home ownership

We should all be worried that the housing market is so bad while the economy is so 'good'

Amen. (s.h.a.r.p.)

Amen. (s.h.a.r.p.)

 

Last week, The Join Center for Housing Studies at Harvard released their 30th annual report on the state of housing in the US. With a few exceptions, the picture is bleak. At every corner there are major red flags about the present and future of housing in the US for owners and renters alike. What is clear, a full decade after the foreclosure crisis, is that the housing market is at best exacerbating wealth inequality and at worst sowing the seeds for an even more destructive economic downturn. This is all happening while the national economy is allegedly roaring along. And that should scare all of us.

Let’s start with the most important point: for a lot of Americans, there is simply no evidence that the economy is doing well. Sure, the stock market is up and unemployment continues to fall.

These data points have long been two popular shorthands for talking about our economy’s health, but it’s hard to believe that it is healthy when 40% of adults don’t have $400 on hand to cover an emergency. The ‘millennial’ generation is already 34% poorer than previous generations at the same age. Clearly, if we think this is a good economy, how we measure it and how we talk about it are deeply flawed.

Who cares about the stock market when half of Americans don’t own stock and the richest 10% of Americans own 84% of them? Who cares about a low unemployment rate when wages aren’t increasing and most job creation is in low-wage, high-insecurity positions? Who cares about how well the economy is doing if the richest 1% captured 82% of wealth created last year while the bottom 50% captured none?

The crooked nature of our housing market is making this all worse, perhaps for generations to come. The JCHS report reflects this widening wealth gap and its impact on housing in the US with some startling stats. It breaks down into troubling dichotomies between renters vs owners, wealthy vs everyone else, old vs young, white vs not-white. It’s worth picking out some quick ones and related stats:

  • 38 million American households (owners and renters) are cost burdened
  • Half of all renters are cost burdened (which has doubled over the last 50 years) and a quarter are severely burdened
  • Rents and home prices have risen 20% and 41% respectively over inflation in the last 30 years
  • Homeowners have on average 46 times the net wealth of renters
  • Overall, since 1960, wages have gone up 5% while rent payments have gone up 61%
  • Minority homeowners have half the net wealth as white homeowners and their homeownership rate is falling
  • Since 2000, the number of Americans living in poverty has increased by 28%t to 12.8 million
  • During the same period, the number of high-poverty census tracks grew by 53%
  • 51% of blacks and 44% of latinos live in areas of concentrated poverty, compared to just 17% of whites.
  • In 2016, 1.4 million people (including 175,000 families with children) were homeless at some point during the year
  • 56% of homeless live in the highest cost metros
  • 83% of homeless families experience it acutely as a product of eviction

This is during 9 years of continued growth that has little historic precedent.

The report highlights a couple of under-appreciated factors causing these stresses: the aging population of the country, the decrease in immigration, and the concentration of economic opportunity in fewer geographies, industries, and individuals. These all represent “new normals” that so far have failed to be acknowledged at the national policy level.

One factor that the report covers in great detail is obvious: we aren’t building enough homes, anywhere. Most urban centers, and virtually all of them in coastal regions, are not building enough housing to meet the economic growth (and concentration, relative to other regions) they are experiencing. That’s partly why mobility, an actual sign of economic and social health, has collapsed in the US.

Some of this is the problematic regulatory regimes of individual cities, but largely its the cost of land, labor, and materials, which has gone up across the country. The lack of productivity gains in the construction industry, whether for single-family or multi-family, is a major problem and doesn’t get nearly enough attention from the media, academics, or policy makers. While many industries are slowly starting to see gains from the IT revolution (while others are shrinking), construction hasn’t.

That’s not hard to understand. The industry was built on cheap labor and cheap land — those are not inputs that demand innovation. Add in 80 plus years of massive government subsidies either from financial guarantees or infrastructure spending, and what you get is a cartel of mostly local/small groups of very profitable players that have never needed a culture of innovation. Instead, they have formed a culture of protection that has largely manifested in spending millions to support their local political status quo.

Today cheap land and cheap labor are harder to come by, but, for the most part, public subsidies are still available. So we have in place a perverse system where an already-outdated industry has little ability or incentive to adapt that is matched with an equally outdated and inflexible policy regime. That’s a recipe for a disaster, which is what we are living through.

This is all to say that, of course our housing market isn’t providing enough housing (except at the top, where it is producing too much). But it is operating in a state that our policy makers can’t seem to recognize reflects a larger political failure. None of these problem are going away. They are, in fact, going to get worse.

That’s because, inevitably, the economy will sputter again. So what happens when it does? 10 years ago it meant the greatest economic crisis since the great depression. I’m not suggesting we are due for another foreclosure crisis, but at the same time, we haven’t fixed the underlying problems people have that caused it. Primarily, those problems include people not making enough money, having too much debt, and not having a lot of flexibility if the economy tightens suddenly. That has gotten worse since the great recession. Remember, 40% of Americans don’t have $400 on hand for an emergency.

People are barely getting by right now during a ‘good’ climate, but what about the government?

You can make a lot of complaints about how President Bush and President Obama handled the crisis ten years ago. (It is clear that both administrations focused on the financial system at the expense of the individual household. There were more options on the table than that and we’ve been suffering from what ended up being a blanket immunity for the financial industry ever since.) But they both worked together during the transition and both drew from a deep well of experts with steady hands and public trust. It could have gotten a lot worse, but it didn’t. As flawed as the process ultimately was, that’s what we expect of our government.

Nobody in their right mind can say that the current administration has steady hands or public trust. Obviously, the President clearly doesn’t understand economics and doesn’t know what he is doing other than exploiting racial animus. But look across the cabinet — HUD Secretary Carson thinks poor people should have a harder time and doesn’t know what he’s doing. Commerce Secretary Ross is spewing conspiracy theories about soybeans and doesn’t know what he is doing. Treasury Secretary Mnunchin either doesn’t understand the tax cut or is still lying about it and doesn’t know what he is doing.

Does anyone expect the Trump administration to handle a downturn well or honestly? Have they shown any ability to think strategically on policy? Or to even execute a policy well? The inevitable downturn will cause pressure on this administration that we have no reason to believe it can handle.

Even if we had a more predictable political landscape than we do today, we have fewer policy tools available to deal with a significant downturn. The government is starved for revenue and will get worse over the life of the tax cut. Republicans plan to come for the safety net next. Even the Fed, though in steady hands for the most part, has fewer policy tricks up its sleeves than last time even if it somehow remains insulated from political pressure or partisan erosion that has crippled other institutions in the Trump Era. Will it still be immune when a crisis hits?

It’s not hard to see what has to change. Fundamentally, the public needs to claw back a large portion of that 82% of wealth created in the last year (and over the previous decades) in order to raise our collective standard of living. We need to reject the money-fueled political status quo at the federal and local levels that have killed long-term planning and prevented big ideas from entering the public discussion. And we need to reboot our social and economic contract that currently makes education, healthcare, and childcare/elderly care prohibitively expensive.

Fixing the housing market can go along way to starting this process. Housing is a right and should be the baseline for any public or private policy goals. We need a robust private sector to support housing, but we need to incentivize innovation by shaking up the tired regulatory and subsidy process. Public goals for the private sector should move towards equitable access, community ownership, and sustainable affordability. Public ownership of housing (which was not even covered in the JCHS report) must be expanded with direct ownership of housing and direct ownership of land.

It’s not hard to see what has to change, but it is hard right now to see how or where that change begins. The last great opportunity to have this conversation occurred during the great recession and it was ultimately squandered. It is hard to see how we even weather the next downturn in whatever form it comes let alone how we begin a massive reboot in housing. That might be the best we can hope for, but it is not what we need.

The Coming Budget Will be a Disaster for Housing, but Housers Are Part of the Problem

"The Marriage of Real Estate and Money" (Tom Otterness, 1996)

"The Marriage of Real Estate and Money" (Tom Otterness, 1996)

Republican-controlled Congress passed a major hurdle in their plan to radically reshape the nation’s tax code last week by narrowly passing a budget for 2018 in a close 216-212 vote.  The narrow spread included 20 Republican defections, which is a clear signal of the considerable challenges that lay ahead.  Regardless, this process will be a disaster for housing policy – affordable housing or otherwise.  The fact that this process is proceeding in rapid, secretive, and reckless fashion barely registers anymore shows how far our legislative process has come apart. It also shows how little the housing community can do to prevent this damage and how little it understands the changing landscape of national politics.

I have written extensively about three major threads since the beginning of the Trump Era (although they originate well before) that continue to dominate housing policy discussions. This budget (which is not law yet and is still largely unknown as policy) reflects these trends. The response the housing community has to each also shows how much it needs to change its approach and fight for a simple, clear cause: housing as a right.

1. Down with Public Housing

First, President Trump, despite his incoherencies, has been steadfast in his utter indifference to affordable housing, especially public housing. Given other mounting evidence, it seems more likely that he holds the people (or those people, more aptly) that rely on it in contempt. 

Appointing Secretary Carson has worked out exactly as the President had hoped and as housing advocates had feared.  HUD will face devastating cuts whether the Secretary understands them or not. The 13% across-the-board cuts long-promised by the administration are starting to take form and no one suffers more than the poor Americans who rely on housing vouchers, community block grants, and of course, public housing. 

Public housing authorities across the country will be further starved of funding and will likely turn increasingly to measures such as the Obama-era program Rental Assistance Demonstration (RAD) that provides upfront funding by turning public housing into privately-leased Section 8 units.  Seen as a necessity, or even as a progressive fail-safe by many housers, this program will only weaken cash-strapped public housing authorities and undermine their broader mission. Housers who support RAD will live to regret those decisions instead of rallying around a robust defense of public housing on its merits.

Saying Secretary Carson is unqualified or simply dumb doesn't change the narrative on public housing.  Saying the President doesn't support or respect poor Americans' struggles won't change the support most Americans have for public housing.  Making the case that public housing - and greater federal involvement in affordable rental housing - is good for the country and good for everyone - city or suburb - is the only way to effectively fight the Trump administration.  Right now, the playbook is wracking up losses. It's time to change it.

2. Up With LIHTC

Second, Congress continues to gaslight the housing community about the effectiveness of the main national affordable housing policy – the Low-Income Housing Tax Credit (LIHTC).  Enacted after the last major tax overall in 1986, it has created over 3 million housing units representing 90% of all affordable units built during the period.

That’s seen as a success by many well-meaning actors in housing despite the fact that it is has demonstrably failed to provide the volume of units our country needs.  99% of US counties are in an affordable housing crisis. When the only policy explicitly designed to address affordable housing is failing that broadly, it is irresponsible to defend the status quo. But that is largely what is happening at the moment.

The legitimate fear from this proposed tax cut plan - I won't pretend it's some nebulous "tax reform" - is that lower corporate rates will dramatically weaken the incentive to partake in the LIHTC program. What will be left unsaid is that relying on the private sector to build affordable housing through tax incentives is inherently and obviously flawed.

Instead of arguing for a larger policy shift, many housers will try to defend LIHTC and, by extension, the status quo of federal housing priorities. When, inevitably, both parties do offer some type of carve out for LIHTC to remain attractive, this will be hailed as a victory. We should know better by now. We should be arguing for more policies like community land trusts that offer the same type of decentralized, local control that many communities want, while rejecting the speculative component that largely dictates development today.

3. Upside Down on Homeownership

Third, we have learned nothing from the 2008 mortgage crisis.  Not only have we failed to address the dangers of increased financialization of the housing market, or the more fundamental challenges of slow wage-growth, rising debt, and geographic inequality that is crushing the housing market, but we have never rectified that promoting homeownership for 80 years has been a disaster for our country.

Homeownership has undoubtedly pushed millions of Americans into the middle class but it has also prevented millions more from doing so.  Wealth inequality across racial lines has increased in recent decades.  Racial segregation has increased in recent decades.  The environmental and social costs of single-family suburban sprawl will only get worse as a generation of baby boomers age and realize no one is coming to buy their homes at what they think they are worth.  Nobel-prize winning economist Robert Schiller has long debunked that houses automatically appreciate in the US. In fact, on average, they haven't at all since the 1940s. That's only going to get worse in many parts of the country.

The only minutely (unintentionally) progressive element of the tax cut plan currently under consideration is reducing the mortgage interest deduction, which disproportionately benefits wealthier Americans. This is being met with fierce resistance by the housing industry. It's not hard to see why homeowners and housing developers wouldn't want to support massive tax cuts for corporations and the top percent of earners.  Reducing the MID to pay for tax cuts isn't what many housing reformers had in mind, but it shows how hard it will be to try such a thing under any circumstances.

This is because treating housing as a tool of wealth creation as opposed to one for shelter provision is the definitive policy choice of 20th century America.  We have built a nation on this principle (along with car ownership, which of course is directly tied to housing.)  There are many ills facing our society today and our housing policy explains a lot of them.

To truly change this, we must first accept a blatantly obvious reality: treating housing like an asset has failed.  We have commodified it, securitized it, and speculated on it like it’s something less important than a basic human right.  Many elements of our country have profited handsomely from this.  Indeed, go to any real estate conference now and there will be a technocratic consensus that “the market is doing well” while ignoring the larger truth: our society is not doing well.

Housers must recognize the opportunity that we have to dramatically change the discussion on housing by rejecting the 20th century concept of housing.  Millions of Americans are hurting and are angry.  Ideas that might have once been considered 'radical' by some people - even many housing advocates - are now entering the conversation and public policy. Most Americans recognize that the old way we constructed our politics isn't working. 

We must extend that realization to the built environment and offer a positive, actionable vision for a better future.  Housers have to stop accepting a failed premise and fight to establish a new one. It starts with saying simply, proudly, and forcefully that housing is a right. 

Frontline Doc on Housing Crisis Sidesteps Larger Problem

Is that light at the end of the tunnel? (pbs/frontline)

Is that light at the end of the tunnel? (pbs/frontline)

 

This week, Frontline  released a documentary focusing on the affordable housing crisis. Specifically, reporter Laura Sullivan examined Section 8 and the Low Income Housing Tax Credit (LIHTC) - the two main federal policy tools tasked with providing affordable housing - to see why these programs are not making an impact on the crisis. The doc suggests the reason is a combination of local resistance, lack of oversight, and outright fraud. Though these do play a role and must be addressed, the larger issue is that the US does not see housing as a right. Without focusing federal policy around this principle, the current, weak federal intervention in rental housing will never solve the affordable housing crisis.

The documentary is at once heartbreaking and hopeful. We see individuals and families that are trapped in a cycle of poverty utterly beyond their control. But we see individuals who have benefited from low-income housing programs, who now have a stable home for the first time in their lives. Though the documentary does not make a value claim, it shows how decisive an affordable home is in the outcomes of Americans, and how important it is that we provide one as a society.

As the doc points out, however, only 1 in 4 Americans who qualify for housing assistance receive any. That there are so many Americans who need housing assistance (approx. 12 million) and that they do not receive it are equally scathing indictments on our nation’s priorities.

The Americans that do receive aid do so mostly through Section 8 vouchers, which allow an individual to rent a home (that accepts the program and has a certain cap) and to pay no more than 30% of their monthly income for it. The federal government, administered through the states, covers the difference. The program costs about $30 billion a year (less than half the cost of the annual mortgage interest deduction) and houses 2.1 million Americans . It was started in 1974 as a correction to the mistakes of concentrating large public housing blocks in poor urban neighborhoods, but more on that later.

Part in parcel with Section 8 is housing built through the LIHTC that generally requires a percentage of units be put aside for residents with those vouchers. As I explained here, LIHTC was part of the landmark 1986 tax reform and created tax incentives for affordable housing construction. The idea was/is to create affordable housing by allowing developers to sell IRS-issued tax credits to private investors for cash towards their projects. A given community gets nice new affordable housing, the investors (usually banks) get a significant tax credit, and the developers make a small profit.

It’s the ultimate public-private partnership and a lot of people across the political spectrum support this premise. LIHTC has built 2.7 million affordable housing units over 30 years and represents 90% of all affordable housing construction in the country.

To recap, the federal government’s answer to the affordable housing crisis is to incentivize the private sector to create affordable housing and to then help subsidize some residents into those units. But as Frontline shows, this premise is deeply flawed at almost every point in this cycle because the federal government is basically absent.

Beyond the fact that so few receive Section 8 vouchers, those that do often face incredible odds against finding a home anyway. Many landlords simply refuse to rent to people with Section 8 vouchers. Few wealthy communities, which are closer to better jobs and schools, offer Section 8 housing at all. And, as witnessed in the doc and elsewhere, those individuals that get a home in those communities often face a disgusting level of communal and institutional discrimination.

Section 8 was not designed with enough understanding or acknowledgement of how race and class define that geography of our nation and how that geography provides opportunity. As a result, the program is incapable of overcoming this aforementioned type of local resistance and discrimination. “Section 8” is often a shorthand for a racial slur in many places and existing residents don’t want them in their communities.

Luckily for those residents, cities and towns have many ways around providing Section 8 housing, whether explicitly through zoning or implicitly through delay tactics, as the doc points out. Even though the Supreme Court has intervened to acknowledge and try to prevent this, decades of institutional discrimination have limited the ability of any current federal programs to overcome local governments. Additionally, the current administration is unlikely to enforce any real changes at the local level.

As for the other end of the cycle, the LIHTC is a deeply flawed policy tool. I have discussed why it only works in relation to other bad tax policy that might not last, why its focus on market principles limits individual developments’ effectiveness in size and location, and why its complexity actually drives up the cost per unit.

However, Frontline focused on two elements that I did not cover: corruption and lack of oversight. Because LIHTC funds are administered by the states and cities have significant local discretion on development, there is a lot of ambiguity to how developers proceed through this regulatory complexity. The result, at least in some cases, has been kickbacks or pay-to-play schemes that have led to several high-profile federal corruption convictions.

Any big dollar programs are going to attract bad actors and I’m not convinced that fraud is a systemic issue with LIHTC, but the point is, we really don’t know. There is basically no federal auditing. Most state housing agencies simply don’t have the resources to audit the program either. In many cases compliance and cost estimates are done pro forma which means, outside of the small sample of investigations, it’s difficult to tell if there is a bigger problem at hand. However, given the widespread corruption in the mortgage industry leading to the crash in 2008, it’s not hard to imagine that a lot of federal tax dollars are getting sucked out of affordable housing.

Section 8 and LIHTC were programs that evolved after the New Deal/Great Society eras of mass public housing development funded by the federal government. The popular consensus is that those years were a failure of public policy. No doubt many Jacobisan neighborhoods were destroyed by Urban Renewal projects and in their wake highways and lifeless towers concentrated poverty around isolated pockets of cities. Public housing became synonymous with crime and anti-social behavior that crippled those communities for decades. There were absolutely many terrible failures with this approach.

But the truth is more complex and more sinister. The failures with the era’s specific approach to public housing undermined the premise of public intervention in housing overall. Public housing was neglected almost as quickly as it was built, while the federal government intervened massively to create suburban America and its twin pillars of car ownership and home ownership. It wasn’t that the premise of public housing failed, it was the commitment to it that failed. Intentionally.

By the 1970s, the idea that the federal government can, let alone should, intervene in the rental housing market died along with the liberal consensus that controlled domestic politics for 40 years. But the problem of providing affordable housing didn’t go away. Section 8 and LIHTC were follow up neoliberal admissions that the affordable housing problem could not be fixed by the market alone.

However, they were built on a flawed premise that failed to acknowledge how much the federal government intervened in homeownership and how much that intervention fell along racial lines. Under that premise, there is no way these programs could possibly tackle the structures that created the affordable housing crisis to begin with.

In fact, they have made the crisis worse by calcifying the national policy conversation on housing. Both parties (for the most part) continue to point to the two programs as evidence that the federal government is doing all that it can — and that it’s working. This is a politically convenient fantasy for both sides.

The death of public housing as national policy after the 1960s proves two related points: first, the federal government can decide how it wants to house Americans and, second, it can make it a reality. The US decided that post-war economic growth would be based on cars and homes and built policies to guarantee that outcome. It worked.

If the federal government (or more accountably, we as Americans) wants to end the affordable housing crisis, we can. It will never end through Section 8 or LIHTC. It will never end by addressing the flaws in those programs raised by the Frontline documentary. It will never end by subsiding homeownership. It will only end if we commit to the simple concept that housing is a right and start re-imaging our country from there.

Owning a Home is Not the American Dream

The American Dream or not? (whiskeyriff)

The American Dream or not? (whiskeyriff)

As Republicans and Democrats meet for their national conventions in Cleveland and Philadelphia, it’s easy to spot their differences.  However, both parties agree on one large issue: homeownership.  Despite the fact that 64% of Americans own their homes, this policy consensus has been a disaster for our country.  Our national obsession with owning a home has actually made it harder for Americans to obtain the American Dream.

Homeownership policies cost a lot of money.  According to the Center for Budget and Policy Priorities, in 2015 the US Government spent $135 billion on subsidizing homeowners through mortgage interest tax credits and real estate capital gains exclusions - while rental programs like public housing and Section 8 cost $50b.  Over 60% of federal spending on housing goes to homeowners with incomes exceeding $100,000.  That’s quite the handout for a country that has nearly 600,000 homeless and close to 50 million living in poverty.

For most of our history, fewer than half of Americans owned their homes (it wouldn’t cross 50% until 1950.) There are many economic and social reasons for this: homeownership required significant upfront capital and risk; a large portion of the labor force was transient, working either in seasonal agricultural work or in urban industrial work; and most immigrants settled in urban neighborhoods dominated by tenements, off-setting a lack of economic capital with concentrated social capital.

There was nothing organic or market-driven about the dramatic rise in homeownership that started after WWII.  The US Government chose to promote it and subsidize it by guaranteeing individual mortgages (through the Federal Housing Administration), which removed the risk to banks.  Perhaps surprisingly, the government did so as an economic stimulus for the construction industry during the Great Depression as opposed to a grand social realignment.  

What really tilted the economy towards homeownership was the federal creation of a secondary market for mortgages through the forerunner of the Federal National Mortgage Association (Fannie Mae).  This opened a lucrative market to resell packaged mortgages, which artificially incentivized banks to offer more mortgages. Homeownership became big business.  Today, even after the 2008 crash, Fannie Mae and Freddie Mac, both government-sponsored private entities, are two of the largest financial entities in the world, holding over $5 trillion in assets.

The US Government also subsidized homeownership through the construction of highways that opened up millions of acres of cheap land to home construction.  Although highways were initially conceived to create inter-city rather than intra-city travel, in practice many cleared entire (mainly poor) neighborhoods in cities to move people from their suburban homes to their urban jobs.  The environmental and social costs of promoting homeownership this way – causing decades of suburban sprawl and urban displacement - are immeasurable.

That brings us to the original sin of our homeownership policies: systemic racism.  Homeownership rates for whites (72%) remain significantly higher than blacks (42%) and Hispanics (45%) and that isn’t an accident.  While white Americans were subsidized into suburban homeownership, black Americans (and other minority groups) were blocked from obtaining mortgages through massive ‘red-lining’ of urban neighborhoods.  Even if they could buy homes, they were racially segregated from many towns and housing developments. 

Back in the cities, hundreds of thousands of families endured mass-eviction through now infamous urban renewal projects that funneled them into poorly conceived public housing developments that were abandoned by the federal government before the paint dried in some cases (See: Pruitt-Igoe.)

Though the most overtly racist policies in housing have been eradicated, decades of discrimination and exclusion baked into the American landscape have left a haunting legacy in our society.  Generations of Americans were blocked from the opportunity to own a home – and build wealth – and became trapped in economic and political isolation.  The recent, shocking violence in some corners of our nation speak to this in heartbreaking clarity.

Denying millions of Americans access to the middle class wealth creation of homeownership is a national shame that we have been slow to acknowledge let alone address.  But is the assumption that homeownership is an automatic vehicle to wealth creation even accurate?  The Nobel Prize-winning economist Robert Shiller has studied decades of housing data in the US and has shown that, adjusting for inflation, home values haven’t increased - at all.  For every hot housing market in the in the Sunbelt, there are markets in the Rustbelt and elsewhere where prices are declining.  The idea that buying a home is always a good way to build wealth is simply not true.

Additionally, the 2008 crash exposed the insecurity of homeownership for many Americans.  Almost 10 million lost their homes and over 3 million more remain underwater in their mortgages.  Far from a being a safe and lucrative asset, homeownership has devastated many Americans financial security and trapped them in precarious economic conditions. And though Fannie and Freddie were effectively bailed out by the US Treasury to the tune of $187b, no such comparable relief has found its way to homeowners.

There is a lot of blame to go around for the 2008 crash.  It’s easy to moralize individuals that should have known better than to buy expensive homes far above their income levels.  It’s easy to blame predatory lenders and bad actors at the local level. It’s easy to trash Wall Street for creating exotic products to recklessly speculate on the housing market.  It’s easy to disparage Congress for trying to encourage low-income or poor-credit individuals to buy homes.

But none of this goes far enough.  The crash should have prompted extensive soul-searching from our policy makers about the purpose of homeownership. Both parties’ platforms show that little has occurred.  This is irresponsible.

Until we acknowledge the severe economic costs of our homeownership policies, we cannot make the changes necessary to ensure that the 2008 crash doesn't happen again.  Without recognizing the social costs, we cannot begin to address the systemic injustices and inequalities that have defined post-war America.  Finally, without rejecting the fallacy that owning a home produces a civic virtue unachievable by renting one, we can't bring new ideas to organizing our communities.  If we were to expand the American Dream to include the right to an affordable home regardless of ownership, we could perhaps unlock a new American era of ingenuity and opportunity.

 

Hey, Millennials: Rent is Too Damn High

US Census

US Census

On Thursday, the US Census Bureau released housing data from the 4th quarter of 2015 that shows rent continuing to rise at a startling pace nationally - putting untold pressures on households across most income and racial categories. Some organizations, including the Community Housing Development Association, have even started referring to rising rents as an epidemic.  But why is rent rising so fast and what are the short/long-term implications?

There are no simple answers to these questions and this blog will continue to explore every theory from every conceivable angle. But for today's post, I will blame millennials (which is something of a national past-time already)  for rising rents because they want jobs and can't afford homes. (How dare we!)

It is true that millennials (he said in his sweeping-generalization voice) are moving to cities in unprecedented numbers for a variety of live-style and aspirational reasons (who wouldn't want this guy's life?)

But cities also happen to be where the jobs are.  And now that millennials represent the largest block of workers, one follows the other.

And then the other follows the other (as it were) as firms move to where talent lives - creating an echoing effect on the economy and demography - and rent. I site the case of GE leaving my beloved Connecticut suburbs for the well-educated and well-championshiped millennial workforce of Boston as the most recent high-profile example.  

The hunt for creative class jobs isn't the only reason to blame millennials for rising rent. The Census data provided another telling piece of information that points to a potentially epoch-changing trend - declining homeownership rates:

US Census

US Census

Perhaps nothing has defined 'America and So Can You' as much as homeownership, and though we can debate the virtue of homeownership and the policies created to encourage it (and we will) no one can debate that it represents the epitome of aspiration in our society. 

But millennials can't afford to buy a home

Much has been written about the soul-crushing debt weighing down this generation, which came of age in the wake of the Great Recession (which could have long-term effects* on future earnings in its own right) so it's no surprise that fewer and fewer of its members are buying homes.

Though the above graph is a bit skewed because of its short time-window and by the impact of the housing-bubble (much more on that in the future) the trend is clear.  Young people can't afford to buy homes whether they want to or not (and certainly not in the major urban centers where they are flocking). There are also no indications that this trend will change anytime soon, meaning a lot of people will be looking for roommates in the coming years. (So get ready for a lot more Friends-reboots or, if you like, the real thing.)

Which brings us to the central paradox of millennials and increasing rent - they are partly to 'blame' for it but they are also victims of it

In fact, according to this report, nearly 50% of 25-34 year olds are cost burdened (30%+ of their income goes to rent) while nearly 25% are severely cost burdened (50%+ of their income goes to rent). Add student debt and the bummer parade continues. (And this post was supposed to be a breezy Saturday morning hot take....)

The fact that the largest segment of the US workforce is so rent and debt burdened has major implications for the economy let alone for urban policy makers. How to address the immediacy of the epidemic while incorporating the long term demographic trends present in this census data will call for innovative policy and market solutions (some related to housing and a lot not-related to housing), which as of this writing have not materialized. We'd better hope millennials have a larger say sooner than later.

*link originally on whitehouse.gov but updated as of 6/26/18. Thanks to A. Gryskho