Homeowners Are the Housing Problem

I own a home in Palo Alto, California but please don't hate me.

For various reasons few new homes are built in Palo Alto, which limits the supply. Concurrently, many people would like to live here for access to great schools, a Mediterranean climate, Stanford University, career opportunities offered by Silicon Valley, proximity to San Francisco and so on.

The median home price in my city of about 60,000 people is $2.5 million and the median rent is $6,100.

These prices are often decried as "insane," "ridiculous," and "unconscionable." But they simply reflect the market's judgment, right? Not really.

The market does not exist in and of itself. It is an abstraction aggregating many human decisions. In Palo Alto real estate the most important decisions are made by sellers. And sellers are thinking big.

According to real estate site Zillow, my rickety 90-year-old, 1,050-square-foot bungalow might fetch almost eight times what we paid for it. A nearby home that has remained in the same family for 60 years could easily fetch 80 times what was initially paid. Similar situations exist all over town.

When people look to purchase a home in Palo Alto they are confronted by sellers who demand double digit multiples of what they paid. Doubling or even tripling their investment isn't good enough. They want the 10X or even 80X gain. Greed or simply good business?

The only ameliorating factor is an attitude of entitlement among some people who want to live in Palo Alto. Too many are literally outraged they are unable to afford to purchase a home or rent an apartment here. I have little sympathy for their complaints. There are many wonderful and more affordable places to live with equally good weather, excellent schools and amenities. They just aren't here.

At the bottom line (a necessary cliche) lies a fundamental conflict. The debate is over housing, a basic human need. But it also involves a financial asset, often the largest in a family's portfolio and sometimes the cornerstone of a retirement plan. As a potential beneficiary of this system, I hesitate to land solidly on either side.