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Tuesday, Nov 10, 2009
Alyssa Katz, author of "Our Lot," discusses the good intentions and mass delusion that led to the real estate boom
Alyssa Katz photo by Angela Jimenez
Jun 30, 2009 |
To read "Our Lot: How Real Estate Came to Own Us" is to relive, in painful, anecdotal detail, the real estate bust that brought our economy low. Through Alyssa Katz, a journalism professor at New York University and the former editor of the magazine City Limits, we remeet the exploited homeowners and the naive investors, and we cringe again at the blundering politicians and opportunistic lenders.
But "Our Lot" is also a reminder that our memories are short, and that the same mix of hope, greed, good intentions and bad policy has been inflating and popping real estate bubbles since the days of LBJ. Behind it all is a conviction shared by nearly all Americans, be they Democrats or Republicans, Wall Streeters or the ARMed and desperate masses, that home ownership is a good thing -- good for the neighborhood, the country and the average citizen holding the deed and the debt. "Our Lot's" long view is perhaps most unnerving for the doubt it casts on that timeworn belief. Salon interviewed Katz by phone.
Isn't homeownership actually good for you? I thought it was the panacea for almost all social ills, it drove the crime rate down, educational achievement up, and so on.
Yes, well, homeownership is only as good as the amount of home you actually own, and I think the big problem in the last generation or so is that Americans have turned to more and more and more debt to reach for the American dream.
There's a lot of great examples out there -- the Nehemiah homes that transformed East New York in Brooklyn from a really devastated and dangerous place to someplace that's still really poor and has a high crime rate but has an opportunity to really grow and have a stable bunch of families really invested in building a home there. So all that's great. Certainly there's a lot of evidence that homeowners do tend to stay in one place for longer, their kids perform better in school. They tended to be more involved in local politics, community affairs, and block cleanups. The problem is, it's very hard to separate out the effects of homeownership itself from the fact that people who have a certain economic or social standing are more likely statistically to be homeowners in the first place.
Does this mean that we shouldn't actively encourage homeownership, using government money or government policy?
I think there's nothing wrong with using government money, policy, pressure, all those tools to make homeownership more of a possibility than it would otherwise be in the marketplace, simply because the market left to its own devices discriminates aggressively. It rewards people who already have wealth, who have already had a leg up economically, and it's great to give other people the opportunity as well.
The problem is that homeownership is the only housing policy that this country has ever shown any commitment to. Renters are treated miserably.
And that's one big distinction you see between the U.S. and European countries that also had very loosely regulated mortgage-security markets and have had problems there. I think one reason you're not seeing mass foreclosures on quite the scale that you had in the U.S. is that for large proportions of the population in many European countries, including the Netherlands, Germany, France, Switzerland, renting is supported through government policies that, for instance, protect tenants so that they don't have to worry about getting kicked out at the end of the year.
Whereas in the U.S., homeownership was always the only option. And anyone who can afford to, or thought they could afford to, would choose that option. So that's really the problem here.
Whose fault is the mess that we're in now? And how far back do we need to go to start tracing the blame?
I think the message of my book, unfortunately, is that it's to some degree everybody's fault, including, I should say, liberal activists, with whom I'm extremely sympathetic, and think were right.
But what we really had was a collision of ideologies over this question of: How do we make it possible for everyone to be a homeowner? How do we eradicate this horrible legacy of discrimination, which had left the homeownership rate for whites much, much higher than that for blacks and Latinos? There was real work that needed to be done there. So I think we really have to go back to the 1970s, when we started to see pretty aggressive policy measures on the part of the federal government to try to level the playing field.
You talk about another real estate bubble in the early '70s, when everybody who wanted one could get a mortgage. The wreckage that was left behind looks totally familiar.
Yes. Rather infamously, the federal housing administration, which is the government agency that insures mortgages -- it's what built Levittown and all those 1950s suburbs after the war -- discriminated very aggressively, on the basis of what was thought to be sound statistical evidence, that the insurance fund would only be safe if it were to insure suburban and overwhelmingly white areas.
So what happened in '67 and '68 was that federal housing officials reversed that entirely. They proclaimed, initially just in the riot areas and then more broadly across cities, that FHA, the Federal Housing Administration, would now be open everywhere! And in fact, as I note in the book, the only circumstances under which HUD did not insure mortgages is if the house is literally falling down.
Real estate agents and loan brokers descended on inner cities, trying to find borrowers who would be unlikely to pay their mortgages back, because the real-estate speculator would get paid in full by the federal government, and paid more quickly and more generously, because of forgone interest that they would get compensated for. The sooner that borrower went into foreclosure the more generously that entrepreneur would get paid.
When was that mess cleaned up?
About '73, '74. There were tens if not hundreds of thousands of abandoned houses all over the country as a result of the FHA debacle, and it got a lot of attention at the time and was almost forgotten to history after that.
And then we have the Reagan presidency and -- correct me if I'm wrong -- but that's when the securities market for mortgages really blossoms, right?
Absolutely. Mortgage-backed securities had existed since about 1970. They existed in the '20s too, and that was part of why the Depression happened -- they had been made illegal after that. But they came back as a government product in 1970. As I recount in the book, Lewis Ranieri of Salomon Brothers, which was trading in government-backed securities, thought, "Couldn't we just do this ourselves? Why do we need to have Freddie Mac or Fannie Mae in the middle, why don't we create these securities?"
In order to do that, they needed to rewrite all those laws that had been passed following the crash in 1929 and thereafter, which was as much a housing and real estate bubble crash as it was a stock market crash.
