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Paradigm Shift – Part IV: The Assault on the American Dream
As discussed in “The Gaslighting of Single-Family Zoning” and other articles in the Marin Post, the “American Dream” of single-family, home ownership has been under unrelenting assault in California. But history has shown that the desire to have a place to call one’s own has been with us forever. In the U.S., owning a home has been the hallmark of permanence, family formation, community stability, and wealth-building.
However, the hundreds of California housing laws passed since 2008 share the implied and overt goal of outlawing single-family zoning and promoting massive “warehousing” people in high-density, multifamily developments as the sole solution to our housing affordability challenges. (The passage of Senate Bill 9 essentially eliminated all single-family zoning throughout the state.)
In the process, single-family homeowners, whose only “crime” has been working hard and saving up to be able to buy their family a home, are being vilified by political ideologues, YIMBYs, and their financial backers as NIMBYS, elitists, racists, and worse.
Worse still, state housing laws focus almost exclusively on promoting the development of rental housing, with scant consideration of programs to incentivize or support paths to home ownership of all types: single-family homes, condominiums, cooperatives, etc.
This will arguably bring about the biggest, negative, long-term impact of failed California housing policies. Apropos, the quotes noted in Paradigm Shift – Part II, Karl Marx also said,
"History repeats itself, first as tragedy, second as farce."
When it comes to housing affordability in California, today, Marx was certainly right about the “tragedy” part, and as to the latter, he sounds prophetic.
California’s reliance on zoning rights give-a-ways, “trickle-down” economics, and profit-driven, market forces to address affordable housing has been nonsensical from the start and made the term “affordable housing” a farce. In California, politicians have reduced “affordable housing” to an election campaign catchphrase without substance.
As examined in “Paradigm Shift: Part I: Rethinking Housing Affordability,” the fundamental drivers of our current “unaffordability” crisis are neither directly connected nor exclusive to housing, but are impacting everything in our lives.
The American Dream
Since the middle of the 20th century, the U.S. has been the envy of the world with regard to home ownership. And the socioeconomic benefits of this have been fundamental to our society’s success.
The notion of the “house with the white picket fence” may seem quaint, but home ownership and a strong middle-class has been the goose that laid the “Golden Egg” and the cumulative tax and fee revenues (property, sales, etc.) and financial support for local schools and institutions that home ownership has generated have made our quality of life possible.[1]
As such, encouraging home ownership has been underwritten by our tax laws for more than 75 years. (Similarly, household formation/marriage is also heavily subsidized in our tax laws with couples able to take twice the tax deductions of single people even though single people pay a much higher percentage or their income on rent, utilities, property taxes, sales taxes, etc.)
The fundamental logic behind all this is that homeowners (and families) have “skin in the game,” which is a tremendous motivation to care about their community and participate in managing it, sustainably. The solution to housing affordability, then, is not to attack the American Dream, which benefits everyone who strives to be a homeowner, but to pass laws and create programs and initiatives to enable home ownership for everyone.
California’s "progressive" housing agenda has completely failed to understand this.
The fatal flaw of California housing policies is that it is based on “zero-sum” thinking – that there is a limited amount of wealth and “stuff” to go around that must be divided up. It's a failure to understand the concept of “wealth creation.”
Supply and Demand
Fundamental to the Governor Newsom / Sacramento legislator / YIMBY dogma is the overly-simplistic and unchallenged belief that our “affordable housing” challenges are simply a matter of supply and demand: increase supply and affordability will solve itself.
As discussed, in “Paradigm Shift: Part I: Rethinking Housing Affordability,” this belief is not only unsupported by the facts but fails to recognize the current plight of the middle-class.
Consider this. According to the data published in a recent report entitled, ”Builders have the most unsold inventory since 2009” (corroborated by real estate listings), the number of new, unsold single-family homes in October 2024 hit the highest level since August 2009, in the aftermath to the Great Financial Crisis of 2008, which was predominately driven by the collapse of the mortgage banking business.
As the charts above and below show, the number of new, unsold, single-family homes has risen dramatically in the past 2 years, while home sales have failed to keep up.
If supply and demand are the basis of unaffordability, why is this happening?
Although the report does its best to put a positive spin on this data by suggesting that this is a good thing, because they are anticipating a strong spring buying season, historical data indicates that high levels of unsold homes have either occurred during periods of rampant speculation in the housing market or at time when the cost of financing have risen dramatically -- such as from 2006 to 2008 when speculation was out of control leading up to the Great Financial Crisis and in 1980 when Federal Reserve hiked the Prime Interest Rate to 21.5%.
Rampant speculation is not happening now but the recent rise in mortgage rates and the costs associated with home ownership (e.g., homeowner’s insurance) have been dramatic.
That considered, there is little historical evidence of a direct relationship between affordability and supply and demand. The truth is much more complicated.
After World War II and in the latter part of the 1970s, the housing supply also increased dramatically but so did sales. The reason is that there is a strong statistical relationship between housing sales and the costs of financing and, more importantly, the financial health of the middle class; sales fall in times when incomes do not keep up with the rising costs of living, which includes the costs of financing.
As discussed in detail in “Paradigm Shift: Part I: Rethinking Housing Affordability,” this disconnect has been decades in the making and has decimated the middle-class, who are the majority of the prospective buyers for all those new, unsold, single-family homes.
The average middle-class family simply cannot keep up.
The Fate of the American Middle-Class
According to a study by The Pew Research Center,
“The share of Americans who are in the middle class is smaller than it used to be. As a result, Americans are more apart than before financially. From 1971 to 2023, the share of Americans who live in lower-income households increased from 27% to 30%, and the share in upper-income households increased from 11% to 19%.”
The percentage of Americans who qualify as being “middle-class” has been falling steadily since 1971. This is the direct result of the diverging disparity in wealth accumulation.
In the book, "Skin in the Game," by Nassim Nicholas Taleb, the author argues that for any system to be fair and efficient (and sustainable), individuals must participate in the potential risks and rewards of their choices; they must have “skin in the game." Once they do, human nature causes them to become invested in the outcome, preventing reckless behavior, and encouraging accountability.
The observable phenomenon called “sweat equity,” the efforts that homeowners put into maintaining and improving their homes, bears this out.
This is why building a strong middle-class and home ownership are critical to the creation of stable communities, family formation, social equity, and economic equality. To understand its importance, one only needs to look at the wealth gap between homeowners and renters, which has recently reached a historic high.
(The chart doesn’t include the past 2 years when the divergence has continued to increase.)
One could certainly argue this is because housing prices have been so high for so long that lower-income families have no place to start, which is true. But that’s all the more reason why socioeconomic policies and housing policies need to shift their focus from promoting rental housing development to promoting home ownership opportunities.
Again, a viable solution to the widening wealth disparity is not to vilify the American Dream or single-family home ownership but to create programs and initiatives (e.g., equity sharing, discounted rates, and a new "G.I. Bill" for first time home buyers, etc.) and change state housing laws to enable home ownership for everyone, while providing tax relief for renters on that path for those who honestly qualify, sans the nonsensical underwriting gimmicks that caused the Great Financial Crisis of 2008.
Coda
In Paradigm Shift – Part II: Housing Unaffordability May Be Just Beginning, I stated,
“It is ironic then that the most fundamental principle of Marxism, financial equity, may be the best way to save free-market, capitalism and address housing affordability in a sustainable way.”
We find ourselves in another, generational “unaffordability” crisis, echoing the housing and wealth disparity challenges we faced 100 years ago. This is a very real challenge touching everyone and everything in our lives and threatening our societal cohesion. It is why we need government policy to make an immediate, dramatic pivot to help change the dynamics of housing affordability, which includes substantive changes in the tax code and federal and state housing financing policies.
Still, this can only be accomplished if we address the underlying need to rebuild a strong middle class "investing" in it -- providing better educational opportunities, 21st century jobs training, healthcare, and a living wage, as discussed in previous sections of this series -- otherwise, no matter how many homes we build, there will still be a lack of qualified buyer or eligible renters.
We seem to have everything backward about the affordable housing situation.
We talk about the importance of fairness and financial independence, but in our politician’s urgency to produce quick results, state and federal housing policies have focused on subsidizing financial dependence and have excluded renters from wealth-building opportunities.
Our housing policies are fundamentally disconnected from people’s primal motivations to have a place they can call their own and offer them no path to fulfill those desires. All we offer them is subsidy-dependence and low-income “warehousing,” guaranteeing them a hand-to-mouth life for future generations.
The truth is that even if we are able to address all the inequities discussed and implemented new housing programs and initiatives, it is still unlikely to be enough to make housing more affordable or increased home ownership possible for the majority of middle-class and lower-income families.
This is because housing construction costs are simply too high. And this has nothing to do with zoning. It's about the way we build and the costs of labor and materials.
We need to find ways to cut those costs, dramatically. Because as challenging as the current dynamic is there is something even more ominous looming on the horizon that will make housing affordability even harder for the average middle-class family to achieve.
[1]
As of fiscal year 2023, the median household income in Mississippi, the
poorest state in the U.S., is essentially the same as the median
household in England (roughly $44,970 in U.S. dollars), and the cost of
living in Mississippi is significantly lower than the cost of living in
England.
NEXT – AI and Automation: The Double-Edged Swords of Affordable Housing
For more, see;
Paradigm Shift: Rethinking Housing Affordability
Paradigm Shift - Part II: Housing Unaffordability May Be Just Beginning
Paradigm Shift - Part III: How Affordable Housing Need Powered the Modernist Movement
Bob Silvestri is a long-time Mill Valley resident, the Editor of the Marin Post, and the founder and president of Community Venture Partners, a 501(c)(3) nonprofit community organization dedicated to bringing the community's voice to government decision-making and funded exclusively by individuals and nonprofit donors. Please consider donating now to support our work.