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April 2, 2008

How the End of the Housing Boom Hurts

As self-help preacher Tony Robbins clamors on to the stage, the LA Convention Center erupts like a revival hall with screaming and cheering and the sort of palpable optimism usually found at political rallies and children’s birthday parties. It’s not a seminar on locating your personal power. It’s a real estate expo circa 2005, and thousands of people have shown up to attend workshops with titles like “Power Investing,” and “The 125 Percent Program,” and “Getting Rich With Real Estate From A to Z.” The median home price in California has soared to half-a-million, and there’s no sign that the end is near.
Only there are. Many signs. Predatory lending is rampant, and the sub-prime lending crisis is looming. Many mortgage corporations had already begun to downsize. And only three years later, we are staring down the face of a national recession, and the building industry is leading the way.

So what happened? For those of us in the nonprofit industry, the housing boom was a double-edged sword. On the one hand, we received enormous financial support from builders, contractors, and the banking and mortgage industry. Times were very, very good the housing industry. Interest rates for home loans were low and a shortage of affordable housing was driving prices up. Boom prices in cities were fueling a construction boom in the urban outskirts like the Inland empire. Corporations and their foundations could afford to give generously. And with all the building going on, there was plenty of excess materials to go around.

On the other hand, the affordable housing and shelter crisis was growing steadily worse. Housing price inflation had made buying a new home a pipedream for all but 18% of families. California’s home ownership rate—40%—was the second lowest in the country. Solutions were hard to come by as homeowner groups opposed new developments of high density affordable housing at every turn. Over 60% of Los Angeles County residents were renting, and many of them were in overcrowded, substandard conditions. Economic speculators, perhaps like the ones learning how to get-rich-quick at the LA Convention Center, were making matters worse, driving up rental prices in once affordable neighborhoods.

Unfortunately, the bursting of the housing bubble hasn’t lead to an increase in housing affordability. It’s just lead to stagnation and foreclosure. Although the grant money from the housing and mortgage industry has dried up dramatically, the housing crisis remains the same today, if not worse, making the challenges facing nonprofit builders even greater. Here at Materials Matter, we have witnessed a big decrease in excess material donations from manufacturers and distributors, as companies look to cut costs during the downturn. To make up for it, we’ve had to turn to other ways to cut construction costs for nonprofits, like increasing our bulk-purchasing programs. We’re also partnering with different companies to expand our reach and donor base—the nonprofit version of diversifying your portfolio.
As general acceptance of a recession grows, our Home Improvement Outlet at least, is seeing increased sales. Right now people are more likely to improve the home they’re in rather than buying a new home. And they are looking for a bargain in the process. Hopefully it will help us weather the downturn and continue to help the nonprofits that are struggling to make a difference. And maybe we’ll be teaching a seminar at the next big real estate expo: “Power Recycling,” or “The 40 Percent Program—How Those Of Us Who Own A Home Can Help Everyone Else Get One Too.”