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Wealth gap swallows up American dream

Author: Noelle Knox

Works Cited Noelle Knox. “Wealth Gap Swallows up American Dream.” USA Today. EBSCOhost, Accessed 6 Feb. 2020.

Rich get richer, and regular folks get priced out

Section: Money, Pg. 01b

NAPLES, Fla. -- In the luxurious neighborhood of Port Royal, home to the likes of mystery writer Janet Evanovich and mutual fund magnate John Donahue, homeowners are insulated from many of life's daily cares -- including the real estate slump. This year, 15 estates in the country club community have sold for $5 million to $16 million. But in the rest of Collier County, home sales have plunged a gut-wrenching 50%.

Elsewhere across the USA, the megarich are still snapping up homes in such enclaves as Vail, Colo., and Beverly Hills, and often paying cash. Sales of homes above $5 million are up 11% this year and are on track to break another record, according to an analysis by DataQuick Information Systems for USA TODAY. As for the national average, by contrast, sales are off about 8%. Prices fell in September for a second-consecutive month, partly because they'd soared beyond the reach of many.

The divergent housing trends are a sign of how a widening wealth gap is reshaping U.S. neighborhoods. In Naples, as in other areas, the consequences of the growing divide between rich and working class are increasingly visible. Residents here face "Not in My Backyard" resistance to affordable housing, so workers live in distant suburbs and towns, roads are jammed, and labor shortages unsettle the economy.

In Naples, about 130 homes over $5 million are for sale. That's more homes than the county will let Habitat for Humanity build this year.

"There's the rich, and then there's everything else, in terms of the economy but also in terms of social class," says Edward Wolff, a New York University professor and expert on the wealth gap. He likens it to the social divisions of the 1890s, adding: "If you don't counteract the extreme inequality trends, I see some social upheaval coming. That's my worst fear."

The disparity in wealth could draw the scrutiny of the new Congress, now led by Democrats. Rep. Barney Frank, D-Mass., who will head the House Financial Services Committee, has said that addressing affordable housing is a top priority.

Residents in Naples will tell you there's little friction between the haves and have-nots. But if you want to draw 500 people to a public meeting, just put affordable housing on the agenda, says Cormac Giblin, manager of the county's housing and grants office.

Bill Earls, a real estate broker who lives in Port Royal, knows the area needs affordable housing but says, "In the real high-end part of Naples, we don't want to see those 10,000 rooftops going in. We don't want to see our streets clogged. ... I don't want to see the Chevy Spectrums and Ford Focuses on our highways. I know we need them, but there's got to be a balance."

That attitude is not lost on Ezequiel Quiroz, a 27-year-old tow truck driver. Quiroz works six days a week to keep up with his mortgage in the working-class neighborhood of Golden Gate, 35 miles from the chic section of Naples.

'They make you feel like you're nothing'

Asked if he's frustrated by the growing gap between rich and poor, he says: "No, but sometimes it bothers me that a lot of rich people look at you like you're nothing because you're not driving a BMW or expensive car. They make you feel like you're nothing."

He's not the only one who feels shunned.

"Unfortunately, (rich residents) don't want people like me, a working-class person, living in their backyard," says Brian Settle, who works for NCH Healthcare System, which runs the two hospitals in Naples. "They don't want firefighters, teachers. I don't understand that, because we are the infrastructure."

Settle says more than two dozen people have turned down jobs at the hospitals in the past year because they couldn't afford to live in the area, and 140 employees have moved out of the area.

The company rents 200 apartments for the nurses who work between October and May, when the population of Naples swells by nearly 50% with the addition of "snowbirds," who live up North in summer.

"Naples is a beautiful place," Settle says, "but we have to provide reasonable-priced workforce housing, or the infrastructure of our community will crash."

The state of Florida estimates that Collier County, which includes Naples, has a shortage of at least 35,000 affordable homes. That's the estimated number of residents who spend 30% or more of their income on housing. It doesn't include the thousands who commute from the surrounding counties because they can't afford to live in Naples.

The lack of affordable housing in Naples has been magnified by growth -- population has doubled in the past 15 years, to about 300,000 -- and the real estate boom. Investors and vacation-home buyers helped drive up the median home price to $446,900, second-highest in Florida after the Keys. Though prices are falling a little, they're still too high for most people in the area. More than 80% of the workforce is employed in the four lowest-paying industries: construction, retail, agriculture and services (pool cleaners, for instance, and golf instructors). Median income for a family of four: $66,100. That would qualify you for only about a $350,000 house, nearly $100,000 below the median.

House rich, cash poor

Homeownership is the No.1 source of wealth-building for middle and lower classes, and the housing boom made millions of homeowners "house rich." But over the past five years, once you account for inflation, incomes for these groups are actually down. Many low- and moderate-income families are spending home equity just to maintain their lifestyles.

Nationwide, nearly 90% of homeowners who refinanced homes from July through September took cash out of their property -- the highest level in 16 years, according to Freddie Mac.

And while rising home prices mean rising wealth, they also mean larger mortgages. For the middle class, the ratio of debt to net worth has nearly doubled since 2001 and is now in dangerous territory.

"The figures are astonishing," says Wolff, the NYU professor.

The number of homeowners who spend 30% or more of their income on housing has jumped to 35%, up from 27% in 2000, leaving little or nothing left to save. By contrast, incomes for the rich are rising, protecting them from the downsides of real estate cycles.

"We've seen the prestige market go up when the rest of the market is going down, and we've seen that market decline when the rest of the market was cooking," says John Karevoll, analyst with DataQuick. "These people are trying to figure out the best place to park their assets. They are evaluating tax considerations, capital gains considerations and return on investment. They are not exposed to the normal real estate cycle like the rest of us."

There are three homes for sale in the USA for $100 million or more: Donald Trump's estate ($125 million) in Palm Beach, Fla.; one near Aspen, Colo., owned by Saudi Arabian diplomat Prince Bandar bin Sultan ($135 million); and a third in Lake Tahoe, Calif. ($100 million), owned by Joel Horowitz, co-founder of Tommy Hilfiger.

And in 24 states and the District of Columbia, the top 20 properties on the market are all priced at $5 million or higher, according to the recently published magazine Unique Homes: State by State.

"We've had probably one of the strongest high-end runs we've ever had," says Stephen Shapiro of the Westside Estate Agency in Beverly Hills. He laments that there aren't enough homes over $7.5 million for sale. "There's a dramatic lack of inventory being chased by a lot of people with money."

'Not in my backyard' politics

Each year, Habitat for Humanity in Collier County is inundated by about 1,500 applications from low-income families seeking the American dream. The non-profit has built about 100 homes a year in the area for the past five years, more than in any other county in the USA.

"The biggest impediment is the local politics," says Sam Durso, CEO of the local chapter of Habitat for Humanity. "The 'not in my backyard' attitude is what keeps people from building more affordable housing. We could build two to three times what we do, but we can't get enough land rezoned."

Dee Proehl, her longtime partner and their two children will move in January into a Habitat home, six miles from Port Royal, where she cleans several mansions. Her partner, George Cervantes, 41, is a forklift driver and dock master at Cedar Bay Yacht Club. Together, they make under $42,000 a year, and she has no health insurance.

"There's people who own businesses and own homes, and there's the people who work for them -- there's no in between," says Proehl, 42. "It's frustrating. They want us here. They want us to do the work, but they don't want us to live here."

Yet some wealthier residents are starting to feel that the lack of affordable housing is eroding their quality of life. Roads at rush hour look like parking lots. Restaurant service is slower. Checkout lines are longer because businesses can't find enough people willing to work here. And companies that raise wages to lure job candidates usually pass the cost on to customers.

"For years it's been, 'Yeah, there's a problem, but it doesn't affect me personally,'" says Giblin, of the county's housing and grants office. "What we're finding now is, it's starting to affect the normal routines of the people who live in Naples and Collier County in terms of getting quality services."

Efforts to encourage the building of affordable housing have had limited success. The county lets developers build more homes per acre if they include affordable housing as part of the project. Over five years, Collier County has added 5,000 affordably priced homes, including about 500 homes built by Habitat for Humanity.

County planners are considering changing the zoning to force developers to include some portion of workforce housing. That's likely to meet with fierce opposition from builders and residents.

Homeowners in Collier County pay the lowest property taxes in Florida. They want new residents to cover the cost burden that new homes impose on existing schools, roads and other facilities. So the county hits builders with a one-time charge of $30,000 in "impact fees" per house -- the highest in the state. Those extra costs make it all but impossible for a traditional developer to build a home at a price a working-class family could afford.

"When you go to Kmart, and you've got 20 cash registers but only two are open, it's not because Kmart wants to have the line 15-people deep," Giblin says. "It's because they can't find people to work. It's starting to hit people in the face."


Contributing: Barbara Hansen

(c) USA TODAY, 2006

DMU Timestamp: February 03, 2020 23:30

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