by Don Peck
SINCE THE 1940s, the story of the American middle class has been tightly intertwined with that of America’s suburbs. Middle-class life is, to a large extent, measured by housing, and the purchase of a house in the suburbs is, for many families, an emblem of achievement—signifying fully-adult status, economic security, and some measure of prosperity. And of course a home is by far the largest store of wealth for most families as well—a savings account, rainy-day fund, and retirement asset all rolled into one.
As middle-class incomes have faltered over the past two decades or more, housing has become ever more central to the achievement and maintenance of middle-class life. By the middle of the aughts, many Americans had come to view their house not just as a store of wealth, but as an engine of it, one that seemed to promise the upward mobility and increasing material comfort that flat salaries did not. From 2000 through 2006, real home prices rose by almost 90 percent nationally; in particularly effervescent markets such as Las Vegas, Phoenix, Tampa, and Miami, values more than doubled. Home buyers—more than 50 million of them over that same span—chased those returns eagerly, spending 34 percent of their disposable income on housing, on average, by 2006. Relaxed credit standards both expanded the pool of buyers and allowed them to put little money down, enabling bigger and more-leveraged home purchases. In 2005, nearly one in four new mortgages was an interest-only adjustable-rate loan. In 2006, 20 percent of all new mortgages were subprime, up fourfold since 1994.
Clearly, this kind of appreciation couldn’t go on forever—as the economist Robert Shiller has shown, once you account for inflation and home improvements, housing has never been a fast-appreciating asset over the long haul. From 1890 through 2004, U.S. house prices rose just 0.4 percent per year on average, with these factors taken into account. This stands to reason: land remains plentiful in the United States, and the cost of construction materials hasn’t risen greatly—if anything, houses are cheaper and faster to build now than they’ve ever been.
But for almost a decade, typical families saw the value of their home go up by $10,000 or $15,000 a year (more still at the peak). Many cashed out at least part of the increase to fund renovations or annual vacations or new cars. According to the Federal Deposit Insurance Corporation, the value of all outstanding home-equity loans more than doubled between 1998 and 2008, to more than $650 billion. As of 2007, according to the Census Bureau, more than 12 million owner-occupied houses (about one in six) had second or third mortgages on them; another 2 million homeowners had refinanced their mortgage primarily to get cash back.
With the crash, many families have seen their house transformed in a blink from a sort of magical ATM to a heavy burden. Nationwide, housing values fell by about 31 percent from their peak in 2006 to the end of 2010. In Las Vegas, Phoenix, and Tampa, they fell by 58 percent, 55 percent, and 45 percent, respectively. And we still may not have reached the bottom; at the beginning of 2011, home values were still more than 20 percent higher than they were in 2000, after adjusting for inflation. According to the Census Bureau, the total housing vacancy rate in 2009—more than 10 percent, including rental properties that had been vacant for a full year—was higher than it had been since 1965, when the bureau first started tracking that data.
At the beginning of 2011, roughly one in four homeowners was underwater—their house was worth less than the principal still outstanding on their mortgage. (In Arizona and Florida, that number was one in two; in Nevada, two in three.) Roughly one in seven was delinquent on a mortgage. A small fraction of homeowners—currently sitting in the long purgatory between foreclosure and eviction—have extra cash to spend or save, albeit temporarily, because they are paying nothing for the roof over their heads. But a larger number have been struggling to make house payments. As Harvard University’s Joint Center for Housing Studies reported in June 2010, “Despite falling home prices, loan modifications, and softening rents, the downturn did not reduce the number of households spending half or more of their income on housing—18.6 million in 2008. Instead, the share with such severe housing cost burdens climbed to a new height.”
“Disillusionment is the appropriate word for my current condition,” wrote a reader of Andrew Sullivan’s in Sullivan’s recurring blog feature “The View from Your Recession.” The man, a software engineer who’d immigrated from Nigeria and was living in the Midwest, said he’d spent years eating ramen noodles and keeping the thermostat down in the winter so that he could save aggressively, and he’d put the lion’s share of his savings into his house and other real-estate properties, which he’d bought and held. “If I had been profligate,” he wrote, “at least I would have the memories. It’s hard to muster the discipline to save again. It was difficult (horrendous even) to work an average of 75 hours a week for over a decade. It stings to realize that it was all for naught.”
THE PROBLEM NOW facing many middle-income families—especially young, striving families who bought into new communities in recent years—is not only that their biggest financial asset has become a liability (though that problem is severe). It’s that everything they thought they were buying along with their house—good schools, a good neighborhood, the good life—is also now in question. The suburban idyll, in many places, appears to be vanishing.
For many years, the housing bubble papered over the stagnation of middle-class incomes. But it also changed the geography of middle-class living, in ways that look unhealthy today. As the bubble inflated, first-time buyers found it harder to get in on the action—particularly in high-priced city-regions with diverse and thriving economies like San Francisco, Los Angeles, New York, and Boston. But of course, with most people’s salaries and wages going nowhere, getting in on the game was also becoming more urgent. Within city-regions, that fueled explosive growth in faraway exurbs. Nationally, it prompted a helter-skelter rush into lower-priced but fast-appreciating metro areas like Orlando, Tampa, Phoenix, and Las Vegas—the same places now suffering the worst effects of the crash.
This pattern of middle-class migration was not new; both sprawl and the Sun Belt had been growing for decades. But the bubble pushed that growth further and faster. Phoenix grew from just under 1 million people in 1990 to more than 1.5 million in 2007. One of its suburbs, Mesa, is now larger than Pittsburgh.
The economic boom in many of these cities, writes Richard Florida, was, to an uncommon degree, “propelled by housing appreciation: as prices rose, more people moved in, seeking inexpensive lifestyles and the opportunity to get in on the real-estate market where it was rising, but still affordable. Local homeowners pumped more and more capital out of their houses as well,” and into the local economy. “Cities grew, tax coffers filled, spending continued, more people arrived. Yet the boom itself neither followed nor resulted in the development of sustainable, scalable, highly productive industries or services. It was fueled and funded by housing, and housing was its primary product. Whole cities and metro regions became giant Ponzi schemes.”
At the peak of the market, housing construction and related activities accounted for more than a quarter of the economy in Phoenix and Las Vegas, and 30 percent in Orlando. Florida posits that these cities, among others hit especially hard by the housing crash, may never recover. The very nature of their attraction has left them with large populations, but not an especially high level of human capital; the country’s economic elite have for the most part clustered elsewhere. So, too, have recent immigrants with high economic potential. According to the Brookings Institution, relatively highly educated immigrants have crowded into places like Seattle, Minneapolis, San Francisco, and New York. By contrast, “immigrants with the lowest levels of English language ability and educational attainment cluster in Texas, inland California, and Sunbelt markets that experienced fast growth during the decade’s housing boom.” With the mirage of opportunity in these places dispelled, revealing shrunken, low-wage, slow-growth economies, many homeowners have discovered not only that they bought into a Ponzi scheme, but that the local economy c
annot provide the sorts of job opportunities that might help them rebuild lost wealth.
In his 2008 Atlantic essay, “The Next Slum?” the real-estate developer and land-use strategist Christopher Leinberger argued that even in less frenzied markets, traditional suburbs (and in particular newer exurban communities far from city centers) were headed for a long decline—that today’s McMansions might turn into tomorrow’s tenements. The suburbs had been massively overbuilt throughout the aughts, Leinberger observed. Meanwhile, inexorable demographic changes (an aging population, fewer and smaller families), rising gas and energy prices, and a tectonic shift in cultural preferences toward urban living all suggested decades of declining demand for oversized houses on the suburban fringe. In 2006, the Virginia Tech housing expert Arthur C. Nelson concluded, after a detailed analysis of housing supply, population growth, and recent consumer research, that by 2025, there would likely be a surplus of some 22 million large-lot homes nationwide, or roughly 40 percent of all large-lot homes then in existence.
It’s worth noting the difficult compromises that many middle-class families have made in recent years in their effort to own a piece of the American Dream. Nearly one in four people surveyed by Fannie Mae in 2010 said they were “sacrificing a great deal” to own a home. Even in 2000, roughly 3.5 million Americans were making “extreme commutes” (defined as daily, round-trip travel of three hours or more), and that number had doubled since 1990. Roughly one in eight workers was leaving for work by six o’clock each morning. Whatever it may mean for romantic notions of the human spirit, over the years economists have consistently found that a short commute is one of the more important keys to happiness; few things affect general life satisfaction more than commuting time. Related research shows that people who commute through heavy traffic typically accumulate higher concentrations of stress hormones in their blood, get sick more often, and fight more with office mates at work and with family members at home. Perhaps these compromises were worth making to build equity for the future or provide a better environment for the children. But in many places that equity is now gone and the environment is changing.
Once suburban communities begin to falter, Leinberger wrote, they can tip quickly into irreversible decline. Typically, municipal revenues on the suburban fringe are heavily dependent on property taxes and fees associated with new construction; a smaller tax base means fewer and poorer municipal services, including policing and schools. Widespread vacancies inevitably lead to the eventual conversion of houses into rental units—and not just of the single-family sort. And because most modern houses, even McMansions, are built so cheaply today in comparison to the houses and brownstones of decades past, they are ill-suited to rental, because they show wear quickly.
A 2010 Brookings Institution study, “The State of Metropolitan America,” found that in a historic reversal, more poor people have recently come to reside in America’s suburbs than in its cities. And the number is climbing rapidly; over the past decade, the suburban population living below the poverty line grew by 25 percent, nearly five times faster than the urban poor population in America’s largest metro areas. In the exurbs, just 19 percent of adults had a college degree in 2008, well below the national average. And in places like Memphis and Charlotte, crime, too, has migrated to the suburbs, while in some cases declining in the central city.
In the 1960s and ’70s, for the most part, those urban residents who could leave American cities did, and urban decline became self-reinforcing for more than a decade. Today, that same general phenomenon—or rather, its mirror image—may be under way, as those who have the wherewithal leave the exurbs for smaller houses or rental units in closer suburbs or resurgent cities. But the transition of places from middle-class to poor, from populous to vacant, is inevitably messy and contentious. Inner cities took the better part of two decades to empty of the middle class. Astonishingly, as of 2009, Detroit remained America’s eleventh-largest city, despite a decline spanning generations and an average home price that fell below $20,000 during the recession.
Today, after years of rapid growth, Las Vegas is now shrinking. In 2005, as Sin City beckoned, U-Haul charged people renting a truck from Los Angeles to Las Vegas almost four times what it charged those going in the opposite direction. In 2010, demand had reversed, and so had U-Haul’s prices. That’s no surprise: Nevada led the nation in both unemployment and foreclosures as of September 2010, and Las Vegas, noted the New York Times, was facing “its deepest slide since the 1940s.” What’s surprising is that the outflow hasn’t been faster. “We’re in such bad shape here you’d think a lot more people would be leaving,” said John Restrepo, a Nevada economic-development analyst, to the Las Vegas Sun in September 2010. “And maybe they would if they could, but they’re kind of stuck.”
Most people cannot easily uproot themselves from their community, even if they’d rather live elsewhere. Jobs, schools, and family commitments tug at some. Years of savings poured into down payments, mortgage payments, and renovations make others reluctant to cut their losses. Scant savings make it difficult to relocate, and impossible to do so without significant downsizing. Anchored by houses they couldn’t afford to sell, more Americans stayed put in 2008, the first year of the recession, than in any year since the Census Bureau began tracking moves in 1948. In 2009, the rate of migration rose minimally—in large part because foreclosures began to force more people to move—but was still historically low.
And so, for the foreseeable future, it looks likely that millions of American families who had imagined themselves to be economically successful and upwardly mobile will be both metaphorically and physically stuck, rooted in places that are changing in ways they did not anticipate and do not welcome. How they react to that circumstance will, to a large degree, shape the contours of American community life for the next several years or more.
IN THE NATIONAL imagination, hard times bring communities together. Neighbors exchange favors, watch out for one another, even cover each other’s debts in times of need. And surely this recession has produced untold acts of kindness and generosity; according to one recent Pew survey, for instance, about half of all Americans have lent money to a friend or family member since the downturn began, and roughly a quarter say they’ve been a recipient of such a loan.
But as many social critics have noted, the suburbs were never really designed for togetherness. As Kenneth T. Jackson writes in his classic history of suburbia, Crabgrass Frontier, the initial mid-twentieth-century push into the suburbs was driven by cheap housing, yes, but also by the desire to get away from a more crowded and public way of life—and all too often by racial prejudice. The advent of air-conditioning heralded the abandonment of front porches, the closing of windows, and a further retreat into private lives behind private walls. Indeed, the growth of the suburbs—and with it the privatization of most aspects of daily living—is sometimes given as one reason why Americans became more politically conservative in the latter half of the twentieth century.
I asked Mark Spector if the recession and all its attendant problems had brought Bridgewater’s residents any closer together. “It’s the exact opposite,” he replied. As in many recently built subdivisions, the community didn’t have a deep reservoir of local spirit or goodwill to begin with. The homeowners-association meetings, Spector said, have “never had a quorum.… Even with all the trials and tribulations, the largest number of people we’ve ever had—even with proxies—was something like sixty-five. And we need 152.” But whatever shallow reservoir once existed now seems utterly depleted by the stresses of community decline—and by the strenuousness of the efforts to reverse it.
Against the backdrop of Florida’s epic housing crash, and among subdivisions built near the height of the bubble, Bridgewater is actually something of a success story for its ability to arrest its decline. If you want to see what failure looks like, head south to Carriage Pointe in Gibsonton, where the ubiquitous and exotic real-estate signage—FOR SALE, SHORT SALE, NEIGHB
ORHOOD STABILIZATION PROGRAM SALE—is frequently obscured by thigh-high weeds; where the detritus of foreclosure and eviction (old couches, broken TVs, cardboard boxes) sits forlornly in driveways and on curbs; and where some of the people who still live among the vacant shells around them will not open their door in the daytime to a fortyish man who says he’s a reporter. In Bridgewater, by contrast, the lawns are now neatly trimmed, the yards are once again tidy, and neighborhood crime has decreased from its post-crash highs.
But this order has come at a price. Lacking any organic means of bringing the community together and pulling it back up from its descent, Spector and the other association officers have turned instead to the cudgel available to homeowners associations nationwide, and they have wielded it ruthlessly: hypervigilant rules enforcement—backed by heavy, quick-trigger fines and liens—has become a dominant feature of community life.
To one extent or another, lawyerly yard challenges have always been characteristic of America’s planned communities, where one can find occasional acts of exquisite pettiness in even the best of times. And Bridgewater’s approach has worked cosmetically, allowing the community to find new home buyers and limit vacancies. But to achieve that goal, the association has levied thousands of dollars in fines on some households. When a lawn isn’t kept to code, for instance, the association will issue a warning, and if the violation isn’t quickly cured, it will simply put the house on a list of properties for which the association will do lawn care whenever the lawn is in violation, without notice, billed punitively at $100 a cut. The same is true, more or less, for mulching, edging, tree trimming, and exterior house upkeep. Cars parked on the street are quickly towed. Off-duty policemen are paid by the association to patrol the community and keep it safe; they sometimes confront and question people they believe are acting suspiciously.