Over the last couple weeks, there has been a lively internet conversation over the merits of homeownership. Weighing against were my colleague John Aziz, Josh Barro at The New York Times, and myself. Those in favor were Matt Bruenig and a number of conservative folks, including Dan McLaughlin at The Federalist.
For me, at least, this has been an enlightening exchange. And while there has been a lot of disagreement, I think that between the center and the left there is the possibility of finding common ground. By restructuring our current homeownership policy, we can make things fairer and more equitable for everyone.
First, let's focus on something I definitely missed: imputed rent. Owning a home means you don't have to pay rent, and while that isn't quite cash money in your hands, it's the next best thing. Bruenig has us dead to rights on this one, and it should definitely be included in any analysis of homeownership as an investment.
However, I think my original point about home purchase prices still holds. To be clear, I wasn't arguing that homeownership is a bad investment under our current policy — it very often is a good one! Rather, I was saying that the policy instruments that we use to make homeownership a better investment have awful side effects. As part of our effort to make homeownership the primary savings vehicle for the middle class, we've moved heaven and earth to prop up housing prices, which entails plowing subsidies to homeowners while restricting the supply of housing.
Since the supply side of the equation happens mostly at the local level, let's focus on the demand component. These are sneaky tax subsidies in the forms of the mortgage interest deduction, exclusion of up to $500,000 of appreciation from the capital gains tax, no tax on imputed rent, and some exclusion from property taxes. This is bad because too much personal debt is bad, and because almost all of the subsidy is captured by the rich. Bruenig has a great post laying this out:
Around 73 percent of the mortgage interest tax expenditures flow to the richest fifth of families. Around 18 percent flow to the next richest fifth of families. Negligible amounts flow to everyone else, with the poorest fifth getting approximately none of them...the richest fifth of families will receive $181 billion in home owning subsidies this year. That is 2.25x more money than food stamp recipients received last year. [Demos]
There are also other, harder-to-quantify subsidies that are mediated by the financial system. The federal government deploys vast resources in the service of originating and insuring mortgages, and then selling them off in piles as mortgage-backed securities. This is supposed to expand capital available for mortgage lending, at the cost of giving the financial sector a share of the cut.
Josh Barro's piece had an interesting framework, imagining how the system would work if we bought food the way we buy houses, except that he didn't mention the weirdest and most objectionable homeownership policies (and sort of skated past the fact that American farm policy is a complete disaster as well). Reworked, we might say instead: What if we bought food with 30-year debt subsidies, underwritten by stupendously huge agencies that packaged carrot-backed securities that sometimes implode and cause world-historical financial crises and depressions?
If we can appreciate the absurdity of that, then we can see the outline of a reformed housing policy, based around three principles:
1. Fairness: The class structure of our housing policy is completely unjustifiable. Bruenig suggests that we could have a flat per-capita housing voucher, to be used on a mortgage or rent, which would be good. We could even make it progressive (a larger voucher for the poor), but anything that reduces the preposterous amount of free money the wealthy are getting, or closes the vast abyss between rent support and purchase support, is a good step. Whatever you think about homeownership, there is absolutely no reason for the top quintile to be capturing almost three quarters of homeownership subsidies.
2. Transparency: Americans love to hide their spending with tax subsidies, because then we get to pretend that we aren't spending money when we really are. But subsidies shouldn't be buried in the tax code, or shuffled through debt instruments. Instead, they should be obvious, like flat vouchers.
3. De-financialization: I think it's fair to conclude that juicing the secondary mortgage market through Fannie Mae and Freddie Mac has been at best a lot more trouble than it's worth, and at worst a major underlying factor in the 2008 financial crisis. Not through direct action (the vast majority of rotten mortgage lending and securitization was carried out by private institutions), but by creating the background conditions for Wall Street to get its fangs into the mortgage market. Our financial sector is already way too large; it's time to start removing things from its orbit.
In the end, this isn't about whether you personally should buy a home. While I would knock the cult of homeownership as the Root of All That Is Morally Praiseworthy down a peg or three, the basic idea is that people ought to face a level playing field when it comes to obtaining their shelter.