When I read that nonprofit developer Neighborhood Housing Services was having trouble selling the 17 condos of their new development just south of downtown, I can’t say I was surprised, given the worsening national mortgage crisis. The main selling point is that these units are considered “affordable housing” for buyers that have a low enough income to qualify for borrower assistance (less than $84,900 for a family of four). Originally offered at $535,000, the two-bedroom condos are now priced at $450,000 and still aren’t selling. I don’t know about you, but I don’t see how anyone could consider $535,000 or $450,000 homes to be affordable on an average family income, even with the incentives. It’s still too much debt to take on even for those people who qualify for assistance. This is how we got into the financial abyss we are in now.
Many other affordable housing developers in the area are having the same problem, even though prices have dropped as much as 40 percent for some of these units. There is a lot of competing going on, but to no avail. In addition, many of the new high-rise developments around downtown seem to be having similar sales problems. I know a few housing seekers who have had a look at some of these city center condos-with-a-view and found them extremely expensive and overpriced in the current rapidly declining market.
The first quarter of 2008 set a record for notices of default and foreclosures in Santa Clara County. This number beats the previous quarter’s record by a whopping 42 percent. There were nearly 1,000 foreclosures in the county during the first quarter, which is part of a steepening trend that lags behind the default notices by the five months it takes to complete the foreclosure process. However bad it is in the county, it is far worse in other parts of California, especially the Central Valley and the counties of the so-called Inland Empire in Southern California. Another telling figure is the percentage of homeowners who have received default notices and are able to get back up to date on their mortgage payments and stay in their houses has been about 32 percent in the past year or so. This figure also appears to be dropping, and that cannot be a good sign.
The tightening of the credit market, the glut of homes for sale and the lack of qualified buyers are causing prices to rapidly decline, leaving many families who recently purchased housing with a debt increasingly larger than the value of their home. Lenders auctioning foreclosed properties in Santa Clara County have regularly been offering the homes at a 13 percent discount on what the previous owners owed.
Unfortunately, there is no coherent policy at the national level to deal with the crisis, nor does there seem to be any move to devise one. The Bush administration and the Federal Reserve have busied themselves propping up commercial banks and other lending institutions, courtesy of the taxpayer, while largely ignoring the plight of some of those same taxpayers who find themselves in financial difficulty. Congress has been similarly ineffectual, even though attempts are being made in the House to pass a bill giving relief to stressed-out mortgage holders. It won’t matter because anything they pass in Congress along these lines is bound to be vetoed.
Meanwhile, the situation gets worse for conscientious homeowners who keep up their payments and honor their mortgage agreements while spiraling into a widening gap between their home’s value and what they still owe. The number of people simply walking away from their homes in self-foreclosure is growing and may turn into a stampede. Faced with a worsening economy, rising prices and a falling dollar, these taxpaying citizens watch as the administration spends trillions of our dollars on its failures in Iraq and Afghanistan, and billions of our dollars keeping private financial corporations and the stock markets afloat, while ignoring the problems of average Americans, and they naturally get frustrated and feel they have no choice. I can’t say that I blame them.
There isn’t too much local governments can do to end or alter the wars in Iraq and Afghanistan.
They are, however, pretty much solely responsible for the local housing crunch. Local prices never would have been so high if local cities had not artificially limited supply.
You don’t need to blame Washington to find someone responsible for this. There is plenty to talk about with our local role in creating both sides of the housing crisis.
The government should not reward bad decisionmaking by banks and borrowers by bailing them out. I don’t care if it’s Bear Stearns or some idiot who overbought a McMansion in Mountain House during the height of the housing bubble. If you sign a contract, you should take responsibility. This also applies to banks, who should not allow risky loans. The market needs to sort this mess out. The government should not get involved. See:
http://money.cnn.com/2008/04/21/real_estate/bailout_backlash/index.htm
“A third of the American public rents,” Brandon pointed out. “They’re saying ‘I’ve been saving for a mortgage for years. I could have jumped in on a subprime loan too. Now I’m going to have to pay for a government bailout.”
See:
http://angryrenter.com/
http://www.nationalbubble.com/stopthebailout/
The smoke & mirrors around the term “affordable housing” provide an immense coil of flypaper to trap the unwary onlooker. Once you truly start to look into San Jose’s compliance with affordable housing requirements in various connections, but especially redevelopment statutes, you will laugh out loud at the obfuscation and intellectual dishonesty in these programs.
Of course, $450K is not affordable housing and it is risible to claim it is. Someone failed to notice that $450K is just about a half-million dollars. Even in this age of bloated municipal pay packets and benefits for urban planners, that’s still big bucks.
I would like to point out (again) the market dampening effect of Proposition 13.
This was a Baby-Boomer backed effort that allowed them to stay in their homes and pay pittance property taxes while their homes ballooned in value. They were disincentivized to move up or down due to market forces, and continue to sit on homes they use as ATM’s. And to top it off, many of them pay a fraction of their share of this city, state, and country’s tax responsibility.
I would like to point out (again) the market dampening effect of Proposition 13. This was a Baby-Boomer backed effort that allowed them to stay in their homes and pay pittance property taxes while their homes ballooned in value.
Yes, you are right. Thirty years ago, Proposition 13 was a clever, well-orchestrated, conspiracy by Baby Boomers, who at the time were in their late teens and 20s, and already homeowners in expensive CA. Yes, even in 1978 homes were expensive in CA.
Maybe if you knew what you were talking about you would not need to “point out (again)” something that only exists in your mind.
Kenny, do a little homework please. Proposition 13 is a continuum, offering tax benefits to all who choose to own a home.
As for those who use their homes as an ATM card, caveat emptor. If you don’t believe me, check out the default and foreclosure numbers and take notice of how such tragedy can strike those who behave in such a manner.
Greg Howe-
Prop 13 is a continuum, offering benefits to all who have already owned property for a significant time.
The benefits are very heavily weighted towards those who purchased their property more than 10 years ago.
New property owners get to pay very high property taxes for relatively poor services. I doubt you will find many of them supporting your “everyone benefits” argument.
No conspiracy stated or implied—I’m only trying to point out the negative effects it is having today. As Greg Perry states, it heavily discriminates the tax burden away from one generation and toward another.
A second time for clarification: no malice is implied, just horribly stilted policy which the statistical majority benefits from at the expense of the statistical minority. And the whole point of bringing it up is just to highlight it as a market disincentive that contributes to the problem Jack writes about.
Sorry about that nerve I hit though. Run some cold water over it.
Prop 13 Haters:
Prop 13 protects taxpayers under an acquisition-value assessment system which gives certainty that the owner’s property tax burden will grow no faster than 2% per year. The result is predictability, as property owners know precisely how much the property tax liability will be at the time of purchase and at any time in the future.
This contrasts dramatically to a market-value ad valorem system where taxpayers can be taxed on the paper gain in the value of property. Prior to Proposition 13, this had the impact of doubling and quadrupling the property tax burden of homeowners very quickly due to unrealized appreciation in the value of their property.
Removing Prop 13 would raise taxes dramatically on older residents and would threaten homeowners with the prospect of tremendous increases in property taxes that could push them out of their homes. (If you thought folks had trouble coming up with mortgage payments that have doubled or tripled as their rates reset, try telling Grandma on her fixed income that she now has to give up her house that has been paid for because she can’t afford the tax payments anymore.) The result would tend to exacerbate the current housing crisis and further reduce resale values.
Prop 13, like any initiative written and approved by the general populace, is far from perfect, but this one they actually got more right than wrong, and the result has been 30 years serving California as the only stable tax revenue stream in its highly volatile, unpredictable tax system.
Now, if you want to have a serious discussion about the disastrous effects poorly thought out tax policy has had on this state, let’s take a look at Prop 98 gaurantees….
Mark #9 – You only talk about half the picture with Prop 13. Back when Prop 13 was in place, businesses shared the tax burden more equally, but now personal property tax makes up a high percentage. So Prop 13 is actually unfair to homeowners, who bear a greater burden in paying for state services.
Remember, while housing typically turns over in ownership, business property rarely does, meaning that tax rates on those properties are frozen at levels from decades before.
Amending Prop 13 to address property tax inequities between homeowners and business, balance would be restored and the state’s financial situation would be more stable.
Mark-
Capping tax increases below inflation is not just “predictability”. It is a giant reduction in taxes for those who can afford to own property for a long time.
There are plenty of changes which could have offered tax relief equitably. One simple way is to cap growth in government expenditures based on population and inflation.
Instead, prop 13 chose to transfer the tax burden away from group A, at the expense of group B. Don’t expect group B not to resent it.
As for people forced out of their homes by high taxes, remember that reverse mortgages exist. A reverse mortgage on an owned house can easily pay for full market value property taxes. No one is forced out of their home.
They may not be able to transfer the full value to their heirs, but preserving wealth inequality over generations is not generally accepted as a legitimate goal of tax policy.
Amend Prop 13:
I must respectfully disagree with your suggestion that the state’s financial ineptness can and/or should be solved on the backs of business.
The facts do not support your suggestion that Prop 13 has resulted in a tax burden shift to homeowners. Business property pays approximately 2/3rds of the property tax, just as it did prior to enactment of Proposition 13.
The State Board of Equalization estimates that business properties are assessed today at roughly 75% of market value. The ratio of assessed value to market value for other property is much lower.(State average for all properties, including business property, is around 55 percent.)
The massive tax increase on business from a “split roll” would either be passed on to consumers or would make California business less competitive, resulting in job losses as some businesses move to other states. Small businesses, including many that are struggling to survive in this challenging economy, would be particularly hard hit.
As to the stability issue, I will reiterate my earlier comment that property tax is the only stable tax that exists in California today. Any change, whether it be to the homeowner, business or both, would result in increased volatility and would likely result in furthering the state budget’s structural problems.
That said, if we were to evaluate reforms to Prop 13 as an overall package which is inclusive of the elimination of all of the well-intentioned but ultimately detrimental, voter-passed initiatives like Prop 98,we might be on the road to real structural reform. Until these initiatives are reversed, they will continue to have a vice-like stranglehold on the state’s budget and worsen California’s economic health and vitality.
Regardless of the upside of Prop. 13, there’s no denying that it has helped propagate a phenomenon of people hoarding property they might otherwise put on the market, because selling obliges them to give up their locked-in tax break.
When I moved to San Jose in 1999 I was amazed how it was possible to drive around in neighborhoods for miles and miles and never see a “for sale” sign. (A situation that, sadly, has reversed itself of late).
I do have to say, though, that high-priced housing can’t be laid solely at the feet of Prop. 13. I don’t know of any such law in the Northeast, where home values have also gone through the roof.
Generally, price inflation results from too many dollars chasing too few properties. Prop. 13 does hold the supply down a bit, but it’s the gazillion dollars of stock options, IPOs and other rivers of free money that keep the housing prices here in the stratosphere.
Prop 13 has two main effects on housing supply.
It leads many cities to oppose residential construction, because it reduces the tax money cities expect from new residential development. This drives down supply, by much more than a little bit.
This is TMcE’s position on industrial conversion. He advocates limiting residential growth because of the tax structure. Santa Clara is a more extreme example.
The other factor is the one Tom #13 noted, that it reduces the number of properties on the market. This is true not just for existing homes, but also for buildable vacant lots.
There are quite a few vacant lots around the south bay which have never been built. Most of these would have been productive years ago if the owners had been paying market rate taxes on them.
Put it together, and you’ve got a strong argument that prop 13 is a major cause of the local housing shortage.
Greg ,
Don`t forget Coyote Valley! Bringing development of this valley to a halt keeps housing cost up in San Jose too. When you listen to many of the residents that are against this south valley development talk it is because they fear a decrease in S.J. property values.This theory has some weight.
I’d like someone to define, “affordable,” for me because I keep hearing home prices are coming down, but they aren’t. I haven’t seen much of a drop in prices for homes that approach anything near affordable. Since when is a 30-40 year old home with two bedrooms, one bath valued at $635,000.00 dollars? Or a mobile home on an $875.00 a month space, valued at $219,000.00?
I agree with Hugh in #2-“The government should not reward bad decision making by banks and borrowers by bailing them out.” If you sign a contract, you better understand the reality of what you’re agreeing to. Secondly, these loan institutions literally robbed people and are getting a way with it. If you or I mislead, and committed fraud in putting false information on a loan application to extort money from innocent citizens, we’d be wearing a nice orange one-piece suit, with a nice new pair of silver bracelets.
I’m a renter and since the mortgage melt down; rents have gone through the roof. I think our council needs to strongly consider re-visiting rent control. Some owners of rental units have been taking advantage of this new crisis and are making money once again, hand over fist. Isn’t rent gouging a big part of why people ran to buy houses at any cost in the first place? Remember the 1% vacancy rate that made renters so angry that they did whatever they could to get their own place? Didn’t property owners and developers keep jacking the prices for homes, condos, and townhouses up and up so high no one could afford them any more? What goes up must come down, and boy did it come crashing down.
The answer to what is responsible for all this is very simple: GREED!
#16
I’d like someone to define, “affordable,”
The term is relative. As such, it is more of a marketing term versus aomething useful. It DOES NOT mean a price that everyone, or even a majority, can afford.
Since when is a 30-40 year old home with two bedrooms, one bath valued at $635,000.00 dollars?
Depends on the neighborhood. If someone will pay that price then it is correctly priced.
You can get a decent 3 bedroom, two bath, home with a huge front/back yard on a tree-lined street in North Evergreen (East of Capitol Expressway, South of Story Road) for around $400K.
This is a great deal, and those who are savy will be taking advantage of the current dip in prices to get into the housing market.
Remember, people are being born everyday, and people are moving here everyday, but new land is not being made.
#17- Thank you. I like your definition. It would apply to what greedy realtors call affordable, not what we average hard working Joes would define it as. Affordable to me means something most people earning a decent living can afford without losing our shirt and living pay check to pay check. Very few people I know could afford home prices of the last several years.
“Depends on the neighborhood. If someone will pay that price then it is correctly priced.” Or is being forced to pay because the market drove prices so high even a broken down shack was way over priced! My God, when did our world become so greed orientated? What happened to getting your money’s worth?
“This is a great deal, and those who are savvy will be taking advantage of the current dip in prices to get into the housing market.” Yes, if you are lucky enough to meet the new standards held by lenders, can afford the higher interest rates, and have a tidy down payment that is! I think prices are going to go even lower because people are losing their jobs, and the cost of living is rising so high that people are heavily relying on credit cards, moving in with friends and families just to make ends meet. Wait until our Governor cuts housing and other low-income programs, it will get even worse. I heard on the news a few days ago that even hard working low to middle income families are applying for food stamps at a higher rate than ever, and that this past holiday season saw more working class families requesting food donations than ever.
“Remember, people are being born everyday, and people are moving here everyday, but new land is not being made.” Sad but true. We are certainly overpopulating the earth, and draining resources at a very alarming rate. I think I saw more pregnant women over the weekend then I’ve seen in months! I really don’t understand why so many women are having children today. There are so many hungry abandoned children overseas needing homes. Why aren’t we caring for the ones we already have? I’d guess it is an “All about me,” or a “Live now pay later mentality,” that explains it. Go figure~
The two major factors that are bringing our economy down are the price of fuel and the War in Iraq. These two factors are contrbuting to problems at the State,County and City levels as well.The low interest rates fueled a false economy driven by a hot real estate market. Now we pay the price.
Jack,
Did you see this in the Merc today?
http://www.mercurynews.com/opinion/ci_9092355
FYI~
http://www.mercurynews.com/ci_9092321?source=most_viewed
Jack,
There may be some relief in site for those looking for affordable housing.Rent control protects condo developers but hundreds of subsidized apartments built recently are sitting empty because developers can`t find tenants to rent or buy them. Add to this the new ones on the planning board and we have a housing glut.Consider too the record number of repo`s on the market.
The main reason:Rents and Condo pricing in our city should plunge is the econmy is sagging, allowing some renters and buyers to find deals on the open market. The developers are beginning to have liquidty problems, pricing has to come down. Frantic developers of affordable units are trying to lure buyers by offering incentives.
Developer liquidty problems could produce opportunities for residents.
September 11, 2003
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac—which together have issued more than $1.5 trillion in outstanding debt—is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.
….
Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.
‘‘These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis,’’ said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ‘‘The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.’‘
Representative Melvin L. Watt, Democrat of North Carolina, agreed.
‘‘I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,’’ Mr. Watt said.
http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec;=&spon;=&pagewanted=print
Today Barney Frank says…
“The secretary and the chairman of the Fed, two Bush appointees, came down here and said, ‘We’re from the government, we’re here to help them,’ ” Frank said. “I mean this is one more affirmation that the lack of regulation has caused serious problems. That the private market screwed itself up and they need the government to come help them unscrew it.”
How about that for some super-sized, mind boggling, chutzpah?
Barney Frank should be lynched.
Scratch that.
The entire US Congress should be lynched for this.
http://www.opensecrets.org/news/2008/09/update-fannie-mae-and-freddie.html
All this time I couldn’t figure out why banks were giving loans to people that had no business owning a home and no means to afford it.
But it all started at the top.
Who knew that Fannie Mae and Freddie Mac were nothing but failed social justice experiments / congressional ATMs that have become the financial equivalents of twin tower 9-11’s.
It’s time to drop a neutron bomb on Washington DC.