How the Crash Will Reshape America by Richard Florida

February 24, 2009

It’s always nice to stop by Creative Class by the Richard Florida squad. Following links I hit the “How the Crash Will Reshape America” published in the Atlantic in the March 2009 issue.

As I have said sometimes, I like Florida. It seems to be kind of funny that all academics related to the discipline of economic geography say “Florida’s ideas are good, BUT…” It seems that they have to say that in order to show their academic credentials.
So, I of course have to say the same. However, for this last document I admit I have very little objection or none.
He clearly explains the change of economic paradigms and how the American cities have to evolve. He quotes Schumpeter, Jacobs, Romer, Glaeser, Lucas, Krugman among some of the key fellows. His final proposals to change the housing market towards a more renting instead of owning are bold. Which is exactly what the U.S., and great part of the world needs now. Not so much Denmark, but this will be especially fit for my home country Spain.

The solution begins with the removal of homeownership from its long-privileged place at the center of the U.S. economy. Substantial incentives for homeownership (from tax breaks to artificially low mortgage-interest rates) distort demand, encouraging people to buy bigger houses than they otherwise would. That means less spending on medical technology, or software, or alternative energy—the sectors and products that could drive U.S. growth and exports in the coming years. Artificial demand for bigger houses also skews residential patterns, leading to excessive low-density suburban growth. The measures that prop up this demand should be eliminated.

If anything, our government policies should encourage renting, not buying. Homeownership occupies a central place in the American Dream primarily because decades of policy have put it there. A recent study by Grace Wong, an economist at the Wharton School of Business, shows that, controlling for income and demographics, homeowners are no happier than renters, nor do they report lower levels of stress or higher levels of self-esteem.

Once again I have to say, thank you Richard!

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3 Responses to “How the Crash Will Reshape America by Richard Florida”

  1. Jason Says:

    Carlos,

    I fully agree the government shouldn’t encourage owning over renting. All it does is drive up the cost of owning. How many people buy because of the tax advantage? And think about who it benefits the most… single people. So it hurts families. To show what I mean, I get a tax break for having my wife dependent and a child. Now if you are single you don’t have any such tax breaks. If I were to buy a house, I’d get some back, but a single male that makes the same as me would stand to gain a lot more by buying than I would. Which in turn makes it more expensive (more demand…higher prices). But without the tax advantage, it’d put us closer to a level playing field (I still have family expenses).

    The other thing is that owning a house makes people more immobile. We aren’t buying currently partially to keep our options open if the need to change jobs “pops up.” But now so many are stuck upside down or close to that they can’t afford to move even if they wanted to so it limits the labor force to move as needs be…

    This is just my opinion…. Viva Espana.

    P.S. I didn’t read the article so I was just responding to the above.

  2. carlos9900 Says:

    Thank you Jason for your contribution. I totally agree with you, there are many in the housing sector lobbying to eradicate all taxation on buying a house, like this will solve all the problems. I’m glad you share your experiences from the proximities of Silicon Valley. For a summary of R. Florida’s article you can listen the interview in NPR http://www.npr.org/templates/story/story.php?storyId=100961300


  3. […] revert in the economy. I talked a little bit more about this in a past post also talking about housing in Spain and America. Posted by carlos9900 Filed in Business, Denmark, Economic Geography, Economics, […]


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