The 1970’s was a dramatic decade of change
transitioning every aspect of our lives. We of course didn’t realize the shifts
or nudges or 2 x 4’s immediately but most seems very apparent today.
Since starting my blog in 2008, I have been
saying that “As housing goes….so goes the economy”. This has been the pattern
coming out of every recession since the first one that I experienced in early
1970. Not so much anymore. I will try to present my views on how the 1970’s has
affected housing and how housing will not be the answer to our economic woes.
The framework in which to review how we have
changed as a country, we must first review the national policies and personal
failures of our leaders. Our view of the federal government changed in the
‘70’s and has been going downhill ever since. The problem, we continued to send
the same politicians to do the same job over and over again but expect
different results………………..we are insane!
Any way, we have to start with Richard Nixon.
Nixon's
second term saw a crisis in the Middle East, resulting in an oil embargo and
the restart of the Middle East peace process, as well as a continuing series of
revelations about the Watergate scandal. The scandal escalated, costing Nixon
much of his political support, and on August 9, 1974, he resigned in the face
of almost certain impeachment and removal from office. Source: From Wikipedia
Our trust disappeared in our leaders
starting with Richard Nixon and then entered Carter which did not change our
opinion. The stagflation era (could we be heading in this direction ---now?)
under the Carter Administration stressed the foundation of the family –
financial. To buy a house, your interest rate was well over 15% and the only
way to afford a home was to have 2-income earners. (Source of quotes is unknown)
"One important
adaptation to the rising cost of housing is found in the increasing appearance of
two-earner households... The second income provided more than 30%
of total household income "
"First time buying households were even more dependent on a second income... It seems clear that the second income was made it possible to accommodate rising housing costs as a higher proportion of the total household income. Thus the growing importance of the second earner is a major factor in the continued affordability of home ownership”
"First time buying households were even more dependent on a second income... It seems clear that the second income was made it possible to accommodate rising housing costs as a higher proportion of the total household income. Thus the growing importance of the second earner is a major factor in the continued affordability of home ownership”
2-income
families have increased about 20% since 1970. 50% of that increase occurred
during the 1970’s. The balance of the shift occurred over the next 30-years.
In
a previous blog post, I outlined the median price of homes changes by decade.
Do you know that the median price of a home in 1970 was $23,400!
In
1980, the median price of a home in the US was $169,000.
What
is your opinion on why such a significant jump?
I
never realized that there was this significant jump in housing prices and to
never be reset but at a higher price. Yes, inflation did have a part in the increase
but that was dampened by how much 2-income families could afford to buy when
mortgage interest rates were around 18%.
Can
you imagine if the Fed today would raise interest rates to 6% …… we would go
into a depression!
The
change in the family to a 2-income family caused the median price of homes to
skyrocket. In the ‘70’s, the move-up market was created! The second income
added over 30% to the available income to be qualified for a home
mortgage. The housing market shifted
over night as builders built homes to meet the demand primarily driven by
available family income – the market changed!
1970 - 1979 2010-2019
Prime Rate 12% 3.25%
SF Housing Starts 888,100 800,000
US Population 213,300,000 314,000,000
Home Ownership Rate 64.4% 65.3%
Result Stagflation Hyper
Inflation
Please
tell me that you see the stark differences between 1970 and 2012 but also see
the deep concern in the differences. This is not going to end well for the housing
industry.
Little
did we know that the 70’s would change us forever!
Live: started to live
further out from urban cores; “nice but not necessary” not practiced; today,
vertical mixed use developments are the modern small town America
Work: Mom’s and Dad’s
started to both work; today over 50% of mothers and over 50% single parents
with preschool children are employed outside the home; hand held calculators in
the 70’s to iPads now
Shop: Walmart went
national in the 70’s; the JC Penny catalog, Woolworths to internet shopping
Play: HBO was founded
in 1972 and ESPN in 1979. Today, technology overload.
This
was reinforced by what we watched – pre- personal computers! As an example:
Fast forward to 2013,
do you think the family core has changed for the better or worse?
In
the 1970’s, we started to see manufacturing jobs disappear and shipped off to
other countries.. The best that I can research as to why includes:
1.
Oil and energy problems
2.
The dollar was taken off the gold standard
OK,
this makes some sense but how was housing affected by the above or were there
additional circumstances that changed us as home buyers --- besides 18%
interest rates and 2-income families?
Yes…………sewer
and the EPA!
Sewer
moratoriums with the Clean Water act of 1972 limited the Supply of Land
During the ‘70’s there
was no problem finding land in urban, rural or suburban locations at reasonable
prices and with reasonable land owners because government oversight was only
beginning. However, the supply was curtailed not only by interest rates,
inflation, but also SEWER availability!
Reston, Columbia and
Irvine Ranch started the planned community concept by moving homeowners to the
suburbs and leaving the core commercial/retail/office jobs in the city.
During the 70’s, the
biggest problem was sewage treatment plants and the moratoriums established by
government until the Clean Water Act amendments passed.
The most important due
diligence issue was the availability of public water and sewer.
The Federal Water Pollution Control Act of 1948 was the first
major U.S. law to address water pollution. Growing public awareness and concern
for controlling water pollution led to sweeping amendments in 1972. As amended
in 1972, the law became commonly known as the Clean Water Act (CWA).
The 1972 amendments included:
Established the basic structure for regulating
pollutants discharges into the waters of the United States.
Gave EPA the authority to implement pollution
control programs such as setting wastewater standards for industry.
Maintained existing requirements to set water
quality standards for all contaminants in surface waters.
Made it unlawful for any person to discharge
any pollutant from a point source into navigable waters, unless a permit was
obtained under its provisions.
Funded the construction of sewage treatment plants
under the construction grants program.
Recognized the need for planning to address
the critical problems posed by nonpoint source pollution.
Local municipalities imposed sewer moratoriums
because their wastewater treatment plants were not in compliance with the new
federal regulations. This stopped housing in its tracks. Land availability
dried up because of the lack of public sewer facilities. With housing supply
restricted, prices continued to escalate because 2-income earning families
created a false market which builders capitalized on. The economy and housing
moved forward but at a very, very slow pace.
“Similarly, many of the wastewater
treatment plants that were upgraded in the 1970s to comply with the Clean Water
Act are aging and will need to be upgraded or replaced in the future.”
Source Unknown
I do know that wastewater treatment
plants are nearing capacity with actual flow or allocated flow. Local
municipalities strapped for revenue will have enough funds for general
maintenance but little allocated for expansion of water and sewer treatment
facilities.
Builders are still working off the
subdivisions that failed during the bubble. Many of these subdivisions had
water and sewer lines installed and capacity allocated. Once this inventory is sold
to home buyers…………………….what then?? MORATORIUM!
This simply means NO building?
Planning…..what planning – how can you plan when you are in survival mode?
The EPA is relentless by imposing new
regulations while the entire country is focused on other things. And, this is
an agency which sent 93% of the workforce home because they were considered
non-essential during this government shutdown.
Wastewater treatment will again be the
achilles heel of the housing industry and the economy.
In summary, the 1970’s changed are
economy benchmark so significantly, we are only now realizing the effect. High
interest rates, stagflation, 2-income families, and wastewater treatment plant
moratoriums with Federal pollution controls add up to serious consequences in
2014 and beyond.
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