Cul-de-sac syndrome hits the U.S.
TEXT OF INTERVIEW
TESS VIGELAND: As you can tell from the number of housing -related questions we answer, we are — despite the events of the last couple of years — still a nation obsessed with home ownership. In fact, this week the National Association of Realtors said its index of pending home sales hit its highest level since June of 2007.
At least one observer isn’t sure that’s good news.
John Wasik is author of the book, “The Cul-De-Sac Syndrome.” John, welcome to the show.
John Wasik: Thanks for having me Tess.
Vigeland: You believe that this bubble was brewing essentially for centuries. How so? I don’t remember reading about housing market collapses in the 1800s or even the 1950s.
WASIK: Oh, there have been housing collapses throughout history, starting in the 18th century really. It’s the idea that we were obsessed with land. People came to North American to get a piece of the pie, to build their castle, to make something of yourself. And then in typical American fashion we transform this overwhelming need to have something of our into this status symbol. And exerting our democratic principles.
Vigeland: Why do you think the house became that symbol?
Wasik: It was largely a vestige of our ego, of our aspirations, of the things we wanted most out of America. And that’s why I really fault the over-emphasis on actually owning homes in terms of the American dream. It’s always a deal where you can buy a bigger house. And many people did. And They did it because they could over-leverage, they did it because the tax law supported it, and they did it because highways were subsidized to places where there had been nothing before.
Vigeland: Yeah and this whole notion of our home, our house as an investment, you ask very early in the book, weren’t homes supposed to be the safest investments on the planet? When did we start buying into that idea?
Wasik: I think it had more to do with the collapse of the social safety net. We really got away from defined benefit pensions; our 401(k)s were devastated in not one, but two different market crashes; and we said to ourselves, “Well what’s left? What is the other way, the other sure fire way of building wealth?” So they said, “There’s my home.” Nobody’s ever lost money buying a house. And we believed it, even though that wasn’t true. And people got into so much trouble just thinking about that and getting into the mire of this fraudulent mess.
Vigeland: Should we at all think of our houses as an investment? And if so, to what extent?
Wasik: I don’t think they’re investments in terms of a home. A home is something that’s a physical entity, it’s always depreciating, you’re always going to have to pay taxes on it, you’re always going to have to maintain it if you choose to do so. And it’s not something that actually grows in value. It’s the land, because of economic scarcity that actually grows in value. And that’s why coastal real estate is so expensive, because it’s a finite resource.
In terms of a real investment, it’s not the best one. One of my heros in the book was Robert Shiller, who was really one of the early prophets of this whole debacle. He said, “Wait a minute, let’s look at long-term averages. What have home prices done over the last 100 years?” They’ve barely kept up with inflation. When you subtract everything that goes into a home, you’re not making any money, in a real time, that’s not affected by a bubble.
Vigeland: You mentioned earlier that there have been housing busts before and I wonder what your predictions are for the lessons that we will take out of this one. Obviously right now, the housing market is in collapse. It’s hard to get a house because of the credit squeeze. But once the economy recovers, and things start to turn around, how confident are you that we won’t simply go back to our old ways?
Wasik: Well, in some respects we will, because a lot of building and development is based on 19th century principles. You can say that any stick-built home with 2 x 4’ss is based on the best 19th century technology available. And that’s too bad because we have so many other things we can do in terms of technology in homes to not only make them greener but cheaper — say building modular homes, building them in factories. All these things are here right now and if we want to bring down the price of homes, if we want to make them more affordable for a larger number of people, we can do that. It just takes political will and willingness to rethinking the American dream.
Vigeland: John Wasik is the author of “The Cul-De-Sac Syndrome.” Thanks so much for coming in.
Wasik: My pleasure, Tess.
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