I have been taken with the writings and musings of Richard Florida lately. Check out his blog at www.creativeclass.com. In a recent article he wrote for The Atlantic Monthly, entitled “How the Crash Will Reshape America”, Florida opines on how we got here, trends we should be aware of, and the opportunities that await.
Florida argues that homeownership should be removed from its “privileged place at the center of the U.S. economy”. Tax breaks and artificially low interest rates encourage people to buy more home than they otherwise would. The result is that less is spent in other areas of the economy that would drive long term growth and prosperity. When more is spent on housing, by individuals and government in the form of tax breaks and low interest rates, less is spent / invested in medical technology, software or alternative energy solutions.
Given that people need to be more mobile to respond to career opportunities, Florida believes that the government should encourage renting rather than buying. In addition, research has shown that homeowners are generally no happier than renters, and experience no less stress and no greater self-esteem.
I have made this point before but it bears repeating, we have to stop equating homeownership with the “pursuit of happiness’ aspect of the American Dream.
There are some intangible and social benefits to homeownership. Pride in one’s home translates into caring for one’s neighborhood and ties to specific location aid civic loyalty and involvement. However, these benefits come at a great cost to the overall economy and our individual well being.
The economist Andrew Oswald claims his research shows that areas with higher homeownership suffer higher unemployment. (This makes sense, if you can’t leave your home to go where the work is, you may not work.) Oswald shows that homeownership is a more important predictor of unemployment than unionization rates or quantity or quality of welfare benefits available.
A side note on unionization. I believe there was a time and a place for unions and that time has passed. In Ohio where I live, we are not competing with China or South Korea for jobs, we are competing with Texas, Alabama and the other traditionally ‘open shop’ or ‘right to work’ states of the American South. Even though the percentage of unionized workers has diminished over the years, their legacy and power is enough to discourage new investment in heavily unionized areas.
The truth is that homeownership links people to declining economic areas and forces them into unemployment or long term under-employment. Admittedly, growing up and living in the rust belt of America may have left me jaded. However, what about the boom towns of the last decade? Who will live in the vacant housing stock in Nevada, Arizona or Florida if the jobs are not there?
Florida goes on to mention that as homeownership rates have risen, ‘our society has become less nimble’. Americans were nearly twice as likely to move in the ‘50’s and ‘60’s than they are today. During 2008, fewer Americans moved as a percentage of the population than at any time since the 1940’s. Many homeowners are stuck where they are, regardless of where gainful employment may be available.
I my opinion, the American Dream is about the opportunity to peruse your highest and best work or achievement. Homeownership as a central tenant of America’s economic and social paradigms is inconsistent with 21st century reality and individual pursuits of happiness. So what is the solution?
The government should make it easier for people to leave their homes behind and start fresh where they want to live. Private investors should be brought into take over and manage these properties at today’s market value. On the other side, investors need to make rental property available to new workers in the next likely ‘boom’ towns – places like Silicon Valley, Boulder, Austin and the Carolina’s. Individuals, employers, the government, and private real estate investors will need to work together to create a new housing standard where people are encouraged to rent if that is in their best interest.
A new housing and economic paradigm with a greater emphasis on serving those who should rent rather than buy will help the individual and benefit the overall economy. Fortunately, these trends bode well for landlords and real estate investors. It will not be easy, and it will be messy. But honestly, who believes we are going back to the boom years of 2002 to 2005? Now is the time to buy while foreclosures are plentiful – it is also the time to hold onto rental property in anticipation of a cultural shift that is happening as we speak.
It is a great time to be a real estate investor. The opportunities are becoming clearer and clearer as we move through this housing and lending crises. Things are starting to get interesting right about now.
