Down the block from my home, workmen are finishing a new house. It replaces a bungalow that had measured about 1,500 square feet. The new home has a covered front porch, two fireplaces and a finished basement. It comes in at just under 5,700 square feet. What is it with Americans and their homes?
Everyone knows the direct causes of the present housing collapse: low interest rates, lax mortgage lending, rampant speculation. But the larger force lies in Americans' devotion to homeownership. It explains why government officials, politicians and journalists (including this one) overlooked abuses in "subprime" lending. The homeownership rate was approaching 70 percent in 2005, up from 64 percent in 1990. Great. A good cause shielded bad practices. The same complacency lulled ordinary Americans into paying ever-rising home prices. Something so embedded in the national psyche must be okay.
"House lust" is what Dan McGinn calls it in his book by the same title. McGinn documents -- sympathetically, for he dotes on his own home -- our housing excesses, starting with supersizing. In Sweden, Britain and Italy, new homes average under 1,000 square feet. By 2005, the average newly built U.S. home measured 2,434 square feet, and there were many that were double, triple or quadruple that. After World War II, the first mass Levittown suburbs offered 750-square-foot homes. (Full disclosure: McGinn is a Newsweek colleague.)
"We're not selling shelter," says the president of Toll Brothers, a builder of upscale homes. "We're selling extreme-ego, look-at-me types of homes." In 2000, Toll Brothers' most popular home was 3,200 square feet; by 2005, it had grown 50 percent, to 4,800 square feet. These "McMansions" often feature marble floors, sweeping staircases, vaulted ceilings, family rooms, studies, home entertainment centers and more bedrooms than people.
In a nation of abundant land -- unlike Europe and Japan -- our housing obsession is understandable and desirable up to a point. People who own homes take better care of them. They stabilize neighborhoods. In a world where so much seems uncontrollable, a house seems a refuge of influence and individuality. In a 2004 survey, 74 percent of would-be home buyers preferred a new home to an existing house. One reason is that a new house often allows buyers to select the latest gadgets and shape the design. The same impulse has driven the remodeling boom, which totaled $180 billion in 2006.
"The most exciting thing was just watching the house go up piece by piece," said one buyer of a new, $380,000 home in Las Vegas. The 50-ish couple added a pool, hot tub and deck. They love their home.
Homes are a common currency of status. As McGinn notes, many jobs in an advanced economy are highly technical and specialized. "I could tell you more about (my job)," a woman informed him at a dinner party, "but you won't understand it, and it's not that interesting." By contrast, a home announces that, whatever the obscurities of your work, you've succeeded. There's a frantic competition to match or exceed friends, co-workers and (yes) parents.
Some house lust is fairly harmless. Several Web sites ( http://www.zillow.com, http://www.realtor.com) provide estimated prices for homes. People can indulge their nosiness about their neighbors', friends', co-workers' or relatives' finances. They can also fantasize about their next real estate adventure by watching a cable channel ( HGTV) devoted to houses, home buying and renovation.
Other effects are less innocuous. Although house prices recently exploded, they have increased only slightly faster than inflation since the 1890s, concluded a study by Yale economist Robert Shiller. The recent sharp run-up may imply years of price declines or meager increases. "Buying a bigger house isn't an investment," warned Wall Street Journal columnist Jonathan Clements. It's "a lifestyle choice -- and it comes with a brutally large price tag." Not only are mortgage payments higher; so are costs for utilities, furniture and repairs.
Worse, government subsidizes these supersize homes along with suburban sprawl and, just incidentally, global warming. In 2008, the tax deduction for mortgage interest payments will cost the federal government $89 billion. The savings go heavily to the upper-middle class and the wealthy -- the least needy people -- and encourage ever-larger homes. Even with energy-saving appliances, those homes are likely to generate more greenhouse gases than their smaller predecessors. As individuals and a society, we've overinvested in housing; we'd be better off if more of our savings went into productive investments elsewhere.
Sociologically, the "housing bubble" resembles the preceding "tech bubble." When people paid astronomical prices for profitless dot-com stocks, they doubtlessly reassured themselves that they were investing in the very essence of America -- the pioneering spirit, the ability to harness new technologies. Exorbitant home prices inspired a similar logic. How could anyone go wrong buying into the American dream? It was easy.
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