This blog is of course inspired in part by living in one of the world’s most expensive real estate markets where double-wides can cost a million dollars, but it is also situated in time, and as the blog in its eighth year is still called Time Tells, let us think about homeownership in time.
The idea of homeownership and the financial mechanisms to achieve it were a key to the economics of the 20th century, when the growth of the middle class and a consumer economy became the lion’s share of GDP, especially in the States. There are innumerable studies that also link homeownership to things like family and economic stability, rising real estate values, and other attributes of the growth of the middle class. And the phenomenon has spread beyond the United States to other parts of the developing world, although never with the market saturation seen stateside.
The roots of the obsession with homeownership and our economic dependence on it go back to the 19th century Industrial Revolution, when, for the first time, we separated work from home on a grand scale and had to invent a whole new culture of domesticity (and unnaturally restricted gender roles) to support a new economic geography. Men went to work and women stayed home. This was a new thing, and a literature and an art had to develop to support this innovative cultural frontier.
As the middle class came into existence and expanded, the importance of domestic architecture grew correspondingly. It had to be tranquil, conducive to family, a respite from the smoky reality of factory and office. Even the crowded urban tenements, constantly being reformed throughout the 19th century, kept adding elements of middle class respectability. My Fair Lady may focus on the costumes, but that “middle-class respectability” was also about architecture interior and exterior.
An old college friend with considerable financial expertise told me recently that it made no economic sense to buy a house in California. While he relented after years to domestic pressure (the cultural construct outlives the economic rationale) I took his words to heart. And I also thought about what Time Tells: homeownership means a fixed location, which makes sense for an industrial economy where you might comceivably have one job in one place for an entire career. It makes sense when fixed assets like factories remain in place. But in the fluid global knowledge economy of the 21st century the average worker must be trained for 20 years instead of 8 or 12. That same worker will need to be retrained 3 or 4 times over their lifetime and need to relocate 4 to 6 times.
In SO many ways we are SO over the middle class of the 20th century so why on earth would we tie ourselves to a mortgage and a fixed location? Culture of course. It outlasts economic rationale. And of course the massive suite of U.S. Government support of homeownership, extending from a host of 1930s financing mechanisms (including the dramatic reduction of down payments from 50% of value) to the ongoing deductibility of mortgage interest has extended the economic benefits of homeownership well beyond the larger economic rationale. Will these subsidies shift in the coming years as we recognize the desirability of a more fluid workforce in a more fluid economy or will the pressures of political support (great to have voters fixed in place!) override the rationale? We shall see.
All of this thinking about the (relatively recent) history of homeownership was inspired by a recent study by David G. Blanchflower of Dartmouth and Andrew J. Oswald of the University of Warwick, which argued that “areas with high levels of homeownership are more likely to stifle innovation and job creation.” Why? Labor mobility, discussed above, was a major factor. Zoning was also a factor, a much longer discussion we must save for another day. Silicon Valley – a crucible of innovation for two generations – is pretty far from Warwick, but its never-ending blast furnace of real estate values may well be the exception that proves the rule: the one place where home values defy history and continue to go up, fueled by the churn of knowledge workers. Or?