Thursday, January 20, 2011

Did Americans really want McMansions? (12 Sept 2007)

In the midst of the building craze it was easy to assume that McMansions were being built because vulgar, ostentatious Americans wanted them; in fact, it seemed an emblem of our national character along with obesity and SUVs. That's not a very generous characterization, and most of us would want to exempt most everyone we know from it, but it still seems sort of true in the abstract. Someone has to be driving all those Escalades and Yukons you see in suburban mall parking lots. Someone is living in those vast vistas of huddled houses in those endless developments across the fruited plain.

But as this article in today's WSJ suggests, it may have been that McMansions were a structural necessity brought on by the economics of the housing bubble. The article reports that builders are now building smaller homes as jumbo mortgages (too big for the government agencies to insure) are harder to come by for prospective buyers.

More recently, turmoil in the mortgage market has made it harder for buyers to qualify for bigger loans. As lending standards get stiffer, lenders have cut back on mortgages exceeding $417,000. That's the maximum size loan that lenders can sell to Fannie Mae and Freddie Mac, the government-sponsored financiers that buy mortgages from lenders and repackage them into mortgage bonds for sale to investors.

All this is causing builders to redraw their blueprints. After reducing prices on their current inventories of unsold homes, the next step is to "start building to a new market. That new market is a lower price point at a smaller size. To the extent they can do it, they will," said Kermit Baker, chief economist at the American Institute of Architects.

The article still wants to pin the ballooning size of homes before the credit crunch on consumers' desires to flaunt their prosperity, but it's worth considering the consequences of easy financing itself, which drove up valuations and prices and raised the floor at which real estate deals needed to be made in order to seem worth the trouble. This meant catering only to the high end of the market and encouraging everyone to consider themselves a part of it, whether they wanted to or not. The houses had to be big to accommodate all the money sloshing around in freely distributed mortgages, and to give margins big enough for builders to make money on the inflatedly expensive land they built on. Home buyers became caught up in a nexus of brokers, bankers, and builders that may have obfuscated alternatives to brand spanking new McMonstrosities in what used to be meadows. So maybe we really should feel sorry for the homeowner cited in the article who is angry that smaller houses are going up around his behemoth in a development: "Standing on his back porch, he can look out across the lake and see at least six newer, smaller homes. 'The garage looks bigger than the house,' he said."

So perhaps in this new real-estate climate, Americans can redefine themselves from being a people of outsize excess to something more conscientious, and perhaps investment vehicles like the "energy-efficient" mortgage will allow for it.
The energy-efficient products are structured like traditional adjustable or fixed-rate mortgages, yet they incorporate the cost of energy-efficient improvements, such as insulation, windows and cooling systems, into a mortgage so customers can pay these costs over the life of the loan. When customers wish to a buy a home, they have an energy audit done by a certified third party, which evaluates the home and creates a list of energy-efficient improvements that can save the homeowner money on utility bills. The lender -- which will identify a certified auditor -- puts the money needed for the improvements in an escrow account and the improvements are made after the home is purchased.
As nice as grassroots efforts at greening America are, it will probably be a matter of more corporate-sponsored efforts like this becoming normal -- becoming integrated in the way business is done in America -- for the commonsense assumptions about what Americans want to change. The business press tends to report about "greening" of the economy as a trend, a fad, a gimmick uses to dupe silly consumers who want to pretend to be making a difference. But that may be because it clings to antiquated dichotomies that structure its discourse, between conservation-focused environmentalism on the one hand and pro-growth economism on the other. But it seems to be slowly recognizing that businesses are themselves driving the trend toward sustainability because it can drive profits, and not merely by taking advantage of the foibles of consumers. "Green" may be marketed like it is a brand, but unlike brand equity -- which is a kind of illusion, a virtual value, part of the superstructure -- "green" actually affects the economic base. And it seems backward to see average American consumers as environmentally conscious, as shaping the development of markets (apologists for corporations love to make it seem so since it makes corporation seem like massive agents of the people's will rather than ill-regulated forces manufacturing it.) In fact, we may be so committed to the values embedded deep in consumer capitalism -- of brands and big corporations validating aspects of our personal lives and of rationality being a matter of finding profitability and financial advantage -- that environmentalism must generally be rationalized by economic efficiency, even if it's just a veneer.

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