There’s a review of Yale economist Robert Shiller’s latest book, The Subprime Solution, in The Observer‘s print edition this week:
The over-valuation of real estate was brought on, he argues, by a “contagion” of bad thinking: Americans as a whole became convinced that real estate fundamentals such as personal income, the cost of building materials and the ratio of home values to rent no longer mattered. Repeated endlessly, the “real estate myth” of homes as an asset destined to appreciate indefinitely due to economic growth, scarce land and a swelling population became a truism, even though it was wrong—as we’re all finding out now. …
In addition to emphasizing the crooked timber of human psychology during the bubble, Mr. Shiller has an insightful sociological observation to make. He worries that the emphasis on quick fortunes during the tech and real estate booms has eroded the Protestant work ethic. Instead of valuing how well a person does his or her job, whether it’s plumbing or corporate governance, Americans now tend to admire wealth accrued by any means necessary. According to boom thinking, a person who spent the past 15 years working steadily at a job rather than riding the NASDAQ or flipping condos isn’t admirable—he’s kind of a loser. Why settle for laboring at a calling when you can watch your net worth double merely by sitting in your house? Or so went the conventional wisdom through 2006.
Mr. Shiller pricked some more of this conventional wisdom in an extensive interview with The Observer‘s Max Abelson back in January. The economist described how even the mighty Manhattan housing market would slow.
What will the bursting of the real estate bubble in New York look and feel like?
It will probably start showing synchrony with the rest of the country, and it will happen very gradually, it will start slowing down. If we’re going into a recession, it won’t be that exceptional, people won’t be that surprised.
Our real estate boom since the 90’s is unrivaled, you’ve said, even by the post-war baby boom. So would it be normal, even desirable, for it to end?
It would be a great thing for New York if prices came down, because more interesting people would move in. Your artists can’t afford to live there anymore … They’ll move out of Brooklyn, they won’t be anywhere nearby.