Wealth and Buildings

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It took about four decades to complete the Star Wars series. I remember watching the original in the theater in 1977, and don't think I ever imagined Episode 9 wouldn't drop until I was deep into middle age. During that time period, no one really bothered to ask, can we still call this a series?

I say this because it's taking me forever to take a variety of thoughts on cities and planning and turn them into a series. It appears I'm on a good pace to beat Star Wars, but we'll see.

This thought stream has been all about what I called the Urban Experiment. It's a slight twist on what Chuck Marohn has aptly written about for years at Strong Towns. This piece is going to dive into one more aspect of this topic that we don't talk about nearly enough in planning and design circles: wealth-building. I'd like to say this is the "final" topic in this series, but it probably won't be.

We have mountains of articles and research on housing affordability. It's been a hotly debated topic in planning for going on three decades, and picking up a lot of steam in the last decade. (Hat tip: most of the best writing on the subject has been done at City Observatory.) And yet, there's precious little discussed on what we do that can impact household wealth building. I’d suggest we have this completely backwards.

It might seem out of our league to tackle the topic of personal or household wealth. After all, who among the urban planning tribe are financial wizards or financial planners? Affordability seems somewhat measurable, but how do you adequately measure and discuss wealth? Isn't that very personal?

I'll start this piece by going back again to the pre-zoning era that I discussed in the post on my Klinkenberg family ancestors.

Here's something I wrote:

"Back to my ancestors for a moment. They could effectively buy a piece of property, and do as they wished with it immediately. This was true on the farm, and If they had lived in the city itself, this was also true. There was no central authority to appeal to if someone wanted to build an apartment building next to a single family house. Some neighborhoods could deed-restrict themselves through private agreement to only single-family houses if they so desired (and some did)."

The Big Divide

I've been giving more and more thought lately to how divided we are as a society, especially by economic class and educational attainment. I'm far more aware than I've ever been at how the professional class tends to live in its own tiny bubble, often very much out of touch with the rest of the population. This has seemed to only grow in recent decades, as that same group of people now also clusters geographically into the same small group of cities, and the same parts of those cities. It seems troublesome, to say the least.

Wealth building hasn’t been in the lexicon of the professional class and the college educated because we mostly came from families already comfortable financially. Instead, we talk about affordability because people generally are charitable and want everyone to have a basic level of comfort and decency in their lives. We forget that the majority of people really value making money primarily. Yes, they want an affordable place to live, but they what they really want is to have more income, more stuff, a bigger house, a nicer car, etc.

Household wealth in the US is mostly a function of real estate ownership. You’ve heard time and time again that a house is the largest financial asset for the vast majority of households. That's true. The numbers are inarguable. Real estate ownership is also the primary source of the racial difference in wealth. There's an obvious legacy of racist practices that contributed to this disparity, as how been well documented by others. And, that legacy has persisted into the current era.

But as always, there's more to the story. I wrote in other pieces about how we went through a massive change in our systems for how cities and buildings are built in the 20th century. We professionalized everything involved in the construction of a building, set up complex approval systems and instituted a series of regulatory apparatuses that our ancestors would find completely bewildering. I suppose we could say that's the inevitable growth of a modern, hyper-specialized society. Maybe, maybe not. We'll examine that more later. But, have we ever truly examined how those changes impacted wealth disparity or wealth building?

In the pre-zoning era (before the 1920s), it was common to use real estate ownership as a means to create more income. For example, people would add an apartment onto their existing property. They might make a duplex into a triplex, or add a carriage house to the back of their house. They would rent out spare rooms to strangers. A widow might turn her home into a boarding house. Sometimes extra rooms were for household servants, sometimes they were for extended family members, and sometimes people just wanted to use their ownership of an asset to make more money for themselves. Real estate finance was much more short-term and localized than today. And real estate law and policy (to the extent it even existed) allowed this to happen as-of-right in most places. Wealth-building was baked in to the concept of ownership.

The rise of the "modern" city changed all of that. And I mean all of it. The city planning movement and modern movement in architecture pushed for a separation of uses and professionalization of city design. Architects such as Frank Lloyd Wright created idealized cities that look much like today's suburbia. The Progressive movement pushed "scientific and technical" management of cities and society, instead of the more "chaotic" approaches that had heretofore been the norm. Rapid industrialization and the American ascendance on the world stage created greater societal wealth. With our increasing wealth, we began to codify the single-family detached house as the societal ideal, and we set up all sorts of mechanisms to protect that type of building. We created special financing programs for houses, especially for newly-built ones in the New Deal and after WWII. We created zoning laws starting in the 1920's that kept out other types of housing, and we created building codes that made multifamily housing more expensive to build. We eliminated many types of housing, from boarding houses to apartment hotels to garage apartments. We made self-building virtually impossible in cities. There's a long list; this is just a sample. But it was truly a revolution in how we build places that evolved over the early decades of the 20th century.

Houses Aren’t Bad

Now, I feel obliged to say I'm not saying all of this was "bad." Some amount of it was probably inevitable, with changing tastes, politics and urbanization. I also have nothing at all against single family detached houses. I own one, and live in it. I've owned others. There's a very good chance it's how I'll live the rest of my life. Living in your own house is wonderful - I enjoy most of it. It's great to have your own four walls, your own yard space, and a bit of distance from your neighbors. As the famous quote in "It's a Wonderful Life" noted, "It’s deep in the race for a man to want his own roof and walls and fireplace..."

Here's where it gets tricky, and complicated.

As we altered our systems to legally and administratively favor single-family houses on purpose, we changed the entire dynamic of how people build wealth. Prior to this era, wealth in real estate was largely created through income. Subsequent to it, wealth is "created" by the value of a house going up, and capturing that value through buying and selling or sometimes with creative financing. When wealth is created primarily by income, it encourages a fairly entrepreneurial approach to the asset, and all sorts of positive side effects: more people are better (more customers), more variety is welcome (diversity of product), and wealth is created more typically at the local level through lots of small actions.

When wealth is created as we've done the last 100 years, you tend to see the opposite. Restricting supply becomes important, so your asset becomes rarer and thus more valuable. People become more exclusionary, and start to force exclusion through regulations. Variety isn't a good thing, because you're likely to sell and move on at some point, and more regularized assets are easier to buy and sell. They're also easier to package for Wall Street into commodity-like funds, no different than buying or selling live cattle. Eventually, the asset becomes so easy to standardize, package and sell to large investors as we're now seeing all over the country, and wealth gets shifted upwards to larger corporations.

For neighborhoods that aren't going up in value, the results are even worse. Idealizing the one, virtuous type of housing means people have been restricted from using their asset for income, too. I should clarify and say I mean legally restricted, since some just do it and ask forgiveness if they're caught. So neighborhoods that have faced discrimination or disinvestment simply circle the drain slowly because they aren't allowed to evolve and change organically.

The notion of helping to create some short and medium-term gain for people by encouraging one "ideal" type of housing eventually created a lot of long term pain.

Complexity and Contradictions

Today, many people advocate for solutions to these problems that add more complexity and layers to a system already fraught with issues. Some think a solution is ever more complex ownership structures and community investing. Some think we need affordable housing set-asides, to make developers solve these issues with new construction. Some think we need a whole category of "community benefits" as a condition for new development.

With every added dose of complexity, we edge ever more closely to a system of only big owners (private and public), and no middle class of substance. Our wealth divides don't improve, and the general public gets more and more angry with elected officials, government staff and their policies. We also increasingly have a system that makes it virtually impossible to get on the first rung of the wealth-building ladder and move up gradually. What are we doing? What is all this headed towards?

None of this is to admonish city planners. It's to simply evaluate what has been done in the context of politics and culture. We got wealthy as a country, then we did what wealthy people do - we got exclusionary, protective and soft. We thought we could manage away all difficulties of urban life, without creating any painful by-products. Unfortunately, the problems don't usually show up right away, and we tend to find decades later that the utopian cure for one era is the disease for the next one.

In a desire for better places, we ultimately created some very top-down political processes and solutions. Politics provides sound bites and talking points, but rarely does it provide effective long-term solutions. At some point, the politics inevitably change in ways the original politicians couldn't anticipate, and politics turns against them. The people become frustrated and angry. That's where we are today.

Moving Forward

In a previous era, when our cities were messier and more driven by bottom-up development, they were done with many hands. People of all means could not only participate, they also could directly profit from the improvement. They could create generational wealth for themselves, without relying on increasing home values or home-equity loans. Our neighborhoods were not the pristine ideal of modern suburban development, but they did mix up all kinds of people in coherent, human-scaled places. Today, those neighborhoods still have multiple owners and a mix of types of people. In a historical irony, they've become some of our most-cherished places.

We had a LOT of places like this before the era of the suburban experiment, and before the era of "urban renewal." Efforts led by the professional class of the Progressive era tore them down, in favor of the big, utopian idea of the day. People like to say it’s all about racism, but it’s far more complex than that. Those ideas were fully embraced by the professional/political classes because they thought it made for better cities and a better future. And of course, it also made immense amounts of money for well-connected contractors, land owners, engineers and gave newly-minted government agencies something important to do.

This "messier" approach I'm describing is not meant to be a recipe for all cities, and all neighborhoods everywhere. In America especially, we have a great bifurcation between suburban and urban places. People want different lifestyle options, and that's ok. Urbanists don't want to hear this, but the suburbs are not going away. They will evolve, change and adapt as necessary, but four generations have grown up with them and a majority currently prefers the modern suburban lifestyle. In America, "urban" is a niche market. If you've read this blog before, you know I believe we should adopt a mindset of, "let urban be urban, and let suburban be suburban."

When it comes to the "urban" places, though, we spend far too little time actually studying what made those places 100 or more years ago tick. And we don't like to acknowledge the failures of our own professions over the course of time. It's easier to say those people in the past were all "bad" people, then to realize many of them were actually quite smart and idealistic, but had some ideas that didn't work out well at all. Let's ask, "why didn't they work out?" Or, "what did people long ago get right?"

I've lived as long now as my great-great grandfather. I've seen a fair amount of change in our cities, too. But in our era, every effort at change is a difficult struggle, and seems to not be easing the divides in our society. What is our role in creating the problems, and what is our role in charting a different course for the future?

Do we care to make a real difference in people’s lives, to help households and communities build wealth? Or do we care to just keep doing what some other bigger, sexier city is doing, and virtue-signal to members of our own tribe? Do we care to plan and manage for the many, or for the lucky few?

There has to be another way.