Sane Asylum: Suburbs and the American Middle Class




Americans love their suburbs.  Suburban living almost defines the American way of life.  Privacy, both homes and backyards.  Space.  Peace and quiet, except for power mowers and leaf blowers.  Compare this with the high cost of space, peace and quiet in cities.

Suburbs are a refuge from the stress of live and work in America.  They are places where nothing happens.  Little or no violent crime.  No class conflict.  Family oriented.  Acceptable schools at a lower cost than private schools in cities.  Lots of space for playing fields and organized sports for kids.  I sometimes think this is the main activity in suburbs.

When Americans retire, they move to “senior citizen” suburban developments that are often even more isolated and further removed from urban life than the suburbs they came from.

But what about the excitement of a city?  For example, the live cultural events.  There is an improving substitute – electronic entertainment.  I can watch all the cultural entertainment I want on my big screen HD TV with Dolby sound. Or over the Internet.  It is not surprising that entertainment is becoming more electronic and passive. 

Social interaction continues to be more “virtual.”  The high density of cities is less important for social and creative interaction.  This trend is consistent with the suburban mentality. 

The housing boom – rapidly rising housing prices leading to large positive wealth effects like spending equity, lower savings and increased borrowing – covered the stagnant incomes of middle class families.  The housing bust takes away a major funding source of a rising standard of living and leaves millions of homeowners with little or no equity in their homes.
.
The housing crisis is devastating because it undermines the foundation of the American middle class – home ownership in the suburbs.  Even those who still own homes have seen some or all of their equity disappear.  About 20% of homeowners with mortgages are “underwater,” holding mortgages that are larger than the market value of their homes.  More and more are simply walking away from their homes. 

Foreclosures and short sales continue.  Who is buying foreclosed and short-sale homes?  According to a private source, about one-fourth of all short sales are to speculators.  Buyers of foreclosures and short sales have to come up with large amounts of cash that middle class families don’t have.  

It is difficult for some young families to buy a suburban home despite the fall in housing prices and low mortgage rates.  In the future, first-time home buyers will be faced with rising housing prices and rising interest rates on mortgages.   Many younger families wouldn’t qualify for a mortgage because their student loans are too large.

In the longer run, it is unlikely that Americans will abandon their desire to live in a suburban environment.  There is also the possibility of a reduction in the economic, environmental and social costs of suburbs.  The cost of solar energy panels is decreasing and this is a decentralized technology perfect for suburban housing.  Electric or hybrid cars may become the standard second car for short trips and commuting to work.  The “family” car will probably have a higher MPG. 

A major middle class strategy for upward mobility has been to have the market value of their suburban home go up in value and use the increased equity as a down payment on a bigger home in a “better” suburb.  This strategy is on hold for at least 20% of homeowners who now have “negative equity” in their homes. No one knows when suburban housing prices will start going up.  It depends on future real economic growth.  When that occurs, so will the demand for living in the suburbs.
__________________________________________________________________________

Related Posts:

What Now?  The Crisis of America's Middle Class

Comments

  1. Melissa LoganSeptember 20, 2012 at 10:11 PM

    I'd like to see an alternative to the traditional suburb with more mixed uses. I understand not wanting to live on top of other people or being dependent on major metropolitan centers for basic cultural events, but clearly the suburban homeownership dream has significant drawbacks and challenges. If you don't have easy local access to urban amenities it can be a catch-22 of attracting new business and getting individuals to invest in their own towns, particularly when the economy is in crisis. That includes tax ratables and amenities that might increase property values and home equity. So then the town declines further. We start to see bigger gaps, a higher transient population...it's a real tangle.

    ReplyDelete

Post a Comment

Most Popular Posts

Adam Smith's Pin Factory

Image
Adam Smith - Our Founding Father ADAM SMITH VISITS A PIN FACTORY   Adam Smith’s description of a pin factory is on the first page of  The Wealth of Nations .  (Chapter 1 – “Of the Division of Labour”)  Drawings of pin factories of this period show workers using hand tools. Smith says the process can be broken down into 18 distinct steps, including packaging the pins. Smith mentions that pin factory workers were poorly paid, despite their high productivity.    Adam Smith says he visited a pin factory employing 10 men who produced 48,000 pins per day.  If each of the ten workers had done all the steps themselves, Smith says each worker could produce only 10 or 20 pins per day.  So the pin factory replaces 2,400 to 4,800 pin makers. The increase in labor productivity (output per person per day) is as high as 50 times that of individual pin makers.     This reduction in unit cost or average cost (AC) and the huge i...
Read more

Bilateral Oligopoly

Image
The best movie about the Gunfight at the O.K. Corral is titled My Darling Clementine. A great western - great cast, great photography.  DEFINITION OF A BILATERAL OLIGOPOLY Models of market structure assume that the demand side is represented by a large number of buyers.  The structure of the market, and the assumed market outcomes, depends on the number of suppliers and how they compete.  Suppliers either post one price or exploit their knowledge of buyer categories by using price discrimination.  Despite the comments about the key role of consumers in determining economic performance, consumers are fairly passive when the discussion focuses on imperfectly-competitive industries.  But many markets are not structured this way; the buyers are not passive consumers but large corporations that do not passively accept suppliers’ prices.  Net prices are actively negotiated.  These markets are often bilateral oligopolies. In a bilateral oligo...
Read more

The Stock Market Crash of 1929 and the Beginning of the Great Depression

Image
Famous Headline Introduction The usual reasons given for the Great Depression – the stock market crash of 1929 and the later collapse of the banking system – do not tell the whole story. Available economic data indicate (there were no national income accounts in 1929) that a recession had already begun before the stock market crash. The crash of October and November of 1929 was a catalyst that made the recession worse but the partial stock market recovery in early 1930 did not end the recession. Industrial production continued to fall quickly and unemployment rose rapidly in 1930. Continuing farm and businesses failures over the next two years wiped out thousands of small rural banks and threatened total financial collapse in early1933.  For a fuller explanation, we have to go back to the 1920s to see additional reasons for the origins and the rapid decline in output at the beginning of the Great Depression. We have to look at the int...
Read more

List of Posts By Topic

FIND POSTS BY CATEGORY CATEGORIES Basic Concepts and Theory Market Behavior and Structure Market Dynamics and Information:  How Markets Work The Industrial Revolution in England American Economic History American History Demographics and Economics Management World War I:  The Beginning of the 20th Century The Roman Republic and America - Differences and Some Possible Parallels Economic and Fiscal Policy Financial Markets and Investment Strategies Foreign Exchange Markets The United States American Foreign Policy and International  Relations Geopolitics and the Global Economy Geopolitics of Oil and Natural Gas Visionaries BASIC CONCEPTS AND THEORY Introduction to Economic Theory Economic Development and Economic Growth Production Functions and Supply Chains Demand  Analysis The following post was contributed by Dennis Schuchman. Artificial Intelligence (AI) and Real Intelligence (RI) You, Your Brain and Credit Card s Critique of Basic Economic Theory MAR...
Read more

Explaining Derivatives - An Analogy

Image
You go around to farmers with cows. You buy all the cows and pay the farmers a small fee to milk the cows and sell the milk. You pay for the cows with ass(et)-backed securities called MBSs (Milked Bovine Securities) that you tell investors are udderly safe. But some of the cows don't give enough milk (cow flow problem) or give no milk at all. You take some of the asset-backed securities, say they're backed by the subprime cows, and use them as collateral to sell another set of securities called CMOs (Cow Milk Obligations). Then you buy CDSs (Cow Dried-up Swaps) from AIG (Angus Insurance Company) to insure the CMOs when the cows stopped giving milk. If you work it right, you collect more on the CDSs than you pay out to retire the CMOs. The money you get from selling the dead cows go to pay the CLOs (cow leather obligations). You could also sell CDOs (cow dung obligations) that depend on how much cow dung is produced. This is a typical Wall Street product - turning sh...
Read more

Government Finance 101. Fiscal Policy: Welcome to Alice in Wonderland

Image
  PRELIMINARY SUMMARY OF FISCAL 2024 BUDGET The deficit in fiscal 2024 was around $1.8 trillion, about $5.0 trillion in revenue and $6.8 trillion in expenses. Interest on the national debt this year is around $960 billion, over twice the interest on the fiscal 2021 budget. Interest expense this year passed outlays for the military. Leaving aside Social Security and Medicare, interest expense is about 20% of total budget outlays. Interest expense is about half the budget deficit.   The fiscal 2024 deficit was 6.4% of GDP.  SOME BASIC DEFINITIONS AND A LITTLE DETAIL Some basic definitions for people in government suffering from political amnesia:   Deficit.    The difference between the federal government’s spending and its revenue in one fiscal year.  The fiscal year starts on October 1.  So fiscal year 2024 started on October 1, 2023. You know right away this is going to be confusing. Debt .  Short for national debt or ...
Read more

John von Neumann Sees the Future

Image
John von Neumann JOHN VON NEUMANN CREATES THE FUTURE If you want to understand the world we live in, you have to know about the thinking of three men – Alan Turing, Claude Shannon and John von Neumann.   I’ve talked a little about Alan Turing in an earlier essay.   All three men knew each other, discussed their ideas with each other and promoted each other’s ideas. John von Neumann has been called the smartest individual of the 20 th Century.   Even an outline of his accomplishments, which you can read about in  Wikipedia, is hard to believe.   He invented game theory, which I discussed in two earlier posts.   He headed up a group of mathematicians who invented new statistical techniques at Los Alamos that made the atomic bomb possible.   In 1944, he wrote a memo that outlined the structure of the modern computer.   He then managed the design and building of a modern general computer and consulted on the building of virtually all ...
Read more

Josiah Wedgwood, the Wedgwood Pottery Company, and the Beginning of the Industrial Revolution in England

Image
Wedgwood Anti-Slavery Cameo A better introduction to the beginning of the Industrial Revolution than Adam Smith is the history of Josiah Wedgwood and the Wedgwood Pottery Company. This is how one company actually ushered in the Industrial Revolution. The revolutionary generation that first adopted steam engines saw the following trends and changes: Manufacturing was being modernized by a small group of entrepreneurs. Much of the new raw material processing and manufacturing was concentrated in a small area in the middle of England, away from London. These modernizing entrepreneurs formed a new economic, intellectual and social network. Modernizing entrepreneurs like Wedgwood tended to be members of Dissenting sects (like Quakers) or Nonconformist churches (not members of the Church of England), Whigs (liberals) in politics, and believers in “progress.” They were optimistic about the future, influenced by the ideas of Hume, Rousseau, Locke and Adam Smith. They believed...
Read more

The Roman Republic Commits Suicide: A Cautionary Tale for America

Image
Roman Legion Why Study Rome? Americans have focused on comparisons between Rome and America twice in American history.  The first time was during the period from before the Revolution to after the ratification of the Constitution and Bill of Rights, when the founding fathers and others looked to the Roman Republic for ideas and inspiration on how to structure the new government. After the American Revolution, the founding fathers, having read the Roman authors detailing the collapse of the Roman republic, worried about internal threats to the survival of their new republic.   The second time was when the United States became a superpower, especially after WWII, and then again after the collapse of the Soviet Union in 1991. Commentators compared America to the Roman Empire at the height of its power. There was some discussion about how America became a permanent warfare state and how it affected domestic democracy and civil society. ...
Read more

“Pax Americana”: The World That America Made

Image
There are two kinds of empires: the kind that rules through ruthless exploitation, and the kind that seeks to induce allies into defending themselves through economic incentives. (George Friedman) INTRODUCTION America's power and influence in the world rests on three broad, interrelated bases: 1) Overwhelming military power that can be projected anywhere in the world,   supplemented by security arrangements with allies and supporters. 2) A large, innovative, dynamic domestic economy as the basis for global economic and technological leadership. The economy provides the resources and technology to support the military and a global foreign policy. 3) Claims to moral and ideological leadership and influence, particularly the promotion of liberal democratic societies and supporting political institutions. This post will discuss the economic aspects and related security objectives of American foreign policy. It will focus on the structure of the global...
Read more