I read this article yesterday on the Wall Street Journal Opinion page and it stuck with me – the kind of sticking where you find yourself thinking about it while washing the dishes and walking the dog and all those other mundane life chores. It isn’t that the article itself is factually wrong. Bridges has the facts right – houses are a shoddy long-term investment opportunity for home-buyers compared to stocks. Equity is locked in the home until sale, equity loans are expensive, and betting on equity is, as thousands of home-owners have learned, far riskier than anyone imagined. I was trying to figure out what it was about the article that I couldn’t let go, and then it hit me – the problem isn’t the article, it is the underlying premise from which it was written. Namely, that someone somewhere got it into their heads that homeownership was actually about investment, that it was a way for the little guy to grab ahold of his share of the wealth, that it was intended to be some great equalizing force – a bulwark protecting middle-class values, ideals, and most of all, wealth.
We’ve seen how that has gone down.
This is not to say that the dream of home-ownership was not about figuring out a way to create wealth out of the need for housing. It was. It still is. It just wasn’t ever about creating wealth for the middle-class homebuyers that bought into the suburban lifestyle. A quick overview of the history of suburban development makes this very clear.
The first “suburbs” were actually wealthy enclaves built by people who could afford to take advantage of improvements in transportation to have the classic “country house”. This was a reflection of the opinion of the city – an opinion based as much on prejudice as reality – that cities were disease ridden, crowded, stinky, loud, and unsafe. This was, to a degree true – modern sanitation was still in development and immigration booms contributed to swelling populations of culturally, racially, and ethnically diverse groups – who were often poor and uneducated. Yet as cities modernized, these opinions became more and more prominent despite the actual facts – corresponding more with the rise of racial and ethnic integration into the modern city than the social and structural failings of the city itself. Hence the early stirrings of “white flight”.
Fast forward to the post-WWII baby boom and the housing shortage that followed. The auto was quickly becoming a fundamental component of every household – complete with huge transportation infrastructure subsidies. Consumerism was running full throttle as a real middle-class began to emerge and as manufacturing and commercial enterprises prospered. Really it was a perfect storm for the birth of suburbia – for people to get away from those filthy cities and take advantage of cheap transportation to have the “country manor” and the urban employment at the same time. Large land-owners made a killing as their parcels were subdivided and sold off. Developers made a killing on cheaply built subdivisions – that often sported all sorts of subsidized infrastructure. And Banks… well the banks suddenly had a whole new kind of market to play in and create wealth with. Financial institutions might have been a little slow initially to see the advantages of the mortgage market, but once they figured it out, they ran with it.
That was where the wealth from housing went – and where it was always intended to go. The part where it was supposed to continue to trickle down to the actual homeowner is ancillary – or even accidental. Of course as long as the demand for housing exceeded the supply then home prices would rise and “equity” would accrue – assuming that demand would always exceed supply. And it did. For a long time even – so long that the equity principle became part of the sales pitch – own your own home, away from the dirty multi-racial city, easily accessible by heavily subsidized private transportation infrastructure, and sure to gain in value like a real investment.
Except that is all it ever was – a sales pitch. Marketing kool-aid. Those dirty multi-racial cities are actually the creative and innovative centers of our economy. That heavily subsidized private auto transportation infrastructure is ridiculously expensive to maintain, quickly becomes obsolete or too congested to be effective, and has contributed to both sprawl and environmental degradation. And that equity? That big home-as-investment payoff? Yeah, that went to the banks and developers and big land-owners – as intended.
Which takes me back to the original WSJ article. Single family homes were never a particularly good investment? The suburban model home was not designed to be a particularly good investment – at least not at the final point of consumption, not for the home buyer, not for the middle-class, not for the average Joe. It was designed to take advantage of cultural ideals, technological changes, federal support, and prejudice to create wealth for the wealthy.
I’m not against homeownership. For many people owning their home gives them a sense of control and stability – they do not feel like they are at the mercy of a landlord (though they probably have more legal protections against arbitrary actions by a landlord than they do by their bank or mortgage company), they can do what they like with the property (within code and zoning limitations), and they can rest assured that they have a long-term committment to place (30 years is a significant part of the adult lifespan). In other words, they can paint the walls and update the fixtures as they like, add on a tool shed or a patio, and create a sense of familiarity and stable community all for the cost of a monthly interest payment. If someone is interested in creating an actual “home” in the sociological/anthropological sense of the term, then that isn’t really a bad deal. It works.
But it is a marginal investment – at best. Just ask the Wall Street Journal.
urbanhistori 