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The Engine of American Prosperity Still Sputters

There’s a debate among pundits about how much the American economy has really recovered from the 2008 recession. On the one hand, we’ve had eight years of a nearly uninterrupted fall in unemployment and rise in stock prices. On the other hand, wage growth remains lackluster, GDP growth is steady but slow, and labor participation continues a multi-decade slide. Among other things, of course. But one metric, in particular, suggests that the economy isn’t doing what it should for the middle class. The Wall Street Journal reports:

If the home-building industry had returned to the long-term average level of construction, it would have added more than $300 billion to the economy last year, or a 1.8% boost to gross domestic product, according to a study expected to be released Monday by the Rosen Consulting Group, a real-estate consultant.

In 2016, total spending on housing declined to 15.6% of GDP, a broad measure of goods and services produced across the U.S., compared with a 60-year average of nearly 19%. The share of spending specifically linked to new-home construction and remodeling likewise declined to 3.6% of GDP, just over half its prerecession peak in 2005.

If lenders were to ease credit standards back to their early 2000s levels, that could jump-start home purchases and construction activity, said Ken Rosen, chairman of Rosen Consulting and chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.

“If you want to get the economy going, housing is typically the flywheel,” he said.

It isn’t just short and medium-term economic growth that would benefit if more people bought and built homes. Buying a house and watching its value increase was the way middle class families generated wealth in the twentieth century. When they retired, they could downsize and use the profits as savings income. Or they could hand the home over to their children. With fewer Americans owning homes, we can expect that the middle class decades from now will be resting on uncertain foundations. And less interest in home buying means existing home owners won’t see their properties’ values rise as much as they might have hoped.

Meanwhile, the sluggishness in housing adds fuel to the fire of the debate over quantitative easing—the Fed’s $4 trillion stimulus of the banking industry that was intended to encourage lending. Whether that stimulus accomplished its intended goal remains a contentious topic, but what’s clear is that it didn’t come close to reviving the housing sector. To do that, Congress and the White House need to think about ways to address the systemic shortcomings of the American economy. Otherwise, we’ll likely see another generation that is less wealthy than the one before it.

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  • Kevin

    The Fed’s policies seem to have driven up the values of equities rather than real estate.

  • Andrew Allison

    Mr. Rosen is apparently unaware of what happened last time lenders eased credit standards back to their early 2000s levels.

  • Anthony

    The engine (according to Post) yet may be sputtering but implied is that homeownership – a major way for U.S.citizens to access moderate wealth – is not sustainable for a “middle class” with no wealth to start with and little disposable income. “Systemic shortcomings” (The Big Picture) are certainly one place to begin but by whose lights and definition – economic forces and reality maintains.

  • rheddles

    Student debt. The new mortgage.

    • ——————————

      With 84 month financing now…I thought it was car loans….

  • FriendlyGoat

    The “systemic shortcomings” of the American economy amount to us having feathered the nests of traders over those of workers. That was done with decades of high-end tax cuts which leave the upper segment doing just dandy and the lower-middle mass suffocating. For the housing industry, we have offered ridiculously-low interest rates for nearly a decade. People still don’t buy houses like they did. Why not? They can’t——AND—–if they did, there is no guarantee those houses are any longer necessarily an “investment” which appreciates except in over-heated markets (where the housing already costs too much for an ordinary buyer anyway.)

    • LarryD

      Loose credit, the “Community Reinvestment Act”, and the government trying to stimulate the hosing industry without ever letting the economy unwind the misallocations from the last loose credit boom. And it’s not the homeowners whose misallocations I’m referring to, but the lenders. Loose credit favors traders and financiers, not investors (savers) or workers.

      • Josephbleau

        Would that the federal government reward people who save over those that go bankrupt.

  • Josephbleau

    What is this talk of percent of GDP??? That is not what the industry uses. (I love “But one Metric says…” I will copy that term.) In February annualized housing starts were 1,288,000. in 2007 housing starts peaked at 1,440,000. We are already at a historically high level, although short of the frenzied maximum. Look at the 52 week stock performance of building materials and construction companies. These companies are happy. Rosen Consulting is boosting whatever adds up to bad statistics to advertise the point that the world will end unless real estate agents get legislation passed.

  • Jim__L

    Job growth would have to occur in regions that are not “densified” for this to matter.

    The best thing to do here would be to slap a “metro tax” on businesses in cities whose detached single-family home ownership rate was below national average. That would incentivize companies to expand operations outside of cities unfriendly to home ownership.

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