As he wrapped up his presentation at the Housing Leadership Summit, Builder’s annual gathering of the industry’s leading players, Mark Zandi, chief economist for Moody’s Analytics, told his audience he was rooting for their return to profitability and growth because, he said, “this economy can’t recover without housing.”
That connection, between housing and the economy, has been unassailable among policy- and opinion-makers for decades. Survey after survey—including a New York Times/CBS poll of nearly 1,000 adults, released in late June—continue to find the majority of Americans favoring owning versus renting. But like those other former bellwethers of the nation’s health and direction—Maine and General Motors—housing ain’t what it used to be, and not just because it’s stuck in a deep cyclical rut.
The pillar of economic prosperity that owning a home has long been thought to be is crumbling under the recession’s weight, and that ideal is now derided in some quarters as an overblown assumption. The American dream is looking more like America’s piñata, taking whacks from all sides for its real and perceived roles in the country’s financial failures. Its exposure is magnified by the generous government support the housing industry has benefited from during the recession, albeit with noticeably diminishing returns.
Critics assert that housing is simply inhaling too much of the economy’s oxygen, and that the country’s limited discretionary capital must be diverted elsewhere: to education, infrastructure, energy, research, “anything but housing,” said Alice Rivlin, the founding director of the Office of Management and Budget, in a speech she delivered at the Brookings Institution in February.
A vibrant housing industry that once would have shrugged off such provocations now, in its weakened condition, views them as existential threats. And the Cassandras within the industry may have a point, as knife-wielding politicians are no longer wary about cutting meat and bone from even sacred cows such as housing to reduce a budget deficit that has ballooned to $1.4 trillion.
With or without the industry’s acquiescence, change is coming in order to repair a depleted U.S. economy. Whatever happens, housing will be in the mix because, says Zandi, “no industry would be hurt more than housing if we don’t do something” to get the country’s financial ship sailing again.
It’s easy for builders to forget that housing isn’t the only economic sector under a budgetary microscope. Social Security and Medicare are incurring as much, if not more, duress. “I’m not sure housing is the low-hanging fruit because it hasn’t been plucked yet,” says Gary Painter, associate professor at the Lusk Center for Real Estate at the University of Southern California. “The reality is that everything is under siege and open for debate.”
The emergence of the Tea Party and its crusade against government spending has contributed to these attitudinal shifts, as is the public’s willful confusion. In a recent Heartland Monitor poll of 1,000 adults, conducted by Allstate Insurance and the National Journal, more than three-quarters of homeowners insisted they hadn’t benefited from any government policy to promote homeownership, including the 71 percent who take the mortgage interest deduction.
Still, that same poll found nine out of 10 respondents saying they would purchase a house again. So why is housing forced to walk around with a “kick me” sign on its back? “The obvious reason,” says Painter, is because housing financial instruments “led to the meltdown of the overall economy.”
The mountains of cash needed to prop up housing are an issue, too, for a debt-ridden nation. Making Fannie Mae and Freddie Mac wards of the government has so far cost taxpayers $162.4 billion, according to the lobbying group Americans for Tax Reform. David Leonhardt, The New York Times’ economics columnist, notes that the mortgage interest deduction—which reduces the Treasury’s coffers by close to $100 billion annually—is the second-biggest tax break, behind the one for employer-provided health insurance.