"Jobs Aren't For Life Anymore"; Property Might Be
Tom Streithorst writes at LA Review of Books about a change in the way things are -- a lot of people just can't earn a living (or much of one) anymore but if they're older, they might own a home that's now worth a buttload:
A few years ago, at a rooftop corporate party in central London I was chatting with the fiftysomething guitarist hired to entertain us. Bitterly, he told me he used to be an advertising art director -- that a decade or two ago, he flew around the world making high-end TV commercials. Now, he couldn't get arrested. Despite his skills and experience, no advertising agency was even interested in hiring him freelance. "Thank God I bought a house 20 years ago when I could afford it," he told me. "That is the only thing I can leave my kids." Jobs aren't for life anymore, but property is.Today, with job security and defined benefit pensions historical anomalies, the middle aged and middle class depend on rising house prices to fund their retirement. Of course, this is a gravy train that cannot last indefinitely. Forty years ago, in my now fashionable London neighborhood, houses sold for well under £30,000. Today, many are worth £2 million. Few young people can afford the down payment, and, anyway, for houses to continue to appreciate at this pace, these houses would have to be worth £128 million by 2055.
High real estate prices are good for the old and affluent. They are terrible for the poor and young. Today, the average Manhattan apartment rents for $3,800 a month, while median New York income is around $65,000 a year. If you are young and renting, your landlord eats his daily bread by the sweat of your brow. The flip side of affluent old people being able to retire is young people having to live with their parents.
If house prices fall, the middle aged and middle class will be in an uproar. For almost all of us, real estate is our principal, if not only, asset. If our house stops appreciating, our dreams of someday not having to work utterly evaporate.
Banks also need housing prices to rise:
The fear of another financial crisis combined with the fear of angry middle-class, middle-aged voters gives politicians every reason to keep house prices from falling. During the Golden Age, strong unions and strictly regulated lending meant that wages went up faster than asset prices. No more. Today, the average home-owning Londoner earns more every year from rising house prices than he does from work. Easy credit, low interest rates, low down payments all stimulate ever-higher real estate values.
Where does that leave younger people? Maybe home with mom and dad -- into their 30s.
And sure, there are other places to live than Manhattan and also wildly expensive LA.
But it seems that jobs -- many of them -- just don't pay like they used to. And then, charmingly, Obamacare and other government programs have the young and broke funding the old and voting.
Last Day
lujlp at August 8, 2015 12:21 AM
Meaning the bubble is about to burst, luj?
Amy Alkon at August 8, 2015 4:59 AM
BS.
It's only a few recent decades that did not have to take years of hard work to buy a home.
Great Grand Parents and my parents built their own over time.
Number of bedrooms and bathrooms were limited and kids shared rooms.
20% down took me forever to get and greatly limited my selection. Move to another city/State. Get a job. Save.
No stainless steel appliances, 3 bedrooms/3 baths, no walk-in closets. No eating out lunch and dinner. No drinking at bars.
Prices are high but no everywhere. Suck it up and move. Go West young man. Go West. (or in Amy's State go East.)
Bob in Texas at August 8, 2015 5:41 AM
I am not entirely convinced the problem with middle class is how much they are paid. The sad reality is that the bills for the decades of runaway government they voted for are coming due.
I don't think people really realize how much of their income is consumed by taxes and excessive government regulation. Sure they see the deductions for federal and state income tax, social security, Medicare and workers comp, but they don't really know the total sum of all the small hidden and semi hidden fees, surcharges and taxes they pay daily, e.g., federal and state gasoline tax, surcharges on tires, multiple fees and taxes on their phone bill, system development charges, etc. A friend of mine on his city water bill has a surcharge for the city's purchase of a fire engine. Then there are the really indirect costs, such as artificially high prices resulting from excessive government regulation,e.g., 10% alcohol in gasoline, renewable energy, land use restriction, Obamacare insurance premiums. Soon, there will the cost of artificially high minimum wages.
I think most middle income people would be shocked to learn that probably over 50% of their income is being consumed by direct or indirect government action, or taxes. If people were allowed to keep more of their earnings, their lifestyle would be substantially better.
Digressing, I remember listening to an elderly woman complaining how she couldn't live on her social security. I was not in a charitable mood, knowing that Social Security is a pyramid scheme and she got in early on the pyramid scheme so her return on investment is quite generous, and my return on investment will be in the negative numbers. Anyway, I commented that Social Security was never intended to be her sole source of income in retirement. Needless to say my comment was not well received, and her expectation was that government was to guarantee a life style she considers acceptable.
Bill O Rights at August 8, 2015 5:48 AM
I've read a number of articles lately that all seem to have the same shared assumption: As a young person, you ought to be able to afford a home wherever you want to live.
This article refers to London. There was another in LA, and another by some guy whining about not being able to afford a house in San Francisco.
There's plenty of affordable real estate in the Midwest (US), or the Midlands (UK). "Oh, but I deserve to live in the middle of an expensive city". Damned millenials still have a lot of growing up to do.
As for the advertising exec in his 50's, well, that's tough. If you are in your 50s or 60s and lose your job, it's a bitch to find another one, that's a fact. Dunno why he cares about leaving it to his kids - it's his money, cash it in and have something to live on - by moving out of London, for gods sake.
a_random_guy at August 8, 2015 6:21 AM
Bill's "... life style she considers acceptable." hits a lot of buttons about today's problems.
People of all ages have decided that no sacrifice is needed for them to have THINGS. They are OWED them because everyone says so.
Huge car payments. Wifi/Cable in the home AND a DATA plan for the phone? Yup. $300/month. Gotta have it ya know. New clothes monthly. (Leaving the shoe thing alone 'cause I'm a male and shoes are like tools for me.)
Eating out at Wendy's for $15/couple and at Outback for $50/couple. Yup. Gotta have that.
Fancy weddings. Expensive jewlery/tools. BIG trucks here in Texas. Gotta have it.
Suggest they give up ANYTHING from this list and watch their eyes glaze over. Suggest they CAN NOT afford it and they walk off.
BTDT so I'm as guilty as they are. BUT you can learn from your mistakes and move on.
My generation was told "Get a second job and watch your pennies and you can buy a house." So we did.
2 jobs w/o luxuries, w/o eating out, w/o smartphone plans, w/o a new car, w/o lots of new stuff every month, and WOW. You can save money. You can buy a home (boy the neighbor's yard is trashy but ...).
Trapped by debt? Yup. It takes time and a plan and helps if a spouse can help.
Helps if the wife can take a dump and turn it into a home w/furniture from Goodwill.
What do you want?
New condo. New furniture. Stainles steel stoves/refrigerators. Rent an apartment then.
Or a house w/a yard in a neighborhood that may have drug dealer (your neighbor's teenager or an ex-con) but you can leave your mower in the yard w/o it getting stolen. Fix it up w/paint and flip it when it's ready. Move up.
Damn whiners. Grow up and get it done. We did and it took a lifetime for some of us. Others were luckier but that's life.
Bob in Texas at August 8, 2015 6:27 AM
When people say "I can't afford it," what they really mean is "I choose to spend my money on something else."
Jay at August 8, 2015 6:50 AM
Bob, people today spend a smaller percentage of their income on discretionary spending like you describe, than they did a generation ago.
If someone lives way out where land is cheap, odds are public transportation is bad and they need a car to get to work. Personally, my husband and I save up and buy used cars paid in full, but not everyone has that cash handy.
The bigger problem is easy loans have flooded the markets with cash, resulting in bidding wars for real estate. Houses that sold for 13k in 1930 now go for 3 million (based on actual numbers I've seen this week looking at documents). Yes, there's been inflation... but salaries do not go 230 times as far as they did back then. Back then you COULD save up and buy a house cash. But the amount of people who can save up for the median home paid in full in many areas is very low. In Boston, it's over 400k for the median home.
Same with colleges, time was you COULD get summer jobs and pay your tuition, at least for state schools. No longer, cheap loans have flooded the market.
I've lived in several areas, but there are darn few where a fixer-upper in a safe neighborhood is affordable without a mortgage.
The problem is all the mortgages other people have drive the prices up so high, that the people who would have been able to pay in full before, can't any more.
The other problem, that Elizabeth Warren describes, is as women got jobs, there were more families with two incomes, which ended up making everything twice as much. Hence the widening gap between rich and poor... single parents and single-income couples used to be able to get buy on one income. Now they effectively have half an income.
Hopefully more jobs and businesses will go to the cheaper areas and even things out. But the fact is, housing prices do need to come down. I say this as a homeowner (though not in the states) who would be screwed if that happened... it still needs to happen. Housing should be affordable without huge loans.
NicoleK at August 8, 2015 7:17 AM
Easy loans, and massive inflation have created the illusion that a house is an appreciating asset (like a college degree)
Neither of these things are true.
Unless you bought a very cheap house with cash, and you live in an extremely low tax area your house will *never* be worth more than you have put into it (in real dollars adjusted for inflation)
Even in the rosy senario outlined above, it is just a matter of losing less, rather than how much you gain.
A house is an expense, just like a car, It is not an asset.
The National Association of Realtors has being very successful in convincing the vast majority of math impaired Americans, that this is not the case, but the truth is otherwise.
Isab at August 8, 2015 8:16 AM
"Bob, people today spend a smaller percentage of their income on discretionary spending like you describe, than they did a generation ago."
Where are you getting this Nikole? I frankly don't believe it. Unless the definition of discretionary spending has been twisted out of all recognition.
While a lot of middle class people have fallen into the two income trap, all that money they spent to buy that McMansion because they thought the second job would cover a house three times as big as they actually needed does not fall into the category of a *mandatory outlay*. And neither does that leased Beamer.
It is actually the worst form of discretionary spending.
Isab at August 8, 2015 8:28 AM
I just need a place big enough for both my books and me.
Amy Alkon at August 8, 2015 8:34 AM
To Jay and NicoleK:
While most of us Americans, unfortunately, subconsciously (or consciously) consider frugality to be shameful and not smart, plenty of Americans are still willing to go without a car in order to afford living in the city.
Also, while living in the city doesn't automatically mean it's easy to make new friends, I'm guessing it's easier than when you live in a rural area with few neighbors.
To Isab:
From Sheri S. Tepper's late-1970s pamphlet for young women (she was a Planned Parenthood executive before she became a novelist):
Pages 18 & 19:
"Don't be a victim of the college student syndrome. This is the simplistic view that 'I need X for rent and Y for food, and the rest I can blow.' You can't blow it. When you were in school someone else was paying the insurance, for clothing, your medical bills, the taxes. A budget should look something like this."
Total amount of income, after taxes, each month 100%
Housing, utilities and furniture 30%
Food 17%
Clothing, cleaning, laundry 10%
Transportation, including car insurance 15%
Medical care, medical insurance 10%
Personal insurance 5%
Recreation, savings, charity 13%
Of course, it's a bit hard to imagine "housing, utilities and furniture" costing only 30% of the paycheck of a 20-something, almost 40 years later. But I have no idea what the percentages would typically look like today.
lenona at August 8, 2015 9:27 AM
"I just need a place big enough for both my books and me."
You only own two books? ;-)
dee nile at August 8, 2015 10:50 AM
Amy Alkon
http://www.advicegoddess.com/archives/2015/08/08/tom_streithorst.html#comment-6140764">comment from dee nileProbably more like 2,000 or more!
Amy Alkon at August 8, 2015 1:11 PM
NicoleK, I have to disagree with you and Elizabeth Warren. The two earner household is not the cause of the fiscal challenges facing families today, it is the effect. In a sense, one member of family works to pay the government, the other works to pay the living expenses of the family.
Bill O Rights at August 8, 2015 1:12 PM
That's right damn whiners.
Why don't they move to crummy neighborhoods? Oh wait it's a huge trend called gentrification. Why are they still buying new cars? Oh wait they're not and it's freaking Ford and GM out. Millenials aren't moving out if their parents homes because they can't afford the apartments everyone is getting since they lost their homes. The fact that they're not buying anything but smartphones is further slowing the economy down. They're holding more than one job down because nobody wants to give full time work anymore since baby boomers aren't retiring.
And while I'm not a millenial I'm fucking sick of people judging things by how good they did it and how tough they had. Unless you were The Greatest Generation I'm not exactly impressed by baby boomers and what came after.
Ppen at August 8, 2015 1:24 PM
"Helps if the wife can take a dump and turn it into a home"
Good God. How much does she have to eat to take a dump that large?!
Gog_Magog_Carpet_Reclaimers at August 8, 2015 1:46 PM
And while I'm not a millenial I'm fucking sick of people judging things by how good they did it and how tough they had. Unless you were The Greatest Generation I'm not exactly impressed by baby boomers and what came after.
Posted by: Ppen at August 8, 2015 1:24 PM
Hind sight is 20-20, and we all tend to see the past through rose colored glasses.
My father was a truly great man (born 1913) but many of his contemporaries were draft dodging pieces of shit.
Me, I don't tend to judge people by what arbitrary year group they were born in, but more by their individual achievements, and how polite they are.
There seems to be a slight trend in the current forty something's and below to be an entitled lot, with a lot of magical thinking about how much better their decisions would be than the decisions of historical figures that actually made them (the recent discussions on the use of the Atom bomb come to mind)
In this respect they are probably no different or better than generations that have come before them. But materially, a lot of them expect to *have it all*.
Who can blame them? There has never been a wealthier or safer place than post World War II America.
They think (wrongly) that this is not only the norm, but the way things will always be ( only better).
I have to wonder what the long term population genetic effects are going to be three or four generations from now, with absolutely no natural selection for self reliance.
It is going to be a bitch when World War III breaks out, or a full scale revolution, possibly at the same time.
Isab at August 8, 2015 2:25 PM
@Isab: Exactly. The recent stuff about the atom bomb is pretty ridiculous, because there is zero effort put into actually understanding the context, the situation at the time. Also, somehow they never mention the fire-bombing of Tokyo and Dresden, which were equally horrible (and cause more deaths), but took a lot more bombs to accomplish.
a_random_guy at August 8, 2015 3:23 PM
I'll chime in that the article isn't reality. Unless you live in a very unusual place (Manhattan and LA count) then homes are consumed goods, not an asset. As Isab pointed out, they don't increase in value more than the money spent building them. And even in areas where prices are skyrocketing it isn't the house that is increasing in value, it is the land. You have a fixed supply and increasing demand so prices go up. But those conditions only exist in a few locations. They are not reality for the majority.
And yes, a single job for life is a historical anomaly. Good riddance. Defined benefit pensions are inherently financially unstable. They too are an anomaly and always will be so. People love to look at both of these with rose colored glasses. The reality even when this was more common is not what people remember. Kind of like when people talk about having servants. Yes, 'everyone' you knew had servants. Of course your servants didn't have servants. But they don't count. After all, they were servants.
Ben at August 8, 2015 5:15 PM
Property isn't for life either. I need over $600 a month to pay school and property taxes on the house I almost "own."
MarkD at August 9, 2015 4:18 AM
Yes to the last paragraph though... I am 37 and healthy as well as my husband and two daughters, but in the last 10 years my husband and I have not gone more than a month or two without incurring or paying on some type of medical bill. We are always paying on medical bills. I remember my parents rarely if ever had medical bills to pay. And yes, Mark D, property taxes continue to rise astronomically every year in our community.
Jess at August 9, 2015 6:32 AM
"I just need a place big enough for both my books and me."
Lots left unsaid here. Has to be SoCal, specifically LA, too. Enough so that noisy neighbors, some of whom have customers who argue mere feet away and pee on your fence, are OK enough to stay even though there's no way to stop them.
Radwaste at August 10, 2015 7:07 AM
No doubt residential property is inflated now. I just saw something last week about how, once the spotlight was off of them, Freddie's Fanny and its cohorts in the banking industry went right back to what they were doing before the 2007 crash. Here's what is going to happen: About ten years from now, the home-owning Baby Boomers are going to start dying off. All of a sudden, there is going to be an absolute glut of housing on the market. Property values are going to crash.
This will be a good thing for a lot of the Millennial generation. They will finally be able to afford property, although a lot of it will be fixer-uppers and will be in areas and parts of the country that some Millennials consider undesirable. Still, there will be bargains to be had for those who are interested, which will be a huge relief for those who have had to endure growing up in the Permanant Recession. There will be some pretty significant population shifts that should keep demographers sharpening their pencils.
Unfortunately, it looks like us GenX'ers get screwed in this scenario. The property value crash will occur about the time we hit retirement age, which eliminates us using our property to finance our retirement. Combine that with the likelihood of the govenment imposing asset taxes on 401K accounts, which will probably occur about this time as private-sector income continues to drop. (And those 401Ks don't have as much money in them as they might have, because of high government costs and high inflation occurring in our peak-income years.) Social Security, of course, will be wiped out by this time. And, the Millennials will view us as zoo curiousities, somewhat interesting to look at but of no practical use. I fully expect to be broke by the time I'm 75, and that I will probably end up taking my own life because I simply won't have anything left to live on. I suspect this is going to be the story for a lot of Gen X.
Cousin Dave at August 10, 2015 8:00 AM
Look on the bright side CD. You can always have a heart attack and die in your 50s. Enjoy a steak and a beer with the bonus of them helping you meet your financial goals all at the same time.
Ben at August 10, 2015 1:34 PM
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