Sunday, January 20, 2008

"Mine Is Bigger Than Yours" Hits Home

In the words of Mel Brooks' philosopher-producer Max Bialystock, "If you've got it, baby, flaunt it!" That's just what many Americans have been doing with their homes until the credit crunch brought down the curtain with record foreclosures.

Amid bailouts and interest rate freezes to keep the show going, a painfully apt book emerges to underscore that the housing crisis, despite what the politicians are telling us, is not only about greedy bankers, mortgage brokers and hedge funds.

The thesis of "House Lust" by Newsweek reporter Dan McGinn: "Owning a home has long been considered the fulfillment of the American Dream. But in the last decade, as the real estate market boomed, Americans’ fascination with homes turned into a frenzy. Everywhere we turned, people were talking about, scheming over, envying, shopping for, refinancing, or just plain ogling houses—in the process, we’ve transformed shelter from a basic necessity into an all-consuming passion."

For some, huge homes have become what Cadillacs were half a century ago, an emblem of conspicuous consumption, proof to the world that owners have "arrived." In 2005, the average newly built US house measured 2,434 square feet, as opposed to 1,000 feet in Britain, Italy and Sweden and the 750-foot shoeboxes in Levittown after World War II.

"Everyone knows the direct causes of the present housing collapse: low interest rates, lax mortgage lending, rampant speculation," Robert J. Samuelson writes in the Washington Post. "But the larger force lies in Americans' devotion to home ownership. It explains why government officials, politicians and journalists (including this one) overlooked abuses in 'subprime' lending. The home ownership 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."

The crisis may slow down builders in affluent areas from tearing down adequate houses and replacing them with "MacMansions" that not only require higher costs for upkeep but contribute to global warming with the energy consumed to heat and cool them.

As Congress and the White House push along legislation to head off a recession, a report on economic overreaching may be in order to remind Americans that, even in building their castles, less may be more.


Unknown said...

Thanks for posting this part of the "equation" that generally gets overlooked. One more thing driving the upper middle class to build these 6,000-foot institutions for houses is the tax code, which makes these houses effectively tax shelters. On my website, I've advocated limiting the mortgage interest deduction to more modestly-priced homes.

But, you rightly identify an ugly aspect of too many members of the middle class: they love to pretend they're rich and they're willing to eat their children to do it.

Anonymous said...

What happens when the last tax deduction for the middle class disappears? Interest paid on debt, disguised as home equity loans and mortgage interest itself, will be denied by the IRS as a deduction. When that happens what will be the incentive for private home ownership? Since the housing market has collapsed and homes are depreciating, won't rentals become the norm?
Combined with the energy shortage, we may see the end of suburban sprawl, and a replay of the depression era strategy of families moving in together.