A lot of the things we now need to think about and discuss are not terribly exciting, not very colorful. But we need to do it and need to do it in a not simplistic fashion.
The housing market is one. This was the driver of the economy for a couple of decades and now is moribund. Economists and pundits all talk about the housing rebound and when the market will come back. As if the housing market was normal and will go back to what it was. It won't.
Traditionally, housing was not so much an investment as part of one's heritage or as a way to accumulate some capital. Not until after World War II did housing become an investment option for the average guy. And even after WWII, home ownership in the United States hovered pretty close to about 62 percent of the population.
Then there was the push to raise home ownership. There were a lot of forces for this: Builders wanted more folks to buy homes which they had to build; developers had the same motive; and a segment of the liberal community felt that even poorer members of our society ought to be able to own their own homes. The way ownership would be pushed up was on borrowed money, which pleased the bankers.
It worked. Home ownership reached about 70 percent. In a nation of 300 million, that 8 percent represents a lot of homes. But it was unsustainable. It was financially impossible; a lot of the new owners simply could not afford the homes they bought. The result: the housing bust.
The housing market today is moribund and will stay there for some time. First, there are plenty of homes already built. With population growing slowly (and only by immigration), there is only a small increase in natural demand for homes. Second, a lot of the built homes are in foreclosure. These are coming on the market at a fairly steady rate. The banks are bleeding them into the market to avoid knocking home prices further. Third, the nature of the housing that will be built will be dictated by what is needed, which is smaller homes and multi-unit buildings. McMansions were an aberration. Homes will be smaller, as they are cheaper. Fourth, housing should cease to be a Ponzi scheme where developers build homes before need exists and finance the next development through the payments on the current development.
In short, the housing market will be a reduced portion of the economy. Even after the present excess housing is sold, the growth will be lower and closer to population growth. Home ownership will be about 62 percent of the populace: the extra 8 percent is gone forever. (The rate may move up or down a percent or two, but not much more.)
There are a lot of consequences of this reduced housing market. Among them are that governmental bodies that based much of their budget on developer fees will have less to work with. These governmental bodies will have to retrench.
The nature of our development will likely change. Sprawl may well be curbed by this changed market.
And this means both the politicos and citizens alike must think a bit differently. At a personal level, we need to not view our houses as liquid assets, to be bought, sold or traded with big profits. Rather, houses should again be our homes, which are in many ways merely savings devices.
Our politicos need to realize that housing will not drive a recovery and is not an easy source of tax revenue. The politicos must devise sensible policies so a sound economy can reassert itself. This means low inflation and stable policies which do not change with the wind. It should mean a much simpler tax system.
And we need to realize this for several reasons. First, it can help guide one's own thinking about life, including decisions to buy and sell property or to rent. Second, it can help keep one's expectations within reason. Things are going to get better, but it will take a while. A restructuring is going on. Third, it can help who's out there blowing smoke; the politician who says Stockton will be all right as soon as the housing market returns so tax revenues will be up and the city won't have to go bankrupt — that politician is blowing smoke.
The housing market is just one of the restructurings that are going on. But things will get better; indeed, are getting better. We need to persevere, to be a bit more frugal and plan better for bad times. We will get through this one.
Dave Wellenbrock is a Lodi resident and attorney.