Why The Dream Declined April 7, 2013
The best single post on the decline of affordable housing that I have seen on one of my favorite sites, newgeography.com, is this by Roger Selbert. He most succinctly explains the reasons why the American dream of subsidized home ownership [discussed in Eric Abrahamson’s new book, Building Home] imploded in the 1970s despite the fact that the FHA, VA, Fannie Mae, Freddie Mac, and Federal Home Loan Bank, and all that other alphabet soup of agencies was not abolished or even cut. [The Howard Ahmanson of that book is not me but my father; I may be old, but I’m not that old.] Even before Howard Ahmanson Sr. died in 1968, according to Abrahamson, the rise of neighborhood opposition and local land use regulation meant that he could not build the kind of innovative communities Ahmanson might have desired to build. I call to witness the Ahmanson Ranch in Calabasas,a large public park where in the 1960s Howard Ahmanson hired none other than William Pereira, him of the original plan for Irvine fame, to design a planned city in that area. Needless to say, it was never built. [One problem even then was that the Ventura County line zigs across the ranch in such a way as to cut off the mesa, where the town center would be, from nearby Woodland Hills and Calabasas.]
A conference called No Place Like Home is being held in Anaheim on Monday, June 3. We are having people like Walter Russell Mead, Kevin Starr, D. J. Waldie, and Joel Kotkin presenting. I’ll admit I lament we don’t have Roger Selbert, author of the post, nor Peter Ganong, Daniel Shoag, Charles Hugh Smith, or Arnold King, all quoted in the link.
I wonder if the housing boom of the postwar ‘Great Compression’ years did not contain the seeds of its own destruction to begin with. If we perceive housing as an ‘investment’, houses, unlike farmland or commercial property, do not derive most of their value from their fertility or income producing capacity [the latter in the case of owner occupied homes]. They derive their value from what is around them. Just as the value of a currency depends on the government not printing too much of it, so homeowners came to perceive that the value of their investments partly depended on not too many new houses being ‘printed’. And, once they perceived that, the housing machine of the 50s and 60s began to shut down. Another important step was the Equal Credit Act of 1974. This gave two-income couples the right to use their combined incomes to outbid one-income couples for housing and loans; once a critical mass of wives worked, all wives must work. ‘Lump of labor’ is a fallacy; we have been able to create enough jobs [well, since 2007, a little less than enough] to employ all these new workers; but there is very much a ‘lump of land’. As they say in the real estate industry, they aren’t making any more land.
David Ricardo, in the early 1800s, predicted a dystopia in which the landowners of Britain would be able to charge more and more for their grain and their land as population grew; this was solved in 1846 by the repeal of the Corn Laws [remember that ‘corn’ means ‘grain’ in general, not ‘corn’, in British English], by which Britain was now able to import duty-free the products of the Canadian and American plains. Now we are having a similar situation with regard to housing, and it is rather difficult to import land, as we could ‘corn’, from other continents.
I recognize that Proposition 13 caused problems, and I am quite happy to do away with the 2/3 requirement to raise taxes, and to have a higher ceiling [there should still be a ceiling] on commercial property. But the property tax on residences is different. Most taxes involve money, in the form of wages and salaries or paid for purchasing things, changing hands, and the government grabbing a percentage when the money does change hands. I am sometimes willing to vote for a rise in these taxes. The property tax, however, and sometimes the estate tax, are not on money changing hands; they must be paid in cash on an illiquid asset that is not itself bringing any cash flow. Taxes of this kind, that must be paid in cash, often force the divestiture and sale of homes and sometimes of business assets; so resistance to raising taxes of this sort is one I understand fully.