Friday, August 23, 2013

Head of DMD Says Most Pike Township Homes Have Life Expectancy of Only 30 Years; Official Apparently Flunked Real Estate 101

Urban Indy reports:
DMD Director Adam Thies
What happens when a large section of a city threatens to become obsolete?  That question came to my mind after hearing Indianapolis’ [Department of Metropolitan Development] director Adam Thies mention that he was worried about the future of Pike Township at yesterday’s We Are City Summit.  I was fortunate to be invited to the event as a media member, and I left both inspired and looking for answers.  Thies mentioned that most of the houses in Pike Township were built to last 30 years, and they are rapidly approaching that age now.
I went looking for the video because I could not believe someone in such as an important position as Thies actually said that. If so it qualifies as one of the most ridiculous statements I have ever known a public official to utter. And that's saying a lot.  How could Thies be so completely ignorant of how the housing market works?  Unfortunately I could not find any video from the conference sponsored by Indianapolis Downtown Incorporated.  (Apparently Pike Township is now in the downtown area.)

If properly maintained, houses, unlike cars, almost always appreciate over time.  That includes homes that may not be built with the best materials when constructed.  There is no reason that homes in Pike or elsewhere become obsolete when they hit 30 years old.  I'm also not sure why Pike homes are supposedly different from homes in other townships, but that's another issue.

If Thies' theory were true, which it obviously is not, lenders would never refinance a 25 year old house in Pike, accepting a 30 year mortgage on the property in exchange for the loan.  Lenders do that though because the home is not depreciating in value with a life expectancy of 30 years.  Try going to your bank and borrowing $20,000 on a car you paid $20,000 for ten years ago and which now has 200,000 miles on it. The bank won't lend the money because the car isn't worth $20,000 anymore.  Cars depreciate in value.  But banks lend money on older homes all the time, including loans of more than was originally paid to buy the property.  They do that because a home is not a depreciating asset like a car is.

If Thies is correct, we have a lot of appraisers who need their licenses yanked because they are valuing 30 year plus homes in Pike at higher than the buyer paid for the home three decades ago.  We also have a lot of real estate agents who are listing Pike homes at too high a value considering those homes have an average life span of only thirty years.

There is nothing "inspiring" about Thies' comments.  Rather they make you wonder what qualifications it takes to be a department head in city government.  At the very least we should expect the head of the Department of Metropolitan Development to have an elementary understanding of how real estate market works.  Clearly Thies does not.


Ellen said...

He's probably talking about the vinyl villages. Those have a life expectancy of probably less than 30 years.

Citizen Kane said...

Inflation, location, land values and realtor / bank Ponzi schemes are the reasons some homes appreciate (but on average, nationwide, home values basically just match inflation, but still, you are right, it is not the same as a car).

As for 30 years - maybe not the right number and I am not sure why he picked on Pike township, but not only are we building disposable houses, we are (and the city / state subsidizes disposable buildings generally - even if maintained, they are not built to last.

Paul K. Ogden said...

Ellen, not my preference for housing, but I think the banks and appraisers disagree with you. They're not financing and appraising them as depreciating assets.

Yeah, CK, not sure why he picked on Pike. I disagree though. You maintain those homes they will last much, much longer than 30 years. It's only the school buildings in Pike that last 20 years tops. That's because people are making money building new buildings and the Pike School Board has no problem taxing us to do it.