Omaha By Design: Omaha, Only Better

by Ken Mayer

I enjoy my home, but it’s really just a bunch of bricks and sticks. I’ve never quite understood our fascination with houses. Long ago, as a graduate student studying finance, the numbers didn’t add up.

Sure, lots of people told me they had sold their house for so much more than they paid, but when I asked about how much they really had in the property, they seemed dumfounded. I wanted to know how much interest, taxes, commissions, maintenance and the value of their own time had contributed to the real cost of ownership. That’s how I had been trained to evaluate an investment.

Silly me.

The real return on home ownership seems to be emotional. Houses are repositories of family memories, symbols of status and proof of achieving the American Dream.

Now, I teach a course in business demographics, and I’m once again very aware of the issues surrounding home ownership. I fear we are forgoing a better life and community for the sake of our houses.

Maybe we should dial it back a bit.

Here’s the situation according to a U.S. Census report published last year:

Note how dependent we are on home equity to be our nest egg, particularly as we get older. That’s a lot of eggs in one basket. If I were to say that well more than half of my net worth, that is, assets less liabilities, is invested in a single corporate stock or bond, people would say I’m crazy. But, do it with a house, and I’m a solid citizen.

I don’t intend this to be a demographics or finance lesson. I think there are some very real social and personal costs associated with our housing obsession in view of gyrating home prices.

Almost 1 in 4 householders under the age of 25 owned their own homes last year according to the Census. That may mean a lot of people are incurring a significant opportunity cost that will profoundly impact their future. We need better educated workers, but it’s much more difficult to get more education when you live in a single family home, because those houses need looking after. I had an edge on my home owning colleagues in grad school because I didn’t have a lawn to mow or snow to shovel. I spent that time studying and doing additional reading.

Then there’s the kind of anxiety that comes from all those eggs in that one basket. Anybody with the bulk of their nest egg in a single immoveable asset is naturally going to be pretty sensitive about anything that might reduce that asset’s value. That means no matter what values you profess, even the slightest little thing that has even a whiff of reducing your property value can be a threat. So whether it’s a wind turbine or a nonwhite family moving in, it may be a cause for concern, even resistance.

Finally there’s the issue of being a prisoner in your own home. Taking care of a house intended for a family of five can be a real burden when you are 75. This can lead to a feeling that things are out of control. Combined with limitations on driving in a world of poor mass transit, life can become miserable, even depressing.

There’s little agreement on what the right ratio of home equity to net worth should be. Some have suggested no more than 20% to 40% of a household’s net worth should be in home equity. I don’t know.

But I do know that owning a home is not the American Dream. The American Dream is making sure that you and your kids and grandkids have the opportunity to move forward – economically, socially and morally.