Have you complained about the high cost of houses in Morgan Hill? If you own a home you may be benefiting from the high prices or, at least, feel you are. Unfortunately to benefit from these prices you need to sell your home and move elsewhere. High prices in themselves do not provide any real benefit. The real result of these prices is that our sons and daughters are going to have a much tougher time buying their first home.
I speak to people everyday who want developers to build “affordable” housing. They get a warm feeling thinking that asking for such housing is going to help people buy homes.
In a natural housing market, there are homes built everyday to fill everyone’s needs. If people aren’t buying homes it’s because they are either priced too high, there are other homes on the market with better value, or there are not enough people wanting to buy homes in that area. A natural housing market means there are always homes available at every price.
Unfortunately most communities have artificially limited the constructions of new homes. This limits supply without having any direct impact on demand. The homeowner looking for a larger home suddenly realizes that fewer new homes are being built so they have to pay higher prices to beat out the competition. Builders, in turn, have to compete for a limited number of building allotments. This can result in them needing to wait years before they can build their project. Developers now have fewer homes to sell and thus need to make a much larger profit to make the same amount of money.
So, fewer homes are being built. Competition is fierce for the few building allotments and costs have increased because it takes more work and time to build each home. Builders then only build high-end homes to make enough money to justify going through the effort. So we end up with more high-end homes and no supply of mid-priced homes. Home buyers that want to move from a low-end home to a mid-priced home have no place to move to. Fewer low-priced homes are sold. The supply of homes for first-time home buyers dries up.
Easy fix, we will just require some percentage of homes being built to be “affordable.” This creates a small supply of low-priced homes but the developer costs don’t change. So the remaining homes they build are priced even higher. Ultimately you wind up with an artificially split market. There are many high-end homes and relatively few low- to mid-priced homes. Those that own existing low-end homes or buy “affordable” homes are stuck. There is no appropriately priced home for them to move up to. Thus, they stay in these homes and don’t resell them. This means that the natural supply of older low-priced homes dries up and even fewer become available. This results in new home sales and most existing sales being at the high end. This results in reported median and average home prices going through the roof! Please note, I said reported prices. The published statistics you see every day are from home sales. This doesn’t mean we don’t have a ton of mid-priced homes. It just means that those homes are not being sold because these home buyers can only move up to a better home by drastically increasing the home prices which translates to loan and tax payments they can’t afford.
We have seen these same results again and again in communities that enact growth controls. Government bodies seldom enact growth controls without initiatives from the people who have already moved into a community. They want to close the door on others joining them. So, the next time you complain about the high home prices and the lack of “affordable” homes, please look in the mirror and realize that you are responsible. This does not mean I am advocating for removal of growth controls. We need to understand how our housing market got to be as it is and realize that it didn’t happen without purposeful actions that resulted in exactly what we have today. Some could read into this some grand conspiracy. But what I mean is that we have taken purposeful actions that on the surface seem to be the right thing but that produced results that may not be at all what was intended.
Chris Bryant has lived in Morgan Hill for more than 29 years and makes his living as a commercial realtor. He works on development of high-tech computer-based products. He’s a member of the board of directors of the Morgan Hill Chamber of Commerce as well as the Knights of Columbus. He’s also a member of the Morgan Hill Times Editorial Board.
