I can’t say there’s anything particularly new in James Surowieki’s New Yorker article on the various ways we subsidize home ownership vs. renting, but taken as a whole he provides a great starting primer and review of the arguments.
I mean, don’t get me wrong, home ownership is awesome for some – even for many – but I don’t think we talk enough about whether it’s such an unimpeachable good thing that it deserves quite so many subsidies.
We traditionally have subsidized home ownership in myriad ways.
- A quasi-government guaranty (followed by a $800 Billion assumption of liabilities in 2008) of mortgage guarantors Fannie Mae and Freddie Mac.
- Federal FHA/VA loan programs for first-time home buyers and veterans to encourage home-purchasing with as little as a 3% down payment.
- Mortgage-interest tax deduction ($200 Billion in foregone tax revenue).
And yet, the benefits and effects of such subsidies are questionable
- We do not have an appreciably higher percentage of home-owners in the US vs. other countries that lack such subsidies
- 3% to 10% down-payment mortgages default more frequently (50% more frequently) than 20% down-payment mortgages, serving both home-buyer and bank poorly.
- Americans tend to react to the mortgage interest subsidy by buying bigger homes, rather than saving the money.
- The mortgage interest tax deduction is regressive, in the sense that it primarily benefits folks with incomes higher than $100,000, and a household with a larger home and mortgage benefits more than a household with a more modest home and mortgage.
- Houses, which often constitute a high portion of household net worth, are a very illiquid investment.
- Housing, as a sector, tends to add volatility to the economic cycle – making booms more manic and busts more depressive.
Surowiecki summarizes nicely: Given the extraordinary subsidies aimed at the sector – compared to other worthy areas of subsidy – is it all worth it?
Please see related posts:
What we do when we invest in a house
The New HUD Secretary encouraging home ownership, and me cringing
Book Review: Edward Conard’s Unintended Consequences
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