The housing shortage in the USA is a function of so many market distortions, perversions, delusions, and convulsions that there’s little real left in real estate. It’s pointless to even start with the common stats — we’ll get to some in due course — because the macro view is so much more germane than any raft of numbers. And the macro is this: we’ve entered an epochal crisis of all the organizing elements and principles in advanced economies, and whatever behavior you see out there reflects that disorder, including the property market.
I’ve called this crisis “the long emergency.” It’s largely about losing the energy mojo that has made our standard of living possible. Shale oil was the last hurrah of that, and now shale is stumbling because the oil companies can’t make money producing it. More than two hundred shale oil companies went bankrupt in 2020, and production is still down nearly two million barrels a day from the all-time high in 2019. Replacing oil with green energy is just wishful thinking. We’re not going to run suburbia, Disney World, and the interstate highways on any combination of solar, wind, hydro, or recycled french-fry oil. Rather, what we face is a declining standard of living, in ways we are proving unable to accept and prepare for.
This clearly manifests in the declining incomes and prospects of the struggling middle class and the onerous debt loads they have been forced to assume just to keep up with ordinary bills and mortgages. Meanwhile, the Federal Reserve jacks stock values, setting up a Potemkin veneer of prosperity that only benefits the 1-percenters.
Another way this energy quandary expresses itself is in the breakdown of financial and banking relations, because falling energy inputs mean no more growth, and no more growth means we can’t pay back that monstrous debt we accumulated trying to fake our way out of this predicament. And now this melodrama is nearing its climax either in debt default or ruinous inflation. That scene is already being garnished with social and political disorder. COVID-19 has accelerated the process while producing an array of strange economic effects, such as the federal government competing with the job market by paying people not to work, along with people’s mad rush to buy houses away from the cities.
The housing crunch is not simply about a commodity called housing; it’s about how human beings occupy the landscape. For decades in America, that has meant mostly suburbia, with the big cities divided up between the hipster hot spots (New York, San Francisco, Seattle) and the pitiful losers (Baltimore, Detroit, St. Louis), the rural places left over for agri-biz and recreation, depending on the scenery, and, finally, the small towns of America just silently decrepitating in the background. All that is changing now. All that is in play, and we are badly missing the message.
For instance, at least 15.9 million people fled cities during the COVID-19 pandemic. This was not just a simple dynamic of people running away from the disease. Hot-spot cities were already feeling a drop in the quality of life before the pandemic: a blight of homeless people on the streets, rising crime, and failing public schools. The pandemic pushed the upper middle class over the edge. The amenities that had made city life bearable — restaurants, the arts, big-league sports — were shut down, leaving denizens stuck in claustrophobic apartments with nowhere to go.
The coup de grâce for the cities was working from home. It wasn’t long before that novelty looked like a permanent condition, which suggested the need for a better home office than the kitchen table. Corporations also saw a great opportunity for savings, and many decided to downsize their office space. These effects cascaded. Without hordes of office workers on the streets in places like Midtown Manhattan, ground-floor retail started to die. The Black Lives Matter riots and looting finished a lot of them off. The whole business model of the giant metroplex city, per se, wobbled.
The bigger picture is that the giant metroplex cities have reached a scale that is no longer compatible with a no-growth economy. There is no option for them now but contraction, and the process is apt to be messy because a lot of real estate will lose value, and there will be battles over who gets to occupy the districts that retain value, such as waterfronts. Midtown Manhattan is filled with skyscrapers that were transformed almost overnight from assets to liabilities. At less than 20 percent occupancy, the office towers can’t cover their taxes, utilities, maintenance, and mortgage debts. That’s bad enough. Next will come the grim recognition that apartment towers are mere accessories of the office towers, and if far fewer people are going to work in the skyscrapers, then the condo towers will likewise devalue. New York has already lost a big chunk of tax revenue in the flight of nearly three hundred thousand people, most of them six-figure earners.
A lot of them went to the leafy suburbs in Connecticut, Long Island, and New Jersey. There’s no need to commute if you’re working from a home office, and there’s much more room for the whole family in a raised ranch than in a two-bedroom, two-bathroom city apartment. Plus, fresh air and green grass! Better schools, too! “We should have done this years ago,” many probably thought.
Like a lot of great blunders in history, it probably seemed like a good idea at the time. The suburbs, alas, represent an even less viable living arrangement than the cities. You may not need to commute for now, but driving is mandatory for everything else you have to do there, since suburbia is based on the strict separate zoning of activities: all the homes in one place, stores in another, and everything else in its own isolated pod, all connected by those ribbons of asphalt. Many assume that the quandary of our oil supply will be “solved” by electric cars. I believe we will be disappointed by that, for reasons that would require another essay.
Just notice, for instance, that the financial quandary is as much of a threat to mass-motoring as the question of whether our cars are powered by oil or electric batteries. The no-growth economy that’s been decimating the middle class means that fewer families are stable and solvent enough to qualify for car loans, not to mention mortgages. Without a stable middle class, suburbia can’t cover its costs. Its business model is broken. Households skated through the COVID-19 year with mortgage payments suspended under the CARES Act and direct cash aid for lost incomes. That won’t go on forever. In April 2021, one in five renters was behind on rent, and just over ten million homeowners were behind on mortgage payments. The Biden administration extended the eviction moratorium until June 30, with up to six months of additional mortgage forbearance, in three-month increments.
This, of course, is another way of kicking cans down the road, and it’s another manifestation of America’s horrific debt problem. Homeowners and renters may skate for a while longer, but the ice is getting mighty thin. The median home mortgage in America runs about $1,500. A year of deferred payments adds up to $18,000, which will have to be paid back eventually. Meanwhile, at least 25 percent of Americans have no savings and live paycheck-to-paycheck. Also consider that unpaid debts don’t just vanish. Creditors end up eating them, meaning banks and landlords. These chains of unpaid debt building in the financial system are apt to break it. We just don’t know how that will finally express itself, say, in an asset-value crash, bank failures, or a currency crisis. Eventually we will see a wave of foreclosures, which will drive down the value of all houses and leave a lot of homeowners underwater, with houses worth less than their monthly carrying costs. If inflation continues apace, interest rates will have to rise, including mortgage interest — currently at historic lows — and that will necessarily further drive down the price of houses to keep them even theoretically affordable. That will end the current game of musical chairs.
For now, we live under the illusion that most of the conditions of the post-war decades will persist, and we make our plans based on error. Rather, we’re freefalling into a new era of economic reversal and turbulence. You certainly can’t assume that the single-family house on a quarter-acre lot three miles from the nearest store will remain the basic unit of the property market. Households are already reorganizing emergently, with grown children living in Mom’s basement into their thirties. Along with everything else becoming unaffordable, these grown kids may not be able to park Mom in a senior care facility when the time comes. They may not even be able to pay for the routine maintenance of a McHouse built out of strand-board and vinyl. Where and how will the generation after them be able to live?
There’s a lot of loose talk lately about a “Great Reset.” There will be one, but probably not the grandiose globalist fantasy that many expect, just a much lower standard of living and very different new terms for carrying on daily life. Responding to the coming changes has to do with basically rescaling everything we do from the current mode of gigantism back to things smaller, closer to home, and made or done with much more human attention. The cities will still exist because they occupy important geographical sites, but they will be a lot smaller than they are today, and the journey to that new disposition of things will be long and rocky.
And I would not plant my flag in the suburbs. Most of them won’t even be suitable for retrofit or adaptive reuse. Their demise will be quick and dirty by historical measure. The Jolly Green Giant won’t stride into the housing subdivisions, pick up the houses, and move them closer together to make “walkable communities.” A reset to a lower standard of living implies less available capital to accomplish proposed schemes such as converting shopping centers into mixed-use towns. The Happy Motoring era is drawing to a close. The most likely destiny for many of our suburbs is as slums, salvage yards, and ruins. Building them seemed like a good idea at the time, and that time is now over.
The most favorable places in America will soon be the ones that are the most disfavored today: the small towns and small cities, especially those close to productive agriculture and situated along North America’s inland waterway system — because the economy of this continent will be much more internally focused. The high-tech industrial orgy of the past two-hundred-plus years may come to be seen as a kind of great pulsation that swelled and then subsided, leaving us to find less complex modes of subsistence. After all, there have been many such pulsations in history.
As the contraction occurs, we’re also likely to see very different modes of household organization, probably multi-generational, and perhaps — get ready for this — including servants, apprentices, and boarders. The houses themselves will have to be built to last. There will be plenty of salvage available from the places left behind, but probably fewer available new materials, even concrete and sheetrock, which require huge amounts of energy and complex manufacturing chains. If you can build a house designed to last, you may live in it for most of your life.
Think all this is strange, even outlandish? If you stopped a businessman in Cadillac Square, Detroit, in 1957 and told him his city would be a haunted ruin in the year 2000, without any war happening there, he never would have believed you. History is a prankster. We’re in just the first act of this transition.
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