I often host dinners with people from the neighborhood. Talking with them reminds me of how each generation has a different perspective and temperament. The Silent Generation, Baby Boomers, Generation X, and Millennials each approach the challenges of life from unique angles and specific contexts.
In the wake of the Great Depression and World War II America launched a massive build out of the society we now inhabit: the interstate highways, vast water supply systems, state universities, the polio vaccine, the space program, and the complete suburban matrix of single family homes, office parks, and shopping malls. As a nation we wanted a specific form of growth and progress. The system wasn’t perfect. People had to work hard. There were trade offs. But we consciously created institutions and procedures that allowed a majority of the population to actively achieve a particular set of middle class goals.
When I talk to people of a certain age and ask them how much student loan debt they had when they graduated they all say, “None.” They worked summer jobs and part time during the school year or received military benefits that completely covered their tuition. College was radically more affordable. Many people didn’t even need a university degree to secure employment at a middle class wage. When I ask how much they paid for their house the numbers are absurdly low – not just the nominal price, but the cost relative to their income at the time. Ask a twenty five year old those same questions and see how they respond.
In the case of this grandmother-daughter-granddaughter trio the ability to pay for an education and a home radically changed over the generations. The age of first time home ownership increased from early twenties in the 1950’s to late thirties in the 1980’s to… never in the 2000’s. Lower wages, student loan debt, and higher home prices combined to push home ownership farther and farther away even as social and legal obstacles diminished.
A friend recently went through his elderly mother’s records and found that in 1965 a water meter from the Los Angeles County Waterworks was $9.50. That was the cost to connect to the system when a new home was built – less than ten bucks. The current price is $40,000. The water system is aging. It needs to be physically maintained and upgraded. In essence it needs to be entirely rebuilt as each part wears out and fails. The system also has to accommodate decades of accumulated salaries, pensions, health, and disability benefits for an army of aging workers. Politically it’s easier to “make the developer pay” than to charge existing ratepayers. So that $40,000 is rolled in to the price of each new home.
In 1978 a property tax revolt in California resulted in Proposition 13. Taxes were capped based on the value of a home on the date of purchase. Consequently older people who bought in to the real estate market many years ago pay very little in property tax even though their homes are now fantastically more valuable. The tax burden was effectively shifted to younger people as they enter the market.
Municipal revenue has been choked off and local schools and other services have been starved of funding for decades. This isn’t particularly troublesome for older people who no longer have school aged children. They and their kids already received a quality education from the public investments made by previous generations. But it’s tragic for the young families coming up.
Existing employees and labor unions have made a series of deals over the years that preserve the pay and benefits of older workers while creating a second lower tier for new hires. This is just another aspect of intergenerational wealth transfer. “I’ve got mine. You go get your own.” Don’t think the kids haven’t noticed.
These young people aren’t talking about the need to “maintain the existing character of the community” or “keep out the wrong element.” In many ways they are the wrong element as far as older residents are concerned. That entire conversation is effectively irrelevant to a new generation that has no expectation of ever owning property. They no longer have access to the American Dream of a three bedroom ranch house on a cul-de-sac. They already bought the equivalent of a home when they took on massive debt to go to college. They may not even want that kind of suburban life if they have to live an hour and a half from civilization to acquire it.
The development pattern and financial arrangements that worked well in the beginning of the post war cycle have come to the end of their practical usefulness. Every aspect of the system is soaked in debt and obligations that can’t be maintained beyond a certain point. So they won’t be maintained. The system will crash. It’s just that simple.
Fifteen years from now today’s twenty five year olds will be forty – and very much in charge of running the country. Fifteen years from now today’s sixty five year olds will be eighty. Keep in mind, the average American male only lives to be seventy eight. That demographic shift is what will drive the transformation.