Apr 10, 2007

Real estate as an economic drag

I ran into a yong man on Saturday night: 24yo; recently married, software engineer with an MBA from an Ivy school, smart as a whip and on top of the key global technology issues and trends of the day.

His late breaking bulletin: he had bought his first house the day before, made possible with a $330,000 mortgage. He emptied the resereve tank (his savings) to make his down payment and buy the requisite furnishing and insurance and all that other stuff. He appeared shell shocked from the experience. I think I was witnessing a guy that had to sneak out of the house to catch his breath. He;d better eget used to it, based on the math(i.e., house payments) he was sharing with me.

Now, what are the odds of this guy -- who when I last saw him was drawing flowcharts on a napkin of a new interactive website brainstorm he had dreamed up --- ever pulling the trigger on actually running with one of those brainstorms and taking the plung of starting his own business? With that $330K mortgage hanging over his head.

The answer: nil to within a centimeter of nil.

Misguided public policy ---- monetary; housing; transportation; taxation --- all result in a scenario whereby a 24yo kid is buying a $330,000 home. A 24yo shouldn't be. The real estate industry loves it, of course, and they hold many of the cards in the modern American power play.

You ever notice how the so-called 'business sections" of local newspapers are nothing more than a listing of local real estate transactions? Or how the town's most high profile business leaders are all the top selling agents in town?

Real estate transactions are not the type of economic development we should be executing in this day's modern global order. Public policy should reflect that reality.

Our 24yo friend should be dreaming about launching his own net business, not worrying about the trends affecting his variable mortgage payment.

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