Unaffordable Affordability?

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George Dell
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Unaffordable Affordability? Avoiding the Cobra Effect - Appraisers Blogs

If we value higher, what about affordability?…

A great deal of economic, social, and political talk has been around affordability of housing. To explore this topic, it may be helpful to ask some questions. Good policy starts with the right questions.

In simplest terms, some people have the resources to have nice homes in nice neighborhoods, others have just tolerable homes for shelter. And others have no homes at all. We call them “home-less.”

More recently, we have become aware of the connection of poor housing and groups of certain ethnic categories. Discovery. There is association between housing status and ethnicity. Now what?

I have no desire to take sides, yet find due to our cultural “polarization” any discussion or opinion not to the liking of one extreme or the other – attracts angry attack. In the absence of total agreement, any input, question, or observation is vilified. Mere mention of opposing fact is seen as opposing position bias. The active search for an informed middle ground seems to irritate everyone.

Back to housing prices, ethnicities, and affordability. Yes, it appears that correlation (mathematical association) has been found between low home valuations and certain ethnic groups. So here it comes: not political, not spiritual, not social. Just a statement of facts:

  1. Low valuations are correlated with some ethnic groups.
  2. But correlation does not prove causation.

Correlation simply means two things are related. Cause must be supported by economic, social, or psychological theory, or simply the action of law. The data alone will not do it.
For example, it has been found that drownings correlate with sale revenue of ice cream! Ice cream kills people! It must be stopped!

Oh wait. This can’t be. It must be the opposite. Drownings must bring on more ice cream licking! Oh wait. None of this makes sense. Yet. Yet, there is a correlation. These two variables do move together. Yet there must be a cause. What could it be?

Could it be summer?

And yet. And yet. Could it be possible that people eating too much ice cream, then go into the water, then get cramps, and drown! Possible?

Yes, it is possible. That is why we do science: “Systematic study by observation or experiment – by an expert in systematic study in that field of study.” It is not magic. It is simply the willingness, and desire — to question one’s own beliefs.

AND. There is another issue. I am pleased that the current FHFA (Federal Housing Finance Agency) request for information specifically asks for thoughts on potential unintended consequences. If you have read Jeremy Bagott’s book, entitled Dispatches from the Cosmic Cobra Breeding Farm, you know the story, as it applies to real estate appraisal. The story goes to the British occupation of India. Killer cobras were rampant. This had to stop.

The regulators decided to put a bounty on cobras, dead or alive! It worked. For a few weeks. And only until cobra breeders started to breed cobras for the bounty. (Unintended consequence #1). The regulators had to stop this abuse! The policy was cancelled. And what did the cobra farmers do? Turn loose the cobras. (Unintended consequence #2).

To resolve the housing issue, we must look elsewhere for why identical houses are being valued differently in different neighborhoods, populated by different ethnic groups. We must look elsewhere – at the same time knowing that it is possible — that some form of discrimination or history causes different prices.

We must look for unintended consequences and related issues. If we value higher, what about affordability? What is the cause? What is the effect? What is the unintended, unexpected result? Like the loose cobras, well-intentioned housing policy must seek possible unintended consequences.

Editor’s Note: We are not an Amazon Affiliate. We do not make any money from the purchase of Jeremy’s book, but we hope you’ll read it anyway.

George Dell

George Dell

George Dell is the owner of Valuemetrics and author of the Analogue Blog. He is a graduate of San Diego State University with extensive post-graduate work in Economics, Statistics, Mathematics, Finance, and Information Systems, Certificate level work in Environmental Management and Geographic Information Systems (GIS). George has earned the MAI, SRA, and ASA designations.

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4 Responses

  1. Avatar Carl says:

    The title says it all. Housing would become unaffordable for groups of certain ethnic categories.

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  2. Avatar BoB says:

    “….any discussion or opinion not to the liking of one extreme or the other – attracts angry attack. In the absence of total agreement, any input, question, or observation is vilified. Mere mention of opposing fact is seen as opposing position bias”

    And that’s exactly the tactic…those who espouse the current en vogue position vis a vis appraisal bias seek to change the thoughts & positions of others not thru meaningful study of causal relationships & often cold truths…but thru the use of fear, intimidation, threat to destroy your business, your income, have you ostracized from colleagues. Such tactics have been used in many countries throughout history, but that’s not a way we as Americans are used to experiencing. As Americans we don’t expect to be forced thru fear to “get on board” with a thought or “conform” our behavior relative to a particular allegation (other than codified law) if they are not consistent with our own thoughts & beliefs. The only thing missing in such tactics is a shovel to knock us over the head with. Other countries do that too. We can and should be better than that in America.

    Good insight by the courageous author.

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  3. Great article George. Well stated.

    I’m not going to touch the racial disparity aspect. AGA has offered several times (to ABC7) to perform appraisal reviews on several alleged erroneous appraisals (attributed to racism in the media). No takers so far.

    What I will address is the issue of ‘affordable’ housing. In major urban areas like Los Angeles or any other built-out city, ‘affordable’ housing is a complete myth. It is NOT attainable. Giving developers windfall bonus densities makes a lot of money for them, but does very little in terms of creating affordable housing.

    Developer bonuses don’t produce significant numbers of “affordable” units that poor people can actually buy.

    Instead, a small percentage of bonus units are sold to “lower-income” than the median for an area (which counts as ‘affordable’). That is not the same as being affordable to the general population or non-owners.

    California recently adopted state laws that destroy the concept of low-density single-family residential neighborhoods when they decided that everyone can now build rental units. Even in R1 areas. That MAY have produced affordable rental housing EXCEPT that California then turned around and also told people that ALL rental units in California are now subject to rent control.

    Need a tenant to move so your teen age son or daughter can move into the apartment yet still be close to home? No problem. Give the tenant 60 days notice and a check for $4,500 relocation allowance.

    I chose to let my rear apartment remain vacant rather than try to rent it out during the Covid “nobody has to pay for anything” epidemic. Since I have to pay water and trash for BOTH units I’d rather not have a tenant using water, without paying anything for rent.

    “Affordable” housing is no secret. It’s attainable the same way it was for our grand parents or parents. You MOVE AWAY to lower cost areas.

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  4. Baggins Baggins says:

    Obviously the issues are economic in nature. When people in a location can earn more, they can pay more. Driving up home prices without first bringing up the economic viability to afford that is a backwards approach which will drive many lower income people into financial ruin. With higher pricing comes higher taxes, insurance costs, costs of labor, often larger government, the need for a smarter financial gameplan, more responsibility requirements. One can only imagine what sort of controls may be implemented to manage the ensuing irresponsible use of credit extension.

    This whole thing essentially spawned from the advocacy groups which sought to force loan renegotiation with lenders on behalf of the struggling indebted, often urban focused. The groups whom were engaged in such efforts are the same ones advocating legislative proposals, forming new organizations and coalitions along with their lender contacts acquired through that process, to solidify the process of offloading reorganized debt to the taxpayer in the form of pricing subsidies. Helps the lenders too, codifying what was otherwise a charitable write down, transmorphing that into long term government subsidies and a higher corporate bottom line. If the goal is truly for equal access, they’ll need to drive the prices down not up.

    Imagine being in the shoes of a home buyer and being asked to check your ethnicity, knowing you could get a substantial government subsidy or price reduction if you checked one box instead of the other one. The list of possible gray areas of qualification consideration are endless. Proposals to see end pricing based on race will inevitably lead to new and innovative forms of fraud. Obviously a common play will be similar to common lending fraud today; acquire home and loan (now at artificially low price), cash out as possible, never pay, default, repeat with another family member who has not defaulted recently.

    If there is a problem with the economic standing of any group of persons, the solution is more high paying jobs, better financial education in primary school, etc. Perhaps even something radical like work programs where after you helped build a hundred homes, developing skill sets and a good career in the process, the next home being built would be for you. There are better solutions than using the power of government to impose parity pricing.

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Unaffordable Affordability?

by George Dell time to read: 3 min
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