I received an interesting email this morning from a concerned young lady who lost her home in the California wildfires last year. I run a house building website to help homeowners find a way to afford good housing by means of owner/builder construction.
The email stated that she had lost everything she owned. The fires swept through many neighborhoods fueled by high winds and dry conditions. California was in a state of emergency and there was very little that could be done to stop it. Many homes were completely burned or devastated beyond repair.
The liabilities took a heavy toll on insurance companies. Very few homeowners received what they adequately needed to rebuild their homes, so they are now weighing their options of rebuilding. I have received several emails from our beloved California people who are desperate to get on with their lives, but are unable to do so.
You see, many insurance claims are not calculated on replacement value, but the value of similar homes in the neighborhood. It’s the comparative approach used to determine a home’s value in the real estate market. By and large, this is a fairly reliable means of home valuation, but in the case of home replacement in a weak housing market, it can spell disaster for homeowners.
To put it in simple terms, right now, homes in certain areas cost a lot more to build than they are worth after they’re built. As an example, let’s say I wanted to build a 2,000 square foot home in California where I already owned the land. The materials and labor costs for a modest home of this size is around $210,000. After the home is finished, the appraised value could be as low as 80% of the value of the cost of materials and labor because of a weak housing market. So the comparative approach could value the new home as low as $168,000.
Many homeowners aren’t willing to take such a huge loss of equity to live in a home so they are waiting for the housing market to recover. I’m certain that the housing market will recover as it always has, but this still leaves the California wildfire victims in an awkward place. Do they rebuild a home that will cost more to build than it’s worth, or do they wait for the market to recover? Such is the dilemma of many homeowner wannabes right now.
This problem isn’t everywhere, yet it is alive and well in many parts of the United States, more particularly, in California. There are questions we should be asking ourselves collectively as a nation about the problems in California because it is one of the strongest states leading the way for other states to follow. The question about the volatility of housing markets is really insignificant because markets will rise and fall. That’s just the nature of the beast we call the housing market.
The true question should be directed toward building and labor costs. Why does it cost so much to build a home in California?
One may be tempted to think that the price of building materials could be a reason, but the fact is that building materials are probably cheaper in California than almost anywhere else in the United States.
The real answer is that California has regulated itself into a corner by allowing bureaucrats to impose stringent codes and standards. Many newly created jobs in California are those of inspectors and building officials that aren’t needed. I completely understand and support the need for building inspectors and other types of home system inspectors. They are necessary for our physical and financial safety.
When you have inspectors who are inspecting and overseeing other inspectors however, one starts to feel that there should be some cutbacks on bureaucrats. In many parts of California, homeowners are not allowed to do work on their own homes. It doesn’t matter if the work done is approved by a licensed inspector; the homeowner has to hire someone else to do the work. Bureaucrats have created too many plush jobs for themselves and the housing industry is feeling the crunch.
I live in Idaho where the standards aren’t as drastic, but still more regulated than I like. 10 years ago, there was a mass exodus of Californians into Idaho. Here in Idaho the land, housing, and the way of life was affordable because we didn’t have overregulation in our planning and zoning departments, but that soon changed.
Many of the people that moved from California were older in age and they had money from their home sales to build homes in Idaho and to invest in land. They immediately started to do the same things that they did in California. The same things that made them want to move away. They started imposing regulations and codes.
They made it so homeowners with farms couldn’t divide up their land to sell or even give to other family members. They made it so that homeowners had to become licensed contractors to work on their own homes or else they had to hire it out. Our planning and zoning offices are full of retired California people that moved to Idaho looking to get away from it all, yet bringing it all with them.
The cost of building homes went up sharply after that, but the actual value of homes in the neighborhood rose very little. Now, it’s difficult to build a home on a budget here and people are wondering why.
It’s time to regulate the regulators or there will be more housing markets like that of California. Don’t get me wrong, I love California. Its beauty is simply unrivaled. The problem is that there are so many people who prefer to be government parasites. They want to have jobs that are easy to do so they create those jobs for themselves. Their pay comes from those who work hard for a living.
The housing market will recover in time, but if we could create a housing stimulus package like the federal economic stimulus package, it would help the market bounce back immediately.
This package would be as simple as redefining the needs of inspectors and codes. Making cutbacks on all additional inspectors and codes that weren’t there 20 years ago would be a good plan. This doesn’t have to be a permanent change, but rather, a part of a housing stimulus package to get things jumpstarted. Houses would suddenly become affordable again for everyone. A home should never cost more to build than it’s worth after it’s built.
Larry Angell
www.make-my-own-house.com
Thursday, March 20, 2008
Subscribe to:
Posts (Atom)