Today’s LA Times has a very good article by Peter Hong with an unfortunate title: “Don’t bank on your home as an ATM”.
The notion that Californians took equity out of their homes during the bubble earlier this decade and spent it on frivolities like cars and vacations is a widespread belief. “Using a home as an ATM” is the way this practice is derogatorily described on many of the otherwise excellent housing blogs that have charted the collapse of the real estate bubble. It’s a frame that’s typically used to place the blame for the bubble and the crash at the feet of “irresponsible borrowers,” excusing or downplaying the role of lax lending practices, reckless banks, and absentee regulators.
There’s no doubt that by 2005-06 much of California’s economy was based on the housing market. But there’s a better way to understand how this worked than the “home as ATM” frame. Jean Ross of the California Budget Project explained it to me recently as Californians “using their home as a second job.” People taking equity out of their homes to pay medical debt, or put kids through college, or yes, to buy consumer goods.
Until the 1980s rising wages enabled most Americans to pay for those things without debt. Beginning in the late 1970s, American policymakers adopted a deliberate policy of suppressing wages, slashing government services, and using debt to sustain the economy. In doing so they set into motion a series of asset bubbles that caused many people to use their homes as a second job.
And that’s what Hong’s article actually gets at. A better, more accurate headline would be “Proposition 13 has failed California homeowners,” as the tax subsidies have not been enough to replace stagnant wages or government subsidy of some of fastest rising costs, particularly the medical and education costs that led many Californians to take equity out of their homes:
With greater debt loads and flat wages, Americans have less to spend on houses, condominium units and everything else. That’s a greater problem today because consumer spending has replaced investment as the chief driver of the U.S. economy, accounting for roughly two-thirds of economic output. In the current economic model, consumption needs to rise to fuel the economic growth necessary to bolster home prices.
Also cutting into money available for housing: Americans are devoting more of their income to healthcare and retirement savings. And expenses such as college tuition have outpaced inflation and wage gains.
Hong’s point there gets to the other aspect of the wage stagnation and housing bubble phenomenon, one that should frankly scare the shit out of middle-class baby boomer homeowners: the strong possibility that there won’t be buyers out there to purchase their homes when the boomers need to sell them for cash to replace their lost 401(k) and pension funds.
Over the next 10 years we are likely to see boomers turn to their homes as a source of funds to help pay medical bills (especially if Republicans undermine Medicare) and to live in their retirement (especially if Republicans undermine Social Security). After having spent 30 years steadfastly refusing to pay higher taxes to help provide to younger generations the affordable education, health care, and other benefits they themselves enjoyed when they were younger, they have now created a situation where they’ll either have to live in their paid-off houses without the ability to provide for their own needs, or will have to sell for cash at fire sale prices in a marketplace without enough buyers.
To be fair, Hong’s article includes quotes from Robert Reich who doesn’t think this scenario will come to pass. But unless we are able to provide economic security to folks under 40 – who are currently drowning under a wave of student loan debt, unaffordable job retraining costs, soaring health care bills and stagnant wages, it’s difficult to see where the future pool of borrowers will come from.
It’s situations like this that provide an opening to forward-looking Democrats who understand that the economic crisis requires policy solutions that unite old and young, homeowner and renter, in the search for government programs to assure economic security for everyone.
And yet we don’t have those Democrats, at least not in California. Instead of searching for cross-generational alliances, many homeowning boomers are clinging ever tighter to the status quo, hoping that if they continue to pull up the drawbridge to younger generations, they’ll still be able to enjoy subsidized homeownership until they all reach the magic age of 65 and become eligible for both Medicare and Social Security.
The economic and political consequences of such an approach would be utterly ruinous. But in the absence of the articulation of clear progressive alternatives, that’s precisely what will happen.
…’in the absence of the articulation of clear progressive alternatives…’. That is the problem. There exists few, Lakoff used to have one, ‘progressive’ think tanks and there is no real move to create same it’s all about ‘my website and my way…’ the elitist failure to articulate what ‘progressive is and how it should connect with the average person’s life is a fatal flaw in the movement. Successful political movements are NOT built on personalities. They are built on the implementation of policy.
Sadly you are still stuck in the Bowers ‘da Boomers are evil…’ frame. I’m a Boomer and I’ve watched this nation go right down the drain as folks like you and Obama and Clinton continually show up, marginalize the very folks you need to build a working majority and then pat yerselves on the back for a job well done.
This site still has potential but only if you start understanding how to put coalitions together instead of demonizing one group or another. ‘Boomers’ are citizens just like you and the Bubbas of Georgia and until we all come together to fight for our rights Corporate Slave State America will continue to win.
when my wife got cancer… and we had very good insurance at the time. Now I’m using the house as a second job, because the premiums went up 500% in the last fifteen years. We’re still ten years away from Medicare, and perhaps three years from qualifying for a “public option” policy.
But I wouldn’t make too much of the “generational struggle”. I’ve got two kids who will be finishing college and starting careers in the next decade. I’d really like them to get good jobs and affordable health insurance, rather than moving back into the house.
There’s going to be some friction as long as our economy uses structural unemployment to keep wages down. I remember being resentful toward the “early boomers” who seemed to be hogging every rung of the career ladder above me. Now I’m terrified of the X, Y and Z’s who have come into the job market behind me with state-of-the-art educations, are unencumbered by child-rearing, and are willing to work for a salary that would cover only half of my family’s budget.
But the noise seems to be about the boomer’s desire to keep home prices (and their equity) high, and the youngsters desire get the price of admission down to where they can afford it.
I favor policies that make home ownership less of an investment, and more of a “utility”. We should make it possible to rent your entire life and still save enough for retirement. The decision to seek a home closer to work should not be deterred by the fear of losing equity. And young married couples with entry-level jobs should not be forced to live with parents because rentals are too few and too expensive.
We have to break the wealth of this country free from the iceberg of “finance” and get it circulating again as wages, personal savings, and home equity. Otherwise we may live to a generation of retirees sharing suburban homes in their sixties, they same way they shared apartments back in their twenties.
have led directly to the crushing debt burdens that are keeping the economy from recovering.
Well. That is to say, keeping the “Main Street” economy from recovering. The Wall Street and high-powered trading economies are doing fine so they tell us.
The war against Boomers is one that corporate interests have been trying to gin up since the Clinton era, if not before, and they aren’t about to stop now when they feel like they are so close to victory.
The problem of wage stagnation and decline effects everyone. It’s been consistent throughout the working lives of most Boomers — who, by the way, saw their payroll taxes double to fund their Social Security. Supposedly. Actually their doubled payroll taxes have funded wars of aggression and taxcuts for the rich. And the rich are now refusing to be taxed to make up for the misspent SS funds.
Cute, eh?
So of course the corporate interests and the plutocrats want to fire up a hot conflict between the generations — so that they’ll never have to pay back anything they’ve stolen.
Too many Americans fall for it.