Federal Bias Toward Homeownership

January 11, 2010

The Wall Street Journal ran the story last week: “U.S. Now a Renters’ Market.” Apartment vacancies hit a 30-year high in the last quarter of 2009, and rents are falling in most markets. For current or former homeowners trying to stumble out of the debris left from the government-fueled housing bubble, a renter-friendly environment is a positive opportunity.

But it’s also a reminder of how the government’s obsession with homeownership continues to distort the market for housing. As the Journal notes, “Government efforts to prop up the housing market also threaten the apartment sector by making it easier for some renters to buy homes. Some landlords have reported a slight uptick in renters moving out to buy homes.” 

Homeownership in the U.S. began an upward trajectory following the federal government’s plunge into the housing market during the Great Depression. Prior to that fewer than half of Americans owned their own home according to University of Pennsylvania Prof. Thomas J. Sugrue. Owning one’s home is now viewed in this country as American as apple pie. But as Sugrue points out, this mentality is “a story riddled with irony”: 
[F]or at the same time that Uncle Sam brought the dream of home ownership to reality—he kept his role mostly hidden, except to the army of banking, real-estate and construction lobbyists who rose to protect their industries’ newfound gains. Tens of millions of Americans owned their own homes because of government programs, but they had no reason to doubt that their home ownership was a result of their own virtue and hard work, their own grit and determination—not because they were the beneficiaries of one of the grandest government programs ever. 
Indeed, the housing industry “army” remains a potent force behind the government’s distortionary housing policies, as I discussed in a policy analysis on the Department of Housing and Urban Development’s failures: 
An important driver of the bad policymaking is the large influence that housing lobby groups have in Washington. Ultimately, federal policymakers are responsible for their actions, but a brief review of the political power of the housing lobbies illustrates where policymakers get a lot of their bad ideas. 
Since the financial crash, one would think that Congress and the administration would be moving to withdraw federal housing subsidies from the market because they have caused so much damage. However, the opposite is happening. Policymakers are following the advice of the various housing lobby groups that continue pushing to expand federal intervention in housing markets. 
Politicians justify the federal government’s vast array of subsidies for homeownership on its alleged civic virtues. But as we’ve seen in the wake of housing bubble’s bursting, there’s nothing virtuous about putting people into homes that they can’t really afford.
 
Wharton real estate professor Joseph Gyourko recently described “Five Myths about Home Sweet Homeownership” in the Washington Post. He dismissed the idea that homeownership makes better citizens: 
This is the rationale behind the government’s many efforts to subsidize and expand homeownership, and there is an appealing logic to the argument. Since homeowners have a financial stake in their communities, one might expect them to be more responsible and involved citizens. But there’s no overwhelming evidence that higher homeownership rates make for better societies. Austria, Germany and Denmark all have ownership rates in the low 40 percent range, meaning that just over two-fifths of all housing units are occupied by their owners. This is well below the 68 percent ownership rate in the United States, but those countries don’t appear to be suffering a shortage of civic-mindedness. At the other end of the spectrum, Spain’s ownership rate tops 80 percent, but no one seriously claims that this makes Spaniards better citizens than Americans.          
Gyourko also frowned on the idea that owning a home is cheaper than renting one: 
It’s true that if you own, you don’t have to write a check to a landlord. However, you have to cover all the costs of maintaining the house. It is the same house with the same operating costs, whether you pay them directly or whether you pay rent to cover them. By covering these costs as the owner-occupier, what you spend (including your mortgage payment) comes very close to what you would have spent if you rented your house. 
I often hear people say that owning a home is better than renting because with the latter “you’re just throwing your money away.” But I would question just how much one truly “owns” when, for example, a person puts down the Federal Housing Administration’s minimum of 3.5 percent. As one of the increasing number of Americans living in a house with a mortgage that’s “underwater,” I don’t view myself as owning anything. I’d much rather be “throwing my money away” on rent to a landlord than being in debt to my mortgage company. 
 
Gyourko has stated elsewhere that “we should have a level playing field” when it comes to homeownership versus renting. This can only be achieved by removing the government from the housing market. Unfortunately, Washington policymakers in both parties are very, very, slow learners, and we all pay a price for that.
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