A Multidisciplinary Lens on the American Dream - Part 1

Imagine waking up one morning only to find out that your local council plans to demolish your house to make way for a new bypass. That’s what Arthur Dent had to face… Arthur is the quintessential everyman in Douglas Adams's sci-fi masterpiece, ‘The Hitchhiker's Guide to the Galaxy.’ For those who consume their philosophy via humor, this book is an absolute must-read 😀!

Picture this: Arthur is standing in front of a bulldozer, in his robe and slippers, trying to save his home from being flattened. But while he's worrying about that, his friend Ford Prefect (yes, that’s the spelling) shows up with a recursive bad news: not just Arthur's house, but the entire planet Earth is scheduled for demolition to make way for a hyperspace bypass. In the story, Dent loses both his house and the planet but ends up going on a space adventure.

My dad on the other hand, lost only his house but had to deal with the realities of finding his family a new home. Here is the story of how that shaped me…

Table of Contents

• My Dad’s Story

• Economics: The Georgist view

• Systems Thinking: The Concept of Ownership

• Psychology: Debt

My Dad’s Story

My parents held low paying government jobs and we lived a lower-middle class life (what I used to think, back then) in the outermost suburbs of the city of Chennai in India. My dad managed to buy a piece of land in a village called Guduvancheri (“cheri” literally means slum in Tamil, my mother tongue). It was within his budget, but close to a National Highway - NH 45.

My parents didn’t have enough money to build an entire home in one go. So, they bought a piece of land, built a couple of rooms and moved in. But, over the next couple of years they slowly added one room at time.

But one fine day, the government sent my dad a notice enforcing Eminent Domain. The concept, known as the Doctrine of Eminent Domain, allows the government to acquire private property for public use, provided that it offers “just” compensation to the property owner.

The provided justification was the expansion of NH 45 to add more lanes. The market rate was pretty reasonable but the property valuation used by the government was cents on the dollar.

The bitter court battle launched by some of the other impacted home owners prolonged the pain, but we had to eventually vacate our home. But, the story doesn’t end there… His bad luck continued with the new home.

He didn’t buy an empty land this time - he bought a home that was almost ready (but for the ceiling). He thought he could meet the move-related deadlines easily this way. But, the previous builder had used poor quality materials and the walls started collapsing. So, we had to tear down the whole building and start again from the foundation. This further strained his budget and my mom had to pledge/sell off her gold jewelry to make the numbers work.

I was in 5th grade when we moved - I vividly remember our first day of the move and over the years this journey has shaped my psychological attitude towards home ownership in general. My dad thought he owned his first home outright but was proven otherwise. Even after this financial setback, he wanted to give us the stability that a home can provide. He took on a mortgage and purchased another home. He was able to fully pay it off only after his retirement.

We are all shaped by our own life experiences. A home doesn’t mean the same thing to all of us. To be more precise, it doesn’t even mean the same thing to us during different phases of our own life.

Yes, today’s post takes a multidisciplinary lens on the American Dream of home ownership. It is a sensitive topic that kindles our emotions. I’m not going to argue whether home ownership is good or bad - but I’ll look at the concept from different perspectives, discuss some of the second-order effects and emergent behavior.

I will caveat that my perspective is heavily colored by the local Bay Area real estate, one of the most expensive markets in the world, where I’m still a renter.

Let’s dive in…

Economics: The Georgist view

Technology is deflationary. With the same or even less money, you can now purchase much nicer TVs, mobile phones, laptops, and more. However, the benefit of technological innovation is not equally shared across society.

Henry George, in his seminal work "Progress and Poverty," argued that increasing value of land, particularly in rapidly developing areas, leads to an unjust concentration of wealth in the hands of landowners at the expense of the broader society.

Let’s now see what’s happening to Bay Area economy. Tech workers end up making a lot of money, but a lot of that money (> 50% of income in many cases) is going into just home ownership or renting. The cost of living crisis is exacerbated by rising property prices, which have absorbed gains from technological advancements and cheaper manufacturing.

The system favors those who own land, allowing them to extract wealth from those who perform useful economic activities. As businesses thrive, the benefits accrue to landlords through increased rents, rather than to the individuals running those businesses. The focus on property as the primary investment vehicle leads to a concentration of capital in an illiquid and unproductive asset, hindering investment in other areas of the economy.

To be clear, I’m not against landlords. My dad is now a landlord, but his philosophy is completely different. Once he found good tenants, he has kept the rent the same for several years and hasn’t increased it despite the high inflation in India in the last few years. He just doesn’t view it as a profit making activity.

Here is Rory Sutherland talking about this in the context of the UK economy where similar dynamics have played out when it comes to home ownership:

Sutherland champions Henry George's idea of taxing the unimproved value of land, arguing that this would discourage land hoarding and incentivize productive use of land. This could help curb rising property prices and redirect capital toward more productive areas of the economy.

Systems Thinking: The Concept of Ownership

Things are not what they are. Things are what we think they are.

Instead of talking about taxes, zoning laws and NIMBY-ism, I'd like to go all the way back to the concept of ownership itself - not just home ownership.