Tag Archives: employment

Reiss on Homes as Investments

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US News and World Report quoted me in Is Your Home a Sound Investment? It reads in part,

Whether it’s beautiful new construction or a rehabbed fixer-upper, the place we call home demands time, attention and upkeep over the years. All this can enhance its value, and to be sure, Rich Arzaga inhabits a fabulous residence in San Ramon, California. The founder and CEO of Cornerstone Wealth Management estimates that its value approaches $1.9 million. The 5,400 square-foot abode boasts a swimming pool and a built-in barbecue, and has undergone more than a half-million dollars in improvements since he purchased it in 2005.

He considers the money well-spent: But does his home a double as a sound financial investment? As much as Arzaga loves his lodgings, he’d also argue that homeownership doesn’t translate into a smart addition to his portfolio – or anyone else’s, for that matter.

“We have seen many scenarios where a family would be much better off today, and in the future, renting,” Arzaga says. “Most people who insist that owning is a great investment are purely emotional on the matter and have not done any serious overall calculation. They are blinded by a feeling.”

Arzaga says he’s got the statistical analyses to back up his assertions. Yet expert opinion varies greatly as to whether a home represents a great investment. No single answer reflects a one-size-fits-all scenario any more than a cute brick bungalow resembles a sprawling suburban mansion.

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Still, others pit themselves on both sides of the debate over the value of homeownership from an investment angle. “My view is that a home is not an investment, but it can certainly be a profitable noninvestment,” says David Reiss, a professor of law and research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School.

Reiss maintains that the notion of “value” should revolve around financially intangible factors, although certainly, those could increase a home’s value over time. “Are there good schools and playgrounds for your kids? Is it near your job and your social network? If the answer is no, that’s a good reason to pass on a house that seems like a good deal,” he says.

Housing Affordability for Moderate-Income Households

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The Center for Housing Policy’s most recent issue of Housing Landscape gives its Annual Look at The Housing Affordability Challenges of America’s Working Households. The Center finds that

Overall, 15.2 percent of all U.S. households (17.6 million households) were severely housing cost burdened in 2013. Renters face the biggest affordability challenges. In 2013, 24.3 percent of all renter households were severely burdened compared to 10.0 percent of all owner households. (1, footnote omitted)

The Center summarizes “the severe housing cost burdens of low- and moderate-income working households.” (1) Unsurprisingly. these households face

significantly greater affordability challenges than the overall population. In 2013,21.2 percent of working households were severely cost burdened (9.6 million households).Twenty-five percent of working renters and 17.1 percent of working homeowners paid more than half of their incomes for housing that year. (1)

The report notes some modest good news:

Since 2010,the overall share of working households with a severe housing cost burden has  fallen.This modest decline is the result of a complex combination of factors, including the shift of  some higher-income households from homeownership into rental housing. An insufficient supply of rental housing and sustained increases in rents have led to millions of working households having to pay too much for housing or live far from their jobs, in substandard housing,or in poor-quality neighborhoods. (1)

Federal and local housing policy has not yet come to grips with the fact low- and moderate-income households have been paying a significant portion of their income in housing costs year after year. Household have to make difficult trade-offs among cost, distance from employment, housing quality and neighborhood quality.

The Center notes that more can be done to support affordable housing at the federal and state levels, but it is not clear to me that there are any politically feasible policy responses that can make a serious dent in the affordability of housing for working households.