New York Diary

houses, society

There's a big problem with the (slowly deflating?) housing bubble that has installed itself as a seemingly permanent feature of the American economy. (It is not, of course, permanent; such a setup must eventually fall through--but for the time being, most homeowners are acting on the presumption of its permanence.) The problem is summed up in the following question: where are people of my generation going to LIVE? Perhaps a related question, though not as clearly derivative from the booming housing market, is: just how indebted to the rest of the world are we going to be, and how will we ever pay off that debt? War, to make it obsolete? Not a good answer.

My family spent Christmas at my grandparents' home in Litchfield, CT. Their home is lovely and in a beautiful, walkable town, and I had the abstract thought that this was a place I'd like to live, a place to have a family and a livelihood, a place to settle down. So just out of curiosity, I went to the government website and pulled up the recent sale prices of housing in Litchfield (this information being in the public domain). My reasonably well-informed estimate of the cost of an average single-family home there? $1-3.5 million, depending on location, land, and age of the building (older, strangely, seems more expensive...?).

In some ways, this is exactly what owning a home is supposed to be like. You put a lot of money into owning your house and land, but it's considered a solid investment anyway because real estate always rises in value (or so says conventional wisdom). The people who bought these homes 30, 20, or 10 years ago are all, I'm sure, very pleased with the cost of their home these days.

But what about those of us who were only 13 years old ten years ago? Where will we live? Even the cheapest of actual homes, physically sound (if imperfect fixer-uppers), in the cheapest housing markets in the country, are easily topping $150,000 (except in Alaska, it appears). The US Census Bureau tracks statistics for the cost of new homes each quarter; you can see here that in 2005, a new home in America is far more likely to go for between $300,000 and $500,000 than for any other price. And the average price of a New York City apartment--sans yard, sans space, sans parking--has just topped a million dollars.

This is a problem. Homeowners who bought their first house for $80,000 15 years ago can now sell it for $300,000, which they can then use to buy a new home in some other, more convenient place. Even if they can't buy an appreciatively nicer home, they can still move fairly easily. Moreover, they could move from a one-family home to a smaller apartment (now that their kids have moved out, for example), and take the price difference (say, $100,000) off the top to buy a new boat and car or to set aside for retirement. And these people can also get credit and borrow money against the value of their home, allowing them many more financial options than those who don't have homes.

But those of us whose starter home is going to cost $200,000? Well, most of us will simply never get a starter home under these circumstances (much less in the very expensive market that is Litchfield, CT). What will we do in ten years' time, when we want a loan to start a business? What will we do when we want permanency in our lives? The great thing about owning a home, instead of renting, is that after 20 or 30 years of paying your mortgage, it's yours. Markets may fall, Armageddon may break out, you might lose your job or become bedridden--but even if you can't sell it on the open market, your home and your land give you a permanent place to live. Indeed, anybody with a small yard can have a garden and make their own food in an emergency. Anybody with a bedroom has shelter. In short, owning your home means not just having a large financial asset to your name, but actually, physically having a place to stay even if you're unemployed or in otherwise dire straits.

But my generation? We don't really have much of a foothold on the homeowner ladder. In part, it's because we're more wandering and unsettled (not with a bad connotation) than twenty-somethings of previous generations. But in large part, it's because we couldn't buy a home if we wanted to. Our actual assets, as a general rule, are tiny.

That's a big problem. People who don't own their home can easily be kicked out of it--via everything from rent increases to eviction. No landlord has an obligation to re-up your lease, after all. But dependable permanency is a necessity for reliably run businesses, too, and for reasonably good schooling (consider the school where all students are drifting in and out--so much for the student-teacher relationship), and even for simple human contact and getting to know one's neighbors. Moreover, relatively reliable permanence helps make people stakeholders in their societies; you care who the mayor is, who the governor is, whether this lot turns into a park or that one becomes an apartment complex, how big class sizes are in the local elementary school, and what the seatbelt laws are, because you buy into the idea that this place is somehow yours and the place where you will continue to live.

But if young-ish adults aren't able to break into the housing market, we face a lot more apathy. (Look at voters by age in America, and we'll see that this is something we already face.) Moreover, in the more distant future, we face a world in which either one of two scenarios come into being. On the one hand, it could be that in forty years it will be my generation that comes to own the homes as our parents and grandparents move to smaller apartments, nursing homes, and (sorry to be crude about it) the grave. To accomplish this, I suspect there will be a rapid decline in home costs, thus radically shaking up our economy and likely causing an overall financial imbalance that could lead to serious instability and possible depression. On the other hand, it might be that we never really manage to break into the market at all. But then what? We'll be paying rent our whole lives? We already graduate from college with an average of over $2500 in credit card debt--not to mention as much as $250,000 in financial aid that needs to be repaid. We're swiftly becoming a debt-based economy. If we could be "renting to own," that is, paying a mortgage, then eventually we would have much more disposable income (when the house is paid off and there is no more rent on it), which we could use to back up and pay off debt (the way most homeowners generally do it even now). Alternatively, we could just run an account deficit of an increasingly large number of trillions of dollars, until the rest of the world figured out that the only thing underlying this is superior military power (since the economic power is actually in the hands of the lenders). Not a lovely scenario, either.

Actually, a third possibility comes to mind. Those of us with homeowning parents might eventually inheret the homes that they cannot themselves afford, while those whose parents don't own a home will simply be out of luck. What a superb way to widen the income gap and stem social mobility!

This is an obvious and problematic economic reality. The papers and the markets are aware of it. But it seems like nobody is paying attention to the political and social implications of a generation of wandering, uprooted, unconnected people. This is precisely the opposite of community, and seems likely to lead to problematic overindulgence in individualism, less and less enthusiasm for supporting social safety nets for others, far less self-policing and communal pressure to act decently (and therefore greater legalism and opportunism, both of which lose the point of the rules in the first place), and a power disparity between the haves and the have-nots which might even go so far as to effectively disenfranch the latter and threaten our democracy on a grand scale. It's the doomsday scenario, to be sure. But I do think it could happen.

posted by Skay @ 2:46 AM