Supersize That House, Please
Were I naive, I would believe this is occurring because of the old business axiom "supply follows demand". But are these opulent homes being built because the public is clamoring for them? No, I don't believe it for a minute. If you look at the economics of home construction and sales, it is easy to see they are being built because it makes more money for everyone involved. What is a home, after all, if not a box full of air! The larger the rooms and the higher the ceilings, the less it costs per square foot (or, should I say, per cubic foot) to build. The more air the home encloses, the more it can be sold for... leading to greater realtor commissions and builder profits. I am not implying any nefarious motives to anyone concerned. In fact, in a pure business sense I must applaud as maximizing profit is good business practice... nothing more and nothing less. And... it takes a big crew to build a big home!
The unintended consequences, however, are troubling. First, a growing population of lower-income buyers are forced to purchase older homes because there are no new homes in an "affordable" range. Older homes are ok... most people never buy a brand new home... but the day-to-day maintenance costs of a similarly-sized older home can be surprisingly high. And though we can appreciate the difficult job a home inspector faces when examining an older home, the sad fact is that many deficiencies are missed not due to incompetence but because inspectors don't have precognition or x-ray vision. New homes, on the other hand, can have a "grace period" of minimal maintenance varying from 5 to 10 years... barring contractor error, manufacturing defects or acts of God.
Middle-income buyers are often tempted by eager realtors and liberal lenders to overbuy into these coveted neighborhoods, leading to a precarious financial trap. Husbands and wives often work long hours to afford these homes. If either loses their job, their home is lost very quickly as the oppressive mortgage and tax payments quickly use up their savings. Even in single income families, a layoff that might have been a difficult but manageable setback becomes a disaster. Too late, they realize their home has truly owned them... and was not a benevolent master!
Robert T. Kiyosaki, author of "Rich Dad, Poor Dad" steps on lots of toes by challenging the notion that a home is an "asset". "When downsizing (corporate layoffs) became the "in" thing to do, millions of workers found out a house, their largest so-called asset, was eating them alive." He goes on to say, "What they thought were assets could not help them survive in a time of financial crisis". Continuing, "I see so many young couples who get married and trap themselves into a lifestyle that will not let them get out of debt for most of their working years."
There is nothing wrong with wanting a better life for yourself and your family. There is even nobility in the struggle to keep ahead of the bank and the taxman. Like it or not, making lots of money by working hard and working smart is the only sure way security can be achieved... at least in a capitalist society such as ours. But we must also save smart or our years of hard work can be totally wasted!
Kiyosaki urges us to keep a sensible balance between needs and wants and work towards accumulating real assets... income generating real estate, stocks, bonds, mutual funds, intellectual property, etc. For example, rather than impulsively purchase a new item, such as a car or golf clubs to replace one that still works well; invest the money and work towards your family's security. Or purchase used and invest the difference.
This sensible way of looking at wealth, money and possessions requires both understanding and discipline. And the willingness to view sacrifice as intelligent planning. It has been forever said that the one defining difference between psychological maturity and immaturity is the ability to control impulses and delay gratification. For some of us, it may be time to grow up.
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Take the Next Step
- Dont be in Denial. If you feel that your job maybe at risk, have a contingency plan.
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