the costs and risks of homeownership are almost never discussed by public agencies and that the benefits of homeownership as widely articulated are either hard to measure or are quickly refutable. I conclude that U.S. housing policies and government institutions designed to promote homeownership are deeply flawed. Serious discussion should occur at the highest levels about eliminating current policies and de-emphasizing homeownership as a policy objective.
See also my essay, Who Needs Home Ownership?
Here are two ways to characterize U.S. housing policy:
(a) it addresses a clear market failure in a reasonably cost-effective manner
(b) it is a collection of special-interest boondoggles
Is there anyone of any ideology persuasion who can make the case for (a) rather than for (b)?
*crickets*
I can’t really make a case for (a), but I think you could make a case for ‘Not (b).’ Home ownership can in one sense be looked at as a form of personal savings or investment which we induce people to participate in via government subsidies and incentives. Those with high time preferences often cannot easily be persuaded to defer consumption and save for the future, but owning and occupying a home has elements of both consumption and investment, thus raising participation rates among the impulsive. It’s a way to have your cake and eat it, too.
The rate of return probably isn’t great and it’s a paternalistic practice which is of course subject to control by a Baptists and Bootleggers coalition of real estate agents, financiers, and left wing “social justice” agitators, but alternatives might include either more paternalistic forced savings schemes or higher levels of redistribution from the upper to lower classes, both of which are more politically unpalatable than the current subsidized housing regime.
How’s that for a Devil’s Advocate take?
Here is a list of nations ranked by home ownership. I see no evidence it creates better citizens or better savers:
http://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate
I agree we do not ask often enough: what’s so great about homeownership? Suppose that the $200,000 you borrowed were instead invested in a diversified bunch of dividend-paying stocks, and that you used the dividends to pay rent, held onto the stocks, and when you died used the stocks to pay off the debt. What’s the problem? Different tax treatment, obviously, but that’s a policy decision and doesn’t have to be this way. Stocks are risky, but riskier than owning a house? Then there is the issue of schools. Many people buy houses on the basis of what school their kids get to attend. But again, these are policy decisions. Should we be stacking the deck in favor of houses?
Also, the empirical evidence that homeownership is good (for family, kids, etc.) has what economists call an endogeneity problem: families that are doing better are more likely to buy a house. So the measured correlation between homeownership and “good family, good kids” is typically incorrectly interpreted.