The Post I Most Regret Keeping to Myself!

You know, sometimes you write something that seems a bit speculative or perhaps wrong-headed at the time, and for whatever reason, it falls by the wayside. I have a folder where I stick such things, not wanting to trash them entirely, but willing to forget about them as I grow eager to move on to new ground. I was poking around in that folder today when I came across this one. All I can say is “Damn, I wish I’d published it 2 ½ years ago!”

If You Build It, Will They Come?
(Originally written Nov. 29 2005)

This post takes a detour from the usual political commentary and into the realm of economics and wild conspiracy theories. You know what they say about variety being the spice of life . . .
First of all, let me say that I live in Northern California – not at ground zero for high housing costs, but certainly well within the fallout zone. My observations are based on apparent trends in my local area, but I suspect they reach wider than that.

The most obvious trend that I’ve noticed in recent months is a dramatic increase in home construction. Within 10 miles of my home, there are numerous housing developments under construction. From town houses and condos, to small starter homes, to medium sized custom homes filling nearly every vacant lot that has sat idle for the 20 years that I have lived in my town.

I have to ask myself why so much building now, particularly with interest rates starting to creep upward, and most other economic indicators pointing to a downturn in home purchases? Job growth is flat, and personal income has been equally flat for years. Arguably, consumer spending for the last few years has been fueled primarily by increased debt, either through reducing home equity or use of credit cards. Furthermore, many home buyers have maxed out their debt capacity by using variable rate and/or interest-only mortgages. With the bankruptcy bill recently passed by Congress, there are probably a great many people who will be living with an oppressive level of debt for decades.

So who is left to purchase all of these new homes that are being built at such an accelerated rate? Young college graduates are struggling to find jobs that allow them to pay rent and living expenses, much less to buy homes. The current economy is not strong enough to lift a significant number of low wage workers into being feasible new home buyers. So who will be left to buy these homes?

I’ve noticed another trend that has come about during the last few years - the rapid spread of self-storage units. They are popping up like mushrooms. At first I thought these units were in demand by consumers on credit card fueled buying binges needing someplace to store their recently upgraded stuff, but now I’m not so sure.

A rapid buildup of starter homes? A decline in new home buyers? Massive debt with no safety valve among people living in large luxury homes purchased with adjustable rate mortgages? Rising interest rates? Lots of new self-storage units?

Perhaps someone is expecting a large number of owners of these luxury homes to be forced back into smaller starter homes, and they will need someplace to store their stuff.

OK, it may be a stretch, but if that’s what’s going to happen to all those new starter homes being built, the question then becomes: what’s going to happen to all those luxury houses that people are going to be forced out of? Who is going to be able to afford those houses in a sluggish economy, even if many sellers are forced by disastrous financial hardship to give them up at rock bottom prices?

Well, I’ve heard Bill Frist has some HCA capital gains to invest, and Donald Rumsfeld will be getting a large windfall from the sale of Tamiflu!