Home ownership and the recession

I’m a big fan of renting my home. I’m not tied down, it’s fairly cheap for what I get, and I don’t have to worry about fixing stuff or doing yard work. I know there’s cons (I can’t itemize my charitable deductions or write off any money spent on housing, and I have neighbors I clearly hear on either side of me), but the pros outweigh those cons for me.

Along with those major pros, I also believe that real estate is an unstable and scary investment and that buying a house is an inflated, falsified American Dream (TM). I’ve been saying this for years, occasionally spotting articles to lightly back up my argument, but I’ve finally found the real deal.

The March issue of The Atlantic includes a highly readable article about how the American landscape will change after the recession. Near the end of the artcle, author Richard Florida provides some ideas on how to wade through the economic mess.

His solution begins with increasing the number of people renting.

So how do we move past the bubble, the crash, and an aging, obsolescent model of economic life? What’s the right spatial fix for the economy today, and how do we achieve it?

The solution begins with the removal of homeownership from its long-privileged place at the center of the U.S. economy. Substantial incentives for homeownership (from tax breaks to artificially low mortgage-interest rates) distort demand, encouraging people to buy bigger houses than they otherwise would. That means less spending on medical technology, or software, or alternative energy—the sectors and products that could drive U.S. growth and exports in the coming years. Artificial demand for bigger houses also skews residential patterns, leading to excessive low-density suburban growth. The measures that prop up this demand should be eliminated.

If anything, our government policies should encourage renting, not buying. Homeownership occupies a central place in the American Dream primarily because decades of policy have put it there. A recent study by Grace Wong, an economist at the Wharton School of Business, shows that, controlling for income and demographics, homeowners are no happier than renters, nor do they report lower levels of stress or higher levels of self-esteem.

And while homeownership has some social benefits—a higher level of civic engagement is one—it is costly to the economy. The economist Andrew Oswald has demonstrated that in both the United States and Europe, those places with higher homeownership rates also suffer from higher unemployment. Homeownership, Oswald found, is a more important predictor of unemployment than rates of unionization or the generosity of welfare benefits. Too often, it ties people to declining or blighted locations, and forces them into work—if they can find it—that is a poor match for their interests and abilities.

The author hits the nail hard, hopefully loud enough for 20 and 30-somethings to hear before they buy their first place.

You might ask, “But what about families with four or five kids – how can they live in apartments?”

I would respond with “Don’t have so damn many kids” and ensure condoms are freely distributed in more places. But Mr. Florida has a more suitable idea:

Instead of resisting foreclosures, the government should seek to facilitate them in ways that can minimize pain and disruption. Banks that take back homes, for instance, could be required to offer to rent each home to the previous homeowner, at market rates—which are typically lower than mortgage payments—for some number of years. (At the end of that period, the former homeowner could be given the option to repurchase the home at the prevailing market price.) A bigger, healthier rental market, with more choices, would make renting a more attractive option for many people; it would also make the economy as a whole more flexible and responsive.

I feel more than justified. I feel RIGHT.

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  • Comments (7)
    • Reanne
    • March 23rd, 2009 11:14pm
    • Amy
    • March 24th, 2009 5:02am

    I totally agree with you. I love renting because I don’t have to fork over money if a large appliance breaks. I also like being able to pack up and leave and move to wherever life takes me. People put too much stake in “I must have a home.” It’s just a possession, which doesn’t amount to squat.

    • T. Ruth
    • March 24th, 2009 6:50am

    omg Reanne – that article is perfect. Thanks!

    “It’s tattooed into our psyches from birth that a successful society absolutely depends on community, nesting, home ownership to survive and flourish. It’s one of the three Grand Directives of Socioeconomic Health, right after getting married and having kids (or, if you’re feeling cynical, you add: Get divorce, sell house, resent kids, die alone in Florida. Gosh, you’re bitter).

    Follow these directives well, good citizen, and get your reward, straight from the government and the approving church down the street. Tax incentives, write-offs, free credit, equity buildup, blessings from God himself. Choose to rent for your whole life and move around a bit and never breed? You get nothing, sinner. “

    • autumn
    • March 24th, 2009 10:46am

    This sounds like good advice for people who can afford to rent someplace that isn’t falling apart. But would an increased demand for renting by the 20- and 30-something middle class result in more slumlords and poor tenant conditions for people in lower income communities?

    • T. Ruth
    • March 24th, 2009 11:00am

    I don’t know, Autumn. There will always be a percentage of landlords who are slumlords. Bad people are everywhere, no matter the incentives of being good.

    Lower income communities have lots of other problems that adding more rentals won’t hurt or fix.

    • autumn
    • March 24th, 2009 2:14pm

    True that. My point was just that I’m pretty thankful I have the option to even ask the question, “Should I look at buying a home?”

    • T. Ruth
    • March 24th, 2009 2:22pm

    Agreed. But I gotta say there’s plenty of families who make a lot less than me who own their own homes. Which, of course, is part of why we’re in the mess we’re in now.

    Anywhoodles…

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