The Wall Street Journal
LIFE & STYLE
AUGUST 15, 2009, 8:20 P.M. ET
The New American Dream: Renting
It's time to accept that home ownership is not a realistic goal for many
people and to curtail the enormous government programs fueling this
ambition. By Thomas J. Sugrue
'A man is not a whole and complete man," wrote Walt Whitman, "unless he
owns a house and the ground it stands on." America's lesser bards sang
of "my old Kentucky Home" and "Home Sweet Home," leading no less than
that great critic Herbert Hoover to declaim that their ballads "were not
written about tenements or apartments…they never sing about a pile of
rent receipts." To own a home is to be American. To rent is to be
something less.
Every generation has offered its own version of the claim that
owner-occupied homes are the nation's saving grace. During the Cold War,
home ownership was moral armor, protecting America from dangerous
outside influences. "No man who owns his own house and lot can be a
Communist," proclaimed builder William Levitt. With no more reds hiding
under the beds, Bill Clinton launched National Homeownership Day in
1995, offering a new rationale about personal responsibility. "You want
to reinforce family values in America, encourage two-parent households,
get people to stay home?" he said. George W. Bush similarly pledged his
commitment to "an ownership society in this country, where more
Americans than ever will be able to open up their door where they live
and say, 'welcome to my house, welcome to my piece of property.'"
Surveys show that Americans buy into our gauzy platitudes about the
character-building qualities of home ownership—at least those who still
own them. A February Pew survey reported that nine out of 10 homeowners
viewed their homes as a "comfort" in their lives. But for millions of
Americans at risk of foreclosure, the home has become something else
altogether: the source of panic and despair. Those emotions were on full
display last week, when an estimated 53,000 people packed the Save the
Dream fair at Atlanta's World Congress Center. Its planners, with the
support of the Department of Housing and Urban Development, brought
together struggling homeowners, housing counselors, and lenders,
including industry giants Bank of America and Citigroup, to renegotiate
at-risk mortgages. Georgia's housing market has been devastated by the
current economic crisis—338,411 homes in the Peachtree state went into
foreclosure in May and June alone.
Atlanta represents the current housing crisis in microcosm. Since the
second quarter of 2006, housing values across the United States have
fallen by one third. Over a million homes were lost to foreclosure
nationwide in 2008, as homeowners struggled to meet payments. The number
of foreclosures reached an all-time record last month—when owners of one
in every 355 houses in the country received default or auction notices
or were seized by creditors. The collapse in confidence in securitized,
high-risk mortgages has also devastated some of the nation's largest
banks and lenders. The home financing giant Fannie Mae alone held an
estimated $230 billion in toxic assets. Even if there are signs of hope
on the horizon (home prices ticked upward by 0.5% in May and new housing
starts rose in June), analysts like Yale's Robert Shiller expect that
housing prices will remain level for the next five years. Many
economists, like the Wharton School's Joseph Gyourko, are beginning to
make the case that public policies should encourage renting, or at least
put it on a level playing field with home ownership. A June 2009 survey
commissioned by the National Foundation for Credit Counseling, found a
deep-seated pessimism about home ownership, suggesting that even if
renting doesn't yet have cachet, it's the only choice left for those who
have been burned by the housing market. One third of respondents don't
believe that they will ever be able to own a home. And 42% of those who
once purchased a home, but don't own one now, believe that they'll never
own one again.
Some countries—such as Spain and Italy—have higher rates of home
ownership than the U.S., but there, homes are often purchased with the
support of extended families and are places to settle for the long term,
not to flip to eager buyers or trade up for a McMansion. In France,
Germany, and Switzerland, renting is more common than purchasing. There,
most people invest their earnings in the stock market or squirrel it
away in savings accounts. In those countries, whether you are a renter
or an owner, houses have use value, not exchange value.
For most Americans, until the recent past, home ownership was a dream
and the pile of rent receipts was the reality. From 1900, when the
census first started gathering data on home ownership, through 1940,
fewer than half of all Americans owned their own homes. Home ownership
rates actually fell in three of the first four decades of the 20th
century. But from that point on forward (with the exception of the
1980s, when interest rates were staggeringly high), the percentage of
Americans living in owner-occupied homes marched steadily upward. Today
more than two-thirds of Americans own their own homes. Among whites,
more than 75% are homeowners today.
Yet the story of how the dream became a reality is not one of
independence, self-sufficiency, and entrepreneurial pluck. It's not the
story of the inexorable march of the free market. It's a different kind
of American story, of government, financial regulation, and taxation.
We are a nation of homeowners and home-speculators because of Uncle Sam.
It wasn't until government stepped into the housing market, during that
extraordinary moment of the Great Depression, that tenancy began its
long downward spiral. Before the Crash, government played a minuscule
role in housing Americans, other than building barracks and constructing
temporary housing during wartime and, in a little noticed provision in
the 1913 federal tax code, allowing for the deduction of home mortgage
interest payments.
Until the early 20th century, holding a mortgage came with a stigma. You
were a debtor, and chronic indebtedness was a problem to be avoided like
too much drinking or gambling. The four words "keep out of debt" or "pay
as you go" appeared in countless advice books. As the YMCA told its
young charges, "If you can't pay, don't buy. Go without. Keep on going
without." Because of that, many middle-class Americans—even those with a
taste for single-family houses—rented. Home Sweet Home didn't lose its
sweetness because someone else held the title.
In any case, mortgages were hard to come by. Lenders typically required
50% or more of the purchase price as a down payment. Interest rates were
high and terms were short, usually just three to five years. In 1920,
John Taylor Boyd Jr., an expert on real-estate finance, lamented that
"increasing numbers of our people are finding home ownership too
burdensome to attempt." As a result, there were two kinds of homeowners
in the United States: working-class folks who built their own houses
because they couldn't afford mortgages and the wealthy, who usually paid
for their places outright. Even many of the richest rented—because they
had better places to invest than in the volatile housing market.
The Depression turned everything on its head. Between 1928, the last
year of the boom, and 1933, new housing starts fell by 95%. Half of all
mortgages were in default. To shore up the market, Herbert Hoover signed
the Federal Home Loan Bank Act in 1932, laying the groundwork for
massive federal intervention in the housing market. In 1933, as one of
the signature programs of his first 100 days, Frankin Roosevelt created
the Home Owners' Loan Corporation to provide low interest loans to help
out foreclosed home owners. In 1934, F.D.R. created the Federal Housing
Administration, which set standards for home construction, instituted
25- and 30-year mortgages, and cut interest rates. And in 1938, his
administration created the Federal National Mortgage Association (Fannie
Mae) which created the secondary market in mortgages. In 1944, the
federal government extended generous mortgage assistance to returning
veterans, most of whom could not have otherwise afforded a house.
Together, these innovations had epochal consequences.
Easy credit, underwritten by federal housing programs, boosted the rates
of home ownership quickly. By 1950, 55% of Americans had a place they
could call their own. By 1970, the figure had risen to 63%. It was now
cheaper to buy than to rent. Federal intervention also unleashed vast
amounts of capital that turned home construction and real estate into
critical economic sectors. By the late 1950s, for the first time, the
census bureau began collecting data on new housing starts—which became a
leading indicator of the nation's economic vitality.
It's a story riddled with irony—for at the same time that Uncle Sam
brought the dream of home ownership to reality—he kept his role mostly
hidden, except to the army banking, real-estate and construction
lobbyists who rose to protect their industries' newfound gains Tens of
millions of Americans owned their own homes because of government
programs, but they had no reason to doubt that their home ownership was
a result of their own virtue and hard work, their own grit and
determination—not because they were the beneficiaries of one of the
grandest government programs ever. The only housing programs prominently
associated with Washington's policy makers were underfunded, unpopular
public housing projects. Chicago's bleak, soulless Robert Taylor Homes
and their ilk—not New York's vast Levittown or California's sprawling
Lakewood—became the symbol of big government.
Federal housing policies changed the whole landscape of America,
creating the sprawlscapes that we now call home, and in the process,
gutting inner cities, whose residents, until the civil rights
legislation of 1968, were largely excluded from federally backed
mortgage programs. Of new housing today, 80% is built in suburbs—the
direct legacy of federal policies that favored outlying areas rather
than the rehabilitation of city centers. It seemed that segregation was
just the natural working of the free market, the result of the sum of
countless individual choices about where to live. But the houses were
single—and their residents white—because of the invisible hand of
government.
But by the 1960s and 1970s, those who had been excluded from the postwar
housing boom demanded their own piece of the action—and slowly got it.
The newly created Department of Housing and Urban Development expanded
home ownership programs for excluded minorities; the 1976 Community
Reinvestment Act forced banks to channel resources to underserved
neighborhoods; and activists successfully pushed Fannie Mae to
underwrite loans to home buyers once considered too risky for
conventional loans. Minority home ownership rates crept upward—though
they still remained far behind whites. Even at the peak of the most
recent real-estate bubble, just under 50% of blacks and Latinos owned
their own homes. It's unlikely that minority home ownership rates will
rise again for a while. In the last boom year, 2006, almost 53% of
blacks and more than 47% of Hispanics assumed subprime mortgages,
compared to only 26% of whites. One in 10 black homeowners is likely to
face foreclosure proceedings, compared to only one in 25 whites.
During the wild late 1990s and the first years of the new century, the
dream of home ownership turned hallucinogenic. The home financing
industry—at the impetus of the Clinton and Bush administrations—engaged
in the biggest promotion of home ownership in decades. Both pushed for
public-private partnerships, with HUD and the government-supported
financiers like Fannie Mae serving as the mostly silent partners in a
rapidly metastasizing mortgage market. New tools, including the
securitization of mortgages and subprime lending, made it possible for
more Americans than ever to live the dream or to gamble that someone
else would pay them more to make their own dream come true. Anyone could
be an investor, anyone could get rich. The notion of home-as-haven,
already weak, grew even more and more removed from the notion of
home-as-jackpot.
And that brings us back to those desperate homeowners who gathered at
Atlanta's convention center, having lost their investments, abruptly
woken up from the dream of trouble-free home ownership and endless
returns on their few percent down. They spent hours lined up in the hot
sun, some sobbing, others nervously reading the fine print on their
adjustable rate mortgage forms for the first time, wondering if their
house is the next to go on the auction block. If there's one lesson from
the real-estate bust of the last few years, it might be time to downsize
the dream, to make it a little more realistic. James Truslow Adams, the
historian who coined the phrase "the American dream," one that he
defined as "a better, richer, and happier life for all our citizens of
every rank" also offered a prescient commentary in the midst of the
Great Depression. "That dream," he wrote in 1933, "has always meant more
than the accumulation of material goods." Home should be a place to
build a household and a life, a respite from the heartless world, not a
pot of gold.
—Thomas J. Sugrue is Kahn professor of history and sociology at the
University of Pennsylvania. He is writing a history of real estate in
modern America.
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