For years The "Economist"
has been on something of a jeremiad about tax policies that subsidize home ownership, typically through a mortgage interest deduction. Now, they are taking on the question of whether home ownership makes sense at all
On the plus side, homeowners accumulate wealth, invest more in their neighborhoods, pay more attention to schools, etc. To the extent that is true,
Home ownership, in short, benefits everyone—not just the homeowner—and the more there is of it, the better. Which is why it is usually encouraged by the government. In America, Ireland and Spain, homeowners can deduct mortgage-interest payments from taxable income.
Yet, against this must be weighed the worldwide financial crash, which was tied directly to "... this supposed miracle of social policy:"
The disaster began with defaults on American subprime mortgages, a financial instrument designed to spread home ownership among the poor. It gathered pace after the failures of Fannie Mae and Freddie Mac, two government-sponsored enterprises that provide cheap home loans. As a result, the home-ownership rate in America has fallen for four years, the first time that has happened in a quarter of a century. In 2008, 2.3m families lost their homes or faced foreclosure—double the average before the crisis—reducing the home-ownership rate from 69% in 2004 to 67.5% at the end of 2008. The number of owner-occupied dwellings also slipped in Britain in 2007-08 for the first time since the 1950s.
Hence the scare quotes around "Economist." The sheer dunderheadedness required to equate the social argument for home ownership -- regardless of its actual merits -- with government induced corruption of lending standards would earn an instant scathing on any free-to-read blog. Why the heck does anyone pay for this dreck? (Speaking as one who pays for it ...)
The main arguments for home ownership, though, are not primarily economic, but social. Home ownership, argue those who want to expand it, benefits society because it encourages stable, more law-abiding communities; it makes people more likely to vote in local elections and join clubs; and it benefits future generations because, it turns out, the children of homeowners do better at school and have fewer behavioural problems than children of renters.
[And,] More stable neighbourhoods are more law-abiding. According to a study of New York City, the home-ownership rate was second only to income as an explanation for different crime rates.
Further, children of homeowners do better at math and reading, graduate high school far more often, and have far fewer teen pregnancies.
However, correlation is not necessarily causation. Such consequences could flow from the birds-of-a-feather effect. Or not. Unless they do. Given the distribution of human talent, it is hard to argue against the possibility of the successful herding with their own kind, with the knock-on effect of sequestering relative failure.
Too bad The "Economist" left off perhaps the most potent argument for home ownership of all: self sufficiency. Renters need do nothing for themselves; they need take no precautions, nor think of prevention. They can simply, and only, call the rentier.
In contrast, and here I will induce from personal experience to discover the general rule, successful homeowners must take charge of their own conditions. For example, last winter I called on a heating contractor to do an inspection. As a consequence, I learned the fan motor, because of starting current exceeding spec, was giving signs of failure rather sooner than later.
As a renter, I would have relied upon the rentier to figure that out ahead of time, and paid for that figuring, and paid for someone else to do the work, most likely after the thing failed.
As an owner, I bought the motor, and, with my son, replaced it. We, as a family, gained the economic benefit of self sufficiency. He, as a man-child, learned how to approach a novel problem in such a way as to prejudice the future into providing a solution: having never done such a thing myself, success was only possible through careful analysis and proceeding very methodically.
These lessons, far from trivial, are unavailable to renters. The lesson they learn is depending upon someone else to provide.
But what of the subsidies to homeownership? In essence, the mortgage interest deduction represents a transfer of wealth from renters to homeowners, led to the housing asset bubble, and weakened financial services.
Hogwash. To arrive at that conclusion requires ignoring that rentiers also get to deduct interest, along with a whole host of other things, from income. Removing, as The Economist desires, the interest deduction for owner occupied housing amounts to preferring dependence upon others instead of self-provision. Further, by focussing on ownership, the article completely neglects what renting entails. Owners provide their own property management and, in a great many cases, their own maintenance. For a given amount spent on housing, paying for these things must mean smaller and meaner accommodation.
Of course, purchasing a home amounts to an automatic savings plan. Over, typically, thirty years, a homeowner will have put aside a substantial amount of money. On the flip side, though, people could have put their down payments into equities and rented rather than owned. Over the last 30 years, those equities would have been the better bet. (Also, oddly enough, the article faults equity tied up in houses as being illiquid, while two paras prior faults homeowners for using the equity in their houses. Which is it?)
Well, perhaps. Owning property as well as shares is called diversification, which, last I heard, is A Good Thing. Taking the longer view, though, owning property is a form of retirement planning. Paying off a mortgage means one's living costs plunge: all that is left is maintenance and property taxes. Until his dying breath, a renter continues to buy property for the rentier, while also paying for maintenance and property taxes.
Ultimately, this article failed. It performed a journalistic non sequitur, blaming home ownership for grotesquely stupid government policy, then used the consequences of doddery as proof that homeownership isn't such a good idea after all. The focus on mortgage interest deductions for homeowners is equally mystifying, giving further credence to the suspicion that The Economist's primary value lies in twee literary stylings, rather than any particular knowledge about economics.
So, To Own, or not to Own?
Homeowners are self-selecting. Absent CRA infections of traditional lending standards, being able to purchase a home requires significant self discipline and planning for the long term. No one should be surprised if communities comprised of such individuals are statistically temperamentally different than those that are not.
A free society should encourage self-sufficiency over dependency. Renting does just the opposite. Instead of rewarding the acquisition of a dozen skills, renting makes them pointless. And instead of providing the freedom to shape and improve one's own environment, renting leaves people at the whim of others.
For those who, through choice or fate, have the personal skills to, in effect, set up a business of their own, home owning makes sense. For society, whether to encourage owner occupied housing depends a great deal on how much that society values freedom.
The Economist ends with this:
As Adam Smith wrote in “The Wealth of Nations” two centuries ago, “a dwelling-house, as such, contributes nothing to the revenue of its inhabitants.”
Apparently they have not read, or do not remember, The Theory of Moral Sentiments