Common knock on the US economy: We don’t build anything more. We just push papers around, perform frivolous services and buy cheap goods from China with vendor financing. It’s a nice morality tale, and one that allows a lot of people to say ‘I told you so’ with regards to our current woes. But is it true?
Sure, a lot’s going to disappear during the recession. Banking has been fundamentally impaired, and we expect to see fewer dog groomers and oxygen bars. But let’s not forget what’s at the core of our troubles: housing. Other than food, which we have plenty of, it’s hard to think of a more fundamental human need than shelter. If anything, the fact that so many people made their livings through the housing economy was an indication that we had too many people focused on a bedrock of a comfortable people — that’s just the opposite of having too many people engaged in frivolity.
There were of course people who added no value, like house flippers, and they’re of the first who are getting washed out. Same too for the mortgage brokers whose attitude was volume at any cost. But again, these guys are finished. But the homebuilders, the flippers that actually refurbished homes and improved the housing stock, and even the granite countertop makers were involved in pretty basic industry.
No doubt, banks wish they hadn’t go so leveraged to housing with models that didn’t take into account the possibility that home values could actually drop. That was a mistake in retrospect, to say the least.
At some point, we’ll have to stop thinking of housing as an asset that we want to go up in value, and instead like every other asset — something we want to get cheaper. Viewed in this lens, the massive housing boom served to make housing more widespread, available and cheaper over the long term. Good thing. Remember, after the .com bubble we had a ton of excess capacity in fibre-optic cable. We thought it would never go to use, but a few years later we got the iTunes store, YouTube and a bandwidth-thirsty media environment.
Sure it’s not a perfect analogy — the bandwidth bubble just god ahead of itself, and unused cable doesn’t get overgrown with weeds — but in the past few years, Americans built out a huge stock of housing, and made the existing housing stock even nicer. Pretty good for a country that doesn’t build anything anymore.