The End of Home Ownership

Urbanist and Author
Forget the "American Dream" for home ownership. We need a system for a 21st Century that fits our flexible and mobile economy.
  • Transcript


Question: How will the economic downturn change the face of home ownership? 

Richard Florida: Well, it’s fascinatingly interesting to me about, that the role of home ownership and housing in the American dream. And in the book I say, “You know, there are really two American dreams.” Actually a student said this to me, he said, “You know, Professor Florida”—he wasn’t American, a Latin American guy— said, “I read somewhere that the American dream is about economic opportunity, but elsewhere I see it’s about owning a home, could those two things be in conflict?”

One of the things we’ve always done really well in America is during these resetting periods, during these crises, these remaking periods, of course, we’ve changed our infrastructure. Right, we build railroads during the first one, and subways and cable cars. During the second one, we built interstate highways, new power distribution systems and so forth, new ways of educating ourselves, mass public education early on, universities later. But we’ve always been able to change our housing system to suit our needs. 

During the first great reset in the 1870s, in the '80s, we moved lots of people off farms and into cities. Many of them were renters, some were owners, but that shift in our population and the shift in the way we house people from small, farming villages to major urban centers, was a big part of our growth. And then after World War II with suburbanization, we created a nation of homeowners. About 40 percent of Americans, maybe a little more, were homeowners before the war, after the war it went up to 60, and then at the pinnacle, nearly hit 70 percent. 

What we’re finding now though, is that era of home ownership, which so drive the suburban economic machine—really, when you think about it, it fed those industries. The auto industry, the steel industry, the chemical industry, the appliance industry, all those, all those industries that drove American greatness, were really facilitated by suburbanization. You bought the home, you had to fill it up with appliances, you had to buy a car, and then a second car, and then a car for the kids. So it drove the economic machine. Now that’s broken, I think. 

And it’s actually something I write about in the book, but I’ve been studying in great detail with my research team at the Martin Prosperity Institute very closely since. It seems to me that we went overboard in our approach to home ownership and when we actually looked at the data... This is so ironic, places with the highest levels of home ownership have low rates of growth; they tend to be older, lagging cities with older economic structures; they tend to be less innovative; they tend to have lower levels of human capital, of creative, economic activity; lower wages, lower incomes; and the people there have lower levels of well-being. 

The ones that have lower home ownership, they’re stronger economies, they’re more innovative, they’re higher wages, higher incomes. And I thought about this and it’s not only that those cities are more expensive, right? Los Angeles and New York and San Francisco and Seattle and Boston, they’re not only more expensive, so obviously fewer people can afford houses. Actually by having a lower level of homeownership, and that’s around 50 or 55 percent, where the big, the cities that have a lot have 80. It actually makes them quite fast and flexible. And I find this really interesting. If you lose your job in Detroit or Cleveland, you own your house: you’re stuck. You can’t even move to another part of Detroit or Cleveland for a job, never mind to a place that might have more economic opportunity on the east or west coast. You’re stuck and you’re stuck with that house and you can’t get rid of it and you have to pay for it. 

If you work in New York or Los Angeles or San Francisco and you lose your job, first thing you can do is downshift to a cheaper apartment, and if you need to move to a new region, when your lease ends, you can up and go. So I actually believe, the Urban Land Institute says we’re falling in home ownership. We’re going to come down to about, I think, they think, anywhere to about 62 percent, I think we’re going to go a little lower. I think a nice balance is about 55 percent, with the rest of the people renting. I do think we need to reinvent rental housing, though. I think the kind of rental housing we have now, where you go find a landlord on Craig’s List and you get a place and they don’t fix the windows and the dishwasher breaks and you’re doing it; that’s crazy. I think with all the condos that are vacant, in fact, we’re even seeing this in Miami. And I see this when I go to Miami, it’s actually my cycling route. I cycle down through the city and through the City of Miami, into Key Biscayne. You see all the condo towers that went bankrupt, that were distress sales, now being turned to rental. And what’s interesting is you’re renting from a real rental agency, the housing is nice and high quality, but it’s very affordable, lots of people are streaming back into downtown, empty nesters, young people, people with families, more street-level activity. 

I even imagine something more than that, where you could sign up with Acme Rental Company, or XYZ Rental Company, and if your job changes in New York, or San Francisco, Toronto where I live, and you want to be closer to where you work, you can switch apartments. Or if you transfer to the West Coast or the Midwest or wherever it is, San Francisco, Chicago, you can basically be part of that rental company’s units there. Some way, and I think with the excess inventory—according to one analysis, we now in the United States have 8 years, 103 months, of excess housing inventory; well, somebody’s got to do something with that. If companies over the course of the reset in an entrepreneurial fashion begin to roll that up, begin to provide mass rental housing, if you will, and what gives me—I talk to a lot of developers and I speak to developers' forums, I was just at the Urban Land Institute: multi-family housing is one place people are actually profitable in. 

But the thing is, every time we’ve changed in America, had a crisis, we’ve reinvented our housing system, and our housing finance system, and even now, I’m talking to public policy makers and decision makers in Washington who are really thinking this through, who are saying, you know, "We have gone overboard with home ownership, we have to dial back, and how do we reconfigure our housing and housing finance institutions and policies to encourage a better, more flexible form of housing, which is more in sync with the needs of an advanced economy. 

So I actually think, one of the hopeful rays of optimism I see, I think the United States may be out in front of this and it may be one of the first countries that is really rethinking what would be a housing, mortgage... housing finance system, rent-own system for a 21st Century flexible and mobile economy. 

Question: How can the government respond to the foreclosure crisis most effectively? 

Richard Florida: Most urban economists and smart housing economists and thinker urbanists are on this. We have to stop the unbelievable subsidy that we’ve provided for single-family home ownership. When you add up the tax incentives, the financial incentives, the subsidies to the secondary mortgage market institutions, the freeway subsidies, the highway subsidies, the infrastructure subsidies, it’s billions, hundreds of billions and trillions of dollars. And we have to stop that, we have to make our housing system more reflective of a market. And I think our public policy... I don’t want to say it has to favor rental, I don’t think we need a massive public policy. We just have to stop the madness in subsidizing home ownership and causing people, some people to make bad decisions. One of the things that brought on the crisis is there were "evil people on Wall Street doing all these bad things and everybody has the pitchforks out and they’re after them," but there are a lot of Americans who made really bad decisions. I find it just unbelievable how people would go and buy a house with nothing down and that they couldn’t afford. That’s not the way my parents brought me up. I live in Canada, I had to put 25 percent down, and Lord knows, if I tried to get up and walk away from my house in Toronto, they’d attach my wages for the rest of my life. I can’t just jingle mail the keys back in. 

So I think we do need a system that’s more responsible and a system that doesn’t create those crazy incentives. I tell the story, it was the "60 Minutes" show with this woman from Miami and they were asking her, she said she had five apartments that were under water, five condos. And they said, “How did you get five condos under water?” She said, “Well, only as a side thing, I’m an acupuncturist.” I mean, it’s unbelievable that a woman who’s an acupuncturist could walk in and have mortgages on five multi-million dollar condos and then say, “Well, I didn’t even think about the mortgages, that was a sideline, I do acupuncture.” Who would give somebody like that a loan? 

Now that madness has stopped, obviously. I think just thinking about a system that’s sensible... but obviously one of the big points of “The Great Reset,” is this: We can’t grow our economy, we can’t build new industries, whether that’s software, high tech, biotech, modern health care, gene therapy, we can’t move, build new industries and entertainment in media and the experiences, performance, we know a lot of the money to be made in the performances, people seeing performances, consuming live entertainment, even buying art, all of these experiential things are personal development, lifelong education, holistic health. If we’re spending, the average is about 55 percent of our income for housing and energy and transportation. And in some cities, it’s 75 percent plus and then you add in education costs, you add in health care costs, no wonder people went into debt! How are you going to build the industries of the future if you have no money to buy that stuff with? 

So one of the things “The Great Reset” is saying is that during the Depression and actually before that, we made agriculture a lot more efficient, we made food a lot cheaper. Herbert Hoover said "we have to have a car in every garage, a chicken in every pot." In order to get the car in every garage, we had to make agriculture cheaper, we employed most of our people in agriculture, now we employ 1 percent of our people in agriculture. Same thing with housing. We still have to house ourselves, we still need transportation, we still need cars, but they can’t consume 50, 60, 70, 80, 90 percent of household income. We need to free up space, free up budget, free up demand. That’s what that new way of life has to be. Less expensive, more efficient housing, less expensive, more efficient transit, less expensive, more efficient energy, that’s going to open up the space to grow a new knowledge and create a new economy and really power our growth into the future.

Recorded on April 27, 2010
Interviewed by Jessica Liebman