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This blog is the voice of the Bay Area's home building community. It is a forum for discussion of housing-related news and issues pertinent to the region's 7.2 million residents. All comments are welcome. A New Hero
WASHINGTON, DC – Rep. Jackie Speier, the San Francisco Democrat, is my new hero. During a conversation yesterday in her congressional office, I mentioned the home building industry’s concern about a new Fannie Mae rule, which took effect March 1, which raises pre-sale requirements for new home developments. The old rule required that 51 percent of units be pre-sold to qualify a project’s prospective buyers for Fannie Mae home loans. Under the revised rule, the requirement was raised to 70 percent. The onerous rule change falls hardest on urban builders, particularly those undertaking large-scale multi-family developments. I conveyed to Rep. Speier that, unless the rule is made less Draconian, many residential projects that are in the offing in San Francisco, San Jose and Oakland simply won’t get built. The San Francisco lawmaker was persuaded. And she promised me she would write a letter to Fannie Mae urging the government service enterprise (GSE) to reconsider it’s decision to impose higher pre-sale requirements. Housing in D.C.
Washington – I had a rather startling conversation with Wade Rose, Chairman of the San Francisco Chamber of Commerce, during our first full day here in the Nation’s Capitol. We were talking about the fragmentation of California’s congressional delegation and how it has hurt San Francisco and the Bay Area. I cited the example of Fannie Mae’s and Freddie Mac’s conforming loan limits, which, until recently, was $417,000. While that was generous in the rest the country, where the median home price is roughly $200,000, that was insufficient in the Bay Area, one of the nation’s most expensive housing markets. If California’s delegation were more unified, I told the Chamber chair, we might have gotten an exemption to the federal conforming loan limits– like Hawaii, Alaska, and even the Virgin Islands, whose limits were 50 percent above the rest of the country. What startled is that Wade was unaware that Washington was providing exemptions to other high-priced housing markets, but not California. That makes me wonder if our California delegation is aware of the unfair discrepancy. We'll find out during our meetings on CapitaI Hill. Insult to Injury
No newspaper in America has been a bigger cheerleader for President Barack Obama than the San Francisco Chronicle. That’s why I was floored by the lead editorial in yesterday’s paper taking the Democrat to task for proposing to limit the mortgage interest deduction. “It’s hard to imagine,” the Chron opined, “a more ill-advised federal policy than one that would make it harder for Americans to remain in the homes they own. Yet that is exactly what President Obama is proposing with his plan to limit the amount of mortgage interest that homeowners could deduct from their federal taxes.” The paper warned that Mr. Obama’s proposal would fall particularly hard upon home owners in the Bay Area where, it notes, “the definitions of ‘middle class’ and ‘luxury homes’ are skewed by the extraordinarily high cost of living here.” The new president asserts that only “rich” folks – families earning more than $250,000 or more and individuals more than $200,000 or more – will send more tax dollars to Washington if the mortgage I interest deduction is limited. But while such income might afford families and individuals a lavish lifestyle in much of the rest of the country, where the median home price is barely $200,000, it doesn’t go nearly as far in the Bay Area, which continues to boast one of the nation’s most expensive housing markets. Bay Area home buyers and home owners have already been shortchanged by Washington with the parsimonious $8,000 tax credit for first-time home buyers (which has had a negligible effect on new home sales in the nation’s higher-priced housing markets) and the Obama administration’s mortgage modification plan (for which fewer than 10 percent of Bay Area residents would be eligible). By limiting the mortgage interest deduction, the federal government would add insult to previous injury. Recovery in 2011
I just received the latest monthly market letter from John Burns, the much-respected home building industry consultant. He cheerfully reports that the federal government has essentially adopted three of the four recommendations he previously made to revive the moribund housing market, including stabilizing the banking system, stimulating job growth and supporting responsible loan modifications. Those measures, Burns believes, “puts us on track to have the housing market recover by 2011,” which, he adds, oh so soothingly, “will be here before you know it.” The one of four recommendations on which Washington has fallen short, Burns laments, is stimulating home buying. Congress did pass an $8,000 home buyer tax credit, Burns acknowledges. And married to California’s recently enacted $10,000 home buyer tax credit along with low mortgage interest rates, it “will help tremendously,” he thinks, particularly in helping “builders shed standing inventory.” Alas, he continues, even the combined federal and state tax credits are “not enough to bring demand and supply back into balance in 2009.” That’s because the $8,000 federal tax credit “is not substantial enough for areas with higher home values,” like here in the San Francisco Bay Area. “And it won’t help the moveup market,” Burns points out, “as individuals must make under $75,000 per year or couples must make under $150,000 to claim the full credit.” That is why Bob Toll, Chairman and CEO of Toll Bros., a member of the Home Builders Association of Northern California, this week called on Washington to enact a $15,000 tax credit “to be made available to all buyers of homes, not just first-time buyers.” Indeed, if auto makers can go to Congress to get help for their ailing industry not once, but twice, then the home building industry should do the same. Hysterical Greens
I’ve always admired Joel Kotkin’s work, particularly his writings on the California economy. His latest essay, “Death of the Dream,” published in the current Newsweek magazine, is illustrative of his gimlet-eyed insights. “California has returned from the dead before,” Kotkin writes, “But the odds that the Golden State can reinvent itself again seem long” because of the state’s “politics of narcissism.” Today, Kotkin continues, the narcissistic politics of which he writes “is most evident among ‘progressives’” whose “dominant issue revolves around environmentalism.” Green politics came early to California, the author reminds, “and for understandable reasons: protecting the resources and landscape of the nation’s loveliest landscapes.” In recent years, however, the green agenda has morphed into something that old school conservationists hardly would recognize. “The modern environmentalists movement often adopts a largely misanthropic view of humans as a ‘cancer’ that needs to be contained,” Kotkin observes. “By their very nature, the greens tend to regards growth as an unalloyed evil gobbling up resources and spewing planet-heating greenhouse gasses.” What Kokin finds most disturbing is that many of today’s “hysterical greens,” as he terms them, “are themselves wealthy high-livers like Hollywood magnates, Silicon Valley billionaires and well-heeled politicians like Arnold Schwarzenegger and Jerry Brown. They might imagine,” Kotkin writes, “that driving a Prius or blocking a new water system or new suburban housing development serves the planet, but this usually comes at no cost to themselves of their lifestyles.” And that’s all he has to say about that. Bad Journalism
An anti-home building editorial appeared in the Contra Costa Times this past Friday. I didn’t mind the editorial’s snarky tone so much. I just had a problem that the editorial pretended to be a news story. “Amid budget-busting income shortages,” wrote Times staff writer Theresa Harrington, “one Contra Costa school district and one have readily agreed to delay paying thousands of dollars in building fees.” As a guy who used to dabble in journalism, I know a little bit about editorial writing. I know that when you use terms like “budget-busting” and “readily agreed,” you’re not merely reporting the news to your readers, but offering your viewpoint. Harrington obviously finds it offensive that the Mt. Diablo School Board and Brentwood City Council recently voted to defer builder fees until after homes actually are built. And she questions the idea that fee deferral can make the difference between a builder moving forward with a project in the current market or waiting until the market improves. “Since Brentwood implemented its deferral in January, no new projects have taken off,” she noted. Which is her way of arguing that, if the deferral hasn’t stimulated new home construction since its implementation way back in January, it never will. I can forgive her simplistic reasoning. What I cannot forgive is her claim that “representatives of the Homebuilders (sic) Association did not respond to requests for comment.” Well she didn’t request a comment from yours truly. Maybe because she didn’t want to let the facts get in the way of her editorial. Economics of Affordability
“One of the few benefits of a housing crash,” reads a recent article in Time magazine, “is supposed to be that home buyers who were previously priced out of the market might finally be able to afford a place of their own.” But that has proven to be fallacy, the article continues, citing the example of Florida, which, like California, is one of the states hardest hit by the foreclosure crisis. While Florida identifies some 750,000 families in need of affordable housing, Time reports that a backlog of hundreds of thousands of affordably-priced newly built and foreclosed homes languish on the housing market. What explains that seeming dichotomy? The fact, Time reports, is that most of those seeking affordable housing “still can’t muster the means, credit history or job security to land a mortgage – even for a $100,000 fixer upper – especially with lending requirements tightening in the wake of the subprime catastrophe.” That’s a true-to-life economics lesson for public policy makers from the Sunshine State to the Golden State. Indeed, city governments from the San Francisco Bay to Tampa Bay operate under the false assumption that if home builders are forced to offer so many new homes at below market rate prices, they can somehow reduce the numbers of families needing affordable housing. But the reality is that home prices have little to do with housing affordability. Whether we’re talking about a $1,000,000 luxury home or a $100,000 fixer-upper, the determinant of the home’s affordability is the home buying family’s wherewithal to obtain a home loan with an affordable monthly mortgage. |
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