Has home ownership destroyed the United States?

According to Richard Florid, in the new issue of the Atlantic, the “American Dream” of owning a home in the suburbs is only an American Dream because pre WWII, it was foisted upon people of the United States by the government, in which Fannie Mae was created, because the tax-deduction on mortgages was higher than on any other kind of spending. This, naturally, had a “symbiotic” relationship to cars, and thus, sprawl, at a time when it was truly unpleasant to live in most cities, and the first outer ring of suburbs was still close, accessible and convenient to a city’s core. Our economy was based on manufacturing and moving goods at that time, and small, close suburbs made sense.

What he’s arguing now, though, and what no person in their right mind could really dispute, is that our economy is no longer based on manufacturing, goods, or moving things. It is an economy based on ideas, creativity, and mobility. Velocity and density are the words he uses.

But that was then; the economy is different now. It no longer revolves around simply making and moving things. Instead, it depends on generating and transporting ideas. The places that thrive today are those with the highest velocity of ideas, the highest density of talented and creative people, the highest rate of metabolism. Velocity and density are not words that many people use when describing the suburbs. The economy is driven by key urban areas; a different geography is required.

The housing bubble was the ultimate expression, and perhaps the last gasp, of an economic system some 80 years in the making, and now well past its “sell-by” date. The bubble encouraged massive, unsustainable growth in places where land was cheap and the real-estate economy dominant. It encouraged low-density sprawl, which is ill-fitted to a creative, postindustrial economy. And not least, it created a workforce too often stuck in place, anchored by houses that cannot be profitably sold, at a time when flexibility and mobility are of great importance.

Home ownership is a huge part of the problem. Too often seen as a step to financial independence, Florida claims that home ownership ties people to unsustainable geographic areas where jobs are either scarce, or non-existent, and in turn, this handicaps the economy. Economists have discovered that in both the United States and Europe where home ownership is the highest, unemployment is also the highest. So even if there are jobs that people can get, they are often jobs taken out of desperation and grossly ill-suited to individuals’ interests or abilities, which is also bad for an idea-driven economy.

In the future of the American economy, it is going to become more and more crucial for people to be flexible, and not so tied down to specific areas if they want to thrive. Which is also going to be bad news for the midwest and the southeast, in places like Phoenix and Las Vegas, where massive, uninhibited growth was spurred and justified simply by…growth itself.

The foreclosure crisis creates a real opportunity here. Instead of resisting foreclosures, the government should seek to facilitate them in ways that can minimize pain and disruption. Banks that take back homes, for instance, could be required to offer to rent each home to the previous homeowner, at market rates—which are typically lower than mortgage payments—for some number of years. (At the end of that period, the former homeowner could be given the option to repurchase the home at the prevailing market price.) A bigger, healthier rental market, with more choices, would make renting a more attractive option for many people; it would also make the economy as a whole more flexible and responsive.

Next, we need to encourage growth in the regions and cities that are best positioned to compete in the coming decades: the great mega-regions that already power the economy, and the smaller, talent-attracting innovation centers inside them—places like Silicon Valley, Boulder, Austin, and the North Carolina Research Triangle.

Just as important, though, we need to make elite cities and key mega-regions more attractive and affordable for all of America’s classes, not just the upper crust. High housing costs in these cities and in the more convenient suburbs around them, along with congested sprawl farther afield, have conspired to drive lower-income Americans away from these places over the past 30 years. This is profoundly unhealthy for our society.

Florida’s piece is thoughtful and fascinating. I know so little about economics it’s hard for me to venture any kind of guess about how right or wrong he may be, but it’s thought-provoking, and at least for me, fairly hopeful. He’s offering a way out, a solution, and putting a positive spin (in some ways) on a profound and terrifying crisis.


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