The End of Home Ownership

Question: How will the economic downturn change the face of \r\nhome ownership? 

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

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

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

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

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

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

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

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

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

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

Question:\r\n How can the government respond to the foreclosure crisis most \r\neffectively? 

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

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

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

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

Recorded on April 27, 2010
Interviewed by Jessica Liebman

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

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