How the Housing Crisis Shafted the Next Generation
Life + Money

How the Housing Crisis Shafted the Next Generation

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In sorting through the debris of the financial and economic crisis, some experts say that one of the most harmful and long-lasting effects is the demise the “generational compact.”  Plummeting home values is one reason children may not live as well as their parents, thus breaking the long-standing assumption that life will be better for the next generation. 

There was a time, for example, when parents and grandparents viewed their homes as an asset to be leveraged to send their children and grandchildren to college, or to help them to buy their own homes after graduation.  At the same time, state and local support for higher education helped to keep publicly supported college costs manageable for most Americans.

But now, the intergenerational connections that long defined the American Dream have been stretched to their limits, pitting seniors against young people, whites against blacks and Hispanics, and the wealthy against the poor, according to experts.

“Today, students graduate burdened with debt,  homeowners owe more on their homes than they are worth, and public infrastructure is crumbling,” said Sarah Rosen Wartell, president of the Urban Institute, at a forum on Monday.

At the same time, more and more seniors are struggling to make mortgage payments or hold onto their homes, let alone help their children or grandchildren with tuition costs.  While many older people prefer to hang onto their homes, rising property taxes, utilities and maintenance costs or falling incomes is making that impossible for some.

On average, house prices have fallen by more than 30 percent from their 2006 peak, while housing wealth has fallen by over $7 trillion, according to industry figures. This has led to 11 million homeowners who owe more on their mortgages than their homes are worth, an amount totaling about $700 billion. What’s more, new regulations have tightened credit constraints – limiting the ability of those with diminished home equity or with impaired credit to access loans.

The housing equity and savings problem is even worse among middle and lower-income families and Hispanic and black families, according to Urban Institute research. Overall, median household net worth fell by 28 percent from 2005 to 2009, according to Pew Research and Treasury Department research.

Meanwhile, state and local governments have cut back spending in tough budgetary times, while tuition has literally tripled at public four-year colleges since 1980. During that same period, state and local support fell by almost the exact same share. By 2009, tuition at public colleges and universities accounted for more revenue than the schools were receiving from state and local governments.


“It is difficult to say whether this shift in the compact between generations is a deliberate choice to move from paying it forward to pushing it off, or rather a reaction – perhaps temporary – to the crush of economic and budget pressures,” Janice Eberly, the Assistant Treasury Secretary for Economic Policy, told the noon-time gathering . “But even if meant to be temporary, it shifts the balance between generations, tears at the fabric of connections between us, and undermines the investments and the competitiveness we need to build.”

Rodney Harrell, a senior strategic policy adviser at AARP’s Public Policy Institute, sees the past housing crisis as the crux of the problem. “This whole housing crisis has shifted everything,” he said, and housing costs are becoming increasingly burdensome for Americans 50 years of age and older.

“Whether they are fighting foreclosure themselves, or whether they have taken out a reverse mortgage or a second mortgage, and taken a lot of the value out and owe that money, now it can’t be used as that asset,” Harrell added. “I’m very concerned that we don’t have enough growth-building wealth assets outside of housing for those families. Housing is just no longer as concrete an option as it used to be.

This massive diminution of the value of residential property is likely to be most stressful for middle class and lower-income families, especially blacks and Hispanics, according to Eberly. These families are far less likely to have other liquid assets to finance their children’s higher education costs, leaving them with no choice but to borrow the money and greatly adding to their debt. According to Urban Institute research, the median household headed by a white non-Hispanic held about $113,000 in assets in 2009, and the median Asian household held about $78,000 in wealth – while Hispanics and blacks held only $6,300 and $5,700 in wealth, respectively, the lowest inflation-adjusted levels in at least 25 years.

Tensions are certain to grow in coming years as the overall population becomes dominated by Hispanic, blacks and Asian-American, while the mushrooming cohort of seniors is mostly white. Last year, for the first time, there were more babies of color born in the U.S. than Caucasians, the Census Bureau reported last week. Leticia Miranda, senior adviser on economic security policy at the National Council of La Raza, a Hispanic-American advocacy group, noted that while Hispanics currently make up just 14 percent of the U.S. workforce, that percentage will double by 2050.

“As our nation ages and becomes more dependent on government programs like Social Security and Medicare, fewer workers will be bearing the burden for paying for these programs,” she said. “The burden on each worker would be even bigger if it were not for the growth of Hispanics in the workforce. So the finances of those programs would be in even worse shape if it were not for the growth of the Hispanic population.”

And that’s why the nation must continue to invest in the education and future of coming generations, as the U.S. evolves into a majority minority country. An Hispanic worker with a college education can expect to earn $1 million more over his or her lifetime, compared to an Hispanic with only a high school education. That means better-educated Hispanics will contribute more in federal and state taxes and help cover the cost of fast-growing entitlement programs.

“So the question of the day becomes: Will a largely white electorate vote to pay taxes to support investment in education for a population of children who do not look like them?” said Miranda. “Or will the social contract only go in one direction, with workers supporting seniors? It is in the interest of the entire nation, especially our seniors, to recommit to making an intergenerational investment in education.”