Who really killed the American Dream?

Submitted by Joseph Viscuso, vice president (West Chester, PA)

What happened to the American Dream of home ownership—a single-family home in the suburbs with the white picket fence and two cats in the yard?

After World War II , home building became a major driver of our economy. With my own baby boomer generation came the desire for larger homes at an affordable price, moving everyone further from the inner cities. As this urban sprawl took hold, so did increasing regulation on the housing industry. This regulation has had a dramatic effect on the cost of housing over the last four decades and, in my opinion, helped lead us to our current collapse. Builders have had no choice but to add the cost of compliance into the cost of a home.

Before the recession, it was possible to keep adding to home costs since the demand was high and inflation continued to cover the increases. With the recession, however, this accelerated housing growth stopped dead in its tracks. Statistics tell us that the need for housing in the US will continue to grow, and to satisfy this need, builders will have to build at affordable prices. The problem is that regulations have not adapted to this new reality. Builders must still buy ground, they must still satisfy all regulations, they must still incorporate public improvements and comply with antiquated zoning regulations, all without the same demand for (and thus investment in) their product.

The current economic and housing slump indicates that the population will return to renting, the housing option of choice prior to World War II. Since the recession began, at least 3 million households have become renters and at least 3 million more are expected to by 2015, according to census data analyzed by Harvard’s Joint Center for Housing Studies and The Associated Press. Builders of rental units are still subject to the same regulations that drove the cost of single-family housing up, but the cost of satisfying these regulations can be absorbed in rents and amortized over a longer period of time for payback of the investment. But our outmoded zoning tradition will be slow to react, creating sub-par product, and the NIMBY (Not in My Backyard) crowd will show up at local hearings to protest traffic issues, overcrowded schools, etc., which adds further costs to projects in the form of professional fees, construction requirements, offsite extractions, etc. Rents will move upward, which means, once again, that consumers will pay.

So who killed the American Dream? The answer is simple: we have done it to ourselves. We created too many regulations at all levels of government. Don’t get me wrong—consumer protection is undoubtedly important and many of our current regulations are necessary. But many others were reactionary and have since become outdated or misguided standards.

The banking industry, which received the brunt of criticism throughout the housing collapse, certainly bears some of the responsibility for the problem. But we baby boomers have to take a serious look at the role we played. Builders did not create the housing demand—we did. And while we continued to desire larger, more decadent homes, we also showed up at meetings and protested every new development, allowing more and more imprudent regulation to strangle the industry and play a part in its current crisis.

At this point, regulation and zoning need to be overhauled nationally so that the industry returns to a level playing field while maintaining necessary regulatory safeguards. But local governments will be slow to relinquish that control, discouraging any new investment in housing. Renting will satisfy the population’s housing needs, not out of choice but of necessity.

A longer version of this article was originally published in the December residential edition of Scotsman Guide. To read the article, visit http://www.scotsmanguide.com/default.asp?ID=4868.