Policy Recommendation Going Forward: Stop the Obsession With Homeownership

September 23, 2008

One of the best columns I’ve ever read came earlier this summer from Paul Krugman in which he questioned the policy obsession with promoting homeownership in America. When the current mess is over and we look back at the situation, policymakers should be asked to justify how much we subsidize housing in the United States, and not just for low-income people. Here’s Krugman’s introduction:

“Owning a home lies at the heart of the American dream.” So declared President Bush in 2002, introducing his “Homeownership Challenge” — a set of policy initiatives that were supposed to sharply increase homeownership, especially for minority groups.

Oops. While homeownership rose as the housing bubble inflated, temporarily giving Mr. Bush something to boast about, it plunged — especially for African-Americans — when the bubble popped. Today, the percentage of American families owning their own homes is no higher than it was six years ago, and it’s a good bet that by the time Mr. Bush leaves the White House homeownership will be lower than it was when he moved in.

But here’s a question rarely asked, at least in Washington: Why should ever-increasing homeownership be a policy goal? How many people should own homes, anyway?

Listening to politicians, you’d think that every family should own its home — in fact, that you’re not a real American unless you’re a homeowner. “If you own something,” Mr. Bush once declared, “you have a vital stake in the future of our country.” Presumably, then, citizens who live in rented housing, and therefore lack that “vital stake,” can’t be properly patriotic. Bring back property qualifications for voting!

Here’s Krugman explaining why homeownership is not for everyone:

In effect, U.S. policy is based on the premise that everyone should be a homeowner. But here’s the thing: There are some real disadvantages to homeownership.

First of all, there’s the financial risk. Although it’s rarely put this way, borrowing to buy a home is like buying stocks on margin: if the market value of the house falls, the buyer can easily lose his or her entire stake.

This isn’t a hypothetical worry. From 2005 through 2007 alone — that is, at the peak of the housing bubble — more than 22 million Americans bought either new or existing houses. Now that the bubble has burst, many of those homebuyers have lost heavily on their investment. At this point there are probably around 10 million households with negative home equity — that is, with mortgages that exceed the value of their houses.

Owning a home also ties workers down. Even in the best of times, the costs and hassle of selling one home and buying another — one estimate put the average cost of a house move at more than $60,000 — tend to make workers reluctant to go where the jobs are.

And these are not the best of times. Right now, economic distress is concentrated in the states with the biggest housing busts: Florida and California have experienced much steeper rises in unemployment than the nation as a whole. Yet homeowners in these states are constrained from seeking opportunities elsewhere, because it’s very hard to sell their houses.

Finally, there’s the cost of commuting. Buying a home usually though not always means buying a single-family house in the suburbs, often a long way out, where land is cheap. In an age of $4 gas and concerns about climate change, that’s an increasingly problematic choice.

There are, of course, advantages to homeownership — and yes, my wife and I do own our home. But homeownership isn’t for everyone. In fact, given the way U.S. policy favors owning over renting, you can make a good case that America already has too many homeowners.

That’s blasphemy. Krugman should be locked up for making such a statement that dares suggest housing receives too many favors from Washington. I’d recommend Dr. Krugman call up David Lereah to learn why housing is always a good buy for everyone.


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