If you’re living on campus, you might not spend much time worrying about it, but the housing market will profoundly impact the economy you graduate into.
And the housing market isn’t getting better. Arizona has two lessons to learn from this recession and we haven’t learned either yet.
The first lesson is that houses are not stocks, and it has an easy solution: stop using them like stocks.
The true demand for houses is determined by the number of people looking to live in them. So as long as we’re building homes for people to live in, the market will do a pretty fair job of self-regulating.
But in the early 2000’s, investment activity distorted the market. Prices surged, and as more and more people got in on the game, we built houses with no one to live in them.
In an article that probably surprised some people (it really shouldn’t have), The Arizona Republic estimates that investors bought over 50,000 Arizona houses last year. As rents continue to fall, The Arizona Republic speculates many of these houses may be dumped back on the market.
That’s unacceptable.
Two years is too long to have not learned our lesson, and too short to have already forgotten it. We cannot continue to buy and sell houses like stocks — the volatility that that destroys any real value in the real estate market, value that can only be created by stable neighborhoods with people living in them.
So here’s the rule: If you can’t hold a house for five years, don’t buy it. You can live in it, or you can rent it out, but if you’re going to rent it out, be aware that rents are low. The “flipping” has got to stop.
Lesson two of the recession is “diversify your economy,” and it’s going to be much harder to handle than lesson one.
Arizona got walloped when the housing market crashed because our economy is unreasonably dependant on construction. Not all industries fell the same in this recession, and if we had some of the stronger industries, they could have lent the state some measure of stability.
Janet Napolitano, Secretary of Homeland Security and Arizona’s last elected governor, addressed the issue here at ASU on Friday. Acknowledging that Arizona’s economy is very much “real estate based,” she emphasized the state’s need for new industries. Based on her governorship, it should be no surprise that her solution involved education.
Napolitano stressed the importance of thinking long term. Economic realities demand major sacrifices, but Napolitano believes an educated and competitive workforce is the key to attracting new industries and diversifying. Her priority, if she still had the job, would have been to protect both K-12 and higher education funding.
If that solution seems too easy, it probably is. But however we do it, Napolitano has one thing right — economic diversification is a long-term process.
Which may be the most important point. Our last decade was all about get-rich-quick, and it almost destroyed us. Moving forward, we need disciplined, sustainable investment. And we need to start that now.
Reach John at john.a.gaylord@asu.edu
