In America, owning a home once had a near-mythic status as the bedrock of individual economic security. Making homeownership affordable for all Americans was a pillar of George W. Bush's economic agenda, for example.
But then the U.S. suffered its worst recession since the 1930s, following a huge financial crisis that was firmly rooted in the housing sector. One would think that America's policy elites would begin to rethink their unflagging commitment to flinging resources at homeownership. Right?
Not according to The New York Times editorial board, which says the only problem with our housing policy is that too many people are renting.
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Would more and longer rentals be a bad thing? Are the benefits of homeownership overrated? The answer to the first question is yes; the answer to the second is no.
Homeownership long has been central to Americans' ability to amass wealth; even with the substantial decline in wealth after the housing bust, the net worth of homeowners over time has significantly outpaced that of renters, who tend as a group to accumulate little if any wealth.
A recent study by researchers at the Joint Center for Housing Studies at Harvard University analyzed the reasons for these differing outcomes. Paramount among them is that homeownership requires potential buyers to save for a down payment, and forces them to continue to save by paying down a portion of the mortgage principal each month. [New York Times]
There are a few problems with this analysis. First, as Dean Baker points out, the Joint Center for Housing Studies is largely funded by industry groups and is best known for denying that there was a bubble in housing prior to the crisis. Worse, the group left out many critical facts in its report, in particular the distinction between homeowners and homebuyers. Since many people own their homes for only a few years, it hardly follows that they are saving lots of money.
The distinction also helps explain why entering the housing market has been a seriously risky move for minorities. In Prince George's County in Maryland — the richest black-majority area in the nation — the housing crisis hasbarely abated at all since 2009. The reason is that encouraging minorities to buy a home, as Bush's policies did, exposed them to predation from a financial sector that is rife with institutional racism.
As Nathalie Baptise writes, from 2004 to 2008, over 21 percent of black borrowers with a credit score of 660 or higher were given subprime loans, while only 6 percent of white borrowers got the same treatment. Here's why:
According to court testimony, some of the loan officers at Wells Fargo spoke of these subprime loans as "ghetto loans," and referred to their black customers as "mud people." [The American Prospect]
But most critically, there is not even the slightest theoretical justification for this kind of homeownership leg-humping. If we grant that saving money is good, then why should owning a home, of all things in the world, be the preferred savings vehicle for the middle class? A house, after all, is a pretty questionable investment on the merits. It doesn't increase in productivity. It doesn't accrue value like a rare painting. It just slowly falls to pieces and requires constant repairs.
The reason homeownership has been a decent investment, sort of, for some people, is that it is the recipient of colossal government subsidies. We will spend almost a quarter-trillion dollars on homeownership subsidies this year, of which about three-fourths will be captured by the top income quintile.
This staggering amount of rich people welfare is horrendously unjust, wouldn't you say? Perhaps we should rethink our subsidy structure, at the very least? Doubly so given the whole world-historical depression thing, brought on by financialized mortgage products? But no, the Times board doesn't even mention this stuff.
The board's only justification is that committing to buy a home forces you to save money because you have to make the mortgage payment. But there are a lot of ways to achieve that end. Social Security, for instance, is a kind of forced savings program. The money is not actually "saved" — most of it is kicked out to current retirees instead — but the effect is the same. Forgo consumption now, and get a stream of income later when you're too old to work. Which is supposed to be the whole point of saving in the first place.
Buying a home is still a smart decision for a lot of people, given the incentives in place. But subsidies ought to be equalized between renting and buying, for the poor and the rich. There's no reason whatsoever that rich people ought to be getting such an enormous handout.
Here's hoping the Times comes around after the next great crash.
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