The American Dream is Leaving the Station

With every new story about the housing crisis, a piece of the American dream fades into dust.

Foreclosed properties sold on the courthouse steps in Atlanta don't attract enough buyers. California homeowners awaiting foreclosure neither pay their mortgage nor any rent; they are squatters in a property they hoped to own but are now stuck in a financial purgatory. Former homeowners with no equity left in their homes in Phoenix and Las Vegas simply walk away. Entire developed blocks in South Florida lie vacant.

Although they represent a small part of the population, the travails of housing victims impact us all. Home prices across the country keep falling in a market without a bottom. One foreclosure depresses values in an entire neighborhood. Buyers stay away because they are waiting for better bargains. The only guarantee is that some opportunistic capitalists will pick up the scraps and continue to make money as we watch our home equity evaporate.

There is no safety net to stop this free fall in our aspirations and nest eggs. Exposed to the cruel hand of market risk, our 401(k)s were pummeled during the dot.com meltdown and drained even more last year during the credit crisis. Guaranteed defined-benefit pensions have gone the way of cellphones without cameras. The only guaranteed, inflation-indexed payment for our golden years is Social Security -- and even that's under attack and fiscally endangered. Health insurance costs more every year, even if your employer provides it. No job outside of government seems secure. No wonder Americans turned to real estate to prop up their eviscerated wealth. The social contract was in tatters.

Can we still afford the American Dream in a market economy? Homes cost too much for a large swath of the U.S. population even before the housing bubble, so it was not surprising that home buyers were willing to do anything to get into the domicile of their dreams during the bubble years.

After all, isn't homeownership an American birthright in which bankers, real estate agents and mortgage brokers exhorted us to "buy as much house as we could afford?" That lust for leverage led millions astray.

Even at the height of the boom, researchers from the Harvard Joint Center for Housing Studies found that almost 18 million households were paying more than half of their incomes for housing (about one-third is considered reasonable). They were also hit hard by rising energy costs, which rose twice as fast as total spending from 2004-2006. An estimated 12 million renters and homeowners now pay more than half of their income for housing. That's too much.

Families who are paying more than half of their budget for housing have little to nothing left over for health care, food, clothing and education. That hurts more than 14 million children living in low-income households, whose families had less than $600 per month on average for other essential expenses.

Overspending on home ownership expenses took a huge social toll, especially in an economic environment with little or no wage growth.

The Harvard group last year found that "nowhere in America does a full-time minimum wage job cover the cost of a modest two-bedroom rental at 30 percent of income." Those stranded in the low-wage service economy, left behind by the technological revolution of the 1990s, could barely afford to rent a decent place in most cities, much less buy.

The housing meltdown is also devastating state and local budgets and spending on public services. By law, states must balance their budgets. Most won't be able to without further cutting services and raising taxes. That means the age of abundance -- building new schools, parks, libraries and other public amenities -- may be over for now. An entire generation will be impaired by this calamity.

Falling home values worsens the malaise. According to The New York Times, a record number of homeowners are appealing the assessed values of their homes. Market values have plummeted from 20 to 50 percent, yet they are being taxed at valuations reached at the height of the bubble. A lion's share of taxpayers will win, although public agencies and schools will continue to lose because of the reduced revenue from property taxes: It's time to re-evaluate linking the bulk of income for local services to local real-estate levies.

Since few, if any, have ever experienced a full-blown housing depression, state and local governments have never had to deal with this dramatic loss of revenue. Despite the fiscal band-aid of the $787 billion federal stimulus package, teachers will still lose their jobs, programs will be cut and public facilities across the board will not be built. To date, some 41 states have slashed state worker jobs and benefits; 24 have pared public school aid and 23 have cut programs for the elderly and disabled, according to the Center for Budget and Policy Priorities.

This downward spiral will not end soon as Congress and the Obama Administration have not acted aggressively enough to stop foreclosures, which causes prices to fall even more.

One potential remedy to stem foreclosures -- allowing homeowners to write down mortgage principal in bankruptcy -- was shot down in the Senate after furious lobbying by the financial services industry. In Washington, the banks still seem to be calling the shots behind the scenes, even at the expense of losing even more customers and prolonging the downturn.

Let's offer those facing foreclosure a chance to rent their homes and build some equity. The current government program designed to modify unaffordable loans is a travesty. Lenders have little incentive to keep people in houses; there's absolutely no profit in keeping them in properties in a sinking market in which the owners have no economic stake. For new buyers and the secondary market that buys and invests in mortgages, let's provide a temporary iron-clad, full-faith-and credit guarantees on mortgages for those who've made down payments.

The housing crisis has given us a rare opportunity to re-evaluate home ownership. As I note in my new book The Cul-de-Sac Syndrome, if we're to rescue the American Dream, government will have to create incentives to build more affordable housing in addition to lowering medical expenses through universal coverage. The need for these changes is immediate, but won't happen until foreclosures are stopped and home prices stabilize.

Let's start with a massive program to build decent, affordable and green housing. I'm not talking about dehumanizing public housing projects, but providing grants to private builders to make homes that are energy-efficient and produce their own power in human-scale, walkable communities. Provide some healthy tax credits for those who build on vacant lots or who tear down abandoned buildings. The most-generous breaks should go to those builders who work in the most distressed urban areas and create the most energy-stingy houses.

As Congress and the Obama Administration ponder another stimulus package as the jobless rate rises, let's start with rebuilding the cities. Chicago, for example, has some 80,000 vacant lots. New Orleans still has about 12,000 homeless. Instead of providing subsidies to build far-out suburban wastelands -- I call them "spurbs" -- let's revive inner cities and suburbs.

The American Dream as we know it was not sustainable. A new American Dream can be affordable, ecologically sound and socially beneficial. The price of this vision isn't cheap, but we can't afford to watch our dreams go up in smoke.

©2009 John F. Wasik, author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream
Author Bio

John F. Wasik, author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream, is a personal finance columnist for Bloomberg News and the author of several books. His most recent book, The Merchant of Power, was praised by Studs Terkel and well reviewed by the New York Times. Wasik has won more than fifteen awards for consumer journalism including the 2008 Lisagor and several from the National Press Club. He has appeared on such national media as NBC, NPR, and PBS. He lives in Chicago.
For more information please visit www.johnwasik.com and www.culdesacsyndrome.com

Comments

[TRiley]

Nice article, John. I especially appreciate your observation that government housing and similar "assistance" programs have the effect of stripping away the dignity of those who use them. I'm concerned that I see more and more government funds being channeled into these programs to support the needy. I think we'd be much better off doing as you suggest, and redirecting those funds into programs that will benefit everyone with lower prices (such as for energy in green homes) and in support of local farms to reduce the cost of food rather than providing food stamps.

I certainly share your concerns about our unsustainable economy, and like you, I see this dire situation as an opportunity to shift the status quo over to a more sustainable future. My thoughts are detailed here: http://www.gogreennation.org/2009/07/house-of-cards-going-down/.

And I've posted a note about your book and this article here: http://www.gogreennation.org/.

Keep up your visionary stance!

Best,
Trish*
Trish Riley, The Complete Idiot's Guide to Greening Your Business (with Heather Gadonniex, Penguin/Alpha Books 2009)

[Sundialsvc4]

We are loathe to use the Impeachment Clause against "any Civil Officer," as our Constitution proscribes, but maybe we should ... because it lists "Bribery" and "Treason" in the same sentence (side-by-side), and I do believe that there's a good reason why they did so.

We laugh at the familiar "Christmas Carol" every December ... but do we really listen to Dickens' cautionary tale?

Listen: if you give a wealthy or even a not-so wealthy man the opportunity to steal you blind ... he will do that. And, he will continually come up with new and creative ways to steal you blind again. This is yet another one of those bits of "creativity."

There is an excellent "opportunity" for creative rich people, having stolen so much money over the years, to "re-invest" that money making the plebeian masses (that would be "you 'n me") into feudal Serfs. There will be the Landowners, nee Land Lords, and serving them will be millions upon millions of Non-Land-Owners (that would again be, "you 'n me") who will work in the lords' factories and shop in the lords' shops and "owe our souls to the comp'ny store."

That is unsustainable, of course, but when you have grown accustomed to, "another day, another $100,000," you lose the ability to see that. Or, maybe you just choose not to.

[dnpvd51]

How is it fair to someone that rents to pay taxes so someone else can keep their option on the house?

I acted fiscally prudent, and yet I do not get an option on a house.

Do not those that rent even exist?

[BimpO]

Too many thought the American Dream meant pseudo-mansions with skyrocketing prices rather than affordable, comfortable, secure homes.

Now economic security has vanished for all Americans as the downward slide continues.

[itolduso]

I watched as residential developments were approved, many sold out before they were built (some for more than the 'asking' price) but no one was moving in. They stayed empty. No one to buy food from the local grocer, or tools at the hardware store. No funiture, t.v.s, or cable & newspaper subscriptions. Local restaurants stayed empty, beauty & barber shops unfilled. No one needed a lawyer, or accountant, or tax help, offices closed up. The stores laid off employees and they too soon closed for good. We don't need investors to buy up these homes, investors are what got us into this mess.We need families to live here, to cook, to remodel, to plant gardens, and have pets. Mothers to get their hair done, and fathers to need a shave. Children to play in the parks and outgrow their clothes and need baby sitters and toys. Then there will be stores and jobs and offices again.

[itolduso]

Let's start right now by lowering the real estate tax burden of principle residences (homesteads) and quadrupling the tax on second, third, fourth + up homes. And cap the interest rate at 4.% fixed for principal residence mortgages. Let's keep the people in the homes they are living in. You fail to mention that a great many of those abandoned & foreclosed homes were purchased by speculators that never intended to live there, whole groups of investors bought & sold them to each other many times over to drive up the values and skim money from new loans. Realtors, appraisors, mortgage brokers, and bankers acting in collusion to make a buck on each transaction, passing the bad notes quickly in a frantic game of 'hot potato', where they piled up in OUR pension funds & retirement accounts, sucking our futures dry... and local officials looked the other way, too busy counting their 'take' to worry about tomorrow. It's the ones who live here who keep paying the price.... burdened with falsely inflated property assessments, fees, and insurance rates, charged for the costs of running enlarged townships where too many homes are empty but still need protection. Homes can no longer be allowed to be used as 'poker' chips...let's make them cheap to actually LIVE in, and prohibitively expensive to gamble with.

[FoonTheElder]

The American Dream for most people left the gate as soon as our government and big corporations decided it was more important to cut wages and move most of our good paying jobs to China, India and elsewhere. The race to the bottom of the wage scale and corporate bonuses are all that matters.

In desperation, people tried to preserve their dreams through multiple jobs, bubble investing and debt, which has completely failed.

Now who do these big corporations think they are going to buy their products, their top managment? China and India? Congressmen?

[ThePeacemakers]

Foon....

"Wal-Mart Store Inc will open its first cash-and-carry centre in India in 2009, the head of its India operations said on Wednesday.

Wal-Mart, which has a venture with India's Bharti Enterprises for cash-and-carry wholesale operations, had earlier said it aimed to open the first of its centres by year-end and open 10-15 centres over seven years."

This store has already opened.

As for China:
"During the Olympics: Coke, Pepsi, McDonald's and others were strengthening their bonds with Chinese consum“By connecting themselves to this very patriotic or nationalistic activity of the Olympics, they hope to create a bond that’s an emotional bond between their products and brand and the Chinese people,” said Marc Ganis, a Chicago-based sports marketing consultant who has an office in Beijing."

Americans will be working for corporations who will provide them with food and shelter in exchange - alot like .....

[FoonTheElder]

American companies won't make it based on the sales closed political and economic societies.

The Chinese and Indians are famous for taking patented and trade marked items and creating knock offs or copying them under their own labels. Many foreign companies are required to have a Chinese partner, which are generally government owned and add little in return, in order to do business there. The world wide companies then complain that they lose millions in knock off items, but continue to send their designs and patented items there for manufacturing.

Wal Mart is a world wide 'race to the bottom' employer. Wal Mart does the same thing in the Far East than they do in the U.S. Low pay for both employees and suppliers. Their employees in China can't afford any non-staple items anymore than their employees in the U.S.
http://www.thenation.com/doc/20031208/goldstein