The Cul-de-Sac Syndrome and the Future of Housing
By John F. Wasik
Author, The Cul-de-Sac Syndrome: Turning Around the
Unsustainable American Dream (Bloomberg Press, 2009), www.culdesacsyndrome.com
How did the
Much of
what happened in this flood of exuberant optimism did not just happen overnight.
The underlying causes of the debacle have been ingrained in Western culture for
almost half a millennium, myths that came to full blossom precisely at a time
when Americans’ view of themselves, their post 9/11 security and their shaky financial
future was being tested like never before.
As it
stands now, the housing bust may shake out as one of the biggest financial blow-ups in history, rivaling the Great Depression
as more than $4 trillion in wealth evaporated. A bubble where demand exceeded
realistic economic fundamentals was triggered by a number of uniquely American
cultural values, desires and economic shortcomings. Millions entered a
financial cul-de-sac during this period of irrational exuberance. It may take
years for them to escape from this dead end.
The stereotypical
villains in this story have been Wall Street bankers, the government and greedy
participants from speculating “flippers” to the Federal Reserve. Although
there’s plenty of blame to spread around when it comes to who was motivated by
pure avarice or criminal exploitation, much of that picture has been
illuminated. Those who thought they would profit handsomely have already been
exposed, have taken their losses and are well known to anyone following this
debacle. It’s far too easy, though, to point fingers at the purveyors of the
usual human excesses. Something deeper and more profound triggered this crisis,
something that lurks at the core of the American experience.
The nature
of the American Dream – and what it has cost us – is what this book explores.
How did we come to think that each home should be a worthy investment that
propelled millions to leverage beyond their ability to pay? In an age of
burgeoning info-technology, why are we still building homes with the latest 19th-century techniques? What
was the market behavior that drove homeowners into subprime loans and moving
ever further out from jobs and cities? How did we come up with this idea that we
should “buy as much house as we could afford?”
We’ve
gotten stuck in an unsustainable cul-de-sac. After following the bubble and its
aftermath for the past seven years as a personal finance columnist for
Bloomberg News, I’ve gained some insights into urban planning, resource
depletion, homebuilding techniques and economics that are disturbingly critical
of the American dream of homeownership. I am more intrigued at how
How do we heal this syndrome? Even if
the home market superficially recovers with higher prices, home starts and
sales, there are some deep-seated problems that will haunt future generations
if we don’t correct them.
Doubtless, it had been a great run.
From 2000 to 2006,
Was there something about the role of
the home in American culture that convinced millions in a relatively short
period of time that they could win the lottery just by taking out a mortgage?
Could they suddenly re-invent themselves as passive investors and successful
speculators who could ride the treacherous waves of the bond market, Wall
Street’s propensity for bundling securities like frayed pieces of fabric and the property markets?
I submit that we need to do nothing
less than reinvent the American Dream. Homes were unaffordable to begin with
for nearly half the population. We can build them cheaper in factories within
environmentally sound technologies. In the process, we can create millions of
jobs and export technologies.
What about the communities that
embraced the ever-expanding American home? What will enable a metropolitan area
to grow in an age of expensive energy, rising taxes, constrained resources and
an aging population? There are a host of approaches that I’ve culled from
leading thinkers, research organizations and environmental groups.
· De-Link Property Taxes from School Funding and Local Development. In a handful of areas, this has been
done. The key is to provide a diversified source of school and infrastructure
funding from local, regional, state and federal sources. This will help address
the reason why families move ever further out from central cities to find
better schools and housing values. Educational quality simply needs to improve
in every school district if
· Prioritize Transportation Funding. Channel the majority of federal transportation
subsidies into public transportation and road and infrastructure repairs.
Rebuild the bridges, overpasses, grade crossings and roads we have now. Direct
a greater proportion of federal dollars into urban light rail, zero-emission
buses, trails, public transit, bike paths and inter-city high-speed trains.
Provide funding to new communities that emphasize grid layouts to minimize
street traffic. Minimize the building of high-speed, multi-lane highways.
Provide tax incentives and financing for transit-oriented developments that are
within walking distance of public transportation.
· Create Model Zoning Codes. This can be done on the local, county and state level. Allow
for mixed-use zoning that encourages pedestrian and bike traffic and
discourages sprawl while promoting green buffer zones. There should be model
ordinances on the books for areas that want to create livable, walkable and
bikeable communities.
·
· Create Green Jobs, Particularly in Blighted Areas. Millions of jobs can be created to
refurbish sub-standard housing, installing energy appliances, building public
transportation and retrofitting buildings. According to the Apollo Alliance,
for every $1 billion invested in public transportation, 47,500 jobs are
supported. Wind power creates 2.77 jobs for every megawatt produced; solar
photovoltaic manufacturers generate 7.254 jobs. A comprehensive energy program
should mandate all new buildings follow national efficiency guidelines and
provide as much funding that was invested in the Space Race of the 1960s to
carbon-neutral energy technologies. A tax on carbon emissions on every level –
industrial, commercial and residential – will finance this research and
development. In addition, take away the $47 billion in subsidies to the oil and
coal industries and invest it in clean energy and building research and tax
credits.
· Trim Real Estate Tax Breaks. Write-offs for mortgage interest, property taxes and capital
gains distort and artificially inflate home prices. It effectively provides
subsidies for those in the most expensive areas, ranging from $26,285 per
owner-occupied unit in the
· Fund a Smart Grid. Provide the necessary funding to update the electrical grid for this
century. Ideally, the grid should be able to respond automatically to power surges
without breakdowns. Supplement the grid with substantial investments in clean
energy and modern electrical storage. Mandate that utilities provide services
to tell customers when off-peak power is available and provide tax incentives
for homeowners who want to create their own clean power supplies. Require net
metering and buy-back of home-generated electricity. Enhance the tax credit
package to a 20-year horizon for those who want to invest in clean energy
production. De-couple utility industry profits from sales through tax credits.
Reverse the paradigm: the less power they sell through energy-conservation
measures, the more money they can
make.
· Create Private Incentives for More Affordable Housing.
Mandate that new developments offer a variety of housing by size and
price, including rentals and high-density townhomes. When home prices rise by
$1,000, another 217,000 are priced out of purchase. Offer builders tax breaks
for keeping homes under 3,000 square feet and increasing density.
· Personalized, National Health Care. American mobility is largely based on employment.
Millions not only want a better job with higher wages, they want freedom from
catastrophic health expenses. The only way to achieve this is to de-link health
coverage from employment (and the tax breaks provided to employers for offering
health care). In a personalized, national program, the government can contract
with private companies who bid for the business to underwrite policies that
cover the entire country. This will enable people to be more productive, take
any kind of employment and move wherever they want. It will indirectly help
housing because Americans won’t be locked into communities. They may be able to
move to less-populous areas and pursue telecommuting. A guaranteed universal
savings plan for all Americans is also essential.
That brings us to the American
project itself, which dictated that ordinary homeowners could indeed start over
as housing investors. Investment homes would become not only their retirement
fund but their college savings vehicle. Castles could be profitable as long as
land became scarcer. After all, they weren’t making any more of it.