Residential Real Estate - Time to Move On
Written by Jay Turo on Tuesday, September 7, 2010
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Believe it or not, the great residential real estate crash of the last few years will turn out, in the long run, to be VERY good for the U.S. and the global economy.
The Fixation on Housing Prices Has Been and Is Unhealthy: The word that comes to mind when reflecting upon the government subsidies (see mortgage interest deduction, first-time home buying credits, etc.) and media attention given to housing prices is distorted.
Sure, the price of homes is important, but is it more important than educating our children? Than the health of our startups and small businesses? Than our global competitiveness?
Maybe it's me, but the America I love isn't one whose economic and social health is judged by how climate-controlled the big-screen TV room is, or how comfortable the couch.
Now I am not saying that a lot of people haven't been badly hurt by this recent (though not unprecedented) popping of the real estate bubble nor that our love of homes has turned us completely into a nation of unadmirable shut-ins and couch potatoes.
But if we must choose (and we must), I'll cast my lot with the young, highly educated, preferably immigrant software entrepreneur, working out of their cramped garage, over the slow-to-innovate home-builder or mildly educated real estate agent.
Innovation, Not Bigger Bathrooms, Drives Wealth-Creation. As noted in my review of Matt Ridley's fantastic book, "The Rational Optimist," the source of all wealth-creation is innovation (i.e. technology). While there have been of course many meaningful innovations in housing over the years, it is illustrative that the basic living schematic - bed, bathroom, kitchen - hasn't really changed much since Roman times.
Following up on this point and to my blog post last week let's remember that it is services not "stuff" that power the U.S. economy. And while the real estate industry creates a lot of service jobs for sure, you have to look elsewhere to find the really high value-add, high-paying ones (see software, financial services, energy, healthcare).
So what to do about it? Here are three quick ideas:
1. Eliminate the Mortgage Interest Deduction and Replace it With a Startup Business and Investment Credit. As opposed to the government granting a $100 billion annual tax break to homeowners with the mortgage interest deduction, give it instead to the entrepreneurs - who, on average create 4 net new jobs every time they start a new business - and those that invest in them.
How transformative would this be? Remember that total venture capital and angel investing in a typical year doesn't add up to more than $50 billion, or about one-half of the mortgage interest tax break.
A tax break re-allocation of this nature would at least double the number of new businesses and investments in them every year. In addition to the millions of jobs created, the innovation gains that would result would be awe - inspiring.
2. Let Prices Fall. It is time for all homeowners to just take their medicine (or, more accurately, even more medicine) and let prices fall to where the housing demand meets supply.
In addition to being the right thing to do in a market economy, significantly lower prices would be a huge boon to new homeowners.
And as these new homeowners tend to be younger people, the time and money savings of lower housing costs could go to more societally beneficial pursuits than remodeled bathrooms - like perhaps going to back to school or starting or investing in a business?
3. Just Stop Talking About It. My favorite because it is easiest and will have the quickest effect - let's just stop talking about residential real estate. Too much ink and mindshare have been wasted on it these last few years.
This would not be all that bad if the coverage was somewhat balanced, but as it is almost universally presented in an "the end is near" tone and focus, falling home prices have been unfortunately equated with the health of our economy and our society.
Let's use better, more 21st century measures of well being - like our kids' science and math scores or the speed of innovation in those high value-add service fields like healthcare, energy, and software.
More attention here will mean more human progress, more wealth for all of us.
And maybe this time, with all that new wealth, instead of building bigger bathrooms, we do something with it that's just a tad more...inspirational?
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