The American Experience: Rethinking Homeownership

In recent decades, Chinese homeownership levels have increased sharply. Real estate has become a symbol of the middle class, paralleling the American way of life to some extent. Remember George W. Bush’s presidential campaign slogan a few years back? He wanted the U.S. to become an “ownership society,” and he was not the only one; Clinton, who was in office for eight years, also claimed homeownership levels as the key indicator of a prosperous society.

However, with the collapse of the real estate market, U.S. scholars began reflecting on “ownership society.” Recently, sociologist Richard Florida published a shocking theory in The Wall Street Journal where he argues that homeownership is a hindrance to a creative society. He suggests that those Americans more likely to own a home are also those more likely to be poor. His data are very clear: The areas in the U.S. where homeownership levels are high are generally the spots falling economically behind, where the people are poor and the quality of life is low. In areas where homeownership is less prevalent, economies are developed, wages are high, and the quality of life is excellent. For example, cities that have homeownership levels of 75 percent or higher — such as Detroit, Pittsburgh and St. Louis — have been hit the hardest by the economic downturn. Some areas in Detroit are like ghost towns. Looking at areas where the homeownership level was only 55 to 60 percent — such as New York, Los Angeles, San Francisco and even Boulder, Colorado — the economy is developed and income is high. In Gallup surveys of these areas, people report high levels of happiness and general well-being.

Why is this? A careful comparison of the two groups of cities will help you to understand. The former group consists of traditional industrial cities, inhabited by industrial workers. The latter group is built on the high-tech, education and service industries, attracting a large number of young, highly educated creative talent. The income levels and lifestyles of these groups are very different, which affects the local housing prices and homeownership levels.

Buying property became popular in the U.S. after World War II. At the time, the U.S. was a “world factory.” After graduating high school, students worked in local factories, enjoying high wages, good welfare and better days than professors. Even the children of professors became workers instead of going to university, never leaving their hometowns.

In the 1950s, the world tuned in to the “Kitchen Debate” between American Vice President Richard Nixon and Soviet leader Nikita Khrushchev, taking place in the kitchen of a house at the American National Exhibition in Moscow. Soviet leaders and press mocked the “luxurious house” on display, comparing it to the Taj Mahal and suggesting that ordinary Americans had no chance of owning such a home. The implication was that it was Cold War propaganda intended to deceive citizens of the Soviet Union. Nixon responded by convincingly illustrating that the wages of a U.S. steelworker could easily afford this so-called luxury. Internationally, homeownership became closely linked with “American values” and the “American Dream,” continuing into the 1990s.

At the end of the 20th Century, the information revolution profoundly changed the structure of the U.S. economy, and has now begun to impact the housing structure. The foundations of a “world factory” economy, as the name suggests, are factories, and their employees will naturally root themselves to the area and buy a house. Unfortunately for these workers, while jobs in the high-tech and service industries have increased in the last decades, manufacturing jobs have been steadily outsourced.

A creative-based economy demands mobility and adaptability. You can’t expect three big cars in an assembly line to move somewhere else at the drop of a hat. However, the founders of the New Economy Fund (310358, SYWG BNP PARIBAS New Economy Fund) picked up their laptops and left, going wherever there was opportunity. They certainly did not want to be tied down with a house. Today, the U.S. homeownership level has fallen from a peak of 70 percent to 67 percent. The Urban Land Institute expects continued declines to 62 percent. Richard Florida claims that if the nation’s homeownership level decreases to 60 or 55 percent, which is the current level of advanced cities, economic development will be a lot healthier.

There are, of course, big differences between the national conditions of China and the U.S. For example, in China there is a very high turnover rate of low-paid industrial workers in the manufacturing industry. Foxconn’s workers often leave after working for a few months, and of course cannot buy a “Taj Mahal” like their American counterparts. However, the coastal metropolises continue to become more white-collar and high-tech and show no signs of slowing down. Once the development of second-tier cities catches up, many high-tech companies may move toward low-cost housing areas, creating new economic momentum. However, it is difficult for people who are tied down by a house to participate in this new economy. It’s hard to predict when China’s economy will become “dynamic.” That said, buying a house is more about life plans for the next few decades and warrants further consideration of the economic outlook.