Are Loans a Necessary Evil?

I’ve been thinking a lot lately – about the housing market(s) on the west coast. It seems like it’s nearly impossible for in many markets, for many families to buy a home today. Maybe if you got into the market 20 years ago, you’re fine! But for those moving to the west coast, or for many millennials – it seems that the only way to live is in a state of perpetual renting.

Many of the major housing markets on the west coast seem to have this same issue. You’ll find the highest of all median home prices in the Bay Area. There a single family home can run you up and over a million dollars! In Seattle, things are a bit better but not really all that much – with homes often running between 650 – 800 thousand. This pattern continues itself across many communities all over the west – not even just by the coast.

With an influx of refugees from California, even communities in places like Montana are starting to see median home values approaching 500k.

How is any of this possible?

There are a number of really well paying jobs on the west coast. Places like the Bay epitomize this more than anywhere else in the world today. Many of those living in the Bay are making a quarter to a half a million dollars a year. For someone on that kind of salary, it’s not impossible that they could afford a mortgage on a million dollar home. In fact, they might be able to pay that mortgage off quickly, forgetting the need to stretch it over 30 years.

Housing is a necessity, and so wherever there are people, there will be a need for housing. You can’t expect someone to save up money for 20-30 years just to finally buy a house themselves… where will they live in the mean time? For this reason, an upfront loan is necessary…

But how much is a house really worth? Certainly knowing that the prices of houses vary wildly from place to place, or from year to year… it’s easy to deduce that the cost of a house in a given locale doesn’t really say anything about the ‘objective’ amount of labor required to build such a thing. Rather, in these markets, we’re looking more simply just at a competition factor.

Here’s where the question of loans comes back into play…

Most of the houses in the Bay are almost certainly owned by the bank. They’re owned on the promise of future money, that someone with a tech job in the Bay will be able to pay back a million dollar mortgage. This isn’t really much of anything to do with the actual value of housing. In fact it isn’t even just the value of competition!

Imagine a world without loans. Where you couldn’t go out and get a million dollar mortgage on a home in the Bay. There would still be competition for homes! The values of those homes would still go up over time as salaries in the area increased. But they wouldn’t be up at a million dollars or more! If you had to actually put up the money on the day you wanted the house, even highly paid engineers would need to save up a bit, rather than just jumping into a mortgage.

Banks enable competition for housing in an area to compound. They exaggerate the cost of assets which are a necessity. Nobody can just say ‘no’ to housing… you need it.

The most realistic solution

Imagine what the Bay would look like today if mortgages had reasonable limits. Maybe a family making 80k a year should be permitted to get a loan to help them get into a home… but an engineer making half a million dollars a year shouldn’t be able to get a loan for more than that same family! If loans topped out at a certain amount in a given locale – that might stop us from repeatedly walking into this housing trap.

About the author

Professional hacker & security engineer. Currently at Google, opinions all my own. On Twitter as @zaeyx. Skydiver, snowboarder, writer, weightlifter, runner, energetic to the point of being a bit crazy.


  1. I’ve thought and raged about this too, as I live on the West Coast. But I don’t think limiting loan amounts would do much to reign in the rampant speculation. For example, Ventura County does have a lending limit, but it hasn’t stopped homes from rising 20% in one year.

    There are plenty of people who can afford to buy homes for cash, and would welcome the reduced competition from cash-strapped home buyers who can’t get a large-enough loan.

    Limiting loan sizes is an effective protection (for the lender) against default, though. It also keeps the poor riffraff out of the neighborhood.

    What I think would work, would be something like a “fair market value” for homes, based on local incomes… With a steep sales tax on every dollar above this price. But alas… local governments love their property tax revenue, and would never approve anything that would harm it.

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