On the WSJ's 'The New American Dream: Renting'

by: Kevin S. Price

In this space, we've written on the widespread misunderstanding of the investment value of residential real estate. Whether it's short, anomalous bursts of rapid appreciation that warp people's sense of long-term averages, or gross underestimates of the true costs of ownership, many people have made enormous financial mistakes on the premise that owning (to say nothing of "flipping") a home is a sure path to financial security.

So we were delighted to see last Penn professor Thomas Sugrue's piece on rentership and ownership in last Friday's Wall Street Journal. As usual when we make reading recommendations, the whole thing is worth your time. But this struck us as a key passage, in many ways the key to the entire story:

Yet the story of how the dream became a reality is not one of independence, self-sufficiency, and entrepreneurial pluck. It's not the story of the inexorable march of the free market. It's a different kind of American story, of government, financial regulation, and taxation.

We are a nation of homeowners and home-speculators because of Uncle Sam.


It's a story riddled with irony--for at the same time that Uncle Sam brought the dream of home ownership to reality--he kept his role mostly hidden, except to the army [of] banking, real-estate and construction lobbyists who rose to protect their industries' newfound gains. Tens of millions of Americans owned their own homes because of government programs, but they had no reason to doubt that their home ownership was a result of their own virtue and hard work, their own grit and determination--not because they were the beneficiaries of one of the grandest government programs ever. The only housing programs prominently associated with Washington's policy makers were underfunded, unpopular public housing projects. Chicago's bleak, soulless Robert Taylor Homes and their ilk--not New York's vast Levittown or California's sprawling Lakewood--became the symbol of big government.

Then there's the other part of the residential real estate story we've returned to repeatedly. The fallout from the housing bubble is (and will continue to be) especially awful because unlike railroads or telecommunications or the Internet, excessive residential real estate--too many homes that are too big and too far-flung--does nothing to promote future economic productivity. Indeed, it impairs future productivity by diverting public and private resources from other, better uses. Your town could benefit from more solar power? From a more efficient grid or better schools? Sorry. They spent the money on that (largely empty) subdivision out in the fields.

Sugrue's closing lines apply to the U.S. as a country as much as to individuals and families:

If there's one lesson from the real-estate bust of the last few years, it might be time to downsize the dream, to make it a little more realistic. James Truslow Adams, the historian who coined the phrase "the American dream," one that he defined as "a better, richer, and happier life for all our citizens of every rank" also offered a prescient commentary in the midst of the Great Depression. "That dream," he wrote in 1933, "has always meant more than the accumulation of material goods." Home should be a place to build a household and a life, a respite from the heartless world, not a pot of gold.


Thomas J. Sugrue, "The New American Dream: Renting," Wall Street Journal, August 14, 2009