The Housing Bubble and the Boomer Generation


Much of the commentary on the current economic crisis has focused on symptoms. Sub-prime mortgages, credit default swaps and the loosening of financial regulations are not the root cause of the financial crisis. They are symptoms of what has recently become a surprisingly widespread belief that individuals, families and even entire nations could live indefinitely beyond their means.

The crisis has reminded everyone that, in the end, market fundamentals like supply and demand still matter and that ignoring traditional virtues like thrift and long-term planning can lead to grief. But what does this have to do with boomers?

Ultimately, this economic crisis shines some light on some of the most important yet unresolved and paradoxical aspects of American culture as it developed in the wake of the economic, social and political upheavals of the late 1960s and early 1970s.

Children coming of age in the 1950s and 1960s were born into families that, on average, enjoyed the greatest material prosperity and the best housing the world had ever known. The security offered by an enormously expanded and comfortable middle class allowed these children to crusade on behalf of various causes. Those who called themselves “progressive” pushed to expand individual civil rights, sometimes at the expense of what others perceived as community rights or duties, but at the same time they were often deeply suspicious of capitalism and markets and for this reason pushed to restrict the rights of private property owners in order to expand on their own notions of community rights.

The result was, on the one hand, a massive effort to empower racial and ethnic minorities, women, gay people and many others. This aspect of the revolutions of the 1960s era has always been highly controversial, with conservatives fighting the “reforms” every step of the way. On the other hand, starting about 1970, there was an explosion in regulations on the use of land including tighter zoning and building codes, regulations governing environmental matters, historic preservation and land conservation, growth and building caps and growth management schemes. It became harder to build at the urban edge because of the environmental rules and efforts to limit “sprawl.” It also became harder to build at the center because of substantial down-zoning and other regulations to “preserve neighborhood character,” particularly in affluent neighborhoods. This aspect of the 1960s progressive agenda has led to grumbling about NIMBYism but has otherwise generated surprisingly little negative commentary.

Nevertheless, this movement has created one of the most paradoxical legacies of the 1960s as programs justified in the language and logic of “rights,” have turned into bulwarks for the status quo and a mechanism to transfer wealth from younger families of modest income to more affluent older families.

In the 1950s and 1960s developers in America built a huge amount of housing, primarily on cheap land at the suburban edge of almost every city in the country. This housing was remarkably inexpensive and, together with liberal financing terms, allowed millions of Americans to enter into the ranks of home ownership and the middle class. It provided the underpinnings for the enormous wealth of the boomer generation.

Starting in the 1970s, though, particularly in some of the most desirable markets in the country, the same people who most benefited from the developments of the early postwar years turned against those development practices. They advocated regulations for many things that most people, then as now, would agree were desirable – conserving scenic areas and wetlands, protecting coastlines and animal habitats and preserving open space, historic buildings and neighborhood character.

Yet the net effect of all of these regulations was to limit severely the supply of land for urban uses. Even more important, existing homeowners, what I have elsewhere called the “Incumbents’ Club,” created a political system that allowed them to dictate how much growth and what kind of growth would be permitted in their cities.

This shift of decision-making about development from private developers and individual property owners to public planning bodies, almost always controlled by homeowners, was hailed by many observers as a triumph of democratic process. The community rather than the developers, so this line of thinking went, would henceforth dictate the growth of the community. The problem with this equation was that it failed to consider who was speaking for the community and whose voices were not heard or to calculate the costs and benefits of these policies.

For existing homeowners in affluent communities like Boulder Colorado, or Nantucket Island or San Francisco, this regulatory rush turned existing land ownership into pure gold. By limiting the supply of land for development and driving up the costs of development where the land was available, it pushed up the perceived value of all houses, including their own.

Take the case of the Bay Area, where land prices were on par with urban areas elsewhere in the country up until 1970. Then, as the area pioneered in land use regulations of every kind, house prices started a steep climb. Where the rule of thumb had long been that the average American family in any given urban market would expect to pay about three times its annual salary for an average house, by the early years of the 21st century it had reached the point where that average house in the Bay Area would be the equivalent of ten, eleven or even twelve years of the average family’s income. At the same time, however, in lightly regulated urban areas, even extremely dynamic ones like those of Atlanta, Houston or Phoenix, house prices registered no comparable rise against incomes.

Nor was this all. There was at the same time an increasing movement around the country to push the cost of what had been considered public goods, like new roads, street lights, sidewalks and sewers, even parks and schools, onto the developers who then passed these costs on to the eventual buyers. As a result, existing owners who enjoyed infrastructure paid for by previous generations no longer had to pay for the infrastructure of their children’s and grandchildren’s generation.

Finally, this elaborate edifice of protection of the interests of existing landowners was capped by a series of tax revolts starting in the 1970s, particularly Proposition 13 in California. This made it possible for members of the incumbent’s club to enjoy the benefits of rapidly escalating house prices without paying a corresponding share of the property taxes that financed most municipal services.

These land use regulations and real estate tax policies have made possible, at least in certain highly regulated markets, one of the greatest transfers of wealth in American history. The primary beneficiaries have been existing landowners including a very large percentage of affluent boomers. The ones who have paid have been less affluent renters, younger people and all future generations of prospective homeowners.

The existing homeowner in the Bay Area could watch the value of his house soar from a few hundred thousand dollars up into the millions without lifting a finger. Meanwhile the dramatic rise in land prices, because it has not been accompanied by a corresponding increase in salaries, has devastated the prospects of young couples, many of whom were forced to either leave the area or obliged to take on huge mortgage debt just to afford an entry level house. These same people are now bearing the brunt of the steep decline in housing prices and the wave of foreclosures washing over the country.

One of the most remarkable things about this enormous transfer of wealth has been how little most people were aware that it was happening or what caused it. A few people – notably Bernard J. Frieden in his book The Environmental Hustle from 1979 – had sounded the alarm. More recently Wendell Cox and Hugh Pavletich at have made a similar case using substantial data from cities in the English speaking world. Although all of these observers have been dismissed as free market enthusiasts, more mainstream commentators – like Edward Glaeser of Harvard and Joseph Gyourko of the University of Pennsylvania – have embraced this theme. Even the noted liberal economist Paul Krugman has joined the chorus, comparing the moderate land prices in the “flatlands,” meaning lightly regulated places like Texas, with the extremely high prices in the “zoned zone” or places like heavily regulated coastal California.

This leads us to the great challenge we face now keeping families in their homes. The sad truth is that in areas where housing prices have vastly outstripped incomes there may no easy way to do this. In many markets either housing prices will need to fall quite a bit further or income will have to rise substantially, and there is little likelihood – particularly with this weak economy – of the latter happening any time in the near future.

One good thing that might come out of the current crisis, though, is a recognition that regulations, however well-intentioned, can come at a price, sometimes a high one, for some parts of society. I doubt very much that the boomer generation ever intended to create the current housing bubble or enrich itself at the expense of less affluent families and generations to come. This was the unanticipated consequence of a genuine desire to create a better life for everyone by individuals who, probably inevitably, defined the good life as the kind of life they themselves wanted. In many ways they succeeded all too well. We can only hope this downturn will at least open up a new chapter in the discussion of the bittersweet story of a generation that set out to remake the world.

Robert Bruegmann is a professor of Art History, Architecture and Urban Planning at the University of Illinois at Chicago. His most recent book, Sprawl: A Compact History, published by the University of Chicago Press in 2005, has generated a great deal of discussion worldwide.

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Loss of values

Since I'm not an expert on economics, I can't say that I deeply understand a lot of what was written in this article, but what I do understand and fully agree with is that nothing will be lost if this bad economy manages to each us the good old virtues our ancestors lived by. Not spending beyond your means and actually saving pennies to build things rather than using loans. These are the things we need to learn again. This recession was inevitable because people were able to get things they didn't work for. Everything can be had without work because banks are there. While banks wanted to make money, they did not consider that they are changing lifestyles and habits and people are less likely to repay if they don't know the value of what they've got. I fear that the next thing we lose will be our freedom because we have started to take it for granted. The new generate just got it. They didn't have to work hard for it and that's my greatest fear..

Credit Repair Companies

Reforms for Human Rights

With the increasing taxes and economic recession, it’s obviously fine if citizens want to exercise their first amendment rights and hold protests. Aside from contending that a bill of rights was unnecessary, the Federalists responded to those opposing ratification of the Constitution because of the lack of a declaration of fundamental rights by arguing that inasmuch as it would be impossible to list all rights it would be dangerous to list some because there would be those who would seize on the absence of the omitted rights to assert that government was unrestrained as to those. The 10th Amendment to the United States Constitution is one of the amendments which doesn't get brought up a whole lot. The 10th Amendment states that all rights not given expressly to the government are reserved to the states, or the people. Granted, this should apply to payday loan regulations, but not a whole lot of people take that view. Tax Day Protests are beginning and the 10th amendment is being used to reject any stimulus funds directed to states, if the state governments aren't willing to accept them. It seems that segments of the people are not willing to get short term loans on 10th Amendment grounds.


I recently made a comment on here saying that I lay the blame for the housing bubble and the subsequent issues at the feet of the lenders.

I do however have to concede that the real issue that lies behind that is people's beliefs that they can enjoy a lifestyle well beyond their means.

But people in general can not be held responsible for this. The average Joe in the street does not claim to understand economics, finance or lending criteria. It is the banks that make this claim and it has been long reported that there is an asymmetry of information here.

Lenders should have realised that this was not viable long term and nipped it in the bud rather than jumping on the band wagon and flogging debt to the public, who unsurprisingly lapped it up.

As a mortgage broker, you would see people regularly coming to you to ask "how much can I borrow?" And over the last few years the answers to this have been verging on scary.

So yes, the public ignorantly bought in to the dream that they could live these relatively lavish lifestyles, but the banks knowingly lent them the money to do it.

Bubble 2.0

Too bad this is given such little press, as it underlies the real causes of our current situation, which have been all but completely ignored by not only the media, but economists as well. That is, the massive wealth from primarily Californians - and to a lesser degree other expensive markets that have seen such inflated prices - has been newly put to use to bid up every other bubble market around the country. Thanks in large part to the bursting of the stock market bubble, a 'sea change' occured by 2002 in which real estate became viewed as the surest way to 'quick wealth', and homes became primarily an investment. Every second homeowner in California became an 'investor', driving up the prices like so many locusts, descending first upon Las Vegas and Florida, then Phoenix and so on. The Tax "Reform" Act of 1997 fanned the flames, and its capital gains exclusion is testament to the power of the largest lobbying group (by amount contributed) - The Real Estate Industry. Now these very same culprits who whipped up the frenzy of fear that caused so many to take the plunge (into the bubble) are dictating more policy as we speak - encouraging Paulson and Bernanke to keep the bubble inflated. If the average American had ANY idea as to how this massive transfer of wealth has and will continue to hurt them - they would rise up in protest. Where is the media?

Thanks, Mr. Bruegmann, for your spot on message. Now please draw do what you can to join up with the other voices of reason, and spread the word to keep legislators from taking us from bad to much, much worse - before we have Bubble 2.0!

The investor mentality is unfortunately still very much alive, and we now see those Californians who bought prior to the most recent bubble buying up 5, 10, or more homes which should instead be going to deserving young families. And still lying about owner occupancy, etc. and commiting other fraud, in many cases.

We have not begun to address fixing the practices and policies which got us here, as everyone in Washington wants to be seen 'stabilizing the housing market'. When the DOCUMENTED number of investment sales was 40% (during the bubble) - and the FBI acknowledges that the degree of fraud in stating owner occupancy was HUGE, and still barely appreciated - you know that the actual percentage of homes that were sold as investments probably easily exceeded 50%! How can we have anything resembling normalcy in a market that is still skewed by such a high number of investors, who are mostly the direct beneficiaries of the process Mr Bruegmann so aptly describes above? Sickening!

Boomers & RE Bubble

Before anyone, such as "ss" starts to blame Californians for all this, let me emphasize that my State was inundated by college students from produce-nothing States such as Vermont, New Hampshire, Connecticut, Delaware, Oregon, Pennsylvania, etc back in the late 60's. Many of these transient students did not leave California after graduation, but stayed and transformed San Francisco and the Bay Area from a family-oriented locale to one of the densest socialist/Marxist/environmentalist regions in the Nation.

Many anti-war protesters from the late 1960's became Real Estate Agents because that profession did not profit from or participate in war, according to their beliefs. Unfortunately, their greed destroyed California for many of us natives who have been forced to relocate because of the insane level of home prices that these Boomers developed.

Next, the Boomers, many of those referenced above, got divorced. By the millions. This turnover and constant resale of homes in conjunction with the addition of the realtor's commission drove up home prices *again* in my State and other States as well. For example, in the Antelope Valley (CA High Desert), I witnessed homes in the same neighborhood going from $9k to $16k to $25k to $50k all from 1968 to 1974.

Then, in the 1980's many college grads from the *entire nation* (notably: New Jersey, Illinois, Michigan, Colorado, Utah, and the Carolinas) relocated to California for employment in medicine, law, tech and related industries putting pressure to bear upon further development (here in the early 1980's we saw the first rumblings from the NIMBYS) and upon landlords, many of mine which were in Florida and Massachusetts and who thought nothing of raising the rent $50/mo for no reason at all other than "what the market will bear" crap from the aforementioned realtors.

Further in the 1980's, many laid-off auto workers from Rust Belt States relocated to California for employment in one industry or another that was left after the socialists/environmentalists in San Francisco had their say. Remember, many of these socialists and environmentalists came from out-of-state.

Now, due to these socialists/environmentalists, in my beautiful State, there is: NO mining in the California deserts - many rare minerals are there that we now have had to import from Nigeria, China, India, and Vietnam, among others; NO commercial fishing off the coast that used to employ 10's of thousands in Point Loma/San Diego and Wilmington/San Pedro; NO forestry that used to employ 10's of thousands in NorCal (spotted owl hoax); NO offshore drilling in the Santa Barbara Channel or off Malibu because of mentally-ill, strung-out Boomers who still have distraught memories of the 1969 spill in Santa Barbara. Bear in mind that raw crude still leaks out into the Channel everyday and the beach sand in Isla Vista/Goleta has been contaminated with this stuff for decades - all because of OUTSIDERS from other States who came here and dictated their will onto California.

So please, *spare me* the accusation that so-called "Californians" are moving to other States and driving up the cost of homes by engaging in real estate speculation. More likely than not, these counterfeit "Californians" are nothing more than the Boomer college students or transient Rust Belters who originally came here from somewhere else and who are returning to their original habitat. That is what they are currently doing in New Mexico (many, many realtors/builders from the Rust Belt States who've relocated and are driving up home prices in NM). And Arizona, doing it there too. These fake "Californians" hide their true State-identities by using "Californian" as a deceitful self-descriptor. So the next time someone says they come from California, think twice and ask some hard questions. Recent example: One young woman moved to Newport Beach from Nebraska, lived there for less than 1 year, moved to Arizona, and now tells everyone she's a "Californian" since Cali is the best place she's ever lived and obviously doesn't want people to know she's really a Nebraskan.

Check it out with the CA DMV: 2/3's of us return to Cali after living in another State for 3 years or less.

4th Generation Californian
Note: Many thanks to all of the elderly California natives who gave their time to narrate the true history of the negative changes that destroyed my State.

Boomers & RE Bubble

Only time will tell whether the alarming projections by Dowell Myers, a professor of urban planning and demography in USC's School of Policy, Planning and Development, and Sungho Ryu, a doctoral candidate at the school and an associate planner with the Southern California Association of Governments, will come to pass.

The Housing Bubble and the Boomer Generation

San Francisco is surrounded on three sides by water, while Atlanta, Houston and Phoenix are surrounded by almost limitless land for sprawl. That has as much to do with the difference in housing prices as regulation. The fact that most American cites have acres of under-developed and blighted land in their urban core begging for redevelopment calls into question the author's assertion that there is a severe limit on the supply of land for urban uses.

True that San Francisco is

True that San Francisco is surrounded by water on three sides but these issues are not specific to just San Francisco, the entire Bay Area is subject to these types of regulations. Marin County (to the North of San Francisco) and Alameda County (to the East) have housing prices that approach 10 times annual household income and also have some of the strictest development regulations in the nation.

Boomer Trouble

Interesting take. I guess I'll look into Mr Bruegmann's book for more! Since aside from a few references to a few writers and economists clustered in the 3rd to last paragraph, there wasn't much in the way of meat. The actual rules and statistics behind Mr. Bruegmann's thinking would have helped. As an "idea" I'm piqued, but not convinced. Couldn't one include in the disproportionate rise of these home values such factors as population growth (increased demand), lack of adequate public transportation (sprawl-inhibiting), concentration of "FIRE" jobs in big city centers (more increased demand)? I'm a resident of NYC and an in-law of a resident of post-war housing in San Francisco and I'm priced out of owning a home in either place. But if I'm willing to move to Detroit or Troy or Syracuse where there are few jobs and few people per housing opportunity, I can get a really good deal.

The next step- A University Lifestyle

The references, beliefs, values and convictions of the U.S. have been largely shaped by the 78 million baby boomers born 1946-1964. The major issues of the day, are based on what is important to this cohort. It is this group that controls wealth, directs governments, businesses, and the social values and policies of the nation. This group is living longer and healthier and, as a result, will continue to participate in shaping the issues, long after they turn 65. This group will not desire, and our society cannot support 20 or 30 years of “retirement”, that was previously considered a life of leisure and irrelevance.

This group has shaped the issues on what is important. Baby boomers created the need for large homes in the suburbs, a desire the best education for our children, the demand for SUV’s and the ever growing demand for energy and other resources. They created domestic and foreign policies and have expanded business to global markets. Things are changing.

By living longer and healthier lives, baby boomers will continue to shape the issues and decide what is important, much longer than prior generations. Our society has created a planned obsolescence of elders. “Retirement”, at one time, was a term used to describe 1 or 2 years of before death that has evolved into 30 or 40 years beyond age 65. No more, our society cannot afford to, nor does it desire a life of leisure or irrelevance for this long.

Baby Boomers will create new institutions for their continued participation in life, to be part of the future. So how will things change?

This group will create new social communities of right-sized housing, with more public and reduced demands for personal transportation in more efficient, economically and environmentally sustainable urban environments. These shared resource communities enable lifestyles of lower consumption with lower expenses. To remain relevant, they will continue to update skills through education, beyond an online class, classes strictly for personal development of community colleges that require continued consumption from their over sized homes. Their focus will shift from the size of their paychecks to more meaningful contributions to society.

There will be social barriers for re-entry. Educators, hospital administrators, government officials, or non-profit directors will resist re-entry baby boomers with insidious methods to protect their personal economic value. What industry, government or social institution would accept a re-educated, highly talented and passionate 50 or 60 year old who would work for $20,000 per year, because their economic needs are only $20,000? They are no longer building nest eggs for the future, they are living their future. Values will change to creating the new dream, where people will not be judged by their age but by the content of their character and their ability to contribute. Resistance will manifest itself in such things as oh, well why don’t you volunteer, if you are so passionate about this? Or, you need experience in this industry to advance, you cannot apply what you know to what we do. It is our failure to create low cost, low consumption meaningful living lifestyles, and the exclusion of the human capital that creates shortages.

Our next visionaries, social, economic and political leaders that will create these new, low cost options for the baby boomer population. Existing back to campus attempts focus on a transfer of wealth for entrance fees, and continued high expenses for services. The best option now, is to understand and expand the lifestyle available on Public University campuses, where the cost of living is currently under $20,000 per year.