Why you can’t afford a home, and why you shouldn’t want one

RIP American Dream

Why you can’t afford a home, and why you shouldn’t want one

Aerial view showing the sprawl of civilization in McCordsville, a northern suburb of Indianapolis, Indiana. Library of Congress, Prints & Photographs Division, Photograph by Carol M. Highsmith [LC-DIG-HIGHSM 40877])

You can’t afford to buy a home. You can barely afford to rent. Even if you could somehow scrape together enough cash for a deposit and shackle yourself to a mortgage, you are resigned to reality: You’ll only be able to get a property that is too expensive to maintain, in the wrong location, and of poor quality. There’s a high likelihood you will come to regret the purchase altogether.

You’ve known since high school that you would be poorer than your parents and that all the things that appeared to come so easily to them—stable careers, homeownership, children—will be out of reach for you, or a terrific struggle. In some sense, you’re not disappointed because you were never under the illusion that another situation was possible. Perhaps you secretly believed in your own exceptionalism, that you would find a way to beat the system. But that hasn’t happened. You don’t entirely understand the reasons for the housing shortage or the cost-of-living crisis. And so you blame the baby boomers, who seem responsible for murdering the American dream. This is grossly inaccurate. Leave them alone.

I am not judging you; I don’t even know you. The text above isn’t personal. It simply describes the experience of many readers. It is the Venn diagram of housing dysfunctionality that emerges from cross-comparing hundreds of unique sources: government statistics, public polls, think-tank reports, and academic papers.

For those under 35 (which is about half of you), 38.1 percent have purchased their own home, and 15.9 percent of these people don’t have a mortgage. In other words, only 0.57 percent of millennials have enough money to own their home outright. For those aged 35 to 64 (about the other half of you), 69.2 percent own their home, and 41 percent of this group are debt free—coincidentally, the same amount that have no regrets about buying their home. This compares with 64 percent of millennial owners, who do have quite a few regrets.

The underlying factor driving high prices is a supply crisis. There are simply not enough homes. Between 1968 and 1990 there was an annual increase in stock of about 1.7 percent. By 2000 that had fallen to 1 percent year-over-year. Today it is just 0.7 percent. In real terms, after you discount unoccupied homes and housing stock falling into disrepair, this equates to a net annual loss. In other words, there are actually fewer available homes as time goes on.

We know that demand is only growing, so what is suppressing supply? Obvious causes might include a lack of investment or the high cost of mortgages choking off access to debt. These play a part. The main cause of the shortfall is widely considered to be zoning restrictions. Government at all levels massively prefers single-family, low-density housing. However, it is impossible or impractical to increase this type of housing in line with general need. Preexisting factors restrict such supply from being built: environmental (floodplains, mountains, forests, etc.), spatial (proximity to dense metropolitan areas), and political (including racial and class segregation).

So why would the government insist on zoning rules it knows can’t produce desirable outcomes? Isn’t the task of the state to provide for its citizens? Surely governance doesn’t benefit from spiraling costs, housing shortages, overcrowding, and homelessness? This is where it gets sinister.

Politicians and elected representatives across the country are under immense pressure to not just maintain home prices but ensure they go up. Two-thirds of almost any electorate have taken out a mortgage. This means that their home is both their greatest asset and their greatest liability. Any changes to loan terms are serious enough in themselves, leading to overexposure, foreclosures, and evictions. To avoid this, the Federal Reserve aims to keep its rates as low as possible, which also penalizes savers by giving them poor returns and so pushing them toward consumerism or the stock market, which boosts the economy overall.

Aerial view of a portion of Scottsdale, Arizona, an upper-income Phoenix suburb that in some places including here still borders the open desert. (Library of Congress, Prints & Photographs Division, Photograph by Carol M. Highsmith [LC-DIG-highsm- 49711]
Mortgage rates aside, the greater threat to politicians comes from sustained drops in sale prices. This is because mortgages are essentially forced saving plans. Their main social function is to make sure people have enough cash to provide for their old age. If you spend three decades paying off your home only to find it is worth less than when you bought it, this means you can never retire. Worse still, in a country without universal health care or a significant social security safety net, the absence of capital gains from your home could become a life-or-death matter. The state will not help you. A stagnating property market could kill you. This explains why any politician who oversees a collapse in property markets is swiftly replaced.

The only way politicians can control the price of housing is to artificially restrict supply. They do this by placing limitations on the planning and zoning process (often while making it look like they are increasing supply) and by divesting from public housing (selling their existing stock and not making any, or enough, new housing).

There is yet more to this than meets the eye. According to mainstream economic theory, under free-market capitalism if there is an unmet demand, then innovation (the invisible hand) will start generating new product categories. This has not happened. More than 99 percent of all housing is build-to-sell (direct to mortgage or buy-to-rent). According to Housing International (HI), out of a total 138 million homes in the United States just 1 percent are cooperatives—and half of these are in New York City. Even this figure may be an overestimate; HI also lists the U.S. total social housing stock at 10 percent, while the Organization for Economic Cooperation and Development (OECD) says it is not more than 4 percent.

We are in fact describing a loop, or a vicious cycle: Financial institutions respond to government zoning limitations by offering only single-family mortgage products; developers are forced to build single-family, low-density homes; potential residents have no choice except to save up for a mortgage on one of these homes; they become worried their asset might depreciate; politicians court their votes by limiting supply through zoning restrictions; in turn, the financial sector reacts by… well, you get the idea.

One unfortunate side effect of this loop is that, because of limitations on new properties, mortgage lenders and housebuilders are strongly motivated to shorten the life span of the housing stock. The faster a home deteriorates, the faster it can be demolished (which generates profit for the demolition industry) and then rebuilt and remortgaged at a higher rate. Keller Easterling has described the shadow economy of demolition, and the political, socioeconomic, and ecological impacts of shorter building life spans, in her excellent book Subtraction. Because this continues to generate profit for existing lenders and developers, there is no incentive to innovate or develop alternatives, and most attempts to do so fail to take into account the scale of capital against which they are competing. (For this reason, you shouldn’t be fooled by Silicon Valley start-ups like Bjarke Ingels’s brainchild NABR.)

If it weren’t so serious, the housing market would be absurdly funny. It sounds like a half-baked project by a lackluster architecture student: full of energy and ambition but optimistically ignorant and fundamentally disconnected from reality. The whole system is so comically ill-conceived and horrifically exploitative, it is a wonder that the American people haven’t resorted to open revolution, rising up to overthrow their financial and political institutions. Except that to do this would mean admitting that capitalist property relations are fundamentally flawed, and too many people have too much at stake to tell the emperor he is naked. Deep-level criticism of capitalism remains a tetchy and polarizing topic in the U.S., in spite of the fact that 68 percent of all Americans believe the rich are not paying their fair share in taxes and 49 percent believe that “a complete change of our economic system” is in order.

From a purely economic standpoint, state-built housing could be the government’s money tree: Those in power have exclusive access to demographic data that allows them to predict need almost a century into the future; they have access to colossal amounts of debt through the international bond markets which is basically free; they have the ability to compel industry to prioritize their own construction; and they can forcibly acquire whatever land they want. Yet the U.S. refuses to do this, and has one of the lowest levels of social housing in the OECD. Ideology is surely the cause of this, but there are more practical calculations as well: If there were an infinite amount of inexpensive, high-quality housing, the market value of any house would approach zero. This would cause two-thirds of the workforce to lose all their wealth, making this seemingly obvious solution a nonstarter.

It is very hard to see how the entire situation—the complete dominance of single-family, mortgage-backed homes and the shortage feedback loop they create via politics and the financial sector—might be changed. Indeed, the problem goes back farther than we care to realize, as private property is the bedrock of the American project. To “solve” the housing crisis would mean first “solving” the most problematic aspects of U.S. history and its emergence as a nation, from the extermination of Indigenous peoples and the settling of their lands to legal practices of extortion and exclusion such as redlining. The popularization of single-family, mortgage-backed homes is really just the mindless inertia of processes established for colonization. In this sense, the financial sector, politics, and governance—and even the hapless homeowners—are all trapped within a system that dates from an entirely different epoch.

This is why millennials should lay off all the “OK boomer” shade. The boomers merely inherited a restrictive property model they had no part in creating. Their worst crime is that they did nothing to change it. Will we be any different?

Jack Self is an architect, a writer, and an editor. He is also the founder of the REAL Foundation, which recently republished Liselotte and O. M. Ungers’s book, Communes in the New World 1740–1972.