Counterarguments to the claim that people should not waste money on a big house

Economist Robert Shiller argues Americans do not need large houses:

“Big houses are a waste. People are still in a mode of thinking about houses that is kind of 19th century. As we modernize, we don’t need all this space,” Shiller told the Journal…

Shiller said advanced technology has replaced the need for extra space in our homes.

“For example, we don’t need elaborate kitchens, because we have all kinds of delivery services for food. And maybe you don’t need a workshop in your basement, either. You used to have a filing cabinet for your tax information, but now it’s all electronic, so you don’t need that, either. And bookshelves, for people who read a lot. We have electronic books now, so we don’t need bookshelves anymore,” Shiller said.

“Having a big house is a symbol of success, and people want to look successful. People have to know about your achievements. How do you know, really? Who knows what people are doing in their day job? But you do see their house.”

The counterargument for a typical owner of a large house might look like this:

1. What else could be such a worthwhile investment over time? Many people assume their home will appreciate in value and a big home purchased today means not only more space but more money down the road when the home sells.

2. Private space is still important. The kitchen may not be just about cooking. Of the spaces Americans do use in their homes, the kitchen is one. Or the idea of a workshop: there can be public spaces where people could come together to share tools and use common space but how many Americans are ready for that?

3. Shiller may overestimate the rate at which people are willing to get rid of stuff in favor of electronic copies or technology-aided alternatives. Shiller cites paper and books above. But, Americans simply consume a lot, ranging from video games to decor to furniture to electronic gadgets. Don’t they need bigger houses to fit all their stuff?

4. Status symbols matter in American society. A home is a very tangible expression of status, particularly compared to smaller items like watches, smartphones, jewelry, clothing, and other items.

All of these reasons may not be the most efficient or rational but they are a product of decades of social and cultural action and values. For more reading, see an earlier post: “Explaining Why Americans Desire Larger Homes.”

Get creative and sell home and new car together as package deal

Thinking about an earlier post linking new upscale car purchases with suburban gentrification, I had an idea: why not sell more homes and new cars together as a package deal? Here are reasons this could be a good pairing:

  1. Americans like the lifestyle that comes with a single-family home and driving a car. It is particularly important in the suburbs where owning a home and the ability to drive rank high in importance. Put these two big purchases together and sell a whole lifestyle.
  2. Both a home and a car are a status symbol. Pairing the two really provides an opportunity to brand the owner. Would someone want to purchase a McMansion but still drive a two Toyota Tercel or a Pontiac Aztek? Or, retire and downsize to a nice urban condo and keep driving a minivan or an older model SUV? Matching the home and the car at the same time provides a unique opportunity to establish oneself.
  3. I wonder if there are some “efficiencies” in purchasing both at the same time. On the producer side, developers and dealers want to move properties and cars; if selling them together helps, this is a deal. On the buyer side, perhaps they can roll all of the costs together and just pay one lump sum a month for two important items. (Mortgage documents might be hard enough to put together, let alone a joint document rolling together a mortgage and a car loan). Could it all be cheaper for the buyer (or get the sellers/lenders more money in the long run on interest)?

I would guess there are also good reasons this is not done widely. Still, given how much Americans like buying properties and like driving and cars, there may be potential here.

Looking at “The McMansion Effect:” home satisfaction and size of the homeowners’ home

A new study under review looks at how satisfied owners are with owning some of the largest homes in their area:

This finding, Bellet reasons, has to do with how people compare their houses with others in their neighborhood—particularly the biggest ones. In his paper, which is currently under peer review, he looks closely at the construction of homes that are larger than at least 90 percent of the other houses in the neighborhood. By his calculation, if homes in the 90th percentile were 10 percent bigger, the neighbors would be less pleased with their own homes unless those homes grew 10 percent as well. Moreover, the homeowners most sensitive to such shifts are the ones whose houses are in the second-biggest tier, not the ones whose houses are median-sized.

To be clear, having more space does generally lead to people saying they’re more pleased with their home. The problem is that the satisfaction often doesn’t last if even bigger homes pop up nearby. “If I bought a house to feel like I’m ‘the king of my neighborhood,’ but a new king arises, it makes me feel very bad about my house,” Bellet wrote to me in an email.

The largest houses seem to be the ones that all the other homeowners base their expectations on. In neighborhoods where the biggest houses are more modest, Bellet told me, expanding the size of one’s house can be 10 times as satisfying as undertaking such an expansion in a neighborhood where the biggest homes are palatial.

Bellet sketches out an unfulfilling cycle of one-upmanship, in which the owners of the biggest homes are most satisfied if their home remains among the biggest, and those who rank right below them grow less satisfied as their dwelling looks ever more measly by comparison. He estimates that from 1980 to 2009, the size of the largest 10 percent of houses increased 1.4 times as fast as did the size of the median house. This means that the reference point many people have for what constitutes a big home has shifted further out of reach, just as many other lifestyle reference points have shifted in an age of pronounced wealth inequality.

Read the working paper here.
Three quick thoughts:
  1. The term McMansion in the paper seems to refer simply to the largest homes. At least a few of the homes are not likely McMansions since the term is much more complex than just referring to homes with a large amount of square feet. Is the big home architecturally sound? Is it a teardown replacing a smaller home? Is it less of an issue of the single home and more an issue of sprawl and excessive consumption? Calling all big homes McMansions does not add much to helping understand what exactly is going on with large homes. Not all large homes are made alike or may be as satisfying. It may, however, add sizzle to the title: “The McMansion Effect” sounds good.
  2. I would like to see more research that addresses the issue of homeowners comparing their homes to others around them. This paper suggests satisfaction is linked to nearby comparisons. How far does this geography extend – walking distance? Half a mile? 2 miles? Within the same municipality? Compared to what is seen on TV?
  3. This sounds similar to a recent argument about the “Dream Hoarders,” the group just below the wealthiest people who have status anxiety about keeping up. Here, those just below the biggest homes in the neighborhood can feel worse. Is it the largest houses that are the problem or the people in the next to largest houses who then long to have the biggest house. If only we could control the pesky human tendency to compare ourselves to people who have just a little more than us…

Linking nicer cars to a suburb on the rise

From the Australian suburbs: one insider suggests seeing nicer cars in driveways signals good prospects for the suburban community.

The gentrification of the driveway happens before the gentrification of a suburb, says the boss of a data analytics company.

Upmarket vehicles beginning to appear in the carports and garages of houses is often a forerunner of a suburb on the rise, as renovators move in...

When more models such as a BMW X5 or an Audi SUV begin appearing in the driveway of houses and apartments in particular suburban streets, it is a reliable predictor of a suburb undergoing gentrification and becoming much more popular with renovators. Extra investment in community infrastructure often followed, and there was a broad flow on to higher property prices…

He said households who were taking out a loan for $500,000 to buy a rundown home in an up-and-coming area were often also purchasing a $30,000 to $40,000 car to fit the aspirational lifestyle.

The article chalks this up to a big data insight as bringing together multiple pieces of information helped reveal this relationship. I can see how this new information might help investors but it is less clear how this would help residents or local governments.

More broadly, this gets at something my dad always said: look at the cars in driveways, on the street, or in parking spots and it gives you a sense of the people who live there. In societies that prize cars, such as in the United States and Australia and particularly their suburbs, a vehicle becomes an important social marker. The one-to-one relationship might not always work as some people buy more expensive cars than their housing might indicate and vice versa (recall the stories of millionaires driving old reliable cars). Yet, on the whole, people of different social classes drive different vehicles in varying states of repair. Hence, various brands aim at different segments of the market. Famously, General Motors did this early in the 20th century with five different car lines to appeal to different kinds of buyers.

UPDATE: I probably did not contribute to this upward trend with long-term ownership of a Toyota Echo. But, it looked good for its age.

 

Scrambling to fill empty suburban HQs

Chicago looks at development efforts involving several large suburban corporate campuses that lost their famous tenants to the big city:

For many of these suburbs, the solution isn’t to replace one corporate behemoth with another. Instead, they’re dicing up the land for different uses and radically changing the face of suburbia for decades to come — just as the mammoth corporate enclaves and shopping malls once did. In Oak Brook, for example, an unexpected entity pursued the 34 undeveloped acres at McDonald’s. “As soon as we found out they were leaving, we asked if they wanted to donate it,” says Laure Kosey, executive director of the Oak Brook Park District. “They said, ‘Good idea, but we’re going to put it up for sale.’ ”

So the park district bought it. Residents of Oak Brook, a village that levies no property tax, took the unusual step of taxing themselves by voting for a bond referendum that covers the $15.8 million price tag, with $2 million left over for creating soccer fields and spaces for other recreational activities. The deal closed in December with the promise that the land won’t turn into anything other than a park.

A separate McDonald’s property a few miles from the main campus, next to the Oakbrook Center mall, was sold to Houston-based developer Hines last summer. It will likely become a mix of apartment buildings, office space, and shops — what the developer has called a “new village center.” It’s a similar tack to the one Schaumburg is taking after it was rattled in 2016 by the loss of Motorola Solutions’ headquarters, which moved to the West Loop. Chicago-based UrbanStreet Group bought 225 of the site’s 322 acres and intends to remake the parcel into a mini community with houses and apartments, a retirement home, a driving range, a park, and sidewalk cafés…

Nearby Hoffman Estates has already lost one giant — AT&T, which began vacating its 150-acre satellite campus in 2014 for several smaller sites in Chicago and other suburbs — and doesn’t exactly have a sure thing in another: the hobbled Sears Holdings Corporation, which is fighting to stave off liquidation. New Jersey–based Somerset Development is turning the AT&T site into what it calls an indoor downtown, essentially a 21st-century Bio-Dome that packs offices, restaurants, entertainment spots, conference centers, and hotels under a massive roof. It’s possible a Montessori school, public library, and other communal spaces will be weaved into the site, just as the developer did in New Jersey, where it revamped the huge Bell Labs property…

State representative Fred Crespo, a Democrat from the village, is floating a so-called Big Empties bill, which is being redrafted after it was introduced during the last session of the General Assembly. It would provide hefty incentives, including relief on up to half of the property taxes, for developers that make over old HQs larger than one million square feet.

The redevelopment plans sound like they have promise. The goal is to reduce the ways that headquarters are often set apart from the surrounding land by reincorporating the properties into the fabric of the suburb as well as introduce a variety of uses that will generate more around-the-clock activity. Big office campuses and/or buildings can be impressive displays but they may not contribute much to local community and social life.

On the other hand, I wonder how to weigh these changes against the loss of status that can come with the move of major companies out of the community. Particularly for edge cities, suburbs with millions of square feet of retail and office space and often located near major highways (like Oak Brook, Schaumburg, and Hoffman Estates), a Fortune 500 company helps establish the suburb’s reputation. New mixed-use neighborhoods may be attractive but they don’t have the same oomph as saying the suburb is home to Sears or McDonald’s or Mondelez.

I, for one, will be very interested to see how this all plays out within twenty years. These properties offer unique opportunities for established wealthier suburbs to do something unique. However, the redevelopment plans could go awry or the what is constructed may not be that interesting or the suburb’s status may never quite recover.

Drawing artistic inspiration from growing up around McMansions

Artist Katherine Vetne builds upon a childhood spent around McMansions:

Vetne says her interests in exploring (and subverting) objects of status and consumerism started when she was growing up in Newburyport, Mass. She observed the differences between established “old money” and the newly affluent: A lot of the newer families built “McMansion” houses that looked like new versions of the town’s historic homes in an attempt to emulate that status.

Those experiences led to a unique form of art:

Vetne, 31, of San Francisco, has been building a reputation as a sculptor who works in an unusual medium: destruction. Vetne’s best-known work during the past three years has been a series of sculptures made from kiln-melted housewares crystal, which takes a distinctive, puddle-like shape when heated.

She then “mirrors” the melted crystal mass in a chemical process that turns the blobs into reflective objects. The pieces are presented individually or in big groups, like in her “Guilty Pleasures” installation that was part of the Catharine Clark Gallery’s summer show, “We tell ourselves stories … In order to live.” Ford and Vetne took the shopping trip at Clark’s invitation to find the raw material for a piece Ford recently commissioned from Vetne.

The idea of working with crystal, whether it’s fine Baccarat or more mass-market Avon, appeals to Vetne, who is interested in exploring issues of class, gender and materialism. “At the crux of my practice is the more middle-class people with some amount of resources trying to look ‘higher class’ than they are through the objects they acquire. I am interested in concepts of visual excess and how they’re supposed to communicate something. Usually, it’s ‘I have a lot of money.’”

Given the general reputation of McMansions, this is not surprising: take objects by which aspiring people try to build up their status and then destroy them to show what those objects are really about. Perhaps it would even be more shocking if an artist celebrated McMansions.

I’m also trying to imagine this destruction process applied to actual McMansions or parts of McMansions. Could a piece of performance art involve taking a wrecking ball to a McMansion? Or, imagine taking a two story foyer to a museum and showing it falling apart every so often, like the way “Concert for Anarchy” displays a piano in an unusual form. Or, take granite countertops and stainless steel appliances and destroy them.

How many mega-celebrities live in older homes?

Reading about LeBron James living in a new large home in Los Angeles that replaced a midcentury-modern home, I wonder how many of the super celebrities live in older homes. If you have that much money and status, do you have to purchase a new or recent home with all the amenities? Does new celebrity money typically translate into a new, large, architecturally suspect home?

Some earlier posts on the subject:

The Kardashians/Wests selling a McMansion or mansion.

California celebrities with green lawns even during severe drought.

Kobe Bryant with a McMansion or a mansion.

Matt Ryan and Tom Brady with their own suburban McMansionsMatt Ryan and Tom Brady with their own suburban McMansions.

NASCAR wives in McMansions.

Perhaps alongside a high-priced and rare car, a McMansion is a status symbol of new celebrities.