more restrictive regulations. In the process, housing affordability becomes an even more distant chimera.
Witold Rybczynski is Martin and Margie Meyerson Professor of Urbanism at the University of Pennsylvania. His latest book, Last Harvest: From Cornfield to New Town, appeared in paperback this spring.
Reprinted from Summer 2008 Wilson Quarterly
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