Reshaping our housing dreams
NOW THAT American fashionistas have embraced shabbiness, discovering a joy in ratcheting back expenditures - segueing from Saks to the Salvation Army - the question looms: What happens after the economy rebounds? Will “shabby’’ be passé, and will we return to our profligate ways? Or will we, much like our Depression-era forefathers who saved string and paper bags into their dotage, embrace shabbiness long after the Dow has spiraled up?
For housing the question is acute, since, once upon a pre-Crash time, the housing sector (new homes, remodeling, furnishings, rent . . .) exceeded 20 percent of GDP.
Post-crash, we now see physical downsizing. In 1950, the typical new home was 1,000 square feet; by 2006, it had expanded to 2,600 square feet - notwithstanding smaller households. Today, median new homes have shrunk by 200 square feet. Some builders are offering models under 1,400 square feet (in line with most European houses). Lot sizes have decreased, thus increasing density. Given gas prices, people are choosing to live closer, not farther, from the places where they work.
Clearly the dramatic economic downturn has spurred American homebuyers to rethink their dreams. But an ecological movement abetted the shift: to save the planet, as well as to make the country more secure, it has long behooved Americans to use fewer resources, particularly fuel. In and of itself, though, the green movement - always fashionable among a sector, often a privileged one - was not likely alone to have spurred this major housing shift.
So as we look into the next chapter of our economic trajectory, or “Rebounding after the Crash,’’ we could see changes in homebuyers’ psyches.
First, the home-as-investment motivation has eroded, much like the enthusiasm for tulips in 17th century Holland. Just as people today buy tulips because they like to look at them, in the post-crash mentality, people will buy houses because they anticipate the joy of living in them, not trading them as a commodity. A “Trivial Pursuit’’ question may soon be: What was a housing “flipper’’?
Second, the home-as-conspicuous consumption motivation has also ebbed. Thorstein Veblen described consumers’ zeal to accumulate stuff to signal economic success. For the past 20 years, as smaller and smaller families bought larger and larger homes, housing morphed from a domicile to a badge of prosperity. That badge may no longer appear so attractive: people will showcase their prosperity in other ways, not necessarily through mansions plunked onto two-acre lots.
In a return to the future, we may embrace prudence. Our grandparents needed down payments of 50 percent to buy a home. By the middle of this decade, down payments were considered obsolete. We have now returned to the more traditional downpayment of 20-25 percent. After the rebound, families - renters as well as buyers - may build up nest eggs: they will no longer pour most of their savings into their homes.
After the rebound, families may stay put. Americans have always been mobile, following jobs from sea to sea. Indeed, that mobility has spurred economic development. But pre-crash, Americans moved not just as their jobs changed, but as their incomes rose. Bigger incomes meant bigger homes. As more of us stay put, more neighborhoods can develop the cohesiveness that now also seems an anachronism.
Finally, the bigger the house, the more oil and gas it gobbles up. (Ironically, many ardent environmentalists leave giant carbon footprints.) Even when the economic motivation to downsize has gone, buyers may still favor smaller, more efficient homes, closer to their workplaces.
In past recessions, as income and confidence rebounded, consumers segued rapidly back from the Salvation Army to Saks. But this recession may have transformed the American Dream, from the McMansions of the past to domiciles more in tune with the ecological realities of the future.
Nicolas Retsinas is director of the Joint Center for Housing Studies at Harvard University.