Higher Ed Bubble Hits Housing Market
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  • I don’t know how much money and effort it will take, but someone has to start the process of awakening the citizenry as to the impact of the “blue model,” and how it is literally destroying the nation.

    The diversion of money into the pockets of feather-bedded public unions, public administrators, public support jobs, and the entire bloated education sector (P-22) has literally stripped the nation of its working capital.

    Soon, the whole nation will look like California, a strata of very rich, an administrative class made up of private crony corporatists and public make-work jobs, and a lower middle class service and manufacturing sector…

    with nothing in between.

  • WigWag

    It’s hard to disagree with Professor Mead’s suggestion that debt incurred by young people to pay for their higher education is likely to crowd out their ability to incur debt to pay for housing after they graduate. There is simply no question that colleges and universities are bloated bureaucracies desperately in need of reform. It’s perfectly logical to speculate that the enormous debt burden that encumbers graduating students may mean that there will be downward pressure on housing prices.

    But what this post really demonstrates is Professor Mead’s proclivity to tell only half of the story; that would be the half that supports his thesis. As usual, he conveniently ignores the part of the story that makes his theories appear ridiculous.

    While higher education costs may, in the future, drive housing prices down, the great public schools available in many suburban communities drive housing prices up; way up, in fact.

    Parents clamoring for a quality education for their children will pay almost anything, certainly far more than they may be able to afford, to get their children into great public schools. Whether we are talking about Greenwich, Connecticut, Shaker Heights, Ohio, Short Hills, NJ, Brookline, Massachusetts, Beverly Hills, CA, or the Upper East and West Sides of Manhattan or Park Slope or Brooklyn Heights in New York, parents pay whatever it takes so their children can attend public schools in those communities. Any real estate professional will tell you that great schools support property values. Parents are not only willing to pay more for housing than they should so their kids can go to public schools in these communities; they’re willing to pay exorbitant property taxes to support the public schools.

    Why do they do it? In the long run they know that great public education is the best investment for their kids that they can make; but there’s also a financial calculation. They know that as long as the public schools in their community stay good, property values are likely to be maintained.

    Here’s the remarkable thing; virtually all of the public schools in those great school districts in the suburbs (and in the better urban neighborhoods) follow the “blue model.” They are all unionized. They all offer tenure to public school teachers; they all require a great deal of “due process” to fire teachers accused of incompetence; they all require master’s degrees for teacher after a certain period of time, they all have teachers who have taken many education courses in college, they all offer generous pensions; they all give teachers the summer off, they all pay approximately the same and they all offer similar working conditions.

    Yet despite Professor Mead’s rants about the “blue state model” parents are literally desperate to get their kids into districts with public schools that are characterized by everything that Professor Mead claims is disastrous for public education. In these districts there is very little pressure for charter schools or school choice; it’s the public schools that parents want and to get their kids into those schools those parents are willing to incur inflated housing costs which just pushes housing costs in those communities still higher.

    In fact, if you compare the quality of teachers, the level of unionization, the work rules and the pay of teachers in failing urban districts with the same parameters in successful suburban districts, they are virtually indistinguishable. In fact, if anything the pay is somewhat higher in the suburban districts and the work rules tend to me even more “teacher-friendly” in these districts. The reason for this is simple; suburban teachers tend to belong to the stauncher National Education Association while urban teachers tend to belong to the somewhat more innovative American Federation of Teachers.

    It’s great that Professor Mead warns us that high college debt might drive down housing prices but when was he going to tell us that the fabulous public schools in suburban districts pushes housing prices higher? How does he account for the fact that his complaints about “blue” public education never seem to gain traction in those suburban school districts? How does he explain that the same levels of unionization, blue oriented work place protections and levels of teacher experience that he assures us are destroying urban schools are producing results in the suburbs that parents are knocking down the doors to get for their children?

    As loathe as Professor Mead may be to have anything interfere with the fantasy that originates in his fecund imagination, the answer is obvious. All of the characteristics of “blue” public education that Professor Mead excoriates have little or nothing to do with why urban districts are failing. I am perfectly happy to admit that they also have little to nothing to do with why suburban districts are thriving. What people who are willing to overpay for housing to get their kids into good suburban schools really want, is for their kids to go to school with other kids whose parents have values that are the same that they have. Parents who create an enriched home life for their kids, parents who value education, parents who read to their children and talk to them about the world, parents who instill the importance of discipline, courtesy and diligence, parents who attend afterschool activities with their children and take parent-teacher conferences seriously contribute to a community that will have successful public schools no matter what “model” the school district follows.

    Its fine that Professor Mead thinks the “blue model” is in extremis; in certain areas he may even be right. But when it comes to public schools his theory about the “blue model” is as irrelevant as the numerous dumb proposals being pushed to improve urban education.

    You don’t have to like government, but using kids as pawns in a game to make government smaller borders on the demented. Yet that’s what seems to be the flavor of the moment.

    It won’t improve public education one iota.

  • Jim.

    This isn’t a “blue” problem. This is a debt problem.

    Save up to buy what you want. Don’t drain yourself dry, handing interest payments to people for the pleasure of using their money today.

    People need to learn this. Government needs to learn this.

    The fact is, even “Blue” can exist, if it stops borrowing. Blue just has to exist within its means — which means some pretty hefty cutbacks now, but as Mead keeps saying, wars against arithmetic do not end well.

  • Toni

    Remember when Bono successfully urged forgiveness of debt of African nations on the hook for previous leaders’ profligacy?

    Maybe the education establishment needs to be pressured or even coerced into practicing some debt forgiveness. The establishment has arguably failed its students if they can’t make enough to pay back their debt and get on with their lives.

    Yes? No?

  • Jbird

    I’ll have my loans paid of by the time I’m 53! Can’t Wait!

  • John

    I have been thinking about this very issue for a few years now. A few years ago during the height of the housing bubble, I noticed how all of my in-laws’ (who live in a very middle class neighborhood in the Boston suburbs) neighbors were about the same age, mid 50s to late 60s. Nearly all of them are going to either die, move to smaller house or nursing home in a very short span of time. And I wondered who is going to buy all of these houses when they come up for sale?

    This scene is being played out all over the country. As the baby boom dies or moves into extended care, the next generation is not going to have the money to pay the currently inflated prices for their homes. My sense is that the housing bubble hasn’t even started to burst.

  • CatoRenasci

    What this all means is that the average citizen is going to pay in a myriad of ways for the profligacy of your damned blue model. I am so tired of hearing about liberal good intentions and the stingy evil conservatives who have opposed liberals at every turn.

    Those of us who were not modern liberals – both classical liberals and more traditional conservatives – warned you these policies would lead to the country’s ruin and it’s becoming clearer and clearer every day that we were right about the effects of welfare, the effects of medicare and medicaid, the effects of subsidizing student loans, the effects of affirmative action, urban renewal, etc., etc., etc.

    There were surely problems in this country before the Roosevelt wrecking crew got going, and the institutionalized racial discrimination of Jim Crow (supported by populist Democrats and progressives like Wilson, and opposed by Republicans) was surely wrong, but virtually every liberal program of any magnitude since the end of WWII – and some going back further – has weakened this country fiscally and morally.

    Modern liberalism (Progressivism) could hardly have done more to harm the Republic than it has if it had had the express goal of harming America.

    So damned many smart people – well, high IQ anyway – who have made such a damned hash of things both at home and abroad.

  • Steve

    WigWag is wrong. I am one of those parents who moved to a “great” public school district. They are not “great;” they are just “not as bad” as the large city school district. Yes, my house is worth more because I live in a “great” district and I pay higher property taxes. However, my children received a “great” education (resulting in full college scholarships for the first two of four) because I paid $13,000 / year to send them to the Catholic High School.

  • VA Teacher

    Couple of interesting points:

    1. As noted above, housing prices have a long way to go down based on the combination of supply, demand, and availability of credit.

    2. This situation will put increasing pressure on local governments, which rely on property tax revenue.

    3. Local governments are going to have to get more competitive…some will try to attract families by promoting excellence in public schools. Some will try to attract wealthy singles by attracting high-value businesses and providing the kind of lifestyle that gentry-types value. The rest will sink into a death-spiral of debt and diminished services which will start to look more and more like a third-world standard of living. (All of these trends are already visible).

    4. As a result, the “red” parts of the country will get redder and the “blue” parts of the country will get bluer.

    5. The real question is how this increasing division can be successfully navigated without the country breaking apart. There are going to be a lot of cesspools of poverty that are going to need to be bailed out and not much enthusiasm from the wealthier parts of the country to do the job…

    …interesting times ahead.

  • Alan

    re: “retiring Boomers are going to get less of a windfall than they were hoping.” — sorry to hear you adopting the meme that cashing out a real-property investment is somehow a “windfall”. (In many areas, any bubble-caused inflation in housing prices is already gone; what’s left is barely a reasonable return on cumulative investments made over 40-50 years.)

  • Kris

    [email protected]: So a successful “Blue” education requires housing prices and exorbitant property taxes to climb ever higher. That’s supposed to be an argument against our host?

  • BillH

    Let’s see, @2 Wigwag wants all 300 million of us to move to this handful of little one-percenter cloisters, buy a multi-million dollar home, and send our kids to their public schools. What a practical solution! Why didn’t I think of that.

  • Guessed

    2, nice case for good K-12 schools improving home values, wherever that may be. The NEA vs AFT issue is inside baseball to me, but this is clearly near and dear to you.

    The work “blue” does not appear anywhere in the post, although it is posted under blue social model section of the blog. The “blueness” desribed is not the money spent on local K-12 schools, since local budgets are largely (more or less) balanced from year to year. Unless you count the future liabilities for teachers pensions, which can be an issue. But that is seen in both “red” and “blue” state school districts.

    The “blue” point is the debt incurred to achieve the goal of near-universal post-secondary education (college, and grad school). This is resulting in functional bankruptcy of many individual citizens who may not any longer be able to pay the premium for the best local K-12 schools, as you describe, because they enter the workforce with a mortgage to pay already. Only it is for their higher education, not a place to live and raise their family. Some of this debt is “blue” to the extent that college expenses have skyrocketed much faster than the rate of inflation, arguably due to the administrative bloat that has afflicted the universities. The number of professors per student has not gone up much (if at all), and their pay has not gone up any faster than inflation (that I have seen). However, there are many times more administrators and educational bureaucrats in colleges/universities than there ever were, and if you want to see megasalaries, look to the chancellors of even the state universities. Most of them make more than most doctors or lawyers (arguably the highest educated of the educated), and certainly much more than the professors they lead.

    How can such a thing happen? I would venture that it is largely a function of federal student aid in the form of loans and grants to students, which increases the money available to pay for this kind of overhead. When there are grants and loans available to pay for higher education, that availability is factored into the price of tuition, and perhaps room and board. Certainly the modern dormitories and eating facilities seen on campuses these days do not resemble the relatively spartan facilites that I inhabited >30 years ago at a typical state institution. I wound up borrowing a total of $13,000 to pay for an undergraduate degree, PhD, and medical degree in that era, when tuition was $17 per credit hour, and room and board was on the order of $75-125 per month. Of course, that was then and this is now, and with inflation that probably represents $50-60,000 dollars in today’s terms. Still, a bargain compared to what students these days are paying.

    There is also the hazard of making educational debt non-dischargable in bankruptcy. This makes lenders (public or private) eager to make any loan they can, with little or no thought as to how the student will ever pay the loan back. After all, they can’t get out from under it, and it is backed by the Federal government. If the universities and lenders had to assume some responsibility for bad student loan debt, we might see some scrutiny of the curriculum, the proposed degree program, and the likelihood that the student will be able to pay their indebtedness. And students might choose to go to less expensive schools of necessity, and perhaps consider future employability more than they do now. Degrees in Social Work, rather than Sociology, for instance.

    What if every universtity that graduated a student unable to find employment had to give back some of that tuition? But that would be decried as a philistine move that would push people out of interesting but not employable degrees in obscure languages with no job market, to business, engineering, and technical/professional programs.

    We have funded primary education through property taxes, which has its issues, of course, but we do not have a federal government system that subsidizes things at that level to nearly the same extent as it does for college.

    By the way, some of the underpinnings of the “blue” model of primary education are starting to unravel, even in blue states such as Maryland. The state of Maryland has traditionally managed and funded the pensions of the teachers that are employed
    by the localities. They (Maryland) are now proposing to throw that responsibility for funding teacher pensions back to the counties. The affluent counties outside DC are really upset about this, because they were counting on someone else paying for their pensions (which are the highest in the state, due to the high salaries). Of course, the state of Maryland already raided all the transportation trust funds to pay other operating expenses. They now proposes to hike the gas tax by 25 cents or more, and/or put on an equivalent percentage rate tax on gasoline which is already more than $4 in these parts. It is said to be to keep the bridges from falling and the roads from crumbling, and how can we look our children in the eyes and explain to them why we didn’t tax ourselves to pay for this. Or so says our illustrious governor, who spent the transportation funds on other things, already.

    Unfortunately, the student loan/debt/aid model has the seeds of everyone’s demise in it, for the reasons alluded to in the original post.

  • Deconstructing WigWag

    While higher education costs may, in the future, drive housing prices down, the great public schools available in many suburban communities drive housing prices up; way up, in fact.

    This phenomenon is already on its last legs, and is function of the myth of “great suburban schools,” not a reality.

    http://www.pacificresearch.org/bookstore/not-as-good-as-you-think-the-myth-of-the-middle-class-school-dvd

    Some schools look quite good, to be sure, but that is a function of socio-economic status (ses) more than “great schools.”

    Here in Cook Co, IL, birth place of the failed “blue model,” the property taxes are already forcing down prices, and as public employee retirements accelerate, (rats leaving a sinking ship?) the problem will accelerate.

    I’m scrambling to sell to avoid the massive levy increases coming down the pike. I can make the case that no one “owns” any property here. You are renting from the school district.

    Wig’s laundry list of suburbs that parents are clamoring to get into contains a bit of irony. First, the schools are “good” only in comparison to America’s urban dropout factories. Relative to other OECD nations, they are average at best.

    “Any real estate professional will tell you that great schools support property values.”

    Sadly, markets (and myths) determine prices, not actual results. The suburban realtor/soccer mom axis has certainly driven this myth, but the taxes are starting to reverse it.

    The idea that cutting back on district bureaucracy or lowering teacher pay in these suburbs will lead to lower education quality is proven false. There are numerous examples of districts with lower spending but better results. Other nations out perform America with lower per pupils spending as well.

    The great recession will challenge this soccer mom-driven dogma, even before we start questioning the morality of the educational apartheid brought on by the “district system.”

    Here’s the remarkable thing; virtually all of the public schools in those great school districts in the suburbs (and in the better urban neighborhoods) follow the “blue model.” They are all unionized. They all offer tenure to public school teachers; they all require a great deal of “due process” to fire teachers accused of incompetence; they all require master’s degrees for teacher after a certain period of time, they all have teachers who have taken many education courses in college, they all offer generous pensions; they all give teachers the summer off, they all pay approximately the same and they all offer similar working conditions.

    Ah… the Randi Weingarten ploy…”they are all unionized.”

    This argument is nonsense. All the same “protections” exist in the inner city schools, and the results are the opposite. The key factor is CLEARLY socio-economic status, and not the pay, pensions, and baubles wrested from the somnambulist suburban voter.

    Unionization of these suburban districts has absolutely zero to do with their perceived success. Bus kids from Lake Forest, IL to Chicago, and Chicago kids to Lake Forest, and the test scores would barely budge. Wig Wag even admits this. (see below)

    All of the characteristics of “blue” public education that Professor Mead excoriates have little or nothing to do with why urban districts are failing. I am perfectly happy to admit that they also have little to nothing to do with why suburban districts are thriving. What people who are willing to overpay for housing to get their kids into good suburban schools really want, is for their kids to go to school with other kids whose parents have values that are the same that they have.

    Wig Wag is making the illogical argument that the blue model works in the suburbs, but not in the city, so you can’t blame the blue model for any failures. Again, this is nonsense.

    It is NOT the blue model that is working anywhere. Some areas (the inner-city) are ravaged by the greed and inefficiency of the blue model, and others (rich, doped white mice, soccer moms and their emasculated husbands) still have the wealth to pay exorbitant prices for a barely mediocre system.

    Look at how many of these folks are emigrating from CA and IL to better financial climates. Consciously or subconsciously, they know the “unionization = quality” argument is false.

    Wig Wag backs into an insight when he talks about parents wanting their kids to attend schools with children who have “same values.”

    He desperately wants to ignore the fact that the blue model has destroyed “values” in poorer areas, building dysfunctional bureaucracies to “manage” social pathology instead of allowing an independent civil society to correct them.

    That same destruction of values is taking place in the burbs, but at a slower pace. If preserving and re-introducing “values” is a goal Wig Wag shares, he would support draining school districts of students (vouchers), schools (charters), and courses (digital learning, AP, Community College integration).

    The “good” districts wouldn’t lose any students or schools, while the bad ones would be drained of victims. That is, until the independent, lower cost schools, started to outperform the “good” district schools.

    Wig Wag (and others) need to realize that school districts are completely unnecessary to the education of the nation’s children. If money were allowed to follow the child to a vast new array of independent education providers, the whole nation would benefit through better resource allocation and lower education cost.

    For what this nation wastes by throwing dollars into the maw of the K-12 government education complex, we could pay for a few years of college or targeted associates degrees for numerous trades and careers.

    The “blue model” is a morally illegitimate failure. It is designed to grow and employ an army of public workers. Blow it up.

    Fund Children, not systems.

  • Chase

    The problem of higher ed debt is a big one. As a blue state liberal, I am loath to admit this, but many college students should consider going to college in the red states. For all the talk in the blue states about how they are supportive of higher education for the middle class, in fact red states are typically the places where a middle class American can get a good higher education at an affordable price.

    For example, at the University of Arkansas (fayettville and Little rock) a law school grad can finish their degree with approximately $60,000 in debt. This is a great deal. In Massachusetts, where the elected officials claim to care so much, they don’t have a single state supported law school, and the private ones will leave grads saddles with close to $200,000 in non dischargable debt. So someone could go to the University of Arkansas THREE TIMES and still spend less money than it would cost to go to a private east coast law school once.

  • Snorri Godhi

    Look at the bright side: young people with no student debt will be able to buy mansions at fire sale prices.

  • CatoRenasci

    For example, at the University of Arkansas (fayettville and Little rock) a law school grad can finish their degree with approximately $60,000 in debt.

    And no ability to get a job outside of Arkansas. At least the graduate of a top-15 law school with $200,000 in debt has a chance at a legal job that pays well enough to pay off the debt quickly.

    The only public law schools with top-15 national reputations are the U of California, Berkely; U of Virginia; U of Michigan; and UCLA, with the U of Texas and U of Minnesota in the top 20. Below that prestige level, taking on any law school debt makes almost no sense.

  • Mark Michael

    I’ve read WigWag’s pro-public school “blue” state model defense before, but resisted responding. He is so eloquent in his defense, admittedly. BUT, if you read them, they don’t have statistics in them: no wage levels for public school employees vis-a-vie their peers in the competitive private sector (be sure to include “hidden” benefits – early, generous retirements, no-cost health insurance, work 9 months a year, little take-home work, etc.). It’s all qualitative comparisons, never quantitative.

    Engineers say without numbers, you’ve barely even started your analysis! Yes, you do need to qualitatively formulate the problem, but then you have to do the hard, slogging work to numerically/statistically verify your intuitions – OR refute them! (That’s what would happen if WigWag did a balanced, thorough statistical analysis of our public school situation.)

    My home town of Dayton, Ohio, has had a strong school choice component since 1999 when charter schools began. Today, 6,000 students attend charter schools and 15,000 students attend traditional public schools, the DPS District (“Dayton Public School” District).

    The last year I saw comparative costs, the DPS District spent $14,000 per pupil. Charter schools get around $7,000 per pupil, half as much. Both take Ohio’s standard achievement tests each year. Our newspaper published a table of the test scores of all of the schools, DPS and charter, so citizens could use them to help decide where to send their kids. (We have “open enrollment” for the traditional DPS District schools, too.)

    The charter schools have slowly improved their test scores compared to the traditional public schools so that in 2009-2010 (the last year I can recall seeing those tables). The charter schools dominated the top ranks of the roughly 50 schools (about half charter and half regular publics schools). I recall 19 of the traditional schools had grades of “F” or “D”; while only a half dozen charters did. Most charters managed “C’s”, “B’s”, and even a handful of “A”s. No traditional public school managed an “A” grade as I recall.

    NOW, the comeback is, “But all of the good students will gravitate to the charters, especially the higher-income families will send their kids there. The poor will stay in the regular public schools.”

    Sorry. This can be refuted in that the percentage of charter school children qualifying for free school lunches is the same that in the DPS District. No difference in their family income levels. Now, you can say the charter parents cared more about the quality of the schools of their children than did those not bothering to apply to a charter – and, well, I guess you’d be right!

  • Chris N

    Alas, I don’t have numbers either, but I’ll give it a go.

    As to Wigwag’s contention that eveyone’s clamoring to get into bureaucratic Greenwich and the Old Main Line because of all that educracy.

    Cities are centers of trade and commerce, and bedroom communities of those cities have people with money, smarts, and time to have good schools in them.

    What better target for teachers (and unions and the huddled redistributionists and educrats that come with them) than bright, well-behaved, intelligent students in wealthy bedroom communities.

    Cargo cult logic.

  • Corlyss

    A nation can have either a consuming social model or a saving social model. You can’t have both.

  • teapartydoc

    It looks like everyone is catching on to Wig-Wag’s multi-paragraph enthymemes.
    I think it would be great if some enterprising young indebted law school grads could establish a court precedent that could show that a single university somewhere had an internal policy of encouraging matriculation in people who, while accumulating debt for an “education”, in reality only get an education in being huckstered. If such a precedent could be established in a single case, it would open the door to an unprecedented flood of class-action follow-ups that would lead to the greatest transfers of wealth since the take-over of the monastic estates by Henry VIII.

  • BillH

    teapartydoc @21. enthymemes, huh. Learn something new every day. The Wikipedia entry (if it’s right) describes the referenced MO to a T. Thanks.

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