Waking Up from the American Dream

By Christian Noakes

A Marxist Critique of Homeownership and Wealth

Introduction


Popular conceptions of private property and ownership are shaped by ideological forces which lend themselves to the structural stability of capitalism. As a fundamentally bourgeois concept, private property “appears as an inner part of the individual, one of his fundamental ‘rights’, something his freedom is founded on.”[1] To possess is seen as a means to self-improvement and self-realization. This is particularly true with regards to home ownership in the U.S. Vale[2] identifies three interwoven strands of national homeownership ideology: Jeffersonian ideas of property in the foundations of America, the American Dream and mobility through ownership, and patriotism/nationalism. To the latter we can add anti-communism, which was intimately linked with the moralizing of ownership and the prevailing jingoism of the early 20th century. One of the key component that set the modern ideology attached to private property apart from its Jeffersonian roots was the preference by both government and private industry toward small-scale homeownership in industrial cities and surrounding suburbs.[3] Following the Second World War, a reinvigorated middle class and widespread suburban development spurred a housing boom that cemented homeownership at the center of the American Dream.


The American Dream is a national narrative of equality and exceptionalism—one which claims that economic mobility, and ultimately happiness, are simply a matter of personal perseverance, optimism, and investment. While it has developed over time, it is foundational to the collective conception of freedom, equality, opportunity, and healthy citizenship. This spiritual component is complimented by a materialistic drive of ownership which is considered the means of attaining the American Dream. Rooted in capitalist values, this national narrative is “the spiritualization of property and consumption, the investment of joy and dignity in consumption and property ownership.”[4] A core assumption of the American Dream is that equality of opportunity provides an avenue for the working class to accumulate wealth and therefore improve their quality of life. In the 1920s, home ownership became a central component and has persisted to this day as one of the primary embodiments of the American Dream.[5] Due, in part, to the blossoming of the credit industry, a nascent mass-consumer economy, and an increase in housing investment and land speculation, the ability to own one’s home became synonymous with American ideals of self-creation and moral citizenry. The single-family home has since been regarded as the sturdiest of socioeconomic ladders.


However, many of the material or economic benefits of homeownership are prematurely assumed to be inherent outcomes. Given its ideological construction under capitalism, and in the U.S. more specifically, there is an unconditional acceptance or “blind necessity”[6] that homeownership is an effective means of upward mobility and equality. However, such views lack empirical justification. While assessing the validity of concepts as subjective as the American Dream or freedom can be problematic, there are several ways of measuring the complex relationship between the ownership of property and wealth accumulation on which such amorphous concepts are built.


This paper contributes to the understanding of how the accumulation of housing-based wealth is contingent on who the owner is and the context of where the property is located. In more general terms its aim is to shed light on how private property—much like education and occupation—can be used as a means to perpetuate, intensify, and structure social stratification. I argue that homeownership intensifies inequality; it does not reduce it. This is counter to popular beliefs surrounding the ownership of private property as an egalitarian means of economic mobility and as an avenue for the most disadvantaged to achieve higher socioeconomic status. By comparing the housing values for Black, white, and Asian homeowners in different contexts, I move beyond the assumption of property as a unilateral means to opportunity and social mobility. While homeownership can provide the opportunity to accumulate wealth, promoting access to ownership under resilient structural inequality does not adequately address the disparity in housing value or wealth more generally. If the outcomes of ownership vary significantly by place and race then homeownership can reinforce social stratification. Capturing this variability is central to deconstructing popular assumptions of ownership and addressing persistent inequality.


The volatile nature of the nation’s housing industry also complicates matters. In times of crisis, the bottom drops out, but some fall further than others. These “boom and bust” cycles may therefore actually reinforce structural inequality. Contrary to the view of crises as failures of the housing system, this paper considers how crises provide structural maintenance and the creation of new markets. In this light, the 2008 crisis represents the latest stage of a built-in process that reoccurs in order to maintain capitalism through mutation. By looking at housing values during the last major housing crisis, I hope to better understand patterns of accumulation at the national and regional level and the implications of ownership in the post-crisis housing market.


This paper is organized around the following questions: How were the housing values of owners from different racial categories impacted during the last major U.S. housing crisis? How were patterns of appreciation and depreciation of housing value affected by location (urbanicity and region)? How did the housing crisis, and the Great Recession it spawned, change patterns of accumulation? By answering these questions, I aim to address the implications of building wealth through ownership. Further, I also aim to provide greater insight into the role of crises in the processes of accumulation and the restructuring of housing markets.

The long-established public-private partnership of government, private lenders, and real estate have created a housing market that codifies the exclusion of black communities from housing-based accumulation—a core component of the American Dream.

The Literature of Inequality


While income inequality remains a serious concern for social scientists and policymakers alike, ethnic and class stratification appears to be even starker when one considers wealth.[7] Wealth serves as a more precise measure of socioeconomic status than income because it considers all assets owned by individuals or families. Home equity accounts for roughly 60 percent of the wealth for the nation’s middle class.[8] This makes questions of access to ownership and the accumulation of wealth attributable to ownership vital to understanding and adequately addressing the persistent racial wealth gap in the U.S.


Patterns of access to home ownership are highly racialized. Sykes[9] shows that region, age, and income affect both non-married Black and white women similarly while the effects of education and labor force participation increase the likelihood of ownership more for white women. Overall, non-married white women are more likely to own their homes compared to their Black counterparts. Charles and Hurst[10] also observe a disparity in ownership which they attribute, in part, to Black-white disparities in both applying for and having mortgage applications accepted. Access to the credit necessary for many to own their homes make banks a central institution which people rely upon to build wealth.


However, the long-established public-private partnership of government, private lenders, and real estate have created a housing market that codifies the exclusion of Black communities from housing-based accumulation—a core component of the American Dream. Encouraged in part by appraisals and maps from the Home Owners Loan Corporation, lenders have excluded communities deemed undesirable—often informed by racial or ethnic makeup—from cycles of reinvestment in a practice known as redlining.[11] While many working-class white communities also received the lowest possible grade due to their low appraisal value, virtually all Black communities (as well as other neighborhoods with ethnic minorities) were “redlined” and thus devalued and stigmatized regardless of class composition or housing conditions.[12] The Federal Housing Administration (FHA) adopted this practice when appraising neighborhoods with federally backed mortgages. This federal agency also encouraged—and in some cases required—racially restrictive deeds for properties receiving the agency’s mortgage backing.[13] These racial covenants prohibited the sale or occupation of properties to Black people and other minorities. Between mortgage lending practices and restrictive covenants, the government, private lenders, and real estate systematically devalued Black neighborhoods and prevented Black people from moving to areas with better access to credit and rates of value accumulation—thereby excluding those with the least from pursuing the American Dream. While many lenders avoided areas with minority populations, others offered subprime mortgages with higher interest rates, lower loan-to-value ratios, and shorter terms.[14] Such strategies of exclusion likewise impeded the accumulation of value and housing-based wealth in minority communities.

The crisis subjected both renters and owners to a process of creative destruction—an inherent tendency of capitalism to increase capital to the point of overproduction, which then destroys markets in periods of depression or crises. By periodically destroying its old markets and spurring widespread social disruption through this process, capitalism creates the new markets necessary for the expansion of greater profits. Creative destruction is fundamental to the maintenance of capitalist economies.

Despite the hegemonic persistence of the assumption that homeownership is a means to both the American Dream and social mobility, the consideration of how housing and structures of ownership may perpetuate social inequality is not a particularly novel approach. In fact, Friedrich Engels[15] took a similar position against the French socialist Pierre-Joseph Proudhon. Proudhon asserted that enabling every individual (or family) to own their home was adequate to address issues of housing disparities. Rejecting this thesis, Engels pointed out that equal access under a system built from capitalist class relations and the division of town and country only intensifies class inequality. Engels’ radical critique of housing has since been supported by several studies that have considered fundamental class and geographic disparities in U.S. housing-based wealth.[16]


In the U.S., race is a key factor in the patterns of wealth accumulation. Regarding housing value, there are two levels to consider: the effects of being a person of color and the effects of living in neighborhoods where the majority of residents are people of color. This distinction can be difficult in the U.S. due to the persistence of segregation in which Black people are far more likely than other minority groups to live in isolation from the rest of the population. Isolation and hypersegregation have facilitated predatory lending in predominantly Black communities[17]; and as segregation increases, the Black-white racial gap in housing values also widens.[18] Segregation and neighborhood racial composition can also have a significant impact on the housing values of entire neighborhoods.[19] Research suggests that current home value decreases for homes in neighborhoods when there is an increase in minority population—especially for Black populations. This trend applies to both whites and Blacks in both suburban and urban contexts.[20] However, what Rusk[21] refers to as the “segregation tax” appears to impact Black homeowners more than it does for others—with this tax being particularly steep in the Midwestern region of the U.S.


In addition to race, place is integral to patterns of housing value and wealth accumulation. Region of the U.S. (West, Midwest, Northeast, and South) can be particularly consequential for homeowners. Research shows a consistent pattern in which housing values are highest in the West and lowest in the South and Midwest.[22] Living in the South has also been shown to have a significant negative impact on housing equity when compared with non-Southern property. While housing values appear to be significantly higher in the West, this region was also hit particularly hard by the housing crisis.[23] The region in which a property is located is key to both property values and the potential wealth generated from these values.


Given capital flow out of[24] and into[25] urban centers, urbanicity can also have a large influence on housing-based wealth. Commute time to-and-from work has also been shown to be a strong indicator of negative equity.[26] One can therefore expect to see depreciation increase further away from major cities and industrial centers. This effect of urbanicity can also vary by region. City properties can have higher values or higher rates of accumulation in the West or Northeast than those in the Midwestern cities, like Detroit. Such variations could also make homeownership in urban centers either more or less economically beneficial when compared to surrounding suburban and rural areas.


Given the volatile nature of the speculative housing industry, crises are also a key component of understanding the processes of capital accumulation. The 2007-2009 housing crisis precipitated an international recession that has had serious political, social, and economic implications still felt to this day by many both within the U.S. and abroad. While it would eventually develop into a general financial crisis known as the Great Recession, its roots lie in the deregulated and highly speculative housing market, the growth of the high-risk subprime lending industry, and the practice of predatory lending.[27] By giving people loans with higher interest rates, fluctuating interest rates, and other negative terms of agreement, banks could guard against the loss of profits while making these mortgages harder to maintain, thereby causing widespread default, foreclosure, and devaluation.


Predatory lending refers to the practice of targeting communities of color, working class communities, and the elderly with subprime mortgages. Predatory lenders depleted housing equity and crushed many low-income homeowners. For example, $6.7 trillion of housing equity was lost nationally between the years of 2006 and 2011.[28] Working-class neighborhoods saw a significant decline in housing values around foreclosed properties while there was little to no impact on surrounding housing values in more affluent neighborhoods.[29] With the depletion of housing value came the increased concentration of negative equity and foreclosures. Patterns of foreclosures were uneven and varied by market. Central cities saw a disproportionate amount of foreclosures in many areas that were experiencing growth in foreclosures prior to 2007 while stronger markets that experienced more volatility of the housing bubble tended to see foreclosures concentrated in suburban neighborhoods.[30] The impact was also uneven across regions. After the housing bubble popped, states in the West and South saw a collapse in the housing market while states in the Midwest were burdened by high unemployment during the Great Recession. States such as Florida, California, Michigan, and Georgia saw a disproportionate amount of foreclosures.[31]


The crisis subjected both renters and owners to a process of creative destruction—an inherent tendency of capitalism to increase capital to the point of overproduction, which then destroys markets in periods of depression or crises. By periodically destroying its old markets and spurring widespread social disruption through this process, capitalism creates the new markets necessary for the expansion of greater profits.[32] Creative destruction is fundamental to the maintenance of capitalist economies. According to Marx[33]:


[T]he highest development of productive power together with the greatest expansion of existing wealth will coincide with depreciation of capital…These contradictions lead to explosions, cataclysms, crises, in which... momentaneous suspension of labor and annihilation of a great portion of capital... violently lead it back to the point where it is enabled [to go on] fully employing its productive powers without committing suicide.[34]

In other words, the capitalist tendency to increase profitability creates the conditions for devaluation which in turn renew the ability of increased profit through new markets and other investment opportunities. This contradictory characteristic in which crises serve as structural maintenance creates a “temporal and geographical ebb and flow of investment in the built environment.”[35] The burdens of crises are not evenly distributed. As such, development and the accumulation of capital following crises become even more uneven—a condition which lends itself to profit. This process provides opportunity for investors while creating a barrier to economic mobility (or stability) for large segments of homeowners. During the Great Recession, following on the tide of foreclosures and the drop in housing values, real estate companies were able to buy properties at a significantly reduced price. In cities like Atlanta, investors responded to the foreclosure crisis by buying up property in distressed low-income communities where foreclosures were high and median housing values low.[36] In the social disruption and economic hardship of the recession came opportunity for speculation and investment as well as a boom in Real Estate Owned (REO) properties.[37]


The functional role of crises lies in their tendency to increase inequality. Hendricks[38] considered the changing relationship between race, place, and property-based wealth within the context of the previous housing crisis. Using data from the 2001 and 2010 U.S. Census Bureau’s Survey of Income and Program Participation (SIPP), they found that the housing crisis widened the racial gap in equity. Compared to identical models for homeowners in 2001, racial disparities became highly significant by 2010, and Black and Latino/a respondents saw a steep decline in home equity when compared to Whites—implying one’s race became more salient an indicator of equity after the housing crisis. They concluded that the impact of the housing crisis was unevenly distributed, thereby causing a “multiplier effect” in which ethnic inequality in housing value and wealth was exacerbated. Thomas et al.[39] also observed an increase in the racial disparities in housing values after the crisis. Their findings suggested that Black homeowners considered to have higher socioeconomic status (SES) experienced growth of a larger gap to high-SES white owners than lower-SES Blacks to low-SES whites. The intensification of racial segregation following the crisis[40] likely played a key role in widening the racial wealth gap in housing values. Such findings are contrary to the often-implicit assumption that the opportunity to accumulate wealth is in itself a means of promoting equality. The intensification of racial disparities during cyclical crises repeats the damage of an inequitable housing system and systematically excludes people from “realizing the American Dream.”


Recovery has also been highly uneven. In the Southeast, Raymond[41] found that rates of negative equity, post-crisis, were significantly higher in predominantly Black zip codes. This pattern persisted when subprime lending was controlled for, which suggests that structural inequality goes deeper than high-risk or predatory lending. While this practice no doubt seriously undermined people’s ability to reap any benefits from, and in many cases maintain, ownership—particularly in communities of color and in the West[42]—it is only part of the picture. The persistence of inequality penetrates down to the patterns of accumulated housing values upon which equity is built.


Research provides plenty of evidence to suggest that the economic benefits of homeownership are highly contingent on the characteristics of the owner and the neighborhood in which property is situated. However, more is needed to better understand patterns of housing-based wealth. Some studies have focused on particular areas,[43] thereby overlooking broader national trends and differences among regions. Other relevant studies are limited to either metropolitan[44] or suburban areas[45] or else they do not consider urbanicity at all.[46] Few consider how crises influence patterns of accumulation.[47]


This research contributes to the growing body of work around housing and inequality by considering national and regional trends during the housing crisis. In doing so, it becomes clear how “the post-crisis stage of accumulation inherits a geographical space that is highly differentiated by crisis.”[48] By grounding the analysis of the present paper in a critique of capitalist hegemony, this study addresses the contradictions between structural housing disparities and the ownership ideology at the heart of the American Dream. It also sheds light on more contemporary conditions of wealth inequality and uneven development which the crisis helped foster.

Hypothesis

H1 There are significant racial disparities in patterns of housing values

H2 There are significant spatial disparities in patterns of housing values

H3 Spatial disparities are compounded by racial inequality

H4 Spatial and racial disparities are compounded by crisis

Data and Methods


How do patterns of housing value vary by race and place? How has the recent housing crisis influenced such patterns of accumulation? My analysis uses 2007 and 2009 microdata from the American Housing Survey (AHS). The AHS is a national longitudinal survey conducted by the U.S. Census Bureau biennially. Its purpose is to collect information on housing and demographics that may then be used to capture housing trends and needs. Information was compiled for a cross section of the nation’s housing. Unlike surveys that follow households (people/families) from year to year, the AHS follows housing units (property), therefore making it ideal to track fluctuations in property values. The 2007 and 2009 data includes 31,565 and 35,119 homeowners respectively. The apparent increase in ownership is reflective of an increase in overall responses. Reported ownership rates actually fell from 32% in 2007 to 31% of respondents in 2009.


Construct Measurement

The primary analytical concept of interest is wealth attributable to housing value. This will allow us to consider how homeownership may affect economic opportunity, a central feature of both the American Dream and bourgeois conceptions of freedom more generally. To test the assumption that homeownership is an effective means of wealth accumulation, I consider how patterns of value are influenced by race and space. The former is limited to the three (3) racial categories with the highest frequencies of homeownership: White only (N₀₇=25,650, N₀₉=27,884), Black only (N₀₇3,835, N₀₉=4,450), and Asian only (N₀₇=1,203, N₀₉=1,852). Analysis is limited to these three categories due to the low response rates of other categories—many of which combined several categories (i.e. White and Black). While there is a separate variable for Hispanic respondents, this categorization is somewhat incoherent when comparing housing values for white homeowners to housing values for other races, as the Hispanic category does not distinguish between Spanish and Latin American. The latter also does not constitute a single race.


With regard to spatial disparities, the present analysis addresses regional and urban variation in housing value. Using the U.S. census regions, I am able to assess the spatial distribution of the housing crisis burden. The regions are as follows: West, Midwest, Northeast and South. Whether or not a property is located in an urban or rural area, in a central city, or a Metropolitan Statistical Area (MSA) may also impact the ability for owners to reap financial benefits. The AHS provides such a measure of urbanicity and population density. Respondents were categorized as living in (1) the central city of an MSA, (2) inside an urban section of an MSA but not in the central city, (3) inside a rural section of an MSA but not in the central city, (4) outside an MSA in an urban location, or (4) outside an MSA in a rural location. The AHS defines central cities as those with populations of at least 250,000 or at least 100,000 people working within its limits. Smaller cities were also included if they had at least a population of 25,000, jobs for three out of four residents, and no more than 60% of its residents commuted out of the city for work. Areas were designated as suburbs if they were in a metropolitan area but not in any central city. Urban areas were those consisting of and surrounded by high-density neighborhoods that collectively had a population of at least 50,000 (see the 2007 AHS National Definitions for further details on the distinctions between cities and suburbs and urban and rural areas).


Given their potential influence on wealth, I will control for homeowner age and income. The latter variable is calculated by combining the respondent’s wages and salaries. The mean age of homeowners remained constant at 37 years old while the mean income increased from $23,448 to $25,668 from 2007 to 2009. This is to be expected given the rise of foreclosures in low-income and working-class communities. See Table 1 for further homeowner demographics in 2007 and 2009.

There are of course limitations with the present analysis. Due to limitations of the data, for example, I cannot consider the effects of neighborhood racial composition or segregation on housing values. Given the fact that the housing crisis peaked after 2009, I also likely underestimate the severity of the crisis. Likewise, limiting my analysis to owner-occupied property means this study excludes those who shouldered the heaviest burden—those who lost their homes. However, these limitations also mean that the specific findings of the present analysis can contribute to a greater understanding of the severity of minimum impact and, in so doing, reveal some of the pervasive contradictions between our current housing system and the American Dream.


Method

In this section, I will construct a repeated cross-sectional analysis to better compare housing situations at two points in time. Using Ordinary Least Squares regression, this research assesses the variability of change based on race, place, and other owner characteristics between time one (2007) and time two (2009). OLS regression estimates actual interval/ratio values by creating a line of best fit to minimize residual sum of squares (that is, the difference between estimated and observed values). Using this method, I can thus check for linear relationships between housing value and several predictor variables. Comparing regressions from 2007 and 2009 should also help capture the role the housing crisis played in driving wealth inequality in the U.S. Each year’s samples of homeowners have been obtained through list-wise deletion.


Where dummy variables are used, homeowners categorized as “white only” serve as the reference group for Black and Asian homeowners. The Northeast serves as a reference group for other regions. For the urbanicity variable, I use suburban (inside MSA, not in central city) urban classification as a reference group to compare with property in the central city, rural suburbs, and outside of an MSA. I will control for the interval-ratio level variables of age and income. Due to its highly skewed distribution, the log of the latter is used to create a more even distribution in order to adhere to the assumption of normality. The following regression equations, listed below, will be used to predict housing value for homeowners in 2007 (Ŷ₁) and 2009 (Ŷ₂).

To better understand racial and spatial disparities, I use three equations. The first regression (Eq. 1) will provide a broad view of housing value trends. The second regression (Eq. 2) is split by race to assess regional and urban disparities in isolation from the effects of racial inequality—it will also serve to distinguish how different races experience spatial disparities. The final regression (Eq. 3) is split by region to assess racial disparities within regions and to compare the intraregional patterns between regions.

Results


Standard OLS Regression

The crisis caused widespread devaluation. However, the severity of the crisis was highly uneven. Homeowners in the Northeast tended to have significantly higher housing values than homeowners in the South and Midwest in both 2007 and 2009, while they also tended to have lower housing values than owners in the West from the same time. Homeowners in urban MSAs likewise saw significantly higher housing values than owners in all other categories of urbanicity in both 2007 and 2009 (H₂). Overall disparities appear to decrease, however, the disparities between the Northeast and the South and between MSA urban and non-MSA urban increase by 2009.

There was a significant disparity between white and Black homeowners in 2009 (H₁). However, evidence of a persistent gap in housing values disappears when geographic variables are introduced. This implies that racial inequality is partially facilitated by geographic disparities. See Table 2 and Table 3 for patterns of housing values in 2007 and 2009 respectively.

OLS Regressions Split by Race

Owners in all three racial categories experienced large gains in the West relative to their Northeastern counterparts. By 2009, this gap shrank dramatically—implying that the West was hit harder than the Northeast. Asian homeowners saw the largest decline in Western housing values. Highly significant regional disparities persisted from 2007 to 2009 for homeowners in each racial category. However, in 2007 Black homeowners in the Midwest and South experienced the largest disparities with their Northeastern counterparts. By 2009, Asian homeowners in the Midwest and South saw the largest disparities with Northeastern counterparts (see H₃).


The MSA urban-outside MSA urban disparity increased across all racial categories from 2007 to 2009. However, Black owners saw the sharpest increase in the gap between housing values in urban MSAs and urban property located outside of an MSA (followed by Asian owners). This suggests that racial inequality compounds geographic inequality (see H₃). Asian and white homeowners also saw significant widening of the Northeast-South gap during the crisis. In both 2007 and 2009, Asian homeowners experienced the largest disparities between MSA urban and all other categories. In contrast to the pervasive effects of geography, age, and income were non-significant for owners in all racial categories. See Table 3 and Table 4 a