Affordable Housing Institute : US

If the astonishing long-term strength of American home prices is not to disappear in a cyclical downturn, there must be permanent structural changes in US housing demand.  One such is the evolving modern home.  For another, consider this:

 

Could some households own more than one house?

 

How many houses in your family group?

 

Aside from the classical summer vacation home (Adirondacks, Cape Cod, beach, mountains), there are two cases that, far from being the end of Epicureanism in favor of acreage gluttony, may well be economically sensible, as we consider two types of modern urban households: the two-career marriage, and the high-earner growing family, as illustrated in a recent New York Times article:

 

FOR most couples, the idea of a second home evokes images of walks on the beach or mountain vacations. But sometimes, making the decision to acquire a second piece of real estate has nothing to do with leisure and everything to do with work.

 

When couples see their careers move along divergent paths, and sometimes to different cities, the hard choices begin. And at a time when both partners are likely to have jobs that are personally rewarding and financially necessary, uprooting one to accommodate the other is often not an option.

 

STAYING PUT Mary Senechal stayed in Plano, Tex., after her husband, Dick, took a new job in New York City.

 

Dick Senechal, an architect, moved to New York City from Plano, Tex., a suburb of Dallas, in March 2005, to take a job as senior vice president of facilities for Loews Hotels, a job in which he oversees design, construction and renovation of hotels. He rented a 650-square-foot, one-bedroom apartment on East 56th Street. His wife, Mary, decided to stay in Plano, in their 6,000-square-foot, five-bedroom home, with five bathrooms, two half baths and a swimming pool.

 

Dick Senechal inside his 650-square-foot rental apartment on East 56th Street.

 

The Seneschals, who have a wonderfully apposite name! —

 

The Seneschals must know the size and needs of every manor; how many acres should be ploughed and how much seed will be needed. He must know all his bailiffs and reeves, how they conduct the lord’s business and how they treat the peasants.

 

The seneschal’s badge of office: the key to the pied-a-terre.

 

— have made a sound decision taking into consideration two ideas:

 

1.       The impact of transaction costs.

2.       The relative merits of renting versus investing.

 

By buying, Mr. and Mrs. Seneschal have created an investment with a tenure option value – they control whether and how long they rent in New York, and they have reasonable prospects for reselling the flat.  Additionally, having saved the enormous double transaction costs of selling one house to buy another, they have reduced ecosystemic entropy:

 

 

When he took the job with Loews, the Senechals calculated the carrying costs on a medium-size Manhattan apartment or suburban house, and they found that they would have been about the same as the combined carrying costs of their house in Texas and a more modest New York rental.

 

Economics plus mobility lead to a curious decision: earn money in New York, spent money in Texas.  In effect, the Seneschals are engaged in interstate remittance.

 

“For twice what we had in our house in Texas, we were looking at small one-bedroom apartments in New York or two-bedroom houses in Westchester or New Jersey, starter houses, far out,” Mr. Senechal said. “It turned out to be more economical to keep the house in Texas and rent a small place in the city and go back and forth.”

 

Significantly, the Seneschals came to the decision to purchase after having rented:

 

Now, the Senechals are buying a one-bedroom apartment in a co-op building on East 71st Street for $490,000. Mr. Senechal said the apartment has about 750 square feet of space, with a nice kitchen and a functional layout, two things that are important to him. He said they decided to buy now that he has settled into his job and has come to enjoy living in New York (he likes being able to walk to work).  He has been paying about $2,900 a month to rent. The monthly mortgage and maintenance payments for the new apartment will be virtually the same.

 

Some households actually have three homes — or at least 2¼, such as the couple with one spouse always on the go:

 

Kimberly Howard and Edison Peinado bought a one-bedroom apartment on Golden Gate Avenue in the North Panhandle neighborhood of San Francisco last June for what she described as “$650,000, an arm and a leg and our first born.”

 

“Don’t cry, my dear, I can find you a nice one-bedroom, for one first-born child.”

 

But Ms. Howard, a marketing director at Infonetics Research, a market research firm in Campbell, near San Jose, has spent far more time in the apartment than her husband. Mr. Peinado has spent the last year and a half in Farmington, N.M., studying to become a commercial pilot.

 

Two houses?  Plus a quarter:

 

He completed his studies in December, took a job with the Mesa Air Group in February and next month will start flying routes from Chicago.

 

Once Mr. Peinado begins to work out of Chicago, Ms. Howard said, he will rent what pilots and flight attendants call a “crash pad,” a kind of communal rental, where airline crew members typically pay about $150 to $200 a month for a bed in a house or apartment near the airport.

 

 

This multi-housing family is also using the multiple dwellings to reduce transaction costs and keep their options open.  But the effects are two-fold:

 

1. Increased housing consumption.  More homes are needed for the same number of households.
2. Interstate remittances.  For the desirable cities (New York and San Francisco respectively), extremely high housing costs are reducing immigration by discouraging households from relocating there entirely, instead choosing to invest in substantially more home located in a lower-cost state.  Price dynamics are driving demographic dynamics, a small bit of confirmation that the blue states are zoning themselves out of growth … and electoral ascendancy. 

“Yep, things really are growing bigger in Texas.”

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