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The Cul-de-Sac Syndrome
Turning Around the Unsustainable American Dream
John F. Wasik
An incisive look at the consequences of today’s costly and damaging suburban lifestyle
Podcast of Author
Interview with John Wasik
Format: hardcover
ISBN: 9781576603208
Publisher: Bloomberg Press
Pub. Date: 6/2009
224 pages, 6" x 9"
Retail Price: $24.95
Your Price: $21.21
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The roots of the worst housing bust in generations lie in the mythology of the American dream: buy as much house as possible, move away from urban centers, home prices will always go up, the schools are “better.” The foundation of the dream itself is faulty; indeed, the desire that “every man have his castle” is bankrupting us.
Today’s crisis in home values is the least of suburbia’s problems. The Cul-de-Sac Syndrome details the intimate connections between home ownership, economics, and the environment. John Wasik provides powerful insights into how the U.S. suburban lifestyle became unsustainable.
Wasik’s observations are firmly grounded in exclusive on-the-ground research, interviews with thought leaders, and the latest studies and statistics. He exposes the untold truths about home ownership: “green” isn’t always so “green,” life isn’t cheaper after accounting for gas, water, and taxes, and modern suburban living isn’t so idyllic considering the toll it takes on our health. However, some are attempting to revive suburbia, and Wasik shows us how. He offers insights into ways to improve our current lifestyle: eco-friendly communities, rebuilding and reclaiming inner cities, improvements in home design, and more.
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John Wasik is a financial columnist for Bloomberg News and the author of several books. His book The Merchant of Power was praised by Studs Terkel and well reviewed by the New York Times. Wasik has won more than fifteen journalism awards, including several from the National Press Club. He has appeared on such national media as NBC, NPR, and PBS. He lives in Chicago.
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Preface
Introduction: The Foundation Cracks
PART 1 A Dream Gone Bad
1 False Economics: American Dreamers in the Sunshine State
2 Origins of a Dream
3 How Debt Addiction Fed a Housing Crisis
4 Cul-de-Sac Nation: Symptoms of a Syndrome
5 The Spurbing of National Health
PART 2 Reinventing Home and Community
6 Toward Sustainable Dreams
7 Building Smarter
8 The Near Death of a Suburb
9 Reclaiming the Inner City
10 Sustainability and Development: Bridging the Gap
11 The Bill Comes Due: Which Places Will Prosper?
Epilogue: Cleaning Up, Moving On
Notes
Index
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Chapter 1
False Economics
American Dreamers in the Sunshine State
It is all of seven degrees and snow is dancing around me like devilish ice pixies as I assemble the bike rack for our family van. On my back on the frozen driveway with a socket wrench, I’m wearing four layers under my arctic parka. It’s not shaping up to be a warm February. Nothing is thawing. It’s just getting colder. So much for global warming this year. Chicago winters have a habit of lingering like unwanted guests; they chill you to the corpuscle, often well into May. I couldn’t have picked a better month to leave Chicago for Florida.
We’re heading for a rental home in Bonita Springs, a relatively small patch of beach and inland area nestled between Naples and Fort Myers on the southwest coast. I wanted to not only experience the housing boom first hand by staying in what was then one of the hottest areas on the continent but also gain an understanding of how investors were faring as the housing market ebbed.
The sunshine is ample as we enter Florida, and the promotional signs begin popping up for theme parks, orange stands, and other amusements. This is the visceral America, a region where everything is for sale all of the time. Few limits are set on the amount of land that can be purchased for the all-consuming, nor are there any guidelines on how to restrain the unquenchable thirst for soil, water, air, and minerals. Florida is what we’ve been and what we’ve become: Churches and gated communities. History and amnesia. Vitality and death. God’s waiting room. The promised land. Disney this, Universal that. The alpha and omega. The whole Hegelian banana. For baby boomers, it’s the place we may loathe and the place where we might end up, a parental state that nurtures with its abundant warmth and scorns with its violent tropical temperament. Graced with water and solar energy, it’s the land of plenty that’s being depleted daily as more than one thousand people a day trundle in during the good times, hoping for a better life.
Theme park marketing captivated the American home buyer during the housing boom. New American homes and the cul-de-sac pods that incubated them became a destination. Why go to a bank to see a grandiose marble floor when it could be in your very own bathroom or grand entrance? Names conveyed images of pleasure and elite comfort, even though the developments’ names had nothing to do with the places they were named after. Your hacienda would be waiting for you in the Spanish Wells development. Refined elegance could be enjoyed at the Monte Carlo or Wyndemere. Want to commune with the spirit of nature? Cypress Preserve or Cedar Hammock offered a unique experience. Never mind that the original settlers and abundant wetlands were long gone.
In cul-de-sac heaven, foyers were transformed from mere vestibules to grand portals of paradise. Private spaces became statements of pure ego and the subjugation of nature. Why venture out in the wilderness to see a waterfall or hot springs when it could be produced in your very own shower or bathtub?
Upgrading one’s lifestyle in the housing boom meant producing a spectacle, something that would entertain you and your friends without your needing to leave home. Kitchens featured commercial-quality stoves and refrigerators. Yet these appliances didn’t ensure that people would be cooking or eating in any more than they used to—owners wanted to project the appearance that their home was a must-see. This was the superficial aspect of the housing boom that hadn’t changed much since the days of the robber barons. Daniel McGinn called this predilection “house lust” (he authored a book of the same name), a nearly loony infatuation with the image homeowners hoped to create. Marble, granite, and huge amounts of unusable space conveyed a Palladian sensibility in a suburban locale.
What became more important to Americans than the appearance of a dwelling was a drive to build wealth the easy way—through residential housing. After all, did a house depreciate significantly during one’s lifetime? The little slumps in Los Angeles and Boston in the late 1980s and early 1990s were long forgotten when the home market started its ascent in 2001. A whole generation of GIs and their families built homes with generous government assistance after World War II and were rewarded with enormous nest eggs. Was there any reason to believe that home appreciation wasn’t guaranteed in the twenty-first century? The doctrine of the infallibility of the home as an investment attracted perhaps more true believers in Florida than in any other state, morphing into a speculators’ bacchanal in a few, brief years.
The Home as an Investment
Beth and Fabrizio (Fab) Faieta knew the ebb and flow of quirky real estate markets. Born and raised in the Boston area, they learned that to make money on property, you had to sit on it for years and be patient. They weren’t out to make a quick profit by “flipping” a home after owning it for only a few months. They were investors. They were trying to do the right thing by making money on real estate long term and pursuing a better life in the Sunshine State. They weren’t getting ahead by investing in their retirement plans. Massachusetts taxes ate up their incomes. They believed so much in the prospect of real estate that they cashed out both of their retirement plans when they were in their forties. All they had left was about $2,000 in an individual retirement account. They were entrepreneurs in the purest sense, striving for some measure of financial independence.
Arriving from the Boston area in 2004, they started investing in Florida homes as a way to create a nest egg and accumulate college savings for their two young daughters. Beth is attractive and talented, once a professional Shania Twain impressionist. Her business is selling hair extensions. Fab is a beefy, garrulous building tradesman. Both are devoted Red Sox fans. The Faietas were sold on Florida real estate after one of Fab’s friends showed up on their doorstep and extolled the virtues of the Naples area. So the balmy weather sealed the deal, and Fab went into business with him. As owners of three investment properties in the Boston area, the Faietas picked up in Florida where they left off in New England. They had been landlords since they met nearly a decade ago, so they were acquainted with the expenses and difficulties of rental ownership. They had also made good profits on the homes they sold. “We came to Florida to have a bit of an easier life without snow, I guess,” Beth told me. “And we invested here just as we did up north. We knew how to fix up homes and be excellent landlords.”
When I did my Florida research, I stayed in one of the five homes they had bought. A three-bedroom ranch with a two-car garage, it was fairly typical of entry-level homes in Florida. At the time I rented the house, it was listed for $395,000. At first, the price seemed inflated, but this was Florida at the end of the boom. Some one-third of properties in southwest Florida were bought by speculators at the height of the mania. Ordinary homes like these were overpriced and swamped a market already swimming in countless unsold properties when I was touring the state. The Bonita home, though, was bought at a relative bargain. The Faietas paid $260,000 for it in September 2004, which was fairly close to the average at the time for that kind of home in Florida.
When low interest rates unleashed a wave of rampant speculation throughout the country, the Faietas were aggressive in grabbing cheap financing. They landed a mortgage for the Bonita home at 4.62 percent, a rate not seen in a generation. Thanks to a Federal Reserve captained by “Maestro” Alan Greenspan, it was hoped that a deep recession could be averted after the stock market crash of 2000 and the tragedy of September 11, 2001. What happened to home prices could have been anticipated, yet the prospect was somehow ignored as middle-class Americans feasted on the cornucopia of low mortgage rates and the numerous property-related tax breaks. Following the freewheeling zeitgeist, the Faietas were quick to realize that real estate could be their ticket to accumulate wealth in a short period of time. They had no reason to believe otherwise. They weren’t going to make money in the stock market or investing in savings bonds. From 2001 through 2005, large-company stocks returned a miserable 0.54 percent. When you subtracted the inflation of 2.5 percent during that period, big stocks weren’t even worth the postage needed to open a brokerage account. Ultrasafe U.S. Treasury bills weren’t much better, yielding only about 2 percent during that time. The dot-com/ day-trading days were ancient history. Although stocks that invested in small companies and commercial real estate were doing well during the large-company swoon, most individual investors either eschewed them—seeing them as another huge stock market risk—or simply didn’t know about them. So when the housing market went into overdrive, millions who had been pining over their devastated 401(k)s were ready for action. “We purchased the Bonita house—and the others—thinking that we would like to keep them long term,” Beth said when I first asked why she and Fab invested in Florida real estate. “We’re not flippers.”
Climbing Ownership Costs During the Boom
As the Faietas discovered, buying and holding real estate isn’t like owning a stock. You can’t always control ownership expenses. When a wave of hurricanes blew across Florida in 2005, an aftershock of insurance premium increases hit the Sunshine State. The premium for the Bonita home went from a reasonable $999 a year to $1,407. For another home the Faietas owned in nearby Naples, the cost soared from $2,400 to $7,400. The insurance premiums were compounded by rising property prices, which meant higher assessed values—resulting in skyrocketing property-tax hikes.
When the Faietas bought the Bonita home, the annual tax bill was a bargain at $1,200. By the end of 2006, it had climbed to $3,768. Property taxes weren’t just rising in southwest Florida. Every home with higher values was subject to higher real estate taxes. Unless there is an assessment cap (as in places like California), assessors are free to track home markets.
The unintended consequence of the housing bubble was that it caused property-tax rates to soar by double digits in many places, making home ownership even more unaffordable. Newer homes in freshly developed areas usually got hit the hardest. Americans then got stung by a “sprawl” tax, which was perfectly legal yet never voted on nor anticipated. Spurbs where building was heaviest and home values the highest saw the greatest increases. Within three years, homes that once were bargains became financial burdens unless they were sold off. Those who thought they were getting the deal of a lifetime courtesy of low mortgage rates got caught in the cul-de-sac syndrome: They borrowed more than they could really afford, moved farther out from central cities, and gambled on home appreciation. Developers, elected officials, bankers, and Wall Street suffered from the same malady. They too refused to believe that these investments would ever sour. Although this thinking had been prevalent for generations, it escalated into a mass hysteria during the boom years.
By early 2007, blindsided by soaring ownership costs, the Faietas had slashed the prices on their homes. They cut the Bonita home’s listing price by $50,000. There were no takers as more than ten thousand properties glutted the southwest Florida market. Although they had previously been able to sell on their own, this time the Faietas hired a real estate agent, whose commission would cut into their profits. The boom days were a distant memory, a sharp contrast to 2004, when, the Faietas recalled, “we had to put in offers on the same day or the home was gone.”
As I prepared to leave the Faietas’ Bonita home, local real estate broker Douglas Brunner told me he was selling homes at 20 to 33 percent discounts. A year later, when I checked in with Beth, the Faietas still hadn’t sold their homes and were borrowing heavily on their credit cards to keep their heads above water. The Bonita home’s listing price was now $279,900, but they were still able to rent it out. Taxes on the home had eased somewhat, to $3,000, but the Faietas owed $12,500 in taxes for a lot and home in Naples and a duplex in Cape Coral. Taxes on their own home soared to $7,600. Insurance premiums had dropped, though their total bill was almost $8,000 for all of their properties. A new Florida property-tax law offered them little relief.
“It seems I can’t stop talking about our troubles with our home,” Beth wrote me in early 2008, adding that their real estate woes had put intense pressure on their marriage. They fought constantly over what to do. “It’s very stressful for us to be in the position we’re in. We haven’t sold anything and I fear our credit score will soon be going south. People aren’t into the ‘little upgrade brings more value’ idea right now. It’s a shame they don’t see the big picture. We don’t even have the Naples home listed with a realtor right now because they need a guarantee that they would make their commission at the short sale price [selling it for less than the mortgaged value]. I’ve listed it on Zillow and Craigslist for $399,900. But we owe more than that on it.”
The Faietas’ housing woes didn’t stop with those two homes. A duplex they owned in Cape Coral, where they live, was fully rented, although netting $600 less than their expenses for the unit. “The problem is, we bought it in the summer of ’06 when things were priced at their highest, so we can’t refinance that one,” Beth said. Like many who availed themselves of low rates when they became available, the Faietas had multiple mortgages on their properties. On their duplex, they had one 8.25 percent loan and another at 13 percent. They spent $25,000 remodeling the duplex, and it was worth $50,000 less than what they owed. The saving grace was that the house they lived in was financed with an 8.25 percent fixed-rate mortgage. Expenses on all five properties tripled in the time they have owned them, and by 2008 they could barely afford to pay half of their mortgages.
“We have always tried to invest for our kids’ futures. We have never tried to flip. We actually liked being landlords. We are doing better this year than last with our businesses, but every cent is going to toward our bills. I’m really tired of it and have decided to stop paying a few and stop stressing out. It’s just hard to decide which ones. Once we sell a few of them [houses], we’re going to bank our money for a while until we can buy the home we want to live in permanently and then think about our next step. I only hope we don’t ruin the excellent credit we used to have. Some days there is $32 in our account, and some days enough to pay most of our bills, but we’re making sure we can afford groceries and gas first.”
Spurb Corridors
The Faietas’ home and investment properties became mired in a foreclosure alley that ran from Tampa to Dade County. Cape Coral was among the top-twenty markets for numbers of defaults. Places where previously there had been relatively little development turned into boomtowns because homeowners—and later speculators—snatched up properties with cheap mortgage money. Places like Lehigh Acres, just southeast of Cape Coral, became clusters of condos and single-family homes. They weren’t the traditional suburbs of larger regional cities like Fort Myers or Naples. Their only connection was the knotted, constantly expanding Route 41 and 1-75, which run from Tampa to Fort Myers and Miami.
Most of the newer communities that were ravaged by the housing bust had almost no central core, little in terms of local or regional master planning, no mass transportation, and few established services or infrastructure. As spurbs, they were the mushrooms of unsustainable sprawl. And they weren’t confined to Florida.
In the vast California interior, which is mostly desert or mountains, you find Lancaster, incorporated in 1977, or Hesperia, established in 1988. Both originally were refuges for buyers seeking affordable homes in the greater Los Angeles area. But these arid towns were nowhere near the city. Hesperia is ninety miles away from the city of angels. Residents settling in many cities that sprung up east and south of San Francisco and Silicon Valley faced several hours of commuting—one way. By 2008, they were subprime gulches, as those homeowners defaulted on adjustable loans that put them one rate increase away from unaffordability.
Nevada led the other states in home defaults. Miami’s prices fell more than 37 percent from 2005 to 2008. Prices in some areas in California dropped more than 35 percent, and countless homeowners have sent their keys back to the bank (“jingle mail”) and walked away in the middle of the night.
To the Manor Bought
Why was the American psyche so heavily invested in homeownership? The need to start anew and reinvent was one of the undeniable messages of the building boom. We constructed new palaces of consumption because it was in our American DNA. Each new home became a mini theme park. The McMansions so often ridiculed by aesthetes embody this need to convey wealth, status, and tradition—the same need that made owners try to make their homes look like French chateaus, English country homes, or Gothic castles.
The American home became the embodiment of generations of aspirations. First came the land, then came the emblem that you owned and lorded over the landscape—the manor home. In a uniquely American way, homeowners were echoing the class-climbing impulses of their forebears. Cathedral ceilings bespoke of sanctified self-improvement. Bathroom suites implied middle-class barony. Homes got bigger and more expensive because we wanted them to portray nobility. We had made it. We’d achieved the American dream! This was what we had to show for generations of effort. The fact that this striving also became a mania for investment and speculation is also painfully American.
The lure of riches and adventure has been the transformative American quest ever since European monarchs cast their eyes on North America beginning in the late fifteenth century and financed adventurers like Sir Walter Raleigh to start colonies. What originally was a search for a shorter route to India and China also was a search for El Dorado, the city of gold. Even young Samuel Clemens was smitten by the gold bug when he ventured west in the middle of the nineteenth century. Whether they came from moribund little towns, shtetls, farms, or impoverished mining communities, they had a need to reinvent themselves, becoming the future gentry.
Sudden wealth grants the power to reinvent one’s persona. Overnight, we hurdle from the bowels of the lower or middle class into a higher echelon of society. Just like the unsinkable Molly Brown, whose husband accidentally discovers a vein of gold on his Colorado homestead, we propel ourselves into another world. The home becomes the symbol of our newly acquired privileges and worldly goods. The mansion buys our prestige and status in a world where those attainments contribute immeasurably to self-worth.
Even a humble trailer home or two-bedroom condo is a sanctified place in American culture. It’s a shrine to our independence and accomplishment, a symbol that we’ve thrown off the yoke of our indentured servitude. Investing in homes took that process one step further as the holy grail became financial independence. Homes were no longer castles, in the cul-de-sac era. They were receptacles and generators of wealth. For the Faietas, they were entrepreneurial retirement plans in a world in which 401(k) plans were for suckers. There was nothing wrong with the concept of building wealth through land, of course. It had been ingrained in our cultural DNA for four hundred years.
Like the conquistadors, cul-de-sac prospectors favored warm places and flocked to Phoenix, Las Vegas, Miami, and southwest Florida during the housing bubble days. If you believed in the dream—and leveraged to the hilt to get there—you too could be free from future financial worry. It was all part of the same fantasy.
Wall Street and the banks wanted us to realize our dream and enabled it in every way possible—even if we couldn’t afford the mortgages to buy these vestiges of acquired status. Government also did its part: It had been pushing home and property ownership since Europeans first began to settle on the continent and usurped the land from the natives. America was built on the premise that people like the Faietas could succeed and prosper. Millions did.
Where did this overpowering obsession for a completely new life and dwelling come from? How did land and house become entwined with our ideas of a Gibraltar-like investment? To answer those questions, I traveled to tidewater Virginia, where the origins of the American dream were firmly rooted.
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