Monthly Archives: August 2010

Home Value Reconsidered

I’m in the homebuilding business because I believe better quality homes are an important aspect of making this world a better place. My associates in our company share my interests and passion. I know this because I’m pulled along by their energy and ideas as much as I pull things along myself. There are two quotes carved into beams in the main entry of our Walpole, NH facility that reflect our company’s view of the ultimate value of good homebuilding. The first is a classic one from Winston Churchill:

“We shape our buildings; thereafter they shape us”

The other one is less known, from Confucious:

“The strength of a nation derives from the integrity of the home.”

It’s hard to imagine that Churchill hadn’t read Confucious. With different words, millenniums separated, they said much the same thing. Whether in the personal, national, or societal context, buildings are a reflection of the people and culture from which they arise. We build not just with tools and skills, but also with collective values, beliefs and societal baggage. Buildings may look like just an aggregation of materials formed into shelter, but their dynamic impact is profound, deep and generations long–for better and for worse–on its inhabitants,its community and our ecology.

Where and how we build matters. What we build matters. What buildings give and take matters. Durable, functional, beautiful and sustainable homes are essential ingredients of a strong and lasting civilization. We’re going with Churchill and Confucious on this subject, and will spend our careers trying to prove that good buildings can have an important, positive and powerful influence now and into the future.

For the last few months, the New York Times has been running a series of essays about homes and home life, called “Living Rooms.” Naturally, I’ve been a very interested reader, hoping mostly that the reporters would generally conclude that homes matter more than most people realize and much, much more than the wreckage of the past few decades of flim-flam, hyper-inflating, flipping madness would indicate. The series has been uneven, but not disappointing. And if nothing else, it’s been good to read about housing in the mainstream press for some other reason than it being the cause of our economy’s woes.

In the introduction to the series, the editors noted that home making has essentially been in our DNA from early in our human evolution, but the nature of our dwellings are constantly changing, as society changes;as we do.

Many animals build shelters, some of them dazzlingly efficient and complex, but only humans design homes that thoroughly reflect the architecture of their lives, families, work — even their thoughts. The home has been central to human existence since the Paleolithic age: recent archaeological work in Israel has found evidence of domestic order — food preparation here, beds over there — dating from around 100,000 B.C.E.

But amid such consistency, there is constant change. A century ago the kitchen was a lowly service space relegated to the back of the house, or to a separate building altogether; today it is the center of home entertainment. We used to talk about our houses as islands of financial security; now we worry about them being underwater.

In the first series essay, The Other Real Estate Value, Winifred Gallagher wrote about recent attitudinal changes regarding what a home is for, and just what sort of security it should provide. Easy mortgages got way-too-many people playing the risky building speculators’ game, and scams just don’t work when the number of players exceeds the number of victims. So the game itself came apart and brought a whole lot of our economic vitality down with it. In the process, the idea of home itself paid a price, as the whole premise of the subprime debacle took a toll on the more important real estate values.

(The shaky economy) …changed the home from a haven into a commodity: a bargaining chip in an increasingly uncertain world. Not so long ago, your house or apartment and its network of neighbors, shops and services supplied a feeling of belonging and stability that anchored you in life’s shifting currents. Now, a sense of security increasingly means selling your home, not staying in it.

But Gallagher is convinced none of that is true. The real value of a home is in the experience of lives lived there. Houses become homes and homes become places that inspire lifelong memories as the homes we inhabit, over time, begin to inhabit us. You know this from your own memories and experiences and I do too, but it’s good to be reminded.

Like the old song says, there’s no place like home, not because of the real estate, but because of the sense of shelter and nurture that it provides. This deep, wordless experience can’t be manufactured in an instant but develops slowly, one birthday party, convalescence, Thanksgiving and cup of tea at a time.

Jayne Merkel wrote two enlightening essays about our changing attitudes regarding home size, which is actually a study in a shift in what is understood to be necessary and sufficient. Her titles, When Less Was More and When Less Was No Longer More are hung on Mies van der Rohe’s famous phrase, “less is more,” which defines beauty with simplicity and wealth with satisfaction, not unending accumulation. In the years following WWII, America was expansive, growing and positve:

But when it came to their houses, it was a time of common sense and a belief that less truly could be more. During the Depression and the war,Americans had learned to live with less, and that restraint, in combination with the postwar confidence in the future, made small, efficient housing positively stylish.

Average houses were less than 1000 square feet. The big architects, like Frank Lloyd Wright, bought into it and were designing homes for wealthy people that were a tribute to that smaller scale. Small homes were easy to build, easy to maintain and their mortgages could be paid off in only a few years. By living with less, full ownership was quicker, and upgrades, additions and remodeling could happen over time, without loans, and targeted to what was truly needed and desired. Lots of the post war tract homes weren’t particularly great in their initial construction, but they were commensurately cheap and left plenty of possibility for changes and improvements.

The modesty and optimism of the “Less is More” idea helped to create the unbridled wealth that was later its undoing, as Merkel reported in her second essay. The Postmodernism of the ’80’s and ’90’s was a look backward to various historical styles, but it was more about pretense than authenticity, making for thin facades of show and appearance inside and out.

The interest in old buildings also failed to have much influence on houses in new suburban subdivisions where most new housing was being built. These had always aped historical styles and fresh ideas from famous architects about how to use those styles in different ways had little impact. Home builders might add a new stained glass window or beveled glass door, like those in old urban houses, but the quality of construction, design and materials did not improve. Customers preferred specific features, like hot tubs and decks, and prized “curb appeal” and more space above all else.

As I have said in earlier posts here, many of these grand appearing homes are no more than miners’s shacks dressed up in plaster and amenities. There’s no restraint or “enough” in what has become known as the McMansion or “Executive” design style. Like gaudy, fake jewelry, it’s a celebration of excess, and its illusions are similarly transparent. American homebuilding has been too much defined by this wasteful and fraudulent design and building approach. Finally, it is being its own kind of emperor with no clothes. It wastes resources and feeds dissatisfaction. When more is the goal, more is never enough.

As Merkel summarizes,

…a desperate desire for more of everything led to out-of-control consumption that bloated home sizes, deflated savings accounts, and distorted the American economy for the next 20 years.

Joan Dejean wrote about rooms in her essay, Who Lives in This Room? For the wealthy, display has often been the only function of many rooms and while they are showing off space, furniture, art and possessions, the real purpose has historically been about showing off social position. Lest we forget, that remains the purpose of much of home design. It begins with “curb appeal,” includes useless entrances and various unused spaces.

As Dejean points out, very little living goes on in a lot of living rooms. If you could build new walls around the space that people use instead of the home they currently live in, the resulting newly defined living space would probably equal the 1950’s standard of about 1000 square feet. Want to save money? Shed ego.

I think I enjoyed Allison Arieff’s essay the most, if only because it confirmed an encouraging trend we are seeing. In HomeFor Life, she writes that people are waking up to what is important about a home and they’re actually asking for it and investing in themselves instead of some vague prediction about a future buyer.

At what point did the house become more about the future tenant than the current resident? It’s hard to trace the moment, but let’s hope it’s passed. Because for too long, home design has been hijacked by the allure of resale value. Maybe now we can begin again to think of our houses not as investments but as homes.

..Now we need to think more sensibly about building houses that people want to stay in.

I’m happy to say that we are hearing precisely this message from our clients. They aren’t talking about resale; they’re talking about what their home needs to be to serve their needs and they want good design, good engineering and high performance level of energy efficiency. Underlying these priorities is a common comment from our clients (young or aging) that “this will be our last house.” Undoubtedly, that’s an attitude that concentrates the mind toward good decision making.

Arieff goes on to quote a 2009 Builder survey that revealed a growing preference for smaller homes:

“…unprecedented housing bust, which brought about the largest loss of home equity in history has fostered fundamental attitudinal changes in new-home prospects…. The desire for a McMansion seems to have been supplanted by the desire for a more responsible home.”

Glory be.

Welcome to your Debt

For millions of Americans, the idea of owning a home morphed from boon to bane as the dream of having one’s own home turned into a nightmare of debt. Traditionally homes have not only played a critical and positive role in the experience of living, they have also been a primary repository of personal financial equity–both the mattress and the wad of money beneath. But as the inherent monetary value of “homeownership” has been systematically rejiggered with tax incentives and lending gimmicks, even the home’s sacred purpose has been demeaned. A place that mostly represents a mountain of personal debt can’t also be an oasis of comfort and security.

Christopher Papagianis and Reihan Salam wrote about the effect of the errant subsidies and financial strategies in a recent editorial in the National Review, entitledWe Can’t Afford this House. As Papagianis and Salam point out, political consensus in American policymaking always seems to favor housing, but it’s a knee-jerk political bias that’s now proving to be destructive for both homeowners and the country.

“The political case for federal intervention was (historically) strong. Americans had come to believe that homeownership was essential to economic security and that it made for better citizens… The high down payments and short-term mortgages meant that households all over the country held a significant amount of equity in their homes just a few years after buying them. In some cases, the value of this equity grew as the value of the home appreciated. These capital gains, in conjunction with the forced savings of mortgage payments, meant that millions of families had assets they could pass on to future generations.

The formula, however, changed dramatically at the end of the 20th century. From 1994 to 2005, the homeownership rate reached record highs,thanks largely to innovations in the mortgage-finance market that reduced down payments and minimized equity. This shifted the basic wealth-building proposition of homeownership away from savings to an almost exclusive focus on capital gains. Average down payments fell, reducing the savings required to ‘get in the door.’ More significant was the rise of mortgages that involved no forced savings: the interest-only loan, in which no equity is built because the principal is never paid down, and the ‘negative amortization’ loan, in which payments are so low that they do not even keep up with the interest, leaving homeowners more indebted, rather than less, each month.”

I’m a homebuilder and therefore no fan of the difficulties besetting our industry. It would be better for my associates and me if there were more homes to build and we could return to the problems associated with too much demand. But despite my self-interest, I’ve come to believe that artificial stimulations of the market are often wrong, having unseen, unintended consequences.

Messing with housing so that money flows better in the economy may seem like an obviously good thing, but it’s not so good when it doesn’t actually improve the lives of the human beings living in the homes. Owning a home is different than occupying it with a debt so big that the home owns its “owner.” Papagianis and Salam suggest blind subsidies don’t recognize the distinction:

“One effect was to reduce the social benefits of home ownership, because the benefits are a product of equity and not of the mere fact that a contract has been signed and a mortgage taken out. The relationship between home ownership and social goods had been misunderstood: The traits that enabled households to build up the savings necessary for significant down payments — hard work and the deferral of gratification — were misattributed to home ownership itself.”

The dream of freedom and equality in America and the American dream of owning a home have long been intertwined. The latter has been considered visible evidence of the former. It started in the early years of America as the Colonists eagerly acted out their independence by working like slaves. “By dint of severe effort,” they literally built better lives for themselves from the raw wilderness. The triumph of individual liberty became nearly synonymous with the triumph of hard work and sacrifice.

The American experience became a fundamental American value: freedom was given, but a better quality of life was earned.

There were lots of ways to earn a home, but mostly it meant working, saving and deferring gratification. Most of the original American homes were earned with brute labor and relentless patience, often requiring several generations to complete. Those homes may have taken quite a while to finish, but during the entire building process, the buildings were very often 100% owned.

In the 19th century, local “Building and Loan” associations developed tohelp people finance their homes. Many of today’s banks trace their roots back to local, and informal, home mortgage groups. Usually, the loan amount was based on a large amount of the construction having already been completed, or a down payment would be required that might have been as much as 33% to 50% of the building cost. That looks onerous by today’s standards, but the banker/friends perhaps knew the home wouldn’t be a personal benefit if it took more than it gave.

Those early banks were community-based and personal. You could borrow money based solely on your good reputation, your character and your integrity. Though that kind of banking may seem ancient and unreal, I’m thankful to have been the beneficiary of it. In 1980, when I went to talk to my banker about the process of getting a loan, he gave it to me on a handshake, without plans, without an appraisal, and without site inspection. I told him I had the foundation in and capped and had the material for the structure. I needed money to do the rest. He asked how much. I said about $30,000. He said fine and I could start drawing on an account the next day. The amount I guessed didn’t finish the house, but it got me in and my banker was pleased with how the money was spent, even though his loan didn’t result in a completed collateral. It took another five years to finish the house, but I did it slowly as I could afford the materials or pay for the work.

In a way, my informal mortgage for an incomplete home was similar to the small and incomplete tract homes returning veterans of WWII were able to purchase with friendly loan arrangements. It was an affordable good start, but the real value would be in the improvements and additions that would happen over a period of many years when they had better financial ability to make the improvements and build additions.

Among our clients, some of my heroes are those who have purchased from us only the building’s shell or even just the core structure of a larger planned building. They thereby made the initial building livable on the smallest amount of money possible and finished it slowly, as they could do the work or afford to hire the construction out to others. They simply substituted deep debt with a good plan and patience.

If we want to encourage home ownership, we’re going to have to find a better way, one more in tune with the values of our country’s heritage and especially more sensitive to the reason and purpose of homes. If a home doesn’t improve the quality of the lives within, its service is negative and that’s a tragedy no matter how well money is flowing in the larger economy.