{"id":10161,"date":"2009-09-27T23:11:10","date_gmt":"2009-09-27T23:11:10","guid":{"rendered":""},"modified":"2009-09-27T23:11:10","modified_gmt":"2009-09-27T23:11:10","slug":"using-your-home-as-a-second-job","status":"publish","type":"post","link":"https:\/\/calitics.com\/index.php\/2009\/09\/27\/using-your-home-as-a-second-job\/","title":{"rendered":"Using Your Home As A Second Job"},"content":{"rendered":"

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”<\/a>.<\/p>\n

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.<\/p>\n

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<\/a> 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.<\/p>\n

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.<\/p>\n

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:<\/p>\n

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.<\/p>\n

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.<\/p><\/blockquote>\n

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.<\/p>\n

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.<\/p>\n

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. <\/p>\n

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.<\/p>\n

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.<\/p>\n

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.<\/p>\n","protected":false},"excerpt":{"rendered":"

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”<\/a>.<\/p>\n

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.<\/p>\n

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<\/a> 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.<\/p>\n

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.<\/p>\n

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:<\/p>\n

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.<\/p>\n

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.<\/p><\/blockquote>\n

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.<\/p>\n

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.<\/p>\n

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. <\/p>\n

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.<\/p>\n

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.<\/p>\n

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.<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[87],"tags":[],"class_list":["post-10161","post","type-post","status-publish","format-standard","hentry","category-87"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack-related-posts":[],"jetpack_shortlink":"https:\/\/wp.me\/p6Pvhz-2DT","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/calitics.com\/index.php\/wp-json\/wp\/v2\/posts\/10161","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/calitics.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/calitics.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/calitics.com\/index.php\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/calitics.com\/index.php\/wp-json\/wp\/v2\/comments?post=10161"}],"version-history":[{"count":0,"href":"https:\/\/calitics.com\/index.php\/wp-json\/wp\/v2\/posts\/10161\/revisions"}],"wp:attachment":[{"href":"https:\/\/calitics.com\/index.php\/wp-json\/wp\/v2\/media?parent=10161"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/calitics.com\/index.php\/wp-json\/wp\/v2\/categories?post=10161"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/calitics.com\/index.php\/wp-json\/wp\/v2\/tags?post=10161"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}