“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 increase homeownership, especially for minority groups.
Oops. While homeownership rose as the housing bubble inflated, temporarily giving 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 Bush leaves the White House homeownership will be lower than it was when he moved in.
But here's a question rarely asked: 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,” Bush once declared, “you have a vital stake in the future of our country.” Presumably, citizens who live in rented housing can't be properly patriotic. Bring back property qualifications for voting!
Even Democrats seem to share the sense that Americans who don't own are second-class citizens. Early last year, just as the mortgage meltdown was beginning, Austan Goolsbee, a University of Chicago economist who is one of Barack Obama's top advisers, warned against a crackdown on subprime lending. “For be it ever so humble,” he wrote, “there really is no place like home, even if it does come with a balloon payment mortgage.”
And the belief that you're nothing if you don't own a home is reflected in U.S. policy. Because the IRS lets you deduct mortgage interest from your taxable income but doesn't let you deduct rent, the federal tax system provides an enormous subsidy to owner-occupied housing. On top of that, government-sponsored enterprises – Fannie Mae, Freddie Mac and the Federal Home Loan Banks – provide cheap financing for home buyers; investors who want to provide rental housing are on their own.
But there are some real disadvantages to homeownership.
First of all, there's the financial risk. Although it's rarely put it 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.
Tilted against renters
And 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.
OK, I know how some people will respond: Anyone who questions the ideal of homeownership must want the population “confined to Soviet-style concrete-block high-rises” (as a Bloomberg columnist recently put it). Um, no. All I'm suggesting is we drop the obsession with ownership, and try to level the playing field.
And while we're at it, let's try to open our minds to the possibility that those who choose to rent can still share in the American dream - and still have a stake in the nation's future.