How the Crash Will Reshape America
Richard Florida, The Atlantic, March 2009, p44
The economic recession in which we currently find ourselves is the result of bad public policy and an embarrassing culture of greed, consumption and self. Hopefully we will learn from our folly and reshape a better America. The effect on population distribution of what will be a long recession will, I believe, put us in a much stronger position to innovate, produce and conserve in the future. It will also be better for the environment, our collective intelligence and our psychological well-being. We need to be a more urban, producing, saving and renting nation.
This essay in the current issue of The Atlantic magazine(March 2009) is insightful and important. Here are a few of my favorite excerpts.
To an uncommon degree, the economic boom in these cities was propelled by housing appreciation: as prices rose, more people moved in, seeking inexpensive lifestyles and the opportunity to get in on the real-estate market where it was rising, but still affordable. Local homeowners pumped more and more capital out of their houses as well, taking out home-equity loans and injecting money into the local economy in the form of home improvements and demand for retail goods and low-level services. Cities grew, tax coffers filled, spending continued, more people arrived. Yet the boom itself neither followed nor resulted in the development of sustainable, scalable, highly productive industries or services. It was fueled and funded by housing, and housing was its primary product. Whole cities and metro regions became giant Ponzi schemes.
What’s amazing is how few people saw the rise and thinning of the bubble. In central Florida, where my father lives, many of the new houses were purchased by the construction workers who built them. When everybody has a house and construction stops and workers are no longer needed how are mortgages going to be paid? I scratched my head for years. Can I say, “I told you so?”
For the generation that grew up during the Depression and was inclined to pinch pennies, policies that encouraged freer spending were sensible enough—they allowed the economy to grow faster. But as younger generations, weaned on credit, followed, and credit availability increased, the system got out of hand. Housing, meanwhile, became an ever-more-central part of the American Dream: for many people, as the recent housing bubble grew, owning a home came to represent not just an end in itself, but a means to financial independence.
On one level, the crisis has demonstrated what everyone has known for a long time: Americans have been living beyond their means, using illusory housing wealth and huge slugs of foreign capital to consume far more than we’ve produced. The crash surely signals the end to that; the adjustment, while painful, is necessary.
The housing bubble was the ultimate expression, and perhaps the last gasp, of an economic system some 80 years in the making, and now well past its “sell-by” date. The bubble encouraged massive, unsustainable growth in places where land was cheap and the real-estate economy dominant. It encouraged low-density sprawl, which is ill-fitted to a creative, postindustrial economy. And not least, it created a workforce too often stuck in place, anchored by houses that cannot be profitably sold, at a time when flexibility and mobility are of great importance.
So how do we move past the bubble, the crash, and an aging, obsolescent model of economic life? What’s the right spatial fix for the economy today, and how do we achieve it?
The solution begins with the removal of homeownership from its long-privileged place at the center of the U.S. economy. Substantial incentives for homeownership (from tax breaks to artificially low mortgage-interest rates) distort demand, encouraging people to buy bigger houses than they otherwise would. That means less spending on medical technology, or software, or alternative energy—the sectors and products that could drive U.S. growth and exports in the coming years. Artificial demand for bigger houses also skews residential patterns, leading to excessive low-density suburban growth. The measures that prop up this demand should be eliminated.
If anything, our government policies should encourage renting, not buying. Homeownership occupies a central place in the American Dream primarily because decades of policy have put it there.
Kirsten and I sold our home in late 2007. It was on the market for more than a year and we lowered the price several times. I’m glad we got out when we did. I vowed to never own another home. I like being a renter. I don’t have to shovel the snow or fix the toilet. And I can leave whenever I want. To those who secretly (and not-so-secretly) called me a fool for rejecting home ownership I say, “I told you so”. How does an underwater mortgage feel? How does not being able to accept that job offer in another town feel?
What will this geography look like? It will likely be sparser in the Midwest and also, ultimately, in those parts of the Southeast that are dependent on manufacturing. Its suburbs will be thinner and its houses, perhaps, smaller. Some of its southwestern cities will grow less quickly. Its great mega-regions will rise farther upward and extend farther outward. It will feature a lower rate of homeownership, and a more mobile population of renters. In short, it will be a more concentrated geography, one that allows more people to mix more freely and interact more efficiently in a discrete number of dense, innovative mega-regions and creative cities. Serendipitously, it will be a landscape suited to a world in which petroleum is no longer cheap by any measure. But most of all, it will be a landscape that can accommodate and accelerate invention, innovation, and creation—the activities in which the U.S. still holds a big competitive advantage.
Which is alright by me. I just wish making the change didn’t require such a devastating recession.