Little Boxes Made of Ticky Tacky

By Lloyd Graff

There’s a growing demand for rental units in the Bay Area. Courtesy of

The stats tell us a lot about the economy, which is erratically bouncing along. Housing starts are up 6% over last year in the latest figures, but multi-family is jumping up 17%. In Palo Alto, California, this week, visiting my daughter, I’m getting a birds-eye view sipping my coffee while listening to the buzz and hum of construction tools in Silicon Valley. There is an occasional single-family house going up, but there are hundreds of apartments, hotel rooms and condos being built down El Camino Real, which bisects towns like Palo Alto, Mountain View and Cupertino where Stanford, Google and Apple call home.

The single-family home is not a relic yet, but the hamstrung banking system is still making the mortgage market a minefield, despite already low interest rates.

But the trend toward apartments is not just about the mortgage market. I think many folks, including young and old, are choosing renting versus owning in both real estate and other large expenditures. Real estate ownership for many people has been a losing proposition. I know it has been for me. My wife and I bought our home in the south suburbs of Chicago in 1979 for $130,000. It is a nice 3,000 square foot single-family home, two story, 5-bedroom with a full basement. Today it is worth under $200,000 and we’d struggle to find a buyer. We’ve paid off our original 8% mortgage and the 6% mortgage we took out to make our basement into a gym and rec-room.

Real estate has not been good to us. And for a million people who lost their homes after 2008, buying another house may not seem like a great idea.

For young people, building a nest egg with a 20% down payment is nearly impossible in the neighborhoods they find attractive. And retirees often prefer the safety of a rental after they’ve struggled to unload their home in an unfriendly market.

A change of lifestyle is another reason for the trend toward multi-family rather than single-family homes. Many young people are deferring marriage until well into their 30s. They live together rather than tie the knot. The lack of the official commitment of marriage dissuades putting down roots on a piece of property. But even if young people do have the inclination and the money to marry and buy a house, they may opt for an urban environment where single family homes are exorbitant or almost non-existent.

An interesting trend in the urban milieu is the conversion of old factories into lofts for housing, along with retail buildings being torn down to make space for new multifamily units. I certainly see that on El Camino Real in Silicon Valley. Mom and Pop stores and unsuccessful groceries make way for apartments, condos and hotels. Not much office space going up today, even in Palo Alto. Still plenty left over from the overbuilding of 10 and 20 years ago.

The non-ownership theme also rings true in the vehicle market. For the high number of young people in dense urban areas, owning a car is a luxury. Companies like Uber, Zipcar and Enterprise provide substitutes for owning a vehicle. Biking is also big in cities, as are home offices or shared office space.

The suburbs are not dead. Single family homes are not dead, but the tide is pounding against them. In the machining world, this works against the big earth movers like Caterpillar and the lawnmower makers, but every apartment and hotel room needs a toilet and sink, and there is plenty of demand for outlets for phone chargers.

Change with time or fade away like the white rhino.

Question: Has your home been a good investment?

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13 thoughts on “Little Boxes Made of Ticky Tacky

  1. George Newman

    I lived through the real estate bubble in Florida and got out just in time. It is a very dangerous situation when people think of their primary residence as an investment. I witnessed people making easy money by flipping their residences, taking out home equity lines of credit to fund cars, boats and vacations. The home became their ATM.

    If you want the freedom to make imporvments as you wish and want the financial stability of a mortgage, then buy. If that’s not important, then rent. it’s that simple.

  2. Jack

    Built in 1992 for $123,000, 2,000 sq. ft. 3 bedroom, made about 50k in improvements over the years. Today it might sell for $300,000. Mortgage is paid off, only payment is rent to the school district.

  3. Eric

    It’s important to remember that wages have been stagnant for a decade now. I hired in with my current employer 20 years ago for $18/hr. Today new hires are starting in the same job for $14/hr. I bought a new starter home in a new subdivision in the suburbs for $115,000. The same home even after the effects of the recession is selling for $170,000. It’s not that younger people don’t want to own a home. The fact is, they can’t afford it as easily anymore.
    I also live in Illinois, and near Chicago. This state has a long way to go to spur home values. Illinois needs to create jobs, lower taxes and regulations, reduce the size and cost of government, end corruption and incentivize business creation.

  4. Russ Ethridge

    There is no stable way to live in my community without home ownership since we have very little rental property suitable for a large family. If you want our great schools and parks, you buy. That intangible value can’t be measured by an equation that calculates the purchase price plus the cost of upkeep, taxes, and improvements over the years deducted from the selling price. If I looked at this as a math only equation, it was a bad deal unless I had sold in 2007 and someone else took the ride down. If I look at it as a lifestyle package, however, it is a plus. Like a piece of art that has no inherent worth, the experience of enjoying it is its value, unless, of course, you bought Picasso’s in Paris in the 1930s in which case you wouldn’t care today what your housing costs.
    As we become more mobile and urban and family size shrinks, I suspect we’ll move to a more European model where single family home ownership is less common. When I floated the idea of selling the old homestead since the kids are mostly gone, I was met with objections about where my future grandchildren would stay for holidays. I suggested that a nice hotel would be cheaper for the week or two a year we needed extra space. My wife said: “We’re leaving this house feet first”. How do you measure the intangible value of “home”?

  5. Bill

    It is official, the “great recession” was in fact worse than the Great Depression. Our banking system collapsed with negative ramifications throughout the world economy. This time safety nets minimized the suffering for families. The Federal government saved the banks and the auto companies to avoid further damage. Unemployment benefits and welfare kept people from the bread lines.
    This was not a regular recession. Gone are the days of loose money that used to help jump-start the economy. Banks will not be at risk again. So even with low interest rates housing has not rebounded as it used to after past recessions.

    1. Eric

      The federal gov’t didn’t save the banks and the auto companies. The “guvment” spared the bank managers and other high level stake holders from losing too much money. The federal “guvment” didn’t need to bail out the auto industry either. They protected the union(Dem votes) that would have been decimated in a restructuring that should have happened. Case in point, Ford did just fine without a bailout.

      1. Seth Emerson

        Check the timeline – Bush bailed out the auto companies. I guess he was looking for Democratic votes.

  6. Randy

    Started out with a mobile home in the late 70’s, next house was a townhouse (what outside of California was called half of a duplex). Eventually bought in the neighborhood of my parents and still own the same house 29 years later. Always tried to pay attention to the neighborhoods as in our community the location made a big difference in retained value and pride of ownership. Never rented, but since the recession I saw home prices plummet and we did buy a rental. In fact my daughter at 25 now has two of her own. Coming up with 25% down for each of those in Southern California only worked cause she made a lot more than I did at 18 when she got he job straight out of high school and after 7 years does very well, and realistically could only do it cause she still lives at home. Her younger brother, who is a struggling dancer working at Starbuck hopefully will always have a place to rent from his sister.

    Prices have rushed back to near highs with lower interest rates, but once rates begin to rise the prices will fall as affordability and stagnant wages will have an impact. The other advantage of having a home outside of renting is the stability it affords you when the “bank” looks at you and your life style. I know there are social media ways to raise starting capital for crazy businesses these days, but I see the lack of home investment/ownership as being a significant limitation to people who may want to start a business someday of their own. Renters have a much harder time with bankers in my experience. I doubt I’d have ever been able to buy all of the equipment and businesses we have without having a house to add to the banker’s collateral list.

  7. Erik

    Bill is right, I think. The Great Recession may have done more to shake confidence than the Great Depression. A home is a good investment for someone looking to stay there for a long stretch of time. The days of “5 years and out” that went on 1992-2008 are dead and gone. And they never should have existed. It was a bubble, and it burst in grand fashion. My grandparents lived in the same home for 40 years, and later retired comfortably. I won’t be able to say the same thing.

    But how do you plan for that long term home investment when you could be “right-sized”, or your company could fold, or be lapped by technology, and then you have to move again. And you lose your shirt on your investment in the American Dream?

    The recession took away our sense of security. No job is secure, no market is secure, no business sector is secure, therefore your ability to pay your mortgage and make that home a long term investment is not secure. I use an analogy- We lost our home to a fire 8 years ago. Burned to the ground. We weren’t there at the time, so we came away unhurt, with the clothes on our back and the car we were in. But it changed us. It took a while, but eventually we figured it out. Nothing felt permanent anymore. Our sense of security was gone, so we don’t get attached to possessions. Or anything, for that matter. In a way, it’s liberating, but mostly it just feels lousy.

    That’s what this feels like. The country lost everything, and they don’t have any belief that it couldn’t happen again tomorrow, because nothing has changed to prevent it. So there is no desire to invest in permanence. There is fear of losing everything again. So how do you go in debt to your eyebrows to buy a house with that sword hanging over your head? Well, increasingly, you don’t.

    Until we stop playing games with money on Wall Street and get back to MANUFACTURING products to sell to the world, we have no security. Manufacturing is the answer. The problem is, our Government doesn’t know how to ask the question. The difference between the 50’s-90’s and today is outsourcing, and our erosion as a worldwide supplier of durable goods and products. Not rocket science…. We’ve abandoned what made us strong.

  8. Emily

    I am in a great situation with my house. But I bought it with investment being the primary goal (though I got lucky and also really love my home).

    I think you may need to take a road trip through the countryside, Lloyd. You’ve been traveling between Chicago and Palo Alto a lot and your article seems kind of one-sided. There’ s a huge part of this country that lives in small towns and still has the dream of homeownership, even young people. I wonder what percentage of the population are elite college grads in demand for jobs fancy enough that they’d be looking to move to downtown Chicago or Palo Alto and rent a condo . My guess is that it’s small. There may be an elite group of Uber users, urban cyclists forgoing cars, and James Altuchers out there that think owning a home is a horrible waste of time and money, but the vast majority of people young and old in America still drive a 5-year-old Chevy or Ford and are working toward their dream of buying a single family home. And my guess is that they aren’t expecting that or wanting that to change in their lifetime.

  9. Lloyd Graff

    These are some of the smartest shrewdest comments I’ve read over the many blogs I’ve written. Thank you for taking the time and being so forthright.
    Russ, I agree with you about a home being so much more than just a house and a savings vehicle. After 35 years in our house in Olympia Fields, Illinois I can say we made a great purchase and a lousy investment. Our children and grandchildren love the house and it’s familiarity. I still enjoy each room and know all. The creaks in the floor, Risa has her practice in house and her students and their parents feel at home there. She loves to sit in her garden haven in the summer. The neighborhood is increasingly African American but still is well kept and feels relatively safe. The schools have deteriorated significantly, especially the high school our kids attended, but they graduated long ago.

    I live 12 minutes from work and that is worth a lot to me with my bad eyes. So we stay in our way to big house that somehow does not feel too big at all, and occasionally bitch about the housing values, which really has very little to do with the value of the house to us, anyway.

  10. mike

    i read a book recently on the demise of detroit and how companies like ‘quicken loan” actually quickened the death of cities like detroit . . . yet at the same time they are hailed as job creators and the owner is now saving the very city he ehlped to destroy – is that hypocricy? is he a modern day saducee (owner quicken loan)?

    i have taken a beating in real estate – own a room in rafaello hotel in chicago that value is one half what paid in 2006 – as one example. owned place near miami as well that got my head cut off.

    have to laugh at the banks and the tarp money – “who be the fool” – as is most times the little guy like me and sir lloyd – we pay our bills while the big bad wolf gets rich and bankrupts the legit folks out there – lol


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