Squeezing Out The Middle Class
The news from California is that home prices in Santa Clara County — what everyone calls “Silicon Valley” — now average just a touch over half a million dollars, according to Broderick Perkins of the San Jose Mercury News.
I’m not sure whether to rejoice at the good fortune of folks who bought in San Jose 20 years ago, or to wonder how people with average incomes will be able to buy.
People with average incomes — whatever “average” might be nowadays — are important. They are the school teachers, webmasters, police officers, factory workers, electricians, and others who make our communities livable, the people who supply the products and services we all value. These folks are not in the upper income brackets, but they’re also not poor.
Except for those who won the lottery or did well in the stock market, you won’t find people in the middle income brackets buying $500,000 homes. Between purchase prices, closing costs, monthly payments, and property taxes, such residential real estate makes no sense for households earning $50,000 or $100,000 a year.
Not only is buying a $500,000 home implausible for most of those in the middle-income brackets, renting such properties is equally unattractive. If homes valued at half a million dollars can be rented for $2,500 a month, where does a middle-income household get $30,000 a year in after-tax dollars to live in such “average” accommodations?
It’s hard to say that rising home prices are inherently evil — that isn’t the case. I certainly want my property values to rise, and as a landlord I also want rental rates to increase.
But there’s a nagging voice which says that sometimes there can be too much of a good thing. I want home values to rise, but I also want good schools and that means teachers must be able to live in my community. And the same is true for fire fighters, nurses, and a thousand other professions.
As a nation we’ve had a remarkable streak of economic good luck for nearly a decade. Home values are rising, the stock market is soaring, unemployment is minimal, and inflation is invisible.
Today’s booming economy is founded on endless consumption, a rising stock market, and the presumption that in the coming years we will only see more of the same. Given such thinking, won’t the stock market always go up? Why not buy a house for $500,000 if tomorrow it will be worth $600,000? Isn’t that the theory?
The real question is whether entire regions will effectively become “off limits” to the middle class. If the answer is “yes,” then the attraction of such areas will begin to decline and overheated home prices will become unsustainable.
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Published originally by Realty Times on March 23, 1999 and posted with permission.
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