The Progressive Ensign

insights and analytics to build an economy that works for all

Category: Housing

Declining Mobility Limits Millennials Careers, Economy

 

Image: dailymail.co.uk

More millennials are living with their parents than ever before due to lack of income, availability of housing and marriage later in life.  Moves by people under age 35 are continuing to decline.  Seniors are moving a bit more but overall they are staying put in their homes for retirement, as the cost to move to a new home is soaring.  Home prices have increased on average by 6.7 % per year over the past five years, skewed toward large square foot homes for upper income buyers.

Source: Trulia – 1/31/2018

Overall Americans are not moving like they used to in the 1990s, and before the Great Recession. In 2017, 34.9 million Americans moved to new residences, translating to a household mobility rate of 10.9%, which is the lowest rate in the last 50 years since the Census Bureau has been tracking this statistic. Lack of mobility is showing up in total household formations including rental units, new and existing home figures.  For all of 2017 there were only 400,000 household units formed, notice this is a similar pace to the aftermath of the Great Recession.

Source: Federal Reserve of St. Louis, 1/2018

The mobility that is taking place is from major cities to major cities or coast to coast.  We noted in our post on Heartland Economics that one of the issues that faces many rural regions in the South and Midwest is lack of new jobs, digital infrastructure, health and education services.  When young people in these regions cannot receive the education they need to build a career where there are jobs in the cities they stay where they are in low wage jobs with few prospects of advancement. The opioid epidemic is worst in rural regions in the country where a sense of hopelessness has set in for many people.  While in the last quarter some of these regions have seen an increase in jobs, this increase in economic activity is likely to be a passing surge from a very low economic base to begin with that will not last without long term investment.

Next Steps:

Why should we be concerned with lack of workforce mobility?  Because, when people do not move to take on new jobs, or start families or get away from home, home purchases decline, furniture sales drop, appliance sales fall and the overall economic life blood of our economy stagnates. What do we need to do?  Raise wages for workers to a decent level in each metro and rural region of the country, so people can build a nest egg and make a down payment on a home.  Rental unit pricing needs to be addressed in a way that is fair to the multiunit owner while holding down rental costs. The most recent Tax Bill passed in December of 2017 eliminated the provision for tax deductions by employers or workers for unreimbursed moving expenses.  This provision needs to be reinstated to drive the costs of moving down.  Interest on first mortgages should be made tax deductible for all regions of the country with a special emphasis on low income first time buyers. In rural regions we recommend special tax zones be established to offer incentives for investors to setup businesses there, with partnerships with local universities to build incubators for startups much along the model pioneered in Silicon Valley yet tuned to the needs of the region.  The size of our workforce is declining, we have young people staying at home so we need to address the issue of lack of mobility head on to provide the  life opportunities to our young people that earlier generations enjoyed.

The Elite Makes U.S. A Land of Renters

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab.)

Photo: marketplace.org

Household formations have been trending down over the past 30 years from its peak reached after a continual increase since 1955.  More than a quarter of possible home buyers are unemployed, underemployed, saddled with student debt or living at home with their parents making home buying a challenge. The other possible household formation group is making such low income they are forced into renting as the only budgetary alternative.

Source: Real Investment Advice – 7/13/18

The housing market has shifted drastically toward high end homes for the wealthy, not first time buyers, and multi-unit rental units for investment.  As investors look outside the stock market for high returns rental units have been an excellent income stream with income streams totaling $800 billion per year.

So, while wages for the 80% in income, non – supervisory workers have been stagnant; profits, stock buybacks, executive salaries and other financial gimmicks have provided the top 10 % with 90 % of national income since 2008.  In effect, we have become a nation of renters due to two factors: wages being held down, and inflated assets benefiting the rich.

Source: Real Investment Advice – 7/13/18

Corporate executives do not make their stock price and profit targets by raising wages resulting in reduced profits.  Wages as a cost cut immediately into profits, which a CEO wants to stay clear of having to explain to the Board or shareholders.  Does it really make sense that workers are not getting wage increases in a job market with the lowest unemployment rate in 10 years? Until workers get enough countervailing power in wage negotiations worker wages are likely to stay stagnant. No, executives are allocating profits, offshore and tax cut funds to benefit themselves and shareholders while workers are left out of the economic feast.

Next steps:

We have outlined multiple reasons for lack of wage increases in earlier posts, the bottom line is executives don’t want to give raises beyond inflation.  Proposals like Senator Cory Booker’s Worker’s Dividend Act to share stock buyback dollars with workers is a good start, yet the sustainable solution lies in corporate governance, where activities shareholders required management to give workers their fair share of profits; for example if executives receive a 5 % cut of the profits workers should receive the same 5 % as well.

To give first time home buyers a boost, we need to reduce student loan debt by re financing their rates to the rates that the Federal Reserve offers bank.  After all we are ‘banking in the future’ of our young people.  Where possible student debt could be forgiven for domestic service corps work or working with corporations who hire graduates to reduce their loans as part of the offer package.  Government mortgage  agencies need to support first time buyers with reduced down payment requirements and other incentives.  To incentivize home builders set asides of homes for first time buyers need to be established to create inventory from which a first time buyer can select their home.

Increasing household formations should be a top priority for policy makers and the wealthy alike.  When household formations are moving ahead, furniture, appliances, home improvement hardware, and thousands of product and services are purchased. Plus, when people own a home they have a piece in the future of their neighborhood, schools and community which will increase property values for all.

Millennials Buried in Student Debt Can’t Buy Homes!

 

Student debt has soared to $1.4 trillion in the last month according to the Federal Reserve.  Now millennials are faced with a combination of soaring student debt and high home prices are giving up on owning a home.

Sources: Federal Reserve Bank of New York, US Census Bureau, New York Times – 5/29/18

In 2003, 42 % of people under age 35 owned a home now only 35 % own a home.  The dream of owning a home is slipping away as our society allows the rich continue to enjoy huge tax reductions in the most recent tax bill, with continuous lack of state funding for colleges and universities and then a paucity of forgiveness programs for graduates.  The lack of household formations, now at a low point since the Great Recession means that durable orders will fall and sure enough durables (ie. appliances, furniture, cars) orders have fallen recently.  As millennials and working class are squeezed between stagnant wages and rents, college debt, car loan payments, and credit card payments:

Source: Bloomberg, The Wall Street Journal, The Daily Shot – 5/29/18

Next Steps:

We saw this problem getting worse in our blog last April and suggested several solutions related to student debt forgiveness and interest reduction programs:

As part of the spending bill that Congress passed last month, $350 million was allocated for a fix it forgiveness program for some types of student loans.  Senator Elizabeth Warren has been surveying the issue and individuals trying to take advantage of the provisions where she found that it was quite complex, answers were in complete from the Department of Education and work still needed to be done to setup the process. She found many firefighters and teachers having a difficult time getting into the program.  Prior to passage of the spending bill Senators Whitehouse and Kaine wrote a bill to setup a student debt forgiveness program and get it funded, their bill set the stage for Democrats to push for provisions of the bill to be included in the omnibus spending bill.

This solution is still not enough compared to the huge issue of $1.49 trillion outstanding placing an anchor of debt on our young people when they need to be investing in starting their families and careers and buying homes. In blog of February 16th in our archives, we review an idea to cancel all student debt.  We like the idea moving forward, yet recommend that forgiveness be done in stages, by reducing interest rates, offering Heartland Service, providing a universal national service option and corporate sponsorship of an internship by the student.”

Our ideas stand today, as they did six weeks ago as Congress, the Elite and Corporate Nation States continue to ignore the fact that we are not doing right by our young people entering the economy and starting their careers.

California Attacks Middle Income Housing Crisis

 

Photo: St. Vincents Housing

The California legislature has introduced a bill to make low income housing tax credits available to housing agencies for middle income housing. Assemblyman David Chu, D -San Francisco, said “During the housing crisis middle income Californians are in a very tough spot, “he noted that “They don’t qualify for low income affordable housing, but also can’t afford market rates”. It is good to see the California legislature taking action on this core issue for the middle class.

With stagnant wage increases, lack of affordable housing and rising interest rates middle income families are forced to rent instead of buying a starter home. Overall nationally the number of first time buyers in the market has dropped by two percentage points to 30 % from 32 % last month which indicates how they are getting squeezed out of the market in our recent blog of 2-20-18. The housing affordability index is at a 9 year low as well.

Add to these factors driving the lack of affordability is the inventory of starter houses is continuing to shrink as builders go for higher margin larger homes with higher prices – the average price of a home has increased year over year by 6.8 % way above the average salary increase barely reaching 2.5 %.

The following chart shows how home ownership rose during the period prior to the Great Recession but has fallen since to 1990s levels.

Source: Department of Commerce – 4/26/18

We need to have housing ownership levels back to 2003 levels before all the sub-prime mortgage programs spiked the home owner binge.

As we have observed in the past home ownership is a foundational goal for many people. Homeowners invest time and energy in a commitment to the long term improvement of our communities. Household creation boosts our economy when new home owners buy appliances, furniture, carpeting and improvement services.

We applaud the California bill but it does not go far enough. We need renewed housing funding via Fannie Mae and Freddie Mac, incentives for builders to build low cost starter homes, cities to set aside more land for housing and an end to Administration protectionist tariffs against Canada driving up the piece of lumber.

Millennial Buyers Hit by Shrinking Inventory of Starter Homes

 

Image: ccdallas.org

The number of starter homes for first time home buyers has continued to decline over the past six years. Millennial first time buyers are struggling with high student debt loads, car payments and sky high rents.  Many young people can’t afford to live on their own and live with their parents into their late 20s and 30s. New household formations are at their lowest level since before the 2008 recession.

Sources: Trulia, Bloomberg – 3/22/18

On top of all the personal finance issues for first time buyers the price of housing continues to sky rocket now at a 7 – 8 % increase year over year.  Plus, the GOP Administration has slapped tariffs on Canadian imported lumber a major building material for homes giving a even bigger boost to prices.  The difference between incomes for starter home buyers and their incomes continues to spread with the housing affordability index at a 9-year low. For our economy we need a boost in first time buyer homes to increase house formation which will increase sales in home furnishings, appliances, and floor coverings – which are now flat to growing at only 1 to 2 % per year.

Builders make more margin on higher priced homes, so when they have a choice to build a high priced home versus an affordable one they will choose the high priced home.  So, how do we provide incentives for builders to build more starter homes, and increase the pool of first time buyers so builders have a good market for starter homes?

Next Steps:

Home builders are business focused, they see a declining number of first time home buyers so they build more high prices homes and they have few incentives from loan providers to build first time homes.

First, we need to mitigate the student loan debt load by refinancing their loans at lower rates, providing more workouts on favorable terms or for public service out and out forgiveness of the loan.

Second, the lumber tariff needs to be ended, so we can balance lumber markets between the US and Canada to reduce lumber prices

Third, we need to work with federal home loan agencies to finance more first time homes on more favorable terms, so young couples, or others can purchase their starter home.

When people own a home they take care of it and their neighborhood looks better, they gain an intrinsic sense of reward in caring for their home and making it theirs – renting can never provide that feeling.  Home ownership is a key pillar of our democracy building the equality of ownership. Homes need to be available to all to own, not just the wealthy.

Powered by WordPress & Theme by Anders Norén