Should Middle Class Abandon the American Dream?

Appearing in:

Orange County Register

Over the past few years, particularly since the bursting of the housing bubble, there have been increasing calls for middle-class Americans to “scale down” from their beloved private homes and seek a more constrained existence. Among these voices recently was Michael Milken, for whom I have worked and have enormous respect. He suggested Americans would be better off not buying homes and living smaller, for the sake of their own economic situations, families and the environment.

To some extent, the Great Recession has done much to make downsizing a reality, just as Milken and others propose. Homeownership in America, which peaked in 2002 at nearly 70 percent, dropped, according to the U.S. Census Bureau, to 65 percent in 2013, the lowest level in 15 years. Some of this may be seen as correcting the excesses of the housing bubble, but the trajectory suggests – and many analysts agree – that ownership may continue to fall in years ahead.

The question now is, do we want Americans to abandon homeownership, leave the less-crowded periphery for congested areas, adopting the chock-a-block lifestyle much as many of their grandparents did? This poses an easier proposition for the ultrarich, who already live far larger than the average American and whose biggest real estate worry more likely involves which pied a terre or country house they want to purchase next.

This is very different than the reality of the average middle-class family, whose concerns are more prosaic, such as finding room for home offices, deciding how few bathrooms a family can accommodate without armed conflict and if it is even feasible to afford the close-in communities their betters want them to inhabit.

Unable to play the stock game on the scale of gain like those who invest in private equity, hedge funds or venture capital, for the middle classes the home remains the one place where they can gain equity and, perhaps more importantly, some sense of autonomy. For many, it is the only large investment they can afford, since at least it provides a place to live and offsets the rent that they would have to pay otherwise.

The recovery has been sweet for the rich, in large part because they have the extra money to invest in stocks. They have 24 percent of their wealth in homes, compared with 40 percent for middle-income families.

And, since the rich can afford to send their kids to elite schools, where degrees increasingly are the last ones to produce much value at the high end of the job market, to such people, the investment in education urged by Milken may seem like a good bet. Investing more in conventional education, however, is no panacea for many middle-class and working-class families, whose kids are often saddled with debt and attend the second-tier schools whose returns on income are far less attractive, say, than those who can send their kids to Harvard.

This is not to say that many larger homes seem foolhardy investments. But there are many legitimate reasons why people may need larger spaces. Among the most prominent is the growing tendency for people to work at home – most metro areas have far more telecommuters than transit commuters – as well as the increasing numbers of multigenerational households, which, after falling for decades, have risen from 12 percent of total households to 16 percent since 1980.

The phenomena of some among the rich calling for the middle class to scale back represents one of the least-attractive aspects of the current gentry liberal ascendency. In one remarkable piece, Dave Zahniser, writing for the LA Weekly, went to the homes of L.A.’s “smart growth” advocates, most of whom want ever more density and multifamily apartments as opposed to houses. And where did they live? Almost all in large houses, often in gated communities, far from any bus line. Zahnhiser’s headline captured the hypocrisy: “Do what we say, not what we do.”

Cloaked in sensible rhetoric, the current drive to discourage middle-class homeownership really represents a kind of class warfare, albeit unacknowledged, waged by wealthy people upon the middle class, who, the wealthy suggest, should live smaller even as they indulge ever-expanding luxury. Talk about adding insult to injury: Middle-income groups have fared far worse during the recovery than the rich or, in relative terms, the poor.

Some advocacy for middle-class downsizing is brazenly self-interested. The Wall Streetadvocates of a “rentership” society see a great opportunity for profit as Americans are deprived of their aspirations by the weak economy. As the dream of some autonomy fades, more families are forced to become renters in apartments or houses that such hedge funds as Blackstone have collected from distressed former owners.

In the process, a huge portion of the population is being transformed from property owners to renting serfs; money that might have gone to building a family nest egg ends up paying the mortgages for the investor class. In this neofeudalist landscape, landlords replace owner-occupants, perhaps for as long as the next generation.

“There is the possibility that Wall Street and the banks and the affluent 1 percent stand to gain the most from this,” said Jack McCabe, a real estate consultant based in Deerfield Beach, Fla. “Meanwhile, lower-income Americans will lose their opportunity for the American Dream of building wealth through owning a home.”

Other wealthy folks – notably some in Hollywood and Silicon Valley – also support a California planning regime that makes difficult the purchasing and construction of family-size homes, largely as a means to reducing the dreaded human “carbon footprint.” Yet they, too, are often unconsciously hypocritical, as many of them live in palatial houses, and often fly on private jets, one of the quickest ways to boost one’s carbon emissions. Google’s top executives, among the most reliable allies of the middle-class-destroying green and urban-planner lobby, famously have a fleet of planes based at San Jose Airport.

Others, like the environment magazine Grist, embrace a more idealistic vision of a new generation that rarely owns and doesn’t embrace conventional ambitions. They see the current millennial generation, facing limited economic prospects and high housing prices, as “a hero generation,” rejecting the material trap of suburban living and work that engulfed their parents.