Monday, August 20, 2007

Are We Better Off?

by Gen Ferrer

We are for the most part enduring the same things in the first world. Salaries increase nominally (or decrease) and everything else increases substantially, particularly private property. Private property, even when it slows down or drops, still maintains a level for the most part unaffordable to single income earners. A home was once a realistic goal for a young couple looking to raise a family on a single income. Salaries provided enough for the sustenance of the family with a little extra for savings and home maintenance. Today we see a different picture with both parents forced to work in order to make the basic payments. They have been hit hard by property values as well as the burden of property taxation.

The market determines real estate values by the demand of an area being met under the current supply regardless of local average income. Wealthy out-of-towners may buy up an area, increasing the market value of those towns, whilst the offspring of those townspeople, people who have no intention of cashing in on this new profit, are forced to move out or swallow themselves in possible foreclosures and/or lifelong debt. In some cases, young people are looking elsewhere in the United States for a future home. With little incentive or support to start their own business or to find comprehensive work, the new generations must leave or suffer exorbitant real estate prices and bloated property taxes. The first world is playing a game of musical chairs with local residents moving to other areas of their home state, or in some cases to another state altogether in order to secure for themselves a little property.

In the 1950s the average citizen was able to afford a modest home on a single income in Long Island, New York. His wife was able to raise the children, giving them a Christian upbringing, spending quality time with them and sharing in their children's activities (little league games, schools, etc). Property promised to be an asset paid for within a reasonable amount of time and the promise of inheritance handed over to the next generation.

Today the margin between a monthly mortgage and wages is wider than that of previous generations. A couple must work. Their paychecks barely make enough to sustain a mortgage so they must look to other locations in order to survive with just enough to get by. Due to the steep financial climb of real estate, a family must consider an area where property is comparable with the wages they earn. If they can afford this luxury they may move to greener pastures even as they wave their local communities goodbye. If not, they must rent to avoid foreclosure. They find themselves in the hole of renting, a pit so deep one can find it quite difficult to climb out. Renting weakens the chance of property ownership and becomes a spiral that affects the inheritance of future generations.

We have forgotten to ask ourselves the most important question. If for all the talk of great economies or the depressing unemployment figures we are truly progressing as a society. I trust the readers of these articles we write at The New Distributist League must be asking themselves the same questions we do: namely, whether a society is basking in economic glories when we regress into liability or require two people to remain in 30 year real estate debt versus the one of the past. Are we better off when we have disposable goods at our finger tips at rock-bottom pricing, when we can't afford the thrift of life-long materials like our parents had and maintained? Are we better off outsourcing our jobs than controlling our own means of production through self-ownership? And finally, are we more secure working for companies interested in the ghost entity, with no promise of attaining a pension or without job security than working persistently to be self-sustained?

Interestingly enough, these are the questions asked in the United States as in the United Kingdom, Australia, Spain or Italy. They are the preoccupations of pubs in Ireland or cities in Canada. We are not speaking of underdeveloped nations or countries where our labour and services has disappeared to. We are speaking of the first world and that is where this New League is writing from. We are asking if we have progressed or regressed. We are asking if paper towels for 1 dollar is more important than the kitchen. We are looking to quality and value and thrift. We are questioning whether we wish to continue to consume from companies which turn their backs on their nation, believing they may return to sell to to that nation. We are defying socialist and capitalist politicians who ignore these questions, choosing instead to create needs which do not exist as an excuse to centralise more power.

Finally, I wish to tell the reader of a nefarious opinion I have similar to the whispering of the ear by Chesterton. I fear the society which continues to believe in choice above goodness, consumption instead of thrift, rent instead of ownership. It is the match lighting the fire of slavery. The Socialist insists on property appropriation as a consequence to an imagined cause - the war of classes, whilst the Capitalist insists on property appropriation for the cause of making money. Already they have begun their secret pact. Already they are both making money by convincing us of a war of the causes. There will always be those who believe in coincidences. These insist the same results amongst the first world is simply a playful circumstance or that man has been affected by the "spirit of the age" so nothing can be done. They insist the machine cannot be stopped even if a man is left to purchase affordable land on a sinking tugboat. This is the fallacy of their tug of war. But there is one way out of this same rope and it is alone the common sense possessed by the Distributist. It is only Distributism that in this economical tug of war uses the scissor.


Kevin said...

I've run the numbers and things aren't nearly so pessimistic, if you have the presence of mind to do a little planning. Many of the difficulties you are lamenting are self-inflicted by people who think they are just getting by when they are paying off a nice car, have high-speed internet and cable, and a cellphone each, and go out to eat, and generally go through life without making a budget or making sacrifices to save money. The real problem is that we expect to achieve at 25 what our parents have at 60, and we want it now now now.

I would be interested in carrying on a conversation in which we examine the numbers together and ask whether your pessimism or my optimism is more valid, based on agreed upon assumptions. What do you say?

Athanasius said...

Perhaps this is a cause of our pessimism:

Pessimism 1

Pessimism 2


Kevin said...

"Most Americans who rely on just a full-time job earning the federal minimum wage cannot afford the rent and utilities on a one- or two-bedroom apartment, an advocacy group on low-income housing reported ...

That figure assumes that a family spends no more than 30 percent of its gross income on rent and utilities — anything more is generally considered unaffordable by the government.

This kind of silliness is why we need to do the numbers ourselves.

Kevin said...

Re: your first link

Here's Ben Stein on the subprime woes.

Kevin said...

re: your second link

I read a bit of the study. It is true that according to their calculations, the median income for a man in his 30's is lower in 2004 than it was in 1974, which is what the headline trumpeted (inflation adjusted). But curiously, the 2004 median is higher than the two other data points given, 1994 and 1964. Why 1974 is particularly high they don't say. Maybe something to do with how they calculate inflation or some other issues. It seems kind of odd that they chose that year for the comparison, considering.

There's also the issue that there are more women than men coming out of higher education now, meaning more women are working a lot of those median-level jobs like teaching and the like.

Gen Ferrer said...

I've heard today that due to the recent foreclosures we may be seeing the advent of the 60 year mortage loan. Previously we had 20, now 30 and possibly 60.

We need to see comparative charts of wages in ratio or contrast to property. Let's assume a standard 2-4 bedroom home. We should then compare the decades and see if that margin (per capita not household gross) has become wider or smaller.

I do not believe it is standard that one is asking to live as a 60 (by owning property) year old because this assumes historically only the elderly have owned property or that because it may be commonplace today, it is incorrect to assume one could be free of debt at an earlier age.

If the standard is that only senior citizens should be free of the burdens of mortgage, then there is something wrong. My grandfather during the Franco years in Spain had his home paid for by the time he was in his 40's. So did my aunt. Property (while I don't want you to think Distributists believe in some egalitarian home distribution) back then was not treated as a commodity as it is today. The face of credit has also changed and created a challenge to most citizens and a source of exploitation through the use of usury. It is like the carrot of temptation, held on a string. When people bite the person holding the stick shouts it isn't his fault. The fact that the tempted bit doesn't say much about his character but it doesn't absolve the tempter.

Kevin said...

You seem more interested in measuring actually are doing with their money than what is possible. For instance, one of the things that I wonder about is, what kind of lifestyle would you be able to afford if you avoided spending money on anything that wasn't widely available before recently, like cellphones, cable, internet, etc?

A couple things: Its not just wages in contrast to property that is relevant. First, what is the overall basket of goods that you get for your money? If housing is a greater percentage of income, but other things have become a smaller percentage, the same lifestyle might cost the same amount of labor.

Second, what is the quality of the housing? I believe square footage per capita has been increasing quite a bit.

Third, how should we account for benefits due to improvements in technology? There may be no way to measure this, but we'll keep it in mind.

Fourth, whose situation are we concerned with? The median? The lowest 50% The average? Those with exactly 4 years of college? High-School Grads? Immigrants? Children of the middle class?

Kevin said...

Here's a data showing that the homeownership rate has increased quite a bit over the last couple decades, particularly since the early 90s.

One of the reasons housing costs are so high may be that more and more people are willing to stretch their budget to achieve homeownership, as opposed to remaining in a renting position. This will, of course, bid up the prices.

Kevin said...

Here is some data showing the median square footage of a single family home has increased 47% in 33 years. That kind of benefit should be taken into consideration when looking at the increasing price of the median home.

Kevin said...

re: mortgage terms

If you could obtain a fixed rate mortgage in your early 20s the chances are you can pay it off in 20 years. Why? Your income generally increases from year to year, while the mortgage payment in real terms decreases due to inflation.

If you assume a mortgage at a rate of 6.5% with payments set up for a 30 yr term, and them you get a very low 2% inflation, and voluntarily increase your monthly payment by no more than that 2% a year, you'll have it paid of in 20 years. If you assume that between higher inflation and a little career growth you can make 4% increases in that payment, it will be paid off in 16 years.

So as long as you can manage the starting payment, any upward mobility you may have with earnings will be a great help, that is...


Kevin said...

BTW, marketing a product is not evil. People can make their own decisions about what they can afford. You are talking about adults as if they were children.

Kevin said...

"I do not believe it is standard that one is asking to live as a 60 (by owning property) year old because this assumes historically only the elderly have owned property"

What I meant was that the young people expect that, on top of a mortgage payment, they ought to be able to afford the lifestyle of their parents: going out to eat, vacationing, buying gadgets, etc. When they can't do all these things, they blame the biggest part of their budget: their mortgage. But if they took a frugal approach they could afford the mortgage. This may not apply to everyone. I'm thinking of those educated young people earning 40k or so, whose parents are making six figures combined and have a lot of home equity established.