Your father was right about a few things, and one of them is the timeless value of real estate. We know homelessness is rampant, and a growing problem harder and harder to ignore. (Even in D.C., an estimated 120 “tent cities” of homeless people have sprung up in parks, green spaces, and underpasses, some just blocks from the White House and Capitol.) It would cost an estimated $20 billion to end all that, but priorities of the military industrial complex are to spend three, four times that amount on weapons to ‘weaken Russia’ instead.
How about the rest of us ‘near-unhoused’ or the Dream Hoarding top 20% who can still consider actually buying shelter?
For starters, the utility of houses as pure investments has never been more obvious. U.S. home values have risen 36% since 2020—an increase twice as large as any other two-year leap on record. At $440,000, the median house is now worth more than half the cost of an average retirement. Time your downsizing right and security in old age is half won.
Skeptics often point to the 2007 crash as a warning, but even that looks like a divot on a long, upward-sloping road. Nobody ever knows where and when the market will turn down. But where would you rather hold your life savings today: stocks or a four-bedroom ranch on Seabreeze Terrace?
The irony is that the housing market’s dependability comes from a source that cold financial logic would discount. For many Americans, the desire to own the right home is almost limitless. So people often set their hearts on the house they want and then let every other financial decision fall into place around it. That helps keep prices ever rising.
Kenneth Jackson, a historian at Columbia, chronicles the side of homeownership that has little to do with personal finance and even less to do with day-to-day living. His 1985 book, “Crabgrass Frontier: The Suburbanization of the United States,” describes how Americans for 200 years have sought homes as a way to satisfy their tastes and aspirations. When homes are hard to afford, millions miss out on a key marker of success.
He identifies Brooklyn Heights as the oldest true commuter town. Starting in 1814, daily steamboat service to Manhattan let thousands of people plant themselves outside the city. The daily part of it is key, describing how novel it was to travel miles between home and work each morning and night. Sleepy suburbs like Brooklyn were a kind of respite from the city, which was more than overcrowded by that time. Trips to and from work weren’t seen as a hassle. For early commuters, the daily change of scenery was a dream come true.
The ferries were followed by waves of more-efficient transportation methods that allowed suburbs to expand rapidly. The story is mostly technological. Largely forgotten innovations, such as rail-guided horse cars in the 1850s, let speculators quickly develop homes in areas that would have been impractical before. The upper classes were first to the suburbs, and the working classes were last. But both groups tended to buy homes in freshly built neighborhoods as they went.
America became a truly suburban nation, and a majority-homeowning one, after federal highways and affordable cars carried most of the middle class outside of city boundaries. Land was cheap, and access to it was cheap too because we had the best transportation system in the world of the period after World War II. And it was a huge decision to fund the roads that did it with general taxes, instead of user fees. From 1940 to 1960 the share of households owning their own homes rose from 44% to 62%, and it’s remained in the 60s ever since.
Government played a supporting role in the home-buying rush, first getting involved during the Great Depression. Federal agencies offered loans to more than 1 in 10 home buyers between 1932 and 1935, an effort that spanned the presidencies of Herbert Hoover and Franklin D. Roosevelt. Like much of the New Deal, the policy was meant in part to relieve anticapitalist pressure that built up during the Depression years. You can’t be a communist and a homeowner. It’s like you’re too busy to go have a demonstration. “The trouble with socialism is that it takes up too many evenings,” as Oscar Wilde supposedly opined.
Washington’s loan specifications helped standardize the low-interest 30-year mortgage, which laid out a welcome mat for millions of new buyers. With the market growing steadily, it also encouraged those buyers to dream big. All of a sudden you can stretch for this house because the value will rise as you pay, and the amount that you’re paying will become a better deal. The economy boomed after the war, affordable loans were there for the taking, and suburbs multiplied. In many cities all but the poorest residents decamped for spacious homes at the first opportunity.
This buying spree was often closed off to blacks. When they were selling those Levittown housing units, they were certainly antiblack, describing the iconic postwar suburb on Long Island. “Crabgrass Frontier” contains an extensive history of redlining: the practice of denying loans to borrowers or areas marked as undesirable, especially on a racial basis.
What about white flight? You’d have to be blind to think it’s not a factor. But Seattle and Portland and Minneapolis are not that different from Birmingham and Memphis. In other words, the same suburbanization took place even though the black populations are much, much smaller in those places. So race can’t be the only explanation for this.
In either case, the black homeownership rate eventually rose steeply and now stands at 45%, owing in part to a shift toward the suburbs that continues today. Immigrants to the U.S. of all races also trail native-born whites in homeownership, though the gap has shrunk markedly. The dream of a single-family home seems to cross ethnic, cultural and class lines as much as any preference in 21st-century America.
That’s why it’s alarming that the dream is fading for many Americans. Home prices have more than recovered since the last crash, but the homeownership rate hasn’t, which supports the idea that more people than usual are being locked out by the cost. There’s still plenty of people knocking on the door who would love to get in. The broad price increases have widened the wealth gap between those who have already bought homes and others who hope to buy.
One irony is the impact that the Covid-19 pandemic has had on the market. In theory working from home could have helped expand affordability—letting people live further from pricey city centers the same way horse cars, highways and other technologies did for past generations. Yet movers have congregated in the same formerly lower-cost areas, quickly driving up prices in places like Tampa, Fla., and Boise, Idaho.
We still need to see others face-to-face—why few people are willing to move somewhere truly off the grid. Even though there are times that nobody wants to go to the train, or get out of bed, there’s something about a Zoom conference that doesn’t quite get it. Spending more time at home has also increased buyers’ willingness to pay for more space, driving prices higher still.
Cities and towns can change their policies to help people who are priced out of tight markets. Economics 101 would say the prices are too high, so raise the damn supply. But what we do is we build up barriers. Zoning usually is how it’s done. Most buyers will always pursue the same appealing areas, so we’ve got to lower the real price of housing by making it easier for developers to build more homes there.
Previous generations found ways to buy even while markets were restrictive. The last chapter of “Crabgrass Frontier” describes the rise of affordable “exurbs,” far from established cities and suburbs, as mortgage interest rates soared in the early 1980s. Urban reclamation increased in the same period, as middle-class buyers returned to downtrodden neighborhoods like Brooklyn’s Red Hook.
Part of the richness of America is that everybody doesn’t have to make the same choice. Once it became necessary to seek cheaper locales, those places soon became popular and even fashionable.
In the short term, homeowners and prospective buyers alike will keep eyeing the market, wondering if a big correction is on the way. If it comes, history suggests that it’ll be brief. The big rule since World War II has been that houses are going to appreciate. Whether prices stay high or dip then rebound, Americans seeking the perfect home for cheap are going to have to keep dreaming.