laura.fo

What's Hurting the Middle Class: The myth of overspending obscures the real problem is an older (2005) article, but one worth revisiting in light of the mortgage crisis and subsequent recession. Elizabeth Warren and Amelia Warren Tyagi argue that, despite rhetoric about Americans' dependence on credit cards and their inability to save, the average family's spending on things like appliances, gadgets, and designer clothes isn't up significantly since the 1970s and in many cases has gone down. The biggest increase is in what we spend on homes, but not because we're all buying mansions ("the median owner-occupied home grew from 5.7 rooms in 1975 to 6.1 rooms in the late 1990s—an increase of less than half of a room in more than two decades"). The main reason behind this increase is the quest to live in a "good" school district:

Why such a staggering increase in the cost of housing? That is a long, separate discussion, but one point is worth underlining here: when a family buys a house, it buys much more than shelter from the rain. It also buys a public-school system. Everyone has heard news stories about kids who can’t read, classrooms without textbooks, and drug dealers and gang violence in school corridors. Failing schools impose an enormous cost on the children who are forced to attend them, but they also impose an enormous cost on those who don’t…

Consider University City, the West Philadelphia neighborhood surrounding the University of Pennsylvania. In an effort to improve the area, the university committed funds for a new elementary school. The results? At the time of the announcement, in 1998, the median home value in the area was less than $60,000. Five years later, according to The Philadelphia Inquirer, “homes within the boundaries go for about $200,000, even if they need to be totally renovated.” The neighborhood is otherwise pretty much the same: the same commute to work, the same distance from the freeways, the same old houses. And yet, in five years families are willing to pay more than triple the price for a home, just so they can send their kids to a better public elementary school.

As inequity between school districts grows, or is perceived to be growing, middle-class parents will do almost anything to buy their way into a better home. (I'd argue that a lot of parents don't understand how to evaluate a school system, a fact that works to real estate agents' advantage, but that's a topic for another post.) Looking at data from 1984 to 2001, the authors find that housing prices for families with at least one minor child grew at a rate three times that of other families.