Vetter: Welcome to the national housing crisis – The Observer

As you are probably aware by now, recently, the Case Western Reserve University administration announced that campus housing only has space for 83% of upperclassmen that apply for the on-campus housing lottery due to over-enrollment. They have since reversed that decision and claimed that they can now accommodate 100% of students, but only time will tell if that promise will be kept. Either way, I imagine this announcement, combined with the upcoming deadline for housing applications, has made most upperclassmen seriously weigh the option of off-campus housing.

And what an option it is. Its probably a universal experience among upperclassmen at CWRU to have gone on Zillow and been absolutely flabbergasted at the unreal housing prices near University Circle. According to Zumper, the median rent in Cleveland has now reached $1,225 per month for a one-bedroom, a 7% increase from last year. Of course, this trend is not unique to Cleveland. Housing prices, especially in cities, have been skyrocketing over the past couple of years. Unfortunately, wages have not been rising, so housing is becoming increasingly unaffordable for even the middle class, let alone college students that live on ramen if they arent on the meal plan. For those of you who have considered or are currently living off-campus, youve received your first taste of the American housing crisis.

However, before I talk about our current crisis, let me briefly go over the 2008 financial crisis; it has a few key similarities and differences that help us understand the current situation. Starting around the 1990s, the United States experienced a large shift from traditional investment to debt-based investment. One reason for this is that debt can be viewed as an investment; only instead of being paid by the profits of a business, a creditor is paid by the interest of the debt they own. As an aside, this debt shift is a large part of why massive student debt is so common. But the big sector affected by this debt shift was the housing sectorwhere financiers jumped on mortgage loans because of how safe mortgage loans are for creditors.

However, the problems started when the money tree of housing loans started giving diminishing returns. This led to financiers starting to back riskier loansmeaning the debtor is unlikely to be able to pay off the debt. However, there became a critical point where the rate of people defaulting on their loans was so high that investing in housing debt was no longer profitable. At this moment, the housing market was revealed to be what economists call a bubble. An economic bubble is a phenomenon where so much money is invested in something that its value is artificially inflated. Eventually, that thing must come back down to its real value, and everyone invested in it will lose tons of money. Thats what happened at this critical point in the housing market. The price of risky housing debt was inflated so high that eventually, the bubble popped.

Now, one key difference between 2008 and today is that the price of housing is being driven up by speculation instead of loans. Speculation, as it relates to housing, means buying a house to later sell it to someone else at a higher price because of an assumption that housing prices will continue to rise. This means that as long as housing prices keep rising, more and more houses will be vacant and owned by speculative investors instead of residents. This creates scarcity for those who want to actually live in a house, and since the demand for housing remains the same, the housing price will rise. The result is a horrifying feedback loop that rewards speculators and people who already own houses at the expense of anyone not affluent enough to buy a home.

Now, a question you may be having is, will the bubble pop? The answer is that this time, its not a bubble. This is good for speculators and anyone invested in the stock market, but its bad for anyone trying to buy or rent. The unfortunate reality is that housing prices will continue to rise. And thats not allI havent even talked about Real Estate Investment Trusts (REITs). Essentially, a REIT is a company that buys up real estate (commercial and residential), and collects rent to give to its investors. Imagine a landlord, but instead of a person, its a company. As housing prices continue to rise, real estate will likely start to gravitate away from individual owners (even landlords) and towards REITs. So not only will you pay exorbitant rent when you graduate, you may even end up fighting a corporate bureaucracy over broken plumbing instead of just a landlord.

So, what can be done about this mess? Well, any federal action is a complete nonstarter. The gridlock in the Senate is so complete that senators cant even agree on infrastructure repair, let alone reforming the housing market at the expense of rich people. Action by executive order is also a nonstarter; by refusing to provide student debt relief by executive order, Biden has shown an unwillingness to help people with the presidential pen. Our most feasible option is local legislation.

For any of you interested in local politics, there are two main ways that this housing crisis can be alleviated at the local level. Firstly, the supply of housing must increase to meet the demand. Dense, multi-family housing must be built as quickly as possiblewhich means both changing local zoning laws that favor single-family homes and fighting NIMBYism (Not In My Backyard-ism) whenever it crops up in response to dense housing development. And secondly, the incentive structures currently in place must be changed. There are multiple complicated ways to do this, but I favor vacancy taxes. A vacancy tax is exactly what it sounds likewhen one is in place, anyone or any company who owns a property but does not reside in it or meaningfully use it has to pay (hopefully extremely high) taxes in order to keep it, or the local government will auction off the property.

And for those of you less interested in local politics, lets talk about how you, as an individual, can navigate your way through this increasingly hostile market when you graduate. As a brief aside, some critics of my argument will say that housing prices are not insane everywhere, only in dense cities. This argument doesnt have merit since the housing price in an area is directly related to the job opportunities in that area. Sure, you can rent a decaying apartment for $400 a month in a dying Appalachian coal-mining town, but good luck finding a job while youre there. However, this argument does have a grain of truth to it; given the opportunity, you should absolutely choose a cheaper place to live if possible. Lets say that you have two job offers: one in Seattle and one in Paducah, Kentucky. In that scenario, its probably worth taking the offer in Paducah, just for the lower rent prices. Also, consider roommates. You will almost definitely need a roommate or several roommates to chop up whatever rent youll pay once you make it to the real world.

Finallyand this sounds depressingbe prepared for the possibility that youll have to move back in with your parents after college. The mere thought of doing so might make you feel embarrassed, but the practice is becoming more and more common. Even before the pandemic, a Pew Research poll found that a staggering 47% of young adults (aged 18-29) in the U.S. lived with one or both parents. By July 2020, that number shot up to 52% due to people relocating because of the pandemic.

I know that for many of you, financial independence might be your American Dream, but we all have to play the hand that were dealt in this housing crisis, even if it means living with six roommates or living with your parents at age 30.

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Vetter: Welcome to the national housing crisis - The Observer