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June 07, 2010

Pity the Poor HomeOwners,
Blessed be the Renters

In today's Wall Street Journal Richard Florida suggests Homeownership Is Overrated. Dr. Florida's Psalms would probably include, 'Blessed be the Renters, for they shall be unfettered, flexible, and free to seize new opportunities in the face of economic change'.

It's a theme he's worked before, repackaged into this year's book - because when you sell memes, the long term market is in repackaged updates and niche versions.

Florida is a champion of the creative class and professes that cities which attract the creative class and positions them in close proximity often requiring vertical development (ie, tall buildings) will enjoy the benefits of the 2.0 Economy, whereas cities that eschew the creative class - by being intolerant, parochial, widespread, and having a lot of people who own homes rather than rent - will suffer the wrath of the 2.0 Economy.

Perhaps the most unsettling (to me, anyway) of Florida's assertions is that homeownership is an artifact of the post World War II economy, and that today's bright people are avoiding homeownership - and selling their homes, at times, to dupes who don't quite get it yet.

Florida suggests that the residential real estate markets in legacy, non-2.0 cities were Ponzi schemes in which subsequent buyers fueled the profits of earlier buyers - and he believes that the pyramid has started to collapse in an upheaval he calls The Great Reset.

When the economy in a city goes sour - when Hometown Inc shuts down, or when the digital capital clicks elsewhere - people who own homes are stuck with them; they have reduced mobility, and in a 2.0 world mobility and agility may be key. In such a world, Florida suggests that homeownership is a liability. Furthermore, government policies that encourage homeownership may result in unintended outcomes, calcifying the economy to the point of lost competitiveness vis-a-vis the Third World.

Florida suggests that in the last two economic downturns, metro areas with higher homeownership rates have suffered from higher unemployment rates. His researchers have found that homeownership is a more significant predictor of higher unemployment than other more readily accepted parameters.

It's not just Richard Florida. Paul Krugman has similar thoughts. Clive Crook also makes a similar argument. So does Roger Lowenstein.

A Slate article about broadly accepted concepts that may be fallacies lists this one: Homeownership is better for us.
The assumption that owning beats renting has been the basis for American social policy since at least the New Deal, when Congress first insured and subsidized mortgages through the Federal Housing Administration and Fannie Mae. Over time, the long-standing tax deductibility of interests evolved into a specific mortgage-interest deduction. It's a natural assumption that owners have more of a stake in their communities. But even if that's true, why should it outweigh the obvious disadvantages of homeownership? As many more people have discovered lately, it means taking on enormous financial risk. It encourages community involvement at the expense of labor-market mobility. It encourages longer commutes. And at least one study says it makes you fat and unhappy.
Florida isn't an absolutist; homeownership isn't always bad, but it should be reduced to provide a more efficient workforce. Owning a home, he suggests, would be acceptable for people with stable jobs, high incomes, low risk, and capable of making long-term decisions.

I remember reading a science fiction book about a future dystopian society. In the beginning the narrator refers to a minor character who keeps to herself in her apartment, smells funny, and seems suspicious of others - and the narrator discerns from her yellow-stained fingers that the old lady is one of the few remaining addicts. That exposition set the stage for a future society in which today's social artifacts are considered anachronistic and their original context is lost. How would a future society regard the last furtive smokers? What will they think of the last Nascar fan? What would a future archeologist make of a Roethlisberger jersey?

Which makes me wonder, how will future society regard the last Homeowners if Richard Florida's thesis is borne out over time?

Future themes of class distinction will feature character types such Seizers and
HomeOwners. The Seizers will flit from job to job, enduring unemployment
until the next gig arrives, updating their skills to meet the current corporate vogue, and moving from city to city as the job market demands. In doing so they will disturb families, children, relationships; they will avoid church, community and committments that may ensnare them to the flypaper; they will be perfect for the needs of Corporations, nimble hungry mobile economic units (or desperate transient
near-homeless temps, depending on whether you're one of them or if you're
hiring them).

Among the older people there will be a few furtive HomeOwners, captives of their
households, tied down to their locale, networked into the community, not too
eager to move to the next town for the next job. They're probably raising children in families. They'd seeking a level of wages that is perhaps inefficient for the Corporations. They'd be likely to join unions to improve their lot.

These marginalized HomeOwners will also be the people that coach Little League soccer, join the neighborhood association, pay attention to the Water Authority, and - in general - constitute the civic community. You'll see them at school, in church, and at the hardware store. The HomeOwners will probably try to explain to the Seizers that at one time, homeownership was the American dream; they'll explain that they're not really interested in changing cities every ten years.

The rootless wizards of the new economy 2.1 will probably view them with pity. These misguided legacy wretches must not have seen the powerpoint.

I sure hope Richard Florida is wrong, because his future marginalized HomeOwners seem a lot like me and a lot like Pittsburgh.


MH said...

Aren't both groups largely the same people at different phases of life. Pittsburgh is my fourth city, but I have no more intention of hoping around like I did in the past.

Mark Arsenal said...


I brought this up last year when the Atlantic ran Florida's first article in his new thesis-mongering expedition.

Jim Russell would not agree with us on the idea that stability can coexist with prosperity, though:

The issue I brought up in separate discussions was "who gets to be the elite landowners?" The idea is basically that we need to de-equalize society back into the lords and commons, so that the commons can better provide a mobile labor force for the lords (and the corporations they own).

Most of Florida's ideas end up with this sort of logical dead-end (eg, the creative class is essentially the highly paid rich kids; those who can 'choose their city' are essentially so well paid that cost of living is immaterial to them).

But then when anyone brings this up he starts talking about how a good bunch of government regulations (minimum wages, social benefits) could cure that, but never manages to put that into the actual thesis, in writing, lest dewey-eyed decision-makers drop him like a hot potato.

MH said...

I have no idea who Jim Russell is, but it is certainly good to keep in mind the difference between economic efficiency and making your life better. This often hinges on who gets to keep the gains from greater efficiency.

But, the talk about removing the mortgage interest deduction seems a bit unfair since a landlord is able to deduct interest on a rental property. (I know that most people proposing to end the mortgage interest deduction talk about off-setting tax cuts, but those seem much less likely to actually happen.)

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