The Growing Housing Divide

I was speaking with a friend of mine recently and he brought up an interesting point. He asserted that there was a widening gap in home prices between where people want to live and where people have to live. How else can you explain the housing price fall in most of the country while places like Seattle continue to have rising prices?

Let’s examine this for a moment. How could home prices be increasing in Seattle while falling elsewhere? The first answer is that there are “lies, damned lies, and statistics.” You may have heard this quote before, but in this case it comes down to home price trends being based on median sale price comparisons. The subprime mortgage fiasco, rising interest rates, and tightening credit policies are for the most part pinching off the demand at the low end of the market. Fewer people are now seeking or in fact qualifying for a loan. So what’s the result?

If the low end of the market contracts, while other areas of the market remain strong (or contract less), then the median home price shifts up. So despite inventories of homes for sale rising by more than 50%, and the number of home sales falling while the number of condo sales is increasing, median home prices still continue to go up. Why does the middle to upper end of the market remain stronger?

The answer is that while certain labor-intensive or lower skill job markets contract in the area, high technology companies like Microsoft and Google, and companies in other industries like bio-technology are still looking to hire more people (if they can find them). With unemployment under 5% in the area, most of these new hires for expanding knowledge-intensive industries in the Seattle area are likely to come from out of the area. As a result, the metropolitan area continues to grow and demand for housing increases because these people will need a place to live. Many of these people come from other high-cost places like New York, San Francisco, Los Angeles, and San Diego and so can afford to add to the demand at the middle to upper end. So what’s happening in Seattle with some industries contracting while others grow is a microcosm of what is going on around the country, and the result is that stratifications between different American real estate markets are increasing.

No longer are people moving to places like Detroit for high paying unionized factory jobs. Now people are moving to places like San Francisco, Los Angeles, and San Diego for high paying technology and bio-technology jobs in industries that continue to grow while others continue to contract. Places like Seattle that are relatively cheap in comparison to San Francisco or Los Angeles, will continue to increase until they are just as expensive.

We have yet to see the full effects on our society of the price run-ups in these areas, as many people who lived in these talent meccas before the price run-ups occured, have been protected from them. The real effect will be seen in changes experienced by the younger generation. Saddled with student loans, even our more upwardly mobile youth in these communities will be forced to live at home longer, share rental housing longer, live in rental housing more of their lives in general, start families later, be forced to have someone else raise their children, and ultimately face a 25,30, or even 50 year mortgage when they do manage to buy a home.

So, as the rest of the world catches up and drags down the rich countries as they do, will our children have any hope of having the same or better quality of life than what we enjoyed?

The easy answer looking at all of this would be “No!”, but with bold and strategic leadership, that doesn’t have to be the case. We need leaders with courage, leaders with a long-term vision, but more importantly leaders that can make voters invest in the long-term.

We need government to become more innovative, not just in how they plan to provide the conditions to keep our communities competitive, but more importantly in finding ways to sell its citizens on investing in reshaping our cities now so the world’s brightest will continue to aspire to come to America. The time is now for cities to think strategically, for great business minds to provide innovative ideas for improving their communities, and our country’s long-term viability as a leader in creativity, entrepreneurial spirit, and quality of life. I’ve got my hand up! Is anyone listening?

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Braden Kelley is a Social Business Architect and the author of Stoking Your Innovation Bonfire from John Wiley & Sons. Braden is also a popular innovation speaker and trainer, and advises companies on embedding innovation across the organization and how to attract and engage customers, partners, and employees.