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The End of An American Dream?

The bursting of the housing bubble caused huge financial distress for people all over the United States, and the destruction continues. Millions of people still have negative equity, others have walked away from their homes, and millions of others are coming to terms with houses worth much less than they thought.

Over at the Wall Street Journal, Daniel Gross is asking an important question: is the age of home ownership in America coming to an end — and, if it is, is that good thing?

I’m inclined to agree with him on both counts; yes, home ownership is going to be less of a big deal for the rising generation than it was, say, for the Boomers, and yes, it’s a good thing all told.

Readers of past Via Meadia essays on the “blue social model” know that home ownership replaced the older ideal of owner occupied farm as the centerpiece of the American dream sometime in the late 19th/early 20th centuries. It may be that the future will look on this as a transitional process as Americans progressively wean themselves from the land.

Gross points out in his article that home ownership is problematic for many younger Americans. It isn’t so much about cost (though the tight credit standards currently prevailing as an overreaction to the excessively lax standards during the boom are a problem) as about flexibility. Young people move more; having to buy and sell a house every time they move exposes them to unnecessary costs and risks.

Gross doesn’t mention another trend which supports his core argument: that as young people delay marriage and divorce remains prevalent, the 30 year mortgage looks less attractive — perhaps particularly to young men. Renting an apartment makes a lot more sense if two people are just living together or aren’t sure their marriage will stick. It is much easier and cheaper to sort out a lease when a couple splits up than to manage the consequence of buying a house together.

In any case, Gross points out that the shifting preference among young people away from home ownership toward rental parallels a larger shift. As he writes:

Take cars. The Bureau of Labor Statistics says that private transportation—owning and running a car—is the second largest cost for a typical American household, accounting for 16% of expenditures. Factoring in finance costs, depreciation, repairs, insurance, taxes and gas, AAA calculates that an owner of a midsize sedan who drives 15,000 miles a year spends $8,588 a year on his car.

Enter auto-sharing firm Zipcar. Founded in 2000, it grew by focusing on cities and college campuses. It uses information technology to manage its fleet, and control access—people get cards that let them into garages where cars are kept and into the cars themselves. Users in New York pay a $60 annual fee and then $8.75 per hour on weekdays and $13.75 per hour on weekends—no extra charge for gas or insurance or miles. As the U.S. economy contracted, Zipcar went into hyper-growth: from 225,000 members in 2008 to 650,000 members and 9,500 cars in November 2011. Zipcar, which went public in 2011, has had success in the predictable big cities like Boston, New York and San Francisco, but its vehicles can also be found on 350 college campuses and in smaller cities like Providence, R.I., and Portland, Ore. Large rental agencies like Enterprise and Avis have responded by rolling out similar services.

The genius of America, and the secret of its success, does not lie in any particular social model. Our genius is the flexibility and the readiness to innovate and experiment that enables us to invent a new economy and a new social model when the old one breaks down.

It is much too soon to see more than the very rough outlines of the new society taking shape as the blue model breaks down — but the shift from capital intensive and debt heavy home and car ownership to a more flexible system could well be part of the change.

Certainly it now appears that without the vast machinery of subsidy and tax support that the mortgage-industrial complex now provides the owner occupied housing market, a much smaller percentage of American households would choose the home ownership option. Perhaps their instincts are right.

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  • Richard S

    Good points, all.

    But does the rise of regulation and of litigation threaten to change the can do culture? Are our children in school taught to check the rules first, before acting, rather than assuming they have liberty act in general, and law/ rules only existing at the margins to block wrongs?

    Is “helecopter parenting” replacing the old be back for dinner mentality? And is that raising youngsters who are not taught to do things for themselves?

    Early in the Afghanistan war, if memory serves, the U.S. did not take a shot at a top Al Qaeda leader because it took too long to check with the lawyers. Perhaps I’m wrong, but that seems to indicate a cultural shift in the U.S.

  • ms

    The advent of driverless cars will no doubt make car ownership less and less attractive, but I’m not so sure about houses. People do move more and lives are more unstable, but there is great joy and pride in making a bit of this earth your own. I’m reminded of Agatha Christie’s autobiography, where she described in great detail how she had decorated her house and how happy it made her. The same goes for gardens. Now you don’t have to own a home to make it yours, but you do have to worry about getting dinged by the landlord for whatever you do. I know it is an emotional reaction, but I’d hate to see home ownership become a thing of the past.

  • Anthony

    Let the young move forward and let us avail to them opportunities (via science, technology, reason, etc.) to enter a transitioning society where values of freedom, justice, and economic progress are not just shibboleths…

  • Jacksonian Libertarian

    “There’s a reason it’s called Capitalism; it’s because Capital is what fuels it.” Jacksonian Libertarian

    Up until a few years ago, 60% of American Family net worth was held as equity in their home. Economists are always harping on how important a nation’s savings rate is to its economic growth, at the same time they deplore the lack of saving by Americans. But, we can see where Americans have been saving their money, it has been in their homes, in a form of enforced savings by paying off their mortgage, which the stupid economists ignore.

    In a normal recovery, the vast majority of new jobs are created by small business start ups and expansions. The primary source of capital for those small business start ups and expansions has traditionally come from home equity.

    The functions of home ownership in the American Economy cannot be replaced. It is the location of the American Family nest egg, and the source of funding for American Growth.

    The US government is sucking $1.3+ Trillion per year from the supply of capital available to Consumers and Businesses. This both reduces employment and increases the cost of money, the two most critical components of Home Value.

    If you have been wondering why we are in Great Depression 2.0, it is because the US Government has sucked $6+ Trillion from the capital markets since the Democrats took control in 2007. This despicable behavior has killed the Housing market, looted the American family nest egg, and destroyed jobs and lives across the US.

    So, No America will NOT be better off with reduced Home Ownership. It will in fact cripple our flexibility by removing the primary source of funding, saving, and growth in the American economy.

  • vanderleun

    A. The country isn’t made of kids. It just looks that way to those whose work brings them into contact with kids on a daily basis.

    B. “It may be that the future will look on this as a transitional process as Americans progressively wean themselves from the land.” It is extremely dangerous to wean from the land. It leads, often, to servitude or guns or both.

  • Mark Sherman

    Very insightful.

    I agree that the driverless car will be a big driver of change, not at first but soon after it is accepted by the general public. After all how much do we like paying high insurance costs, and wouldn’t everyone like to convert their garage into a shop/storage area? I think the driverless car will likely look like the zip car model or perhaps the fractional share private jet model. If it does, it would all but kill the car rental and leasing businesses since it seems quite likely that a major selling point would be access to a car anywhere in the US/Europe/World. Fly to Chicago and have a car pick you up at the airport, drive you around, and when done, drop you back at the airport for you flight out. Would parents like to stop chauffeuring their children? Driverless car! There are many benefits, plus it could spawn the construction of many Nurburgring like driving courses for human drive vehicles.

    As for homes, here in Portland, Oregon, we tried to build large condo developments in the city and found some buyers (the Pearl district) but the second development saw limited buyers (the South Waterfront district turned out to be a failure, such a failure they are turning part of a high end condo project into ICE holding cells.)

    All of our friends who moved into the Pearl have since moved out. They were initially attracted by the large property value increases and the idea of compact and car-free living. After a few years they move out of the area. The general consensus is the living is not what it they thought it would be. They generally enjoyed it but they had little sense of community and the feel was of concrete, glass, asphalt, busses and light rail trains. They all missed the green beauty of the backyard, the privacy, and the strong sense of community of the suburbs.

    I think new low maintenance property ownership can survive and thrive but it will not look like the Pearl, or New York City. Perhaps it will look more like a small Tuscan village with fairly compact living but lots of green surroundings. I doubt most of these will be very far from a fairly large city since most people like the idea of accessing the amenities of the city but do not much like living in the city.

    This is really just an updated version of the suburb with more green between it and the city. The Internet, the driverless car and the new employment/worker models will help (I expect more workers will work either from home or small satellite offices and fewer will work in large city centered offices).

    I suspect a housing change will take decades.

    Thanks for your hard work.


  • Mrs. Davis

    With all this negative sentiment it must be time to buy. Hey Walter, is the Stately Mead Manor up for sale? Thought not.

    This is a phenomenon of the depression we are in, not changing values. As soon as parents can afford it again, they will want to put a permanent roof over the head of their children. The childless? Yes, they may be better off renting. And which one is in control of our future?

  • Kenny

    “… a much smaller percentage of American households would choose the home ownership option. Perhaps their instincts are right.”


  • JKB

    The auto sharing might work but the users might want to ask the non-car owners in New Orleans what it’s like when you have to bug out due to a disaster.

    Homeownership is a bit more problematic in that building your own teaches you about investment and reward. You have to plant now, but the real benefit of a tree, etc., come years later. Plus, your paid off home is yours to live in during your old age, except for paying off the tax man for the privilege of living in your own home. You can defer maintenance to save money. Good luck coming up with the rent every month out of your social security.

    Also, when disaster strikes, having a plot of land to set up a tent on land you own keeps you out of the FEMA camps. Trust me, you get far more respect from the government overseers if you aren’t one of their subjects living in their camps.

  • Paul

    It’s the taxes . . . owning property is a liability not a refuge anymore. Most countries don’t let you be taxed from house and home, not the USA, not anymore. You own land in the USA your tax liability is at the whim of the local council — there’s no Constitutional stop to this unless you want to be down at the local town hall twice a week — saying no to enthusiastic government employees who might even condemn property to begin with and that unholy profit motive.

  • Luke Lea

    Owning certainly doesn’t make sense when houses are over-priced, which is pretty much the whole story lately isn’t it?

    But for married couples with two or more children, once prices come down, do you see them choosing your typical suburban metropolitan apartment complex?

    Not unless you have to.

  • Andrew Allison

    I think that this essay overlooks a key issue, namely the instant gratification desires of the post-boomer generation.
    For most boomers (those who resisted the temptation to become property speculators), home ownership has been a pretty good investment.
    If, as the essay seems to suggest, we’ve become a nation of Nomads who change local at the drop of a hat, renting is clearly the best bet. If, however, people are more stable than this presumes, ownership is the way to go.
    My (mortgage-free) home is, despite the slump, worth more than twice what I paid for it 20 years ago. That’s a 50%-plus better return than the current 20-year T-Bill yield excluding the fact that I don’t pay (from after-tax income) rent.
    For the family that expects to stay put for a while, it might be hard to find a better investment.

  • thibaud

    This is all very confusing. The “genius” of our social model recently has been that people without any real savings, skills or financial prospects could have a nice fat middle-class lifestyle. The hallmark of that lifestyle was a mortgage on a big house, filled with appliances and shiny asian-made stuff bought with cheap consumer credit.

    But now we’re being told that American pensions are completely underwater, and therefore the “genius” of the American social model has to pivot toward Jacksonian self-reliance, ie saving for one’s own retirement.

    So which is it: spend spend spend, or save save save?

    Not sure there’s a genius in America, or anywhere, who can wriggle out of the straitjacket we’ve created with our less-than-brilliant embrace of artificially cheap credit and other bread and circuses.

  • thibaud

    At this point, the term “blue” as used by WRM doesn’t seem to have much coherence at all.

    For starters, the bedrock, bipartisan US policy of subsidizing mortgages is at least as popular among red-state GOPpers and their friends as it is among liberals. If there were an economic policy counterpart to motherhood and apple pie, it would be the mortgage interest deduction.

    And then there’s the simple fact that there’s no correlation in Europe between the extent of the housing crash in a particular nation and the “blueness” or size of that nation’s public sector.

    In fact, there appears to be a NEGATIVE correlation between state intervention and housing crashes: it’s the deep blue northern nations – the ones whose regulatory authorities were not, like those in the US-UK-Ireland-Iceland, captured by their bankers – that avoided the worst excesses of the housing market.

    So obviously, the degree and quality of banking sector regulation, along with deep cultural habits, is what matters here. More regulation is a good thing. An ethos of saving and an aversion to artificially cheap credit / loose monetary policy, are good things.

    These sensible, frugal, tight monetary policies were staunchly resisted in this country by not just liberals but the GOP’s monetarists.

    It’s absurd to keep pretending that the bipartisan US copout – give US workers access to tons of artificially cheap credit but not any kind of security when it comes to employment or health insurance – has anything in common with the monetary or economic policies of Canada, the nordics or Holland or Germany.

    Again, to be clear, I’m not blaming D’s or R’s here, rather just pointing out how silly it is to imply that the goal of 65% home ownership was not just as fervently pushed, for decades, by conservative GOP economists and politicians as it was by liberal Democrats.

    Perhaps we need to give WRM a new word he can use to describe the prudent, highly interventionist and successful Dutch, Canadians, Swedes et al.

    Indigo, maybe?

  • Jim.

    Nihilistic and defeatist.

    More later.

  • Jim.


    I live in California. The correlation between interventionist government and housing insanity seems pretty high, here.

    @whomever the author of this blurb happens to be:

    I would heartily recommend a brilliant book I read not too far back — God and Gold (whose author’s name escapes me at the moment). The author makes a compelling case that is it not in fact the continually-reinventing-itself French model that brings prosperity, but the flexible-within-constraints English model. The genius of that model is in the constraints– Rationality, Tradition, and Scripture (e.g, the Bible, or Constitutional originalism).

    Balance these three, and prosperity follows. Allow any one to control the system, (hyper-rationalism in the case of this article, and in fact in the case of our whole political situation today) and the system collapses.

    More about the specifics of the article later.

  • Dave D.

    Wrong on many counts.

    A renting society is popping up because of the need for many professionals to be moved around as the nature of work dictates. This is definitely not a good thing as it prevents people from finding roots in local communities and creates a transient culture of individuals with weak or nonexistent ties to the place they are in.

    It’s a very bad sign because those kinds of transient people can’t really create a stable next generation. If they even have kids.

    As for the zipcar and driverless car analogy, he’d do well to keep in mind how a similar service albeit aimed at the luxury market, Higear, shut down. All it took was one crime ring stealing four cars to get them to admit they could only operate insofar as crime didn’t exist, and this despite using serious protections and background checks.

    A lot of this new sharing culture is really only working in a way similar to the pre-AOL days of the internet. Shared cultural norms make people inclined to follow the rules and buy in to the model. This prevents negative consequences from overwhelming what is essentially a fragile system. All it takes are small numbers of people not bound by those norms, and the system dies.

    It’s also like the AirBnB story where some renter came back and got their house trashed. Again, the system really works on trust, and often an illusory or weak one.

  • thibaud

    @Jim – one of many little-remarked ironies is that it was Texas more than any other state that intervened effectively in its broken, badly-regulated, Wild West real estate markets after the S&L debacle in the 1990s. Texas’s prudent and effective regulation is the main reason that the Texas real estate market is in good shape today.

    California by contrast never effectively clamped down on shoddy and dishonest go-go practices such as those championed by that California-based poster child for real estate sleaze, Countrywide.

    You could say, if you wanted to be intellectually honest and coherent, that in matters of residential real estate, the “”blue” state here is Texas and the un-blue state is California.

  • Jim.

    @Dave D:

    You nailed it. We need homeowners, or we get Tragedy of the Commons.

    If you don’t want to take a conservative’s for it, read (rather left-leaning) Jared Diamond’s “Collapse”; he praises the Indian caste system for its “sustainability”; you pass your fishing rights on to your children (who support you in your old age), so you have a definite interest in keeping the river healthy. (This is just one example of Diamond’s extreme, totalitarian solutions to real problems that could be solved less oppressively; but it gets the point across.)

    Why in the world Professor Mead should be espousing a belief in Urbanista teleology when he’s so deeply aware of the Internet’s ability to eliminate the meaning of distance is beyond me.

    What people don’t want to say is this: homeownership must be limited to people who are responsible enough to afford it. If you want more people to own homes, don’t make credit easier; do what you can to encourage responsibility. To believe that this “discriminates” against non-whites is an example of “the soft bigotry of low expectations”, and since 1970 it’s done far more than Jim Crow to keep minorities down.

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