Why the Housing Bubble Freaks Everyone Out a Little Extra
The Monetary Wars Part XI
"A strong economy causes an increase in the demand for housing; the increased demand for housing drives real-estate prices and rentals through the roof. And then affordable housing becomes completely inaccessible." -William Baldwin (the Economist, not the actor)
Most Economists are actors, too, but let's not dwell on that. The above is a good, solid Economics quote because it succinctly walks through a process that some people would not know to walk down. It links processes taking place in society to the well being (and sometimes anxiety) of the individual. It presents a lesson so fundamental that nobody should reach adulthood without understanding it. And yet, we are nowhere near that level of basic economic literacy.
In this article, I would like to present a simple hook that will hopefully help some readers establish an even easier position from which to understand and teach the economics of housing.
Are We in Another Housing Bubble?
"Double, double, toil and trouble; Fire burn, and cauldron bubble!" -William Shakespear
Some people say we're in an "everything bubble" or a "credit bubble" or any of the other twenty-odd ways of putting it. During the plandemonium I've chosen to think that we're in an "idiot bubble", but it's all rhetoric. And we know it's a bubble because the effects so badly spill over to those who aren't responsible.
Everybody seems to be asking me if we're in a housing bubble, or if the bubble is going to burst soon, or if we're going to have a worse recession than after 2007-2008 (prior to which I wrote several hundred thousand words on the topic that none of those people paid attention to). The answer is almost certainly "yes" to most or all these questions, though inflation might simply catch up with the bubble. I really don't know, and rising interest rates won't help prices go higher, and that's not the primary subject of this article. Most real estate experts surveyed (out of 32) said "no housing bubble" recently, and inflation could disguise whether they are wrong (if they are).
Long, Short, and Flat
"The cause of homelessness is lack of housing." -Jonathan Kozol
The quote above is the sort of statement that becomes popular through common ignorance. Houses can be traded for money, which means that it can be traded for most anything else. Homelessness is thus a larger economic problem in which there are people either unable or uninterested in participating economically to the point of demanding housing (temporary or permanent) with their labor.
Understand that I'm not dismissing the problem of homelessness [in America is where I understand it best]. Instead, I'm saying that it's part of the larger economic fracturing of America. Part of American economic dominance lies in controlling economics through the dollar. And that's a complex topic worth a few million words. Instead, I'm just going to lay out a simple concept to help people better understand the housing market:
If you own one unit of housing, you are flat the market.
If you own more than one unit of housing, you are long the market.
If you do not own a home, you are short the market.
There is no perfect definition for a single unit of housing, and a home that houses one number of people can sometimes house a different number of people, which provides a flexibility at the level of the family or close social graph. But at least understanding that market flatness within a personal economy implies ownership helps us understand how the economy can "run away" from the homeless who are de facto short the housing market.
Next, the observation of flexibility tells us more about the problem. Homelessness depends on the inability of society to involve a more flexible family structure.
A rapidly changing social landscape makes it harder for a family to take in refugees, whether nearer or further apart in the gene pool. This is one of the several reasons that I do spend time thinking and writing about the Culture Wars. A higher quality social fabric would extend flexibility to the family structure, which would provide better care, coaching, nourishment, and educational opportunities for children, and also better protection for the elderly.
Homelessness is generally a problem that begins with the young before they have capital, or with the old after they have run out of labor to trade for capital. In other words, homelessness is a problem of labor and capital, but also of connectivity of the individual to a family structure that smooths out the dangers to the young and the old. Such problems are distinct for every individual, but when we begin to drill down, we find a disturbing common thread among fully half of the homeless:
The child welfare system is sometimes described as a highway to homelessness. An estimated 20 percent of young adults who are in care become homeless the moment they’re emancipated at the age of 18. And nationwide, 50% of the homeless population spent time in foster care.
This quote does not even take those brought up in extreme poverty (primarily in the ghettos), most often in single parent households. The labor and capital problem that is homelessness is largely induced through broken families. From there, the problem is made almost intractable by the increased pace of growth afforded to the international banking and technology center that brings in by far the largest amount of immigration of educated, job-ready individuals that relieves some portion of the pressure that would otherwise be present to solve the problem.
Understand that I'm not blaming immigrants. In a world in which a technological lead becomes a runaway national security issue, the incentives are the incentives. And if authorities were able to unwind a sabotaging education system and institute the low hanging fruit of improvements, there is clear path dependence to reach for the easiest solutions, and kick all cans down the road. Until they form their own bubble.
It’s strange in American culture to kick your kid out at 18 to go be an adult. Most other cultures hold enormous value in family and generations are known to stay together to help as new babies are born and as old folks need care. Here, we think the nuclear family unit is best, we pay others to watch our kids and let our elderly die alone in nursing homes.
What an interesting way of thinking about these problems. I never before realized that I was flat the housing market, though I recognize now from my feelings about it (indifferent) that I am.
And what a great insight about the homeless and the fracturing of families. When I was 18 I was expected to get out on my own as soon as I graduated from high school. I was out within days.
But it wasn't that my parents didn't care about me. It's that they were raising seven children, it was physically and financially exhausting, and I was conscious that they needed me to help by getting out on my own. They needed to be freed from feeding me and they needed my bedroom space for the younger kids.
I loved them, so I wanted to help them out by leaving.
So I went to college for a year, and met and married my wife there my freshman year. She was pregnant within a couple months of our wedding and I had to drop out of school to support my new family. Our second child was born just before I turned 20. But I wanted a family. We had no thoughts of abortion. I wanted to replace the loving, tight-knit family I had left.
So it seems key to me that the problem is not so much about economics as love. My family loved me and I loved them, so when it was time to leave I wanted a family. If you want a family, you work out a way to care for it.
If you're cast out, unloved, you're probably horrified at the idea of a family. There's no incentive to get a job handling baggage for Greyhound (my first job as a married man), and then work your way up to better things, to pay for an apartment and support a family when you don't want a family and you've learned in some deep way not even to want yourself.
My father was a janitor when he married my mother. She never held a job. She cared for their home and children. I don't think it's possible for ghetto families now to be poorer than we were. I think American values and attitudes changed and I think they were changed by malicious people.
My wife says she remembers the day those values changed. She thinks it was in 1972, the day the book Open Marriage came out. Her father read that book and promptly abandoned her family for a file clerk at his office. She can still feel the anger and horror she felt the day he left. Her littlest sister, who was 5 at the time, never recovered. To this day she is constantly on the edge of homelessness.
The late '60s were filled with books like that.