Chapter 36 — Student Debt, Housing, and the American Dream Under Pressure

This chapter asks: why does being young in 2025 feel harder than being young in 1975? The answer involves two markets — higher education and housing — where prices have risen far faster than incomes, for reasons that are structural, not mysterious.

36.1 Why college costs rose

College tuition has risen about 1,200% since 1980 — roughly 4× the rate of general inflation. Four explanations:

Baumol's cost disease. Teaching is a labor-intensive service that hasn't been automated. A professor in 2025 teaches roughly the same number of students as a professor in 1975. But the professor's salary has to compete with salaries in sectors that have seen productivity gains (tech, finance). The result: the cost of teaching rises faster than inflation because productivity in teaching hasn't risen, but the wages that attract teachers have.

The Bennett hypothesis. Federal financial aid (loans, grants, tax credits) may have enabled colleges to raise tuition — because students could "afford" the higher price (using borrowed money). The aid intended to make college more affordable may have partly been captured by colleges as higher tuition. Evidence is mixed but suggestive.

Administrative bloat. The number of administrators and non-teaching staff at universities has grown much faster than the number of faculty. Between 1975 and 2015, the number of full-time administrators per 100 students more than doubled. Some of this growth is justified (compliance, student services, IT). Some is not.

State funding cuts. Per-student state funding for public universities has fallen about 30% in real terms since 2000 (varying by state). Universities made up the difference by raising tuition. Students at public universities are paying more partly because their state governments are paying less.

36.2 Is college worth it?

On average, yes — the lifetime earnings premium for a bachelor's degree is about $1.2 million. But the variance is enormous:

• STEM and business degrees have high average returns
• Some liberal arts degrees have modest returns (though still positive on average)
• Not finishing college (the ~40% who start but don't graduate) often means debt without the credential
• The marginal student (the one on the fence about attending) has a lower return than the average student

The honest answer: college is worth it for most students at most schools — but it is not worth it for everyone, and the debt burden for those who borrow heavily for a degree that doesn't lead to a well-paying job can be devastating.

36.3 Student debt

Total U.S. student debt: about $1.75 trillion (2025). Average debt per borrower: about $30,000. Some borrowers owe much more (graduate students, private-school attendees). Student debt constrains choices: where to live, what career to pursue, when to buy a house, when to have children.

36.4 Housing affordability

The housing affordability crisis is primarily a supply problem. Home prices and rents have risen faster than incomes in most U.S. metro areas for two decades — not because demand is unusual (population growth is moderate) but because supply is constrained.

Why supply is constrained: - Zoning. Most U.S. residential land is zoned exclusively for single-family homes. Apartments, duplexes, and other multi-family housing are prohibited in the majority of residential areas. - NIMBYism. Existing homeowners oppose new development (especially higher-density development) near their homes — it might increase traffic, change the neighborhood's character, or lower their property values. - The "missing middle." U.S. housing construction has been dominated by single-family homes and large apartment buildings. The middle (duplexes, triplexes, townhomes, small apartment buildings) has been largely absent — blocked by zoning. - Construction costs. Labor costs, materials costs, and regulatory compliance costs have all risen, making new construction more expensive.

Three policy responses: 1. Zoning reform. Allow more housing types in more places. Minneapolis (2018) eliminated single-family-only zoning citywide. Oregon (2019) required cities to allow duplexes. California has passed multiple zoning-reform bills. Evidence: where supply expands, price growth moderates. 2. Rent control. Chapter 7 covered this. The standard economic critique (reduces supply, reduces quality) applies. Some stabilization versions are less harmful. 3. Housing subsidies/vouchers. Direct support to low-income renters. More efficient than price controls but requires government spending.

36.5 The Millbrook housing story

The Millbrook housing crunch (Chapters 5 and 7) is a microcosm of the national story. Rents rose 17% in one year. The cause: enrollment growth + supply constraints (closed complex, rising costs). The response: the rent-control debate (Chapter 7) and the zoning review (ongoing). The lesson: housing affordability is a supply problem, and supply requires zoning reform, faster permitting, and public investment.

36.6 The generational gap

Millennials and Gen Z face a harder path to the "American Dream" milestones (homeownership, financial security, family formation) than their parents and grandparents did at the same age. The median age of first-time homebuyers has risen from 29 (1980) to 36 (2024). Student debt didn't exist at scale before the 1990s. Housing prices relative to income are higher than at any point in the last 50 years.

This is not a "kids these days are lazy" story. It is a story about structural economic forces — Baumol's cost disease, zoning restrictions, state funding cuts, subsidy capture — that have changed the economic landscape young people enter. Understanding these forces is the first step toward addressing them.

Key terms recap: Baumol's cost disease — services with stagnant productivity get more expensive relative to goods with rising productivity Bennett hypothesis — federal aid captured by colleges as higher tuition NIMBY — "Not In My Back Yard"; opposition to local development missing middle — the absence of mid-density housing (duplexes, triplexes) blocked by zoning zoning reform — changing land-use rules to allow more housing types