Krugman on Homeownership

In today’s New York Times, Paul Krugman has an interesting op-ed challenging the idea that homeownership should be a goal for Americans:

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![…]

O.K., 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 that we drop the obsession with ownership, and try to level the playing field that, at the moment, is hugely tilted against renting.

And while we’re at it, let’s try to open our minds to the possibility that those who choose to rent rather than buy can still share in the American dream — and still have a stake in the nation’s future.

In his monologue, Krugman gives three disadvantages to the institutionalization of homeownership –

• Financial risk
• Immobility of the workforce
• Increase in commuting / suburban sprawl

Before we bought our current home – or more correctly, contracted with a bank to let us live in our current home – I was rather rabid about not subscribing to the hype of owning one’s home.  Part of my reaction was due to my witnessing the real estate bubble inflating (and knowing it was a bubble), but a fair amount of my thinking was in line with Krugman’s.

Then my wife was disabled in a car accident.  I couldn’t find anyplace to rent which would be acceptable to her needs (extremely limited mobility, noise-sensitive), and we very quickly joined the ranks of “home-owers”.

Since that time, I’ve revised my opinion against home-buying hype.  Yes, I still think it’s hype, but there are some advantages to owning a home which justify somewhat the support provided the concept by the government.  These include:

• Acquiring real property, even if via a mortgage, is a means to build some measure of wealth.  True, it’s not the most efficient means of wealth-building around, and there are likely better investments available for those of us who try to save with an eye towards retiring in 30-40 years.   However, it seems that too many Americans are short-sighted in that regard.  
   
  I’d love to see the government strongly encourage citizens to save for a rainy day, preferably simplifying the process so that folks of limited means don’t have to go through the complexity of allocating their limited disposable income to specific savings goals.  
   
  If we aren’t going to have “mandatory” or “very strongly encouraged” saving programs, the institutionalization of home ownership is a tolerable alternative, I think.
   
• There is, I think, something to be said for the sense of stability that comes from owning your own home.  It’s mine.  It’s a little piece of the earth where I have extra freedom to live as I wish.  I don’t have to worry about a landlord kicking me out or raising my rent to ridiculous levels.  And, while I am at risk from the spectre of property tax hikes, at least that’s a threat I get a say in, thanks to municipal elections and referenda.
   
• Also on the stability front – haven’t I heard pundits bemoan the seeming death of “community” in some parts of the country?  Doesn’t “community” require some stability to form?  If “community” is seen as desirable for society, then shouldn’t society promote stability to help foster community-building?
   
• We have a heckuva lot of inertia behind the American dream of homeownership.   Recall that quite a bit of the foundation for our republic comes from the propertied interests seeking freedom to enjoy and profit from their property, and therefore needing protection from the tyranny of the property-less rabble.   True, the republic could be democratized by removing all of those protections…but isn’t it almost as democratizing to assist the rabble in becoming propertied?
   
• A more practical inertia argument could be made by observing that quite a bit of our economy is tied in supporting homeownership.  If some of the supports for that goal were removed, I’m not sure that the disruption would be any less than what we’re feeling from the credit crunch, and the real estate bubble’s deflation. 

  Surely, my wife and I aren’t alone in our budget relying quite a bit on the mortgage-interest tax deductions in the Internal Revenue code.   Remove that, and we could have a problem.  If enough homeowners develop such a problem…well, home values would presumably decline as the real estate market further imploded, and the resulting economic mess would presumably be extremely ugly.
   
  I could accept an assertion that federal support for homeownership is not justified in theory.  However, so much of our economy is built on the notion that Americans “should” own property, I think attempting to unwind it would cause more harm than good.