The Ladder of Homeownership

The Ladder of Homeownership

Continuing the conversation… studying the history of homeownership, looking for the roots of our current housing crisis…  To confront a severe housing crisis following WW2, the government launched a massive series of subsidies and incentives that disrupted the housing market, changed the future of homeownership and altered the course of the Country.

The Fed program ushered in two decades of almost inexhaustible suburban sprawl and became the catalyst for the largest economic boom in history. As the landscape and the economy were transformed, the detached, single family house was also being etched into the nation’s psyche as the icon of the American Dream. 

The door to homeownership was suddenly thrown open to millions of Americans who had never been qualified to buy before.  For average wage-earners, low interest loans with little or no money down and monthly mortgage payments that were less than market rate rents, were an engraved invitation to join the middle class and embrace an aspirational lifestyle.

First time buyers armed with government-insured loans purchased brand new FHA-approved “minimum design” homes but soon realized that their modest 2br, 1ba bungalows were just placeholders – all-important first steps on the “ladder of homeownership”. 

As wages increased and more children arrived, they could move-up to the next new home, one with more square footage, a 3rd bedroom or even a 2nd bath!  And after a few more years, they could buy a home with four bedrooms and a family room. As long as interest rates were low and homes were built in record numbers and prices didn’t go up rapidly, average people could afford larger homes, even if they cost a little more.  

An entire generation of homeowners began moving-up while the suburbs grew farther out from urban job centers and offered ever-larger, more expensive homes with more modern amenities,  in more exclusive communities. The “ladder of homeownership” was the perfect brick and mortar expression of “upward mobility”. 

And as those more expensive homes proliferated, mortgage interest and property tax deductions became an even greater incentive to move-up.  When principal was paid down, the equity was simply rolled over into the downpayment for the next house. The tax code encouraged buyers to move-up by allowing them to defer capital gains as long as the new house cost more than the old one. 

Homeowners in the 50s and 60s routinely cycled through three or four moves before finally settling into their “forever homes”.  The quasi public/private partnership that coalesced around new home construction was fully on board since automakers, fossil fuel interests, defense contractors and appliance manufacturers all reaped huge benefits from the ongoing growth.  

Next Week:  Inflation arrives and prices go up!