Flipping is a strategy that hurts families and the market
Kevin Wann, president of Pacific Lifestyle Homes.
Homes are made for people to live in.
New homes that are purchased strictly to generate income – by capturing the equity gains from appreciation during construction – are a manipulation of the normal housing market. This speculative practice of purchasing new homes with the intent of a quick sale after closing, also known as “flipping,” undermines other buyers’ expectations for a stable homeownership environment.
My company, Pacific Lifestyle Homes, has amended their sales contracts and community covenants, codes, and restrictions (CC&Rs) to prohibit flipping. Several hardship exceptions are provided for to protect buyers faced with challenges outside of their control, including military service, job loss or transfer and family illness.
The current housing market is boiling. The greatest driver has been the meteoric rise in land prices brought on by dwindling buildable land supplies within urban growth boundaries. Land prices have doubled in the last five years. Limited supply coupled with high demand fueled by low interest rates and an improving economy has resulted in rapid appreciation.
Purchasing a new home without the intent of living or even renting it creates artificial demand which pushes prices even higher. This prices first time buyers out of the market and may create pockets of overvalued real estate. Flipping also has a psychological cost on legitimate new homebuyers who suddenly find their new neighborhood filled with real estate signs.
Speculation is a part of any business, particularly real estate. Indeed, banking on the market is part and parcel of real estate. The key difference between traditional real estate developers and “flippers” is in property improvements. Developers make money by purchasing a product (land or building), improving it (permits, structures, streets and utilities) and then selling. Flippers essentially attempt to ride the wave of quick profits between improvements and sales.
They make easy money while manipulating the housing market to higher prices.
Real estate is a phenomenal investment and tremendous source of personal wealth for American families. Most negative prognosticators of the local housing market fail to account for the unchangeable factor of a constrained land environment. Housing prices should always be propped up by a competitive economic location (Interstate 5, deep water ports, metropolitan area) and low inventory due to growth management.
Prohibiting “flipping” is a way to preserve natural conditions in the housing market while hopefully keeping new neighborhoods full of satisfied families – not for sale signs.
