The Big Disconnect

A $350,000 house in San Francisco

Home ownership is being battered by rising numbers of college graduates, many centered on those mega-expensive urban centers where the education-driven jobs are. New York. San Francisco, Washington, D.C., Los Angeles, Seattle, Boston, Miami, the Silicon Valley. Carrying intolerable student debt, finding affordable rentals, much less building up equity for a down-payment, is increasing elusive. A million dollars in San Francisco gets you 800 square feet on average, and not necessarily in a glamorous section of town. Rents don’t hit “tolerable” for many, even those earning six figures, until they reach out to a train-commute that could be two hours or more each way. Sleeping and working on a train has become a rancid way of life for too many. 

For some, lucky enough to have parents in those work centers, living with mommy and daddy is a humiliating necessity. Or living a sardine-like existence with roommates, a practice many believed would disappear after college. For ordinary service workers, shopkeepers, cashiers, food service employees, living like a sardine and having several jobs are simply what it takes.

For many in the entrepreneurial space, working for equity is the rule, but that does not pay the bills, and most start-ups fail anyway. As the Affordable Care Act faces soaring price increases because of the assault by the Trump Administration and GOP attacks in Congress and in the courts, many cash-strapped young workers simply live without health insurance, banking on their youth as the ticket to invulnerability. 

In short, the workplace is stacked against some of the best and the brightest young people in our great nation. For more details, see my August 31st blog, The New Americans: Young, Stressed and Almost Broke. But today’s piece is all about housing slip-sliding out of reach for most Americans, at these those who were not lucky enough to have bought a home “back then.” 

“Having a job does not guarantee that you will be able to have a life, or a stable, affordable place to live. This is a departure from the era after World War II, when people (mostly men) returning from the war were entitled to housing loans and free college tuition that both alleviated the pressures of debt and helped them establish a vehicle for which to build wealth: owning an appreciating home. 

“In a stark illustration of how things have changed, Curbed compared the salary and housing prospects of a teacher in San Francisco today to one in 1959. In 2018, a teacher in San Francisco earns an average of $72,340... But the average cost of a home in the city is $1.61 million, for which a typical 30-year mortgage would require monthly payments of around $7,900—more than double the median monthly rent for a one-bedroom. In 1959, a teacher in San Francisco earned around $5,200 a year, but the average home in California cost $12,788, and they’d be looking at a mortgage of $59 a month. Adjusted for today: They’d be paying off a $109,419 home–quite comfortably–on a salary of $44,493. 

“Changes have occurred over the past few decades that have broken apart what was once a given tenet of the American Dream. For one, both people and companies are moving back into cities from the suburbs, where they spread after the war, which is constraining land and housing in places like the Bay Area, which is not building anywhere near fast enough to keep up with the influx of jobs and population in the region... But there’s also a more pernicious trend, says Ben Hecht, CEO of Living Cities, an organization that works with foundations and financial institutions to create more equitable cities. Most Americans [70%] have not had a meaningful increase in income or wages in 40 years. ‘It’s a pretty basic problem,’ Hecht says, adding, though, that ‘it’s just one part of a multifaceted and complex issue.’ As such, as people like Ray are discovering, even if they do receive raises, they’re facing a housing market that has continued to grow at a steady rate of around 6% annually over that same time frame–and in cases like the Bay Area, as much as 14.5%.” FastCompany.com, September 5th. 

So what’s the solution? To many, it’s simply moving to a more affordable city, where the cost of living isn’t absurd. Companies are increasing locating new facilities in places where workers can afford to work. But the best jobs often don’t settle in these outlying venues, and employers look to such relocation efforts as a cost-saving for the company too. Clearly, pay-levels in those smaller and more affordable locations are lower as well. Since people tend to get raises based on what they earn, such job-pricing can create a longer-term hit to earning potential, particularly in transferring to one of those high-cost cities later. Oh, and then there is this reality: 

“The extremities of the U.S. housing affordability crisis manifest most clearly in places like San Francisco and Seattle, where booming industries–primarily tech–have pulled housing prices up as their well-paid employees price lower-earning residents out of the market. But these epicenters of unaffordability create spillover effects that are radiating to the rest of the country. Boise, Idaho, for instance, is now the fastest-growing city in the U.S., propelled in part by migration from those notoriously expensive West Coast cities. As jobs and people have moved into Boise–they have increased at rates around 3.58% and 3.08%, respectively–it’s put a strain on local housing markets. Currently, over half of Boise residents devote more than 30% of their income to housing. In places like Detroit, Pittsburgh, and Cleveland, where revival from decades of industry decline has been uneven and slow to take root, the scattered economic gains often leave lower-income workers struggling to afford a place to live.” FastCompany.com.

Politically, these younger workers did everything they were told to make a path for themselves in the competitive job market they were going to face. They had to incur debt at vast multiples over anything their parents ever faced to get a post-secondary education. Some are told that they will have to intern without pay to get their feet in the door of a particularly desirable company. And then they face absolutely impossible costs, heavily burdened by housing. Car ownership among many young college grads is no longer a priority. Too expensive. Those expensive cities at least have decent public transportation and Uber or Lyft alternatives. Food? Healthcare if they are not in a big enough company? Ouch.

The appeal of socialism, either Bernie Sanders lite or a deeper philosophical reality, is finding traction among these younger workers. They feel betrayed by the capitalist model they were raised to admire. Job displacement from automation and artificial intelligence looms large as well. 

These hard-working young job market entrants (and now well beyond) did everything they were supposed to do, but they just cannot cut it. What real choices to they have. They look less-than-fondly on those older workers who bought homes when they were affordable... but they can’t. This is a crisis that will only magnify as trade wars add to the collective woes of an increasingly frustrating job marketplace. Upward mobility has been stifled. The American dream is just out of reach. America has become the land of polarized exclusion... who gets the goodies and those pushed aside who never will. Wake up politicians! Wake up!

I’m Peter Dekom, and for those politicians who love fat tax cuts, saving money on education and infrastructure, they better start reading the handwriting on the wall, written by a growing number of hard-working but disenfranchised educated younger workers.