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The Dumbest Smart People

There’s no lack of fact-denying, anti-science people in the world, bent on holding onto really dumb ideas and resisting all attempts to be educated. But at the same time, there’s also no shortage of hyper-aggressive, high-minded, over-educated people whose positions on housing and growth and importance of environmental protection laws win them the award for being the dumbest smart people on the planet.

In a recent opinion piece in the San Jose Mercury News by George Skelton, titled, “Why California is having a harder time building things,” Skelton quotes Governor Newsom's misguided rantings on the subject, making the governor a strong contender for the “Dumbest Smart Person” Grand Prize.

As Skelton relates,

“Gov. Gavin Newsom is upset. He’s frustrated because California isn’t building nonstop as it did in the mid-20th century. “People are losing trust and confidence in our ability to build big things,” the governor told columnist Ezra Klein of the New York Times in a recent interview. “People look at me all the time and ask, ‘What the hell happened to the California of the ‘50s and ‘60s?’”

And that the governor,

“…seemed to blame the “rigidity and ideological purity” of environmental organizations and asserted that it’s “really going to hurt progress.”

This coming from someone who embraces the positions of the most extreme pro-development and anti-environmental ideologues in the development debate, the YIMBYs.

It’s true that a lot of Californians are asking questions, these days, but not in the way Newsom thinks. When most Californians ask, ‘What the hell happened to the California of the ‘50s and 60s?’ they are referring to crowding, congestion, air and water pollution, collapsing fisheries, and why the cost of living here is so absurdly high, why we pay the highest combined taxes in the country yet our social support systems are a wreck, our roads are in awful shape and our highways are littered with trash, and why we have major power outages, regularly, or where will we get the water we need to support development, and why our state and city agencies are so intolerably dysfunctional and bureaucratic and closed more hours a week than they are open.

Despite all this, Newsom’s solution continues to be that we need to hollow-out environmental protection laws and completely unshackle and generously subsidize for-profit development interests and trust in market forces (that want to build as much luxury housing and as little low-income housing as possible) and let trickle-down economics work its magic. His answer to all things that ail us is to not worry and just build, build, build like we did back in the 'good old days.'

Were the 1950s and 1960s different?

In “The Real Affordability Crisis,” published in June, there is ample information about wages and earnings and inflation to highlight the glaring differences between the 1950s and 1960s and today, but a myriad of other dynamics also need consideration.

Let’s look at a few.

The chart below shows the relationship between federal debt and Gross Domestic Product (GDP) since 1940. What it glaringly illustrates is that throughout the 1950s and 1960s federal debt (which had risen to pay for WW II) fell dramatically in relation to GDP. In fact, federal debt to GDP kept falling until the mid-1970s (when Nixon stopped HUD from building affordable housing) and bottomed in the early 1980s (when Reagan invented vouchers to stop the government from directly financing low-income housing development).


What is striking is that the federal debt in the 1950s and 1960s fell rapidly even though the federal government was ramping up subsidies for housing development, unemployment benefits, vocational training, college tuition, and private mortgage debt for WW II veterans and also spending more on national infrastructure than at any time in our history to help build the national highway system, roads, bridges, airports, shipping ports, utility systems, public schools, public parks and recreation facilities, public libraries… just about everything.

And most shocking of all, this was happening under the stewardship of the conservative, Eisenhower Administration and the highest corporate tax rates and the highest personal income tax rates we’ve ever seen (a top corporate rate of 52% and a top individual rate of 91% of all earnings over $200,000).

Compare this to today when the federal debt is again skyrocketing but we’re spending less and less on all the things we were able to pay for (invest in) in the 1950s and 1960s.

Housing and the Servicemen's Readjustment Act (1944) aka the “G.I. Bill”

After WW II, the U.S. faced a severe housing shortage. The G.I. Bill stimulated demand and by the mid-1950s, the government had underwritten and guaranteed 4.3 million new home loans: about 20% of all the new homes built in the post-war years. In total, the G.I. Bill helped approximately 8 million home buyers and was valued at about $35 billion in subsidy (not adjusted for inflation).


Signed into law by President Franklin D. Roosevelt on June 22, 1944, the G.I. Bill provided World War II veterans with funds for college educations, unemployment insurance, and housing assistance. It put higher education within the reach of millions of veterans of WWII and the Korean War.

“Enacted by Congress in 1944, the GI Bill sent millions of World War II veterans to school between 1945 and 1956. It also backed home loans, gave veterans a year of unemployment benefits, and provided for veterans' medical care. Under the act, approximately 2,300,000 attended colleges and universities, 3,500,000 received school training, and 3,400,000 received on-the-job training.”[1]

It also included a monthly “housing allowance” for renters or buyers. In other words, the government created eligible buyers! And they didn’t need to give away subsidies to housing developers as an incentive to development. They gave all the subsidies to the buyers and renters.

Consider that if we adjust that $35 billion in housing subsidies from 1945 to 1955, for inflation, we get about $350 billion. If we compare that to the present subsidy from the federal Low Income Housing Tax Credit (as of December of 2022, the LIHTC was a total of $10.8 billion in congressional allocation per year: Per NCSHA LIHTC 2022 FAQ), the LIHTC would have to rise approximately 3 times its present subsidy to $35 billion per year for the next ten years to equal it!

In the 1950s and 1960s, land was plentiful. Resources were plentiful. Jobs opportunities were plentiful. Families were growing fast. People were becoming more mobile, changing jobs more often and moving around the country more adventurously. The stage was set for expansion and prosperity.

By the mid-1970s, all that began to change.

The Great Divergence

The chart above illustrated how federal debt was falling during the 1950s and 1960s. Now, consider this chart of personal debt.


This shows that the drop in personal debt (shown as a percentage of personal income) coincided with the fall in federal debt during a time of high government subsidy, low inflation rates (the inflation rate during the 1950s and early 1960s was less than 1.5% per year), and steadily increasing personal income per capita (rising wages).

This scenario turns all the Federal Reserve’s current assumptions about growth and inflation on its head, but clearly this economic environment was conducive to GDP growth, low inflation, housing development, and rising wages and home ownership.

Now, notice what happened in the 1970s and early 1980s. These were the inflection point years for every chart in this article: the time when everything started to unravel. Public and private debt began to rise. Inflation began to rear its ugly head as a result of the Nixon Administration's abandonment of the gold standard, too much non-productive, Johnson Administration "guns and butter" spending, the OPEC-driven global oil crisis, and a slew of other reasons. And the income inequalities discussed in “The Real Affordability Crisis” began to appear.

As shown on the chart below, the 'Great Divergence' had begun.


Buying a home in the 1950s and 1960s

In broad, brush strokes, in the early 1960s, the price of a modest, new, 1,600 square-foot, single-family home in California was about $30,000. This was at a time when the average, full-time working man was earning about $7,000 to $8,500 a year: a ratio of about 3.75 to 1. Today, the annual, personal income for a working man in California is about $58,000 per year and the price of the average home is $417,500: a ratio of 7 to 1.

Based on this metric alone, it’s now twice as hard to earn enough to buy a home, without even considering that combined taxes the average wage earner paid were so much lower then, than they are now.

Now, add to the calculation that mortgage rates were consistently about 2.7% during the 1950s and 1960s and you can see how much easier it was to afford a home. And “affordability” based on earnings has always been the key driver of housing development.

By the mid-1970s, families were growing slower, jobs were harder to find, interest rates began skyrocketing (in 1980, mortgage rates reached 18%), and the impacts of rapid, uncontrolled growth and decades of laissez faire policies brought about previously unimaginable environmental impacts: choking smog, acid rain, toxic polluted waterways, and the devastating effects of pesticides like DDT on wildlife, prompting much needed environmental regulations.

But there was something else that started to happen, which dramatically impacted the cost of housing and the incentives to build it.

Consider this chart showing land costs as a percentage of residential property values. Land costs go from being negligible in the 1950s and 1960s to more than 50% of the cost of a home by 2018 (by 2023, they are over 60%). Housing ideologues contend this is all due to local zoning and environmental restrictions. But, there is nothing significant in the data to suggest that those were the major drivers of higher land prices. In fact, prior to the 1964 Equal Rights Act, residential zoning was even more restrictive than today.


Source: National Association of Realtors

It's worth noting that the population of California in 1960 was 15,717,204, whereas the state's population today is 38,940,231.

The truth is that by the early 1980s, developers were starting to run out of cheap land in the West. As suburbs stretched out into farm lands and forests and filled-in wetlands, entitlements to pay for roads, utilities, and infrastructure, which were now more and more borne by individual developers, ballooned as a percentage of land acquisition and development costs.

I can attest to this, personally, having provided land brokerage services for housing developers in North Dallas, Phoenix, and Denver during that time. (Ironically, this also increased the interest in urban renewal, rehabilitation, and adaptive reuse.)

In sum, what is obvious is that today's fundamental economics, regarding housing development, are almost the complete opposite of those we enjoyed in the 1950s and 1960s. For Newsom to be gobsmacked as to why we're not building like the "good old days" is the only real mystery.

More top-down, State mandates to control local zoning, Attorney General lawsuits to quash community voices, and removal of environmental protections will not result in more sustainable development if the overall socioeconomic circumstances are not in place. To move forward, we need to start with the facts and explore new solutions if we expect to address our affordability and housing needs.

[1] The Khan Academy; Humanities: U.S. History

Bob Silvestri is a Marin County resident, the Editor of the Marin Post, and the founder and president of Community Venture Partners, a 501(c)(3) nonprofit community organization funded by individuals and nonprofit donors. Please consider DONATING TO THE MARIN POST AND CVP to enable us to continue to work on behalf of all California residents.