Inkwell: Authors and Artists

    
> So you spend 1/4 of a million dollars on a house

To give you an idea of the disconnect here, you can't even buy a
crappy apartment here in Silicon Valley for $250K. And that's part of
the reason I believe the housing crash is going to hit extremely hard
in areas like ours.

> the social contract of living in that town would do me in

Exactly. Even if I *could* afford it, which I can't!

> One thing we forget about the recent "subprime" collapse is how much
of an artificial stimulant it was for the American economy.

That is spot-on in my book.

Daniel, I finished your book and have to say again how much I liked
it. A couple of questions: Have you kept your rental property in
Pocatello? What happened to it and the tenants and the property
manager? 

And as for timeshares, have you looked into how hard they are to get
rid of when the owners die? My father left me three, none of which I
ever even visited, and they were absolute nightmares. The upkeep was
easily $750 annually per timeshare week, and I couldn't sell them
because I wasn't on title; that meant that I would have had to hire an
out-of-state attorney do the paperwork for around $3000 ("and probably
more," as I was quoted). Two of them I just quit claimed and nothing
happened.

The weirdest one was in South Carolina. According to the deed my dad
signed, his heirs (moi) own the property in perpetuity, so the
timeshare said I was responsible for all maintenance, fees, etc. Talk
about the sins of one's fathers. But, and here's the catch, I couldn't
sell it unless I changed the title to my name, which would cost about
$3500. Now, the timeshare was worth maybe $2500 max, with nobody buying
BTW, so it was a Catch-22. They just wanted me to keep on shelling out
money forever on property I didn't own. For some reason this irked me.

I sent the timeshare HOA letters explaining the situation, they sent
me threatening letters, they charged me late fees, and they sicced
collection agencies on me (who actually backed off when I explained how
I wasn't in fact the owner, and they agreed with me). I finally got an
attorney friend to send them a letter that said, in essence, it's not
mine no matter what your deed says, now go away.

Sheesh.
  

    
Philippe--Re the flash, glitz and rampant consumerism, I actually
think there's at least a bit of difference between wanting a flashy car
(or other gotta-have goods, like consumer electronics or clothing) and
wanting a very nice home. I have no taste for the former (I drive a 10
year old Jeep with 140K miles on it) but quite a taste for the latter.

I think much of the difference comes down to the "home as investment"
meme we touched on earlier: everyone knows cars, clothing, and most
consumer purchases depreciate, but real estate typically appreciates,
which justifies a lot of spending and improvements on it. You get a new
kitchen /and/ it's a good investment, at least in theory. It feels a
bit more virtuous, at least in my mind. Agree? Disagree?
  

    
Lisa--The notion of our homes requiring a professional service crew
resonated with me. My wife and I clean our house, mow our lawn, shovel
our driveway, etc, but that's becoming surprisingly rare in our
community, which is only mildly affluent. I'm surprised how many social
conversations circle around to "the problems of managing our cleaning
service" (a conversation to which I have little to contribute). So I do
think as houses have increased in size, the phenomenon you're
describing is going on in lots of places less affluent than Palm Beach.
  

    
Daniel, I agree that the investment side of home ownership
rationalizes and legitimizes a lot of house spending, however it comes
up short in explaining why the Toll Bros. style houses are popular
while Sarah Susanka's approach is just a niche.
  

    

Could you please say what Toll Brothers Style houses are and what Sarah 
Susanka's niche is?
  

    
Toll Bros. = big & flashy on the surface.  For instance only the front
of the house has nice siding or window trim, but the ceilings are tall
and the rooms are big.

Susanka = small space with high quality work and materials.
  

    

Got it.  Thanks.
  

    
I have a friend who recently came into quite a bit of money.  Not sure
how much, but she and her hubby are in Costa Rica as we speak.  More
than single-digit millions.

She immediately rushed out and bought one of those Toll Brothers style
houses -- the kind which looks like it could be pulled down with a
good length of chain and a Fordson tractor but has a living room that
always brings to mind paper airplane contests.

Every time I go over there, I ponder what could have been bought for
the same money (or a lot less!).  All the space is given over to flash.
 Her kids' bedrooms are actually smaller than in the townhouse she
sold when the money train showed up.
  

    
Also about those Toll Brother houses, there might be beautiful window trim
out front, but walk around back and the windows are completely naked.
  

    
The discussion reminds me of Veblen's "Theory of the Leisure Class.  
  

    
> beautiful window trim
 out front, but walk around back and the windows are completely naked.

Bingo.  It's all about a street view impression.  Brings new meaning to the
word facade.
  

    
I've noticed some of the more modest examples are very tall and wide
but very shallow front to back -- basically a billboard advertising
that you have arrived.  They look absolutely comical from the side.
  

    
A neighborhood of them reminds me of the fake Rock Ridge in "Blazing
Saddles"...
  

    
Alan--Kensington sounds lovely and intriguing. It sounds as if you're
very well versed in the "New Urbanism" school of architecture/urban
planning. You may have already seen this, but in case not, there's a
piece in this month's Atlantic Monthly that's getting a lot of buzz
right now; it posits that today's suburbs will falter as people
conclude that urban living is simply the better way to live. Here's a
link: http://www.theatlantic.com/doc/200803/subprime
  

    
Scott--I think you're right about it not being very surprising that
subprime borrowers with no equity would walk away. Continuing on this
home-as-investment idea, some economists have said that when people put
no-money-down on a home, it effectively functions much like a stock
option. If the house goes up in value, they've got a chance at profit
and a motivation to stay put. If the house declines in value, they lose
no equity by walking away, and if the penalties for doing so (to their
credit rating, or by the lender being able to chase them for the
money) aren't high enough, a lot of people do this. The new
homebuilding industry saw a similar phenomenon as the boom turned to
bust: they were surprised that so many people who put a $5,000 deposit
on a home would rather lose the deposit than buy it upon completion if
the home had lost value. As you suggest, it really isn't that
surprising; it makes economic sense.

I was at the International Builders Show in Orlando last month, and
the economists there were quite worried about how many people with
little equity who are underwater might willingly default on their
mortgages, even though they have the ability to pay. This is definitely
one of the big variables in the housing market right now.

I should offer a disclaimer here: while I write about home finance a
bit for Newsweek, there's very little of this discussion in HOUSE LUST,
which is mostly about the consumer side of the housing boom. So if all
this economic talk makes someone out there think they won't like the
book, rest assured the book doesn't go very deeply into the economics,
and is a pretty easy read.
  

    
Cilantro--You asked how my investment property in Idaho is faring.
It's doing okay. I've owned it for about 15 months. As I described in
the book, I've had a fair share of headaches: my original property
manager ran off with a couple of months rent last year, which hurt. The
good news is I was able to find a good new property manager; so far,
as best i can tell from half a continent away, he's not stealing from
me. The other good news is that property values in Idaho have kept
going up, and the realtor tells me the place has probably gained 10
percent in value since I've owned it. The tax deductions are also more
significant than I'd realized. Owning an investment property feels a
bit risky to me, and I'm not sure I'll be a landlord for the long-haul.
But it definitely helped me understand what drives people to do this,
and reviewers seemed to think that it enlivened a chapter of the book.
So all in all, no regrets.

Regarding timeshares, your inheritance issues with them are one of the
reasons I've always been a little suspicious of the whole concept. The
resale market for them seems to be pretty illiquid, which is a
problem. As I say in the book, the seem to be less an investment and
more a way to pre-pay vacations for years to come. But from the
promoters' standpoint, they are a pretty ingenuous way to take
advantage of the fact that most vacation properties sit empty for so
many months of the year. Good luck sorting out your timeshare
issues--and thanks again for your kind remarks about the book!
  

    
Philippe--I think the reason people flock to Toll Bros-type homes, and
how that relates to investment, is that the square footage metric
really has come to dominate people's consciousness about homes. I quote
Susanka in the book saying that if people are told over and over that
if they pay more than $250/square foot to build a new house they're
getting a bad deal, it's only natural that they'll seek out builders
who can provide the most space for the least money (the lowest cost per
square foot). Ergo, Toll Brothers. And at a time when home values were
rising, people figured it made sense to buy as much house as possible,
hence all the 5,000+ sf houses that began popping up.

I also think that architects have done an unfortunate job in marketing
themselves over the years. I think the public perception is that to
hire an architect and build a custom home, you have to be
super-wealthy; in constrast, production builders really do have a
user-friendly, streamlined process, with showrooms and model homes,
etc. If people could pull into a development and look at a Toll Bros
house versus a Susanka house, side by side, it would be interesting to
see which one they decided to buy. But there's not a mechanism in place
that allows consumers to make that side-by-side comparison, so
consumers tend to purchase what's offered to them.

Or do you think there are other factors at work here that I'm missing?
  

    
Hi Mark, and welcome. It's interesting how often discussion of my book
ends up focusing on "big house syndrome." It's only one of the topics
I touch on in HOUSE LUST, but it's clearly a flash point for a lot of
people.

Let me play devil's advocate for a moment. I have good friends who
live in houses that would qualify as McMansions. While I don't covet
their spaces, and if I were building a house I'd design it differently
than theirs, I do think these houses work really well for entertaining.
The kitchen is huge, the family room accomodates a crowd, you can send
20 kids into the finished basement and let them occupy themselves. If
there's a big football game to watch, we tend to gather at their house
(65 inch TV), not ours. So while I don't disagree with people who find
these types of houses to have some wasted spaces and some aesthetic
drawbacks, I do think there are aspects of how they work that are
pleasing, at least to me. And while the thought of having paper
airplane contests has never occurred to me, it's a great idea!

What do you think--am I just a big McMansion apologist?
  

    
I think McMansions are part of a democratization in taste in
architecture that goes back to the period after WW II.  

The Depression was sort of a big void in terms of homebuilding for
obvious reasons, but pretty much from dawn of American time through the
1920s, people built houses the way tradition or taste makers told them
they should be built.  

Up until about 1800, tradition ruled and styles changed very slowly
(if at all).  After 1800 (starting a bit before that for urban rich
folk), you get an increasingly organized reign of the taste makers,
starting with the importation of the Adam/Federal style from England
and eventually working its way down the food chain until by the end of
the 1800s, nearly every domestic structure built in America was grabbed
out of someone's pattern book.  As a result, an amazingly high
percentage of houses built during those years are pleasing to the eye. 


You can go to the most obscure podunk locations in America and find
gorgeous letter-perfect Greek Revival or later Victorian vernacular and
Craftsman/Bungalow houses, not because there was a builder or
homeowner there with a highly developed aesthetic sense, but because
everyone was literally and metaphorically on the same page.  You didn't
need to have taste, your builder didn't need to have taste -- the
taste was in the books.

All that broke down in the aftermath of WW II, and lots of books have
discussed why -- the pressure of the post-war housing shortage, the
exodus to the suburbs, the rise of truly massive-scale development
companies such as the one that built Levittown, etc.  During those
years, Frank Lloyd Wright became a culture hero and celebrity, but only
as the last of a breed -- no one built houses in his style, they built
houses in the quick and easy styles favored by builders whose
attention was already moving on to the next parcel of farmland they
could subdivide.  Toss up a box, and throw some vaguely colonial
decoration on it.  Done! Next!

The only things that have changed since the house I was born in was
built in the mid 1950s is that we've added a bit to the palette of
discordant decorative details ("hey, can we put a couple of Palladian
windows here?") and that everyone's learned that you can build things
far more poorly and far larger than anyone would have dared to try in
the 1950s.

I do take your point about entertaining, but as someone who entertains
often and well in a 1,200 square-foot townhouse (ok, so 20 kids would
be a strain -- we'd have to lock them in a closet), I have to ask how
rational it is to buy a house on that basis.  What percentage of your
time are you actually entertaining large numbers of guests?  And could
you buy a somewhat smaller, better-built house and still entertain
quite well?  Of course you could.

I think most people swim with the current.  Whether that's a good or a
bad thing depends on who's making the current.  If it's Andrew Jackson
Downing or the numerous now nameless but skilled architects who
designed home plans for 19th and early 20th century pattern books, it's
a good thing.  If it's Toll Brothers and ilk, that's a bad thing.  I
think taste makers were a critical part of the ecology of American
architecture, because they encouraged people who were barely paying
attention to buy homes that were much better designed and more pleasing
than anything they would have sought out on their own.  

Left to their own devices (and manipulated by marketers) people have
chosen things such as 30-foot "lawyer foyers" and massive
industrial-scale kitchens in which they make microwave dinners.

Is that an elitist perspective?  You bet!  Notice I'm not saying that
these people are morons, just that they know nothing about architecture
and don't pay attention to it.  How many things in life can you
possibly pay attention to or know about?  People are busy.

My friends who recently bought the hideous mini-mansion are extremely
accomplished and intelligent people - they didn't come into their money
via the lottery or inheritance.  They just don't know jack about
architecture, so when suddenly they were wealthy, they went and bought
what the rest of the newly wealthy were buying.  In 1895 that would
have been a beautiful Queen Anne or maybe if they were a bit more
daring something Shingle Style.  In 2008, they bought a giant ugly
piece of shit built to last about 20 years.

So yeah, you're just a big McMansion apologist! ;-)
  

    
Mea culpa for bringing up the economics of home lust. As a Realtor, I
live more directly than most with the consequences of what will or
won't happen as a result of what the media describes as "a meltdown" or
of "the balloon popping."  Both fuel public perception and reaction to
a certain extent, but both metaphors are problematic.  The popping
balloon implies a total collapse (home values have not gone down to
zero).  "Meltdown" has similar connotations.  Most areas are suffering
market corrections, not total collapse.

The discussion here seems to focus on those upper middle class buyers
with/or without aesthetic taste.  The weak correlation between those
with financial resources and a refined aesthetic give us the McMansion.
 Yet, there are many design criteria in newer homes that have improved
over the years.  Also, two competing pressures:
getting-the-best-bang-for-the-buck/affordability VS.
functionality/aesthetics enter into most buyers' decisions.  And,
again, most buyers tend to purchase toward the higher end of what they
can afford.  

Compared to a generation ago, the lots are smaller. Governing bodies
play a MUCH larger role in what the developer can and cannot do with
regard to densities, location of developments (creating an artificial
land scarcity), infrastructure requirements, parking, greenspaces,
energy efficiency, common areas, water retentsion/runnoff, building
code adherence, and making sure that every house on the block does NOT
look the same.

The newer houses are far superior in terms of energy efficiency,
ventilation, HVAC, electrical safety, lighting, cabinetry, plumbing
fixtures, roofing materials, and design flow.

To make this design flow comparison, it is best to compare apples to
apples (not custom-built homes of the affluent with the homes of the
average Joe and Jane).  Today, a 3 bed/2 bath 1500 square foot home
prioritizes a single great room over a small living room and separate
family room.  Today, people prefer one larger master and master bath
with smaller secondary and tertiary bedrooms.  A generation ago, such a
home would have three uniformly sized bedrooms clustered off of one
hallway and tiny bathrooms (two if you were lucky).  Kitchens are more
"affordably" elegant today.  If there is a fireplace today it is not
woodburning, but gas fired.

If we go back to the early 1950's and before, the average home was
even smaller, even though the craftsmanship was usually superior
because one carpenter did most of the work.  Today, most houses are
built with "portable" factory lines of subcontractors
(roofing/framing/drywalling/electrical/plumbing/landscaping). This has
kept the prices down for the consumer.

Bottom line, even in new tract homes, there are many design
improvements and a more aesthetic flow than in homes of yesteryear.
Where the comparison gets distorted is when we compare an uppermiddle
class pre-WWII home with a middle class home today.  I once owned a
1250 sq ft home from 1929 which was built by a doctor on top of a half
acre knoll with 300 degree views.  This was uppermiddle class in its
day, had some great aesthetic features, was incredibly solid in many
ways with great built-ins, crystal knobs on the doors, cool doors,
great porches, arches, etc. It was a one-of-a-kind gem.  Yet, we also
had to add a second 3/4 bathroom, live with two small bedrooms with
tiny closets, replace the knob and tube wiring where we could, dispose
of the asbestos around the furnace, add a/c, blow in insulation into
the attic, etc., etc.  

Bottom line, it's too simplistic to suggest the those of yesteryear
had more refined taste than today.  Given the choice and the means,
there are many people who choose quality over simple $/sq ft.  There
are also affluent people building cool one-of-a-kind houses today with
great aesthetic sensibilities.  Developers that last in the middle
class market are always balancing the design features provided with
cost considerations.  If a home is poorly designed with few features
for the money, then it doesn't sell. The home down the street will. In
the future the developer will not keep building homes that don't sell. 
There are, of course, people who prioritize style features (such as
the Toll homes) over sturdiness of construction of a more refined
aesthetic.  However, to emphasize this as the norm, is a gross
oversimplification of the real estate market.      

Well, enough ranting, I'm off to sit my plat: "it has a great bang for
the buck, compared to those $/sq ft boxes across the street." 
Compared to the resale home market in my town, at least these two new
home subdivisions have products that are selling.  And the sale of one
3bed/2bath home will earn me several times more this year than the book
I published. Such is life in America.
  

    
Well, I argued exactly the opposite, actually - that people in the
past had tastes no more refined than those of today.
  

    
Two questions: First, how does the economic argument about no-money-down
house buyers account for the post-WWII period when VA loans made it possible
to buy a house that way? As late as 1984, I bought my $60K house for less
than $1,000 out of pocket with a VA guarantee.

It seems like the real difference is the ratio of income-to-house price.
Even allowing for higher interest rates than today,  that's been the
biggest change over the last 15+ years.

And second, how does the recent revival of interest in old bungalows and
craftsman houses fit into your observations?
  

    
Mark--I'd offer one additional thought about your observation that it
doesn't make sense to buy a large house for entertaining, because most
of us entertain so infrequently. You're right, but I do think many
people do it anyway.

In the book I refer to this using a term from automotive marketing
called the "maximum use imperative," and it's a theory the auto
industry came up with in describing why so many Americans came to want
to driver 4wheel drive SUVs when they never go off road and only turn
the 4wheel drive on once or twice a winter in deep snow. Basically
marketers came to believe that a lot of people feel good about owning
something with the capability to perform an "extreme" function (a car
climbing a mud bank, a homeowner throwing a buffet dinner party for 75)
even if we don't actually utilize the function all that frequently.

In houses, I think guest rooms are another example of this: if you
figure out how much extra you paid for a house with one more bedroom
than you usually need, then figure out how many nights a year you
actually have guests staying overnight in the room, then figure out
what it would cost to put those (infrequent) guests up at the Holiday
Inn, and it's probably clear that buying a house with a guest room
makes no sense whatsoever. But a lot of people do it anyway. I do think
when it comes to houses, people tend to consider not only their
day-to-day needs, but their twice-a-year needs as well, particularly
when low interest rates and a fast-rising housing market helped them
justify spending a little more.

Mark, you grasp of the history of architecture (which far exceeds
mine) interest me. May I ask what you do for a living, and how you came
to know so much about architecture?
  

    
Scott, I'm not sure if you've read HOUSE LUST yet, but there's a
chapter exploring why a half-million Americans became real estate
agents during the boom, and why so many people came to (wrongly) assume
this was an easy-money profession. If you have read it, I wonder if
you thought of this part of the book. If you haven't, I wonder if
you're seeing a lot of newbie Realtors flee the market, and how you
think public perception of your profession will change over time?
  

    
John--Again, I'm not really an expert in home finance, but here's my
two cents re your no-money-down question: I think the big difference
between the no-money-down VA loans and the no-money-down subprime loans
that are now causing so many problems is the credit worthiness of the
borrowers. The primary reason people took out subprime mortgages was
because of a poor credit history, inability to document income or
assets, etc. So I don't think it's all that surprising that their
default rate is turning out to be higher than veterans who may have
bought homes with similarly-low downpayments. There are probably other
factors at work here (including, as you suggest, the prices of homes in
relation to incomes), but this seems to me the primary difference.