Wednesday, February 08, 2006

Measuring: TCO Housing

The measure of productivity is indeed tricky. Just like inflation is tricky. Even measuring bubbles is tricky. I'll concentrate on bubbles.

The big elephant in the corner: What about California has always made it more expensive to own a home? Ans: It isn't more expensive and more importantly hasn't always been as expensive as it appears today.

What are homeownership costs? And equally important, what are homeownership benefits? A fixed rate mortgage in CA is the ultimate in financial predictability. Your mortgage is the same and your property taxes are limited to 2% increases (maximum) annually. Contrast that last with FLA where people are experiencing doubling and tripling of property taxes. And insurance; forget the earthquake stuff, no one has earthquake insurance, it is designed to not be a good deal. So ex earthquakes CA is a good place to write a policy. No hurricanes, no ice storms, no frozen pipes bursting, floods and fires are predictable. Then there's ongoing costs. Roofs last 60 years, paint 15, driveways many many decades. And then there's no snow days and no shovelling and no winterizing. Those are all time and effort and money that doesn't happen here. Your car literally lasts as long as you want. A smaller home can really be a bigger living space when the utility of the outside is factored in. I grill on the patio year round. The alternative would be a $4000 indoor grill oven/stove taking up an extra 6 square feet of the floor plan. 2 Car garage rather than 3, as leaving an auto in the driveway doesn't kill resale value. Then there's utilities. Sure gas. water, electricity are getting steep on a unit basis and the idjits trying to grow Bermuda grass on Riverside are insane but my home has no central heating and no A/C at all. This has been a normal winter and the wall heater in one room has been turned on 3-4 times for a few hours for the entire house.

So, what does this all mean? It means that California can be a very cheap place to live. The perception comes from the rest of the nation hearing about $800k tract homes in Moreno Valley with $150 winter heating and $300 summer cooling and $200 water and $300 HOA and $750 taxes (all per month figures). The other 7/10ths of the iceberg are cool and safe under the water while those unusual examples above roast in the glare.

TCO is total cost of ownership. While not anything like all the price of California housing is justified, a lot more than other places does indeed have a basis in reality.

1 comment:

Osman said...

Good post. Back when I was in grad school and thinking about where I wanted to live, I found a website that let me punch in characteristics I was looking for in communities. I was surprised how many cities in California met the bill. As a colleague later pointed out, every desireable city is expensive. That was true before the housing bubble and will be true years from now. People move to Colorado for quality of life as well... Check out my post, Why Boulder?