Government
Encourage renting and mobility to reduce sprawl
Since the end of World War II, homeownership has been the very embodiment of the American Dream. A variety of government policies and programs have dramatically increased home ownership. But lately, some have been advocating that the government stop subsidizing home ownership, arguing that it locks people to a place, and when the economy goes sour people need the flexibility to go where the jobs are. I would say that we need to take it farther and that, in addition to allowing the unemployed to move to work, encourage the employed to move closer to work.
Photo by Dean Terry.
Richard Florida, of The Rise of the Creative Class fame, wrote an article in the Atlantic recently on How the Crash will Reshape America. In it he writes of the changes that the Great Depression brought on America, how the country changed afterward, and the obstacles that change created:
Before the Great Depression, only a minority of Americans owned a home. But in the 1930s and '40s, government policies brought about longer-term mortgages, which lowered payments and enabled more people to buy a house. Fannie Mae was created to purchase those mortgages and lubricate the system. And of course the tax deduction on mortgage-interest payments (which had existed since 1913, when the federal income-tax system was created) privileged house purchases over other types of spending. Between 1940 and 1960, the homeownership rate rose from 44 percent to 62 percent.Florida is not alone in his opinions. Tyler Cowen of Marginal Revolution has been arguing against "subsidizing sprawl"Substantial incentives for home ownership distort demand, encouraging people to buy bigger houses than they otherwise would. Artificial demand for bigger houses also skews residential patterns, leading to excessive low-density suburban growth.
In his Atlantic article, and again on NPR this weekend, Richard Florida sets out a course correction:
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.It's possible some efforts to reduce the incentives for home ownership are in the cards, but we should do more. We should create incentives for people to put property out to rent. If we're going to have more renters, we'll probably have more landlords. Laws that allow, or even encourage, English basements and mother-in-law units will increase rental stock. Tax laws that allow "small landlords" to write off the first few thousand dollars they receive in rent, or a portion of their rental mortgage interest, would create further incentives.
Richard Florida talks about creating national rental companies that will allow you to transfer a lease to another property and facilitate your move, instead of charging you for breaking your lease and leaving you to fend for yourself in the next town. That's similar to the way people trade in a car for the new one. Our public policy should encourage that as well.
Furthermore, we need to change tax laws that don't accommodate all types of mobility. Current federal tax laws allow deducting moving expenses. But the time and distance requirements that do not allow you, as bankrate.com puts it, to move just "to ease your daily commute to work." But why shouldn't we subsidize a move to ease your daily commute? We subsidize your commute through tax deductions for commuting expensive. Why not subsidize easing the commute? Doesn't it also carry environmental advantages that we want to encourage? Shorter commutes strengthen families, and ease everyone else's commute too. Isn't that more of a public good than home ownership?
Currently, you can only deduct the cost of a move if you change jobs and your new job is more than 50 miles farther than your old job. You also have to work at the new job for a certain amount of time. But, there is no limit to how close to your new job you need to move. Instead, let's allow you to deduct some moving expenses as long as you're moving closer to work. I recently moved two blocks closer. That shouldn't count, so there will have to be minimums. But even if you're only moving a mile closer, that's two fewer miles of driving a day. Those kinds of changes can really add up.
Finally, we should cap how far from work you can live and still take the deduction. If you want to live far from work, that's fine, but since we're going to subsidize your commute, we won't subsidize your move. Perhaps the deduction should be full within 10 miles, but phasing out to 20. The goal is to encourage people to live near, or nearer, to work. Isn't it better to subsidize that than subsidizing transportation? Maryland has tried to encourage that somewhat with their Live Near Your Work program, but it is limited in scope and again, is tied to home ownership. We need a Live Near Your Work program that works for renters.
 | David C is an operations engineer with NASA. A former Peace Corps Volunteer and former Texan (where he wrote for the Daily Texan), he's lived in the DC area since 1997. David is a cycling advocate and also writes the WashCycle.  |
Comments
@ggwash
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by Nate on Feb 24, 2009 3:23 pm
Nate,
Homeownership can also be a huge waste of money. Ask the 7.6 million homeowners who owe more on their mortgages than their homes are worth.
by DMIJohn on Feb 24, 2009 3:43 pm
Despite the hit it's taken lately, I'm glad I put money into my 401k and IRA rather than into a house. At least the roof on my IRA can't leak.
by Distantantennas on Feb 24, 2009 3:48 pm
by Alex B. on Feb 24, 2009 3:52 pm
That's not to say renting doesn't have a role, or is not useful for a large number of people, but ownership should be preferred.
by ah on Feb 24, 2009 4:00 pm
by Sue on Feb 24, 2009 4:00 pm
Yes, homeowners who pay mortgages are getting something extra out of their monthly payment, in the form of equity. However, as DMIJohn points out, this isn't a given. How much equity you gain depends greatly on the direction of property values as well as the size of your mortgage and your down payment.
Even without the housing bust, there are many people for whom home ownership does not provide value added. If you can rent a property for less than the mortgage payment on the same or equivalent property (which is common precisely because housing prices rose steadily for a century), then renting results in cash surplus. If this surplus is saved and carefully invested, the renter can sometimes beat or match the homeowner in the long term.
Many argue that people aren't self-disciplined enough to save the surplus or invest it wisely. On the other hand, if someone isn't disciplined enough to save and invest intelligently, should they really be home owners? Recent events indicate no.
Now back to the issue of rent being a "waste" of money. How is it a waste to exchange money for the right to live somewhere? My rent is reasonable, and renting enables me to live in a city center, near my job, great restaurants, public transportation, etc. That's all value added for me, since purchasing a home right now would mean moving to the suburbs, driving more, and seeing my community of friends less. Add in the money I save by renting (and sharing my apartment with a friend), and I don't feel like I've wasted anything. That extra money is used for my retirement fund, vacations, entertainment, etc. So renting helps increase my long-term financial stability while also increasing my quality of life.
If you feel like now is the right time to buy a home, and you can do so, go for it. I don't think there's anything wrong with home ownership. But the cost-benefit analysis is individually subjective, and broad statements like "renting is a waste of money" are exactly the kind of common nonsense that got us into our current predicament.
by Emily on Feb 24, 2009 4:03 pm
by Distantantennas on Feb 24, 2009 4:06 pm
My 401K and IRA lost a lot more than I did in house value, which is creeping up; which is more than I can say about my retirement savings. The key is to invest in the right things at the right time. Housing in 2006 was a bad investment. Housing in 2009 is a fantastic investment….if you have the money.
by RJ on Feb 24, 2009 4:10 pm
by SA on Feb 24, 2009 4:10 pm
"Some economists, like Ed Glaeser, have found that the main positive externality of home investment is the number of well-tended gardens in communities with a larger number of owners. This benefit could be expected to increase the aesthetic value of the community and could increase the attractiveness of the community to potential residents...If the goal is for better-looking communities, why subsidize the purchase of the home? asks Glaeser. Instead, why not target the real cause of the community beautification? “You can target that,” he says, “with a limited gardening subsidy, for instance. Give people who plant a garden a subsidy to buy mulch and leave it at that.”
by David C on Feb 24, 2009 4:12 pm
by David C on Feb 24, 2009 4:15 pm
by Rj on Feb 24, 2009 4:26 pm
by Ben on Feb 24, 2009 4:30 pm
by doug on Feb 24, 2009 4:35 pm
If anything, I wish it were more affordable to rent in my neighborhood. I've lived in a group house setting for 2 years now, which I've enjoyed, but I'm ready to move on to a place of my own. I certainly can't afford to pay $1200-$1800/month for a studio apartment(!) on my current take-home pay, but if there were a tax credit or tax deduction for renter, as well as more rental housing stock (to meet the demand), it would be much more attractive to rent, perhaps bringing more responsible, engaged renters to the neighborhood and perhaps make it more affordable to live a "greener" life.
by David T on Feb 24, 2009 4:40 pm
The problem with just having everyone move all the time to follow jobs is that it completely ignores the value of the social networks one builds in the communities in which one lives. Isn't one of the lessons of the largely ill-fated wholesale movement of the lower classes from ghettos to high-rise housing projects that the social networks in the ghettos where far stronger than any well-meaning city official ever realized?
by thm on Feb 24, 2009 4:42 pm
by anonymous on Feb 24, 2009 4:44 pm
I think the specific weirdness of DC and its immediate suburbs (the somewhat small size of the housing stock relative to demand) skews perspectives in this area. DC is so inflated that at the peak of the housing bubble, you couldn't even afford to buy in Brookland, much less in an upscale neighborhood, unless you were making at least twice what I make. To cite one example, I lived in Philadelphia at one time. You do not need to be wealthy to own a decent home in Philly, or indeed, most of the United States.
by Nate on Feb 24, 2009 5:01 pm
by ah on Feb 24, 2009 5:15 pm
We work to live ... and not vice versa.
by Lance on Feb 24, 2009 5:24 pm
Homeownership is fine, but promoting it to the extent that we do is poor policy. It is especially unfortunate that such policies have essentially castigated renters as second class citizens, despite any causal linkage to that effect.
Owning is fine. The fact that it's 'the one true path' in this country is not.
by Alex B. on Feb 24, 2009 5:36 pm
by Chris Seay on Feb 24, 2009 5:50 pm
It's a generally accepted microeconomic principle that ownership of a stake of anything, whether that be a corporation or a community, tends to result in involvement. On one level of abstraction or another, it essentially comes back to protecting your investment.
The renter can easily pack up and move; a homeowner has presumably claimed his stake.
by MPC on Feb 24, 2009 5:51 pm
http://www.nber.org/papers/w6363.pdf
@Chris Seay -- that is possible, but if that's true, doesn't it also suggest that owners *want* to own, because that way they can capture more fully the benefits of taking care of their property? Example: If I like to garden, I would prefer to own because I'll be able to keep the garden as long as I want, whereas if I rent it will increase the value of the house to the owner, who will increase the rent and try to appropriate my effort.
by ahonline@heimert.org on Feb 24, 2009 5:59 pm
by Chris Seay on Feb 24, 2009 6:16 pm
Here is a recent study that comes to the opposite conclusion: http://real.wharton.upenn.edu/~wongg/research/The%20American%20Dream.pdf
I think the "blame" of mistreated properties falls unfairly on renters when it is in fact the neglect of the property owners who may be neglectful. As a renter, an individual doesn't have much control over whether the building needs painting or not.
That being said, we need to recognize that over 50 percent of those living in the 10 largest cities rent their homes. Quite frankly, federal policy has neglected this large population at the expense of subsidizing homeownership that is largely located in the suburbs.
by DMIJohn on Feb 24, 2009 6:49 pm
The correct type of investment depends a lot on where you are in life. I'm a young enough guy that I can wait another thirty years for my investments to grow. My point was that I don't have to worry about them - they don't take maintenance, don't tie me to a particular residence and thus a particular job market. Most people here are luck enough to live in the DC job market, which isn't going through the upheaval other places are.
by Distantantennas on Feb 24, 2009 7:03 pm
Why should govt subsidize renters, politicians rather have homeowners as constituents than renters who may or may not be there when their election comes.
Also, most of the blame falls on economic principles. There is no economic incentive for renters to maintain or upgrade their property. A property owner knows that he can rent his place out at the same price with Formica counter tops as he can with granite. The whole system encourages maximize profit while minimizing cost, homeowners don't share that value when they approach their property as they gain economic and intrinsic value from their upgrades.
by RJ on Feb 24, 2009 7:18 pm
Based on what I've read from Shiller, a Yale economist, home price over the past 100 years are basically flat when you account for inflation. There have been short and medium term bubbles (e.g. post WWII), but those are made up for by real estate busts (e.g. late 1980s, early 90s) and times when housing prices increase modestly. Historically - and psychologically - the busts seemed milder than the bubbles. The reason, according to Shiller, is that inflation has eaten away at housing values and that is harder for people to internalize.
As an example of how this works, imagine that your brain only registers the facts in bold below:
* Say starting in the year 2000 your $200,000 house increases in value by 10% a year for 5 years - wow! your house is worth $322,000 in 2005!
o (But if inflation were running at 6% during those 5 years, it's really only a 4% gain, so your house is really only worth $243,000 in constant year 2000 dollars.)
* Now assume that your $322,000 house goes up to $349,000 over the next 10 years. A 1% annual increase doesn't seem so bad, right? You're $200,000 house has increased in value by 75% in 15 years!
o Add to that the fact that you'd hardly notice the prices of things going up because inflation between 2005 and 2015 is running at just 3% per year.
o But your house value is actually decreasing by 2% annually for that decade.
o At the end of 15 years your $349,000 house is really worth only $199,833 in constant year 2000 dollars - the value hasn't changed in 15 years!
It's like when people come back from Vegas - they only remember (and tell stories about) when they won big. Same with housing. What does that mean? That means that your house is not an investment. It's a place to live.
Not to bum anyone out. I own a home and it makes me happy. That's a good reason too.
And owning a home is all well and good, but I disagree with the notion that getting people to buy a home will make them good citizens. It's like the famous study about how kids with books in their homes have better language skills. Adding books to the homes of kids without books and didn't magically make good readers.
And Lance, I think having the government incentivize me to buy a home because it will make me a "good citizen" sounds pretty Orwellian.
by David C on Feb 24, 2009 9:12 pm
by Lance on Feb 24, 2009 9:50 pm
by Lance on Feb 24, 2009 9:51 pm
-- I've rented for as long as I've owned and I'd rather own.
-- It's the intangibles, mostly. I've never like the feeling of being beholden to a landlord, and asking permission to make any changes.
-- Cost: Well, in today's market you should be able to get something on a 30-year fix that cost no more than a rent. You can crunch the rent-vs-owned numbers anyway you want, but at the end of the 30-year ride you really do have something.
-- Choice: The best, and most interesting housing, IMHO, is for sale, not for rent.
-- I don't think changes to the tax benefits for homeowners "are in the cards." Didn't Congress just approve $8K for new buyers?
-- Should renters get added tax benefits? As a renter my view was: of course. But, honestly, since we're having this discussion today let's put it in the context of today: Renters are now in the best possible world. Rental prices are falling, vacancies abound, and homeownership options are expanding thanks to falling prices, mortgage interest rates are at the lowest, etc. If rental advocates believe that renting offers the best financial return long-term then no extra tax benefits are needed.
Community stakes: As a renter I always felt I had a strong stake in a community, with a responsibility to contribute to it. I've never liked the argument that owners have more of stake. Renting has nothing to do with civic responsibility. But as an owner, my feelings about activity in a community are turned up a few notches inasmuch as I now assess any changes relative to potential impact on property value. Self interested concern versus civic responsibility? Yes, but both can ride in tandem.
by kob on Feb 25, 2009 8:49 am
In Adams Morgan there's a debate about creating a historical district. From a renter's point of view, it's probably a non-issue. From an owner's point of view, it's an issue with a wide-range of potential impacts. From that perspective, owners have more a stake in the community.
But a debate over the Adams Morgan historical district has nothing to do with civic responsibilty shared by both renters and owners. Everyone has a stake in the well-being and future of the community.
by kob on Feb 25, 2009 8:59 am
Cool, then stop paying rent. I hear you can live under a bridge for free, and there is even free heat if you sleep on top of the steam grate.
Back to the topic of the post: I agree that the tax system has perverse incentives. I propose a different solution: stop subsidizing home ownership with tax deductions, stop allowing tax deductions for moves, etc. Make the tax system simpler. I will admit, however, that tax simplification seems a dead letter these days and so your proposals to make the tax system even more complex are more likely to come to pass.
by Omari on Feb 25, 2009 10:09 am
by NAB on Feb 25, 2009 10:30 am
I don't think that tax incentive for renters themselves is the answer. The goal is to build more dense housing in urban centers and in the inner-ring suburbs. This is imperative for many reasons: energy use, climate change, job access, greenfield preservation, economic diversity, schools, and transportation. While there are currently many programs to give developers incentives for building low-income housing, the tax structure does not give any incentives for building middle-income multifamily rental housing. The government does, however, give incentives to build and buy single family homes in the suburbs.
To NAB's comment, I would reply that it wasn't until the 1950, after the government had subsidized suburban development with its tax structure and the building of the interstate system, that the homeownership rate in the US was over 50%. In the ten largest cities, about half of all households are renters. Historically, landlords haven't had control of the municipal power structure. Renters still vote.
by DMIJohn on Feb 25, 2009 10:57 am
But its okay- now apparently renters will be paying them to stay in their houses and keep them overvalued...
by mafiosa on Feb 25, 2009 11:21 am
by mafiosa on Feb 25, 2009 11:22 am
Right now, owning is a losing proposition. In times of inflation, which may be around the corner given the massive government spending and debt, locking in a housing cost might be preferred.
All you arm-chair futurists out there should remember projecting recent short term trends infinitly into the future is how we got into this mess in the first place.
by Tom on Feb 25, 2009 1:27 pm
this is the exact type of policies that Bush has been implementing for the last 8 or so years. that's why we see the evaporation of the middle class, the rise in income inequalities, major health care disparities, etc. i know we're not supposed to talk about it, but as Fred Hampton said, this _is_ class war.
i could see how these pseudo-conservatives would like to see the continued diminishment of the middle class -- they don't want 'roughnecks' to be able to invest in any property they feel like -- that is a privilege that should be reserved for the truly monied classes - the aristocracy.
as one of, if not the, greatest amasser of wealth in the 20th century, and a boon to the middle class, pseudo-conservatives hate home ownership for regular people, the GI Bill, and any other program, like Social Security, that could actually allow upward social/class mobility (as opposed to transportation mobility). just turn on Fox and watch them rage against 'loser homeowners'.
all that said, i think anything we subsidize needs to be analyzed and re-evaluated. and that means we need to look at the biggest, most destructive subsidies, first -- those to private industry, the food corporations, all the private military contractors funded through the Pentagon System, etc.
once we've cleaned all that up, then we can fix the tax code to make it progressive instead of regressive.
after all that, we can talk about cutting away at the middle class's chances for upward social mobility.
and as someone else said somewhere else, the idea that we should all be moving around all the time is a bit wacky. further, i'd say that we should not be looking to move ourselves over 'unhuman' distances just to get to work -- if something can't be done sustainably, then we should examine whether that practice should be tolerated at all, much less made more practical (i.e. continue to push the costs/externalities of unsustainable behavior onto the public).
by Peter on Feb 25, 2009 6:33 pm
But on the subject of moving far away for jobs, what's wacky about that. what's wacky about pursuing opportunities. It keeps unemployment down to allow people (note: not force) to move to where the jobs are. Should the people of Wilmington, OH (population 11,000+) all have to stay there even though DHL fired 9000 of them? That doesn't seem very charitable. What's wacky about them moving to some place where they can work and make money?
by David C on Feb 25, 2009 8:07 pm
staying in one place for a long time matters. that's how relationships are built -- that's how communities become strong. making it easier for folks to uproot themselves can destroy communities. neighbors lose trusted neighbors. parents are left to rot. kids lose mentors. etc.
so, instead of making it easier for folks to hopscotch across the county or country, we should look at facilitating the efficient movement of people and things via transit, and foster in people a greater sense of responsibility for the places in which they live.
by Peter on Feb 25, 2009 8:23 pm
But how would "facilitating the efficient movement of people and things via transit, and foster in people a greater sense of responsibility for the places in which they live" help the people of Wilmington? Or the people around Pittsburgh after the steel mills starting shutting down. The U.S. economy is getting more dynamic, not less. I don't see how transit and a sense of responsibility help people in a coal town after the coal mine has closed.
by David C on Feb 25, 2009 8:28 pm
Pittsburgh is turning around. It's also capitalizing on having one of the best computer science schools in the nation.
And what does "more dynamic" mean -- in what context? Against what historical periods and using what metric?
There's all kinds of ways to engineer the future and good arguments for doing so; but nobody can engineer an outcome. You can't even guess at the outcome. All you can launch is an experiment. So change the tax code, change the incentives, and retool the approach, but the one certain thing is this: The result are entirely out of everyone's control. I think of the redevelopment era, and if that taught anything, it was to be humble. But post-war leaders believed too much in themselves.
by kob on Feb 25, 2009 9:48 pm
In addition, the labor market is changing so quickly. Many kids entering college today will take jobs that don't even exist right now doing things that no one does right now.
That's what I mean by dynamic. Yes Pittsburgh is turning around - it's a great town, but it's different than what it was - with different jobs and different workers. And that's not a bad thing.
by David C on Feb 25, 2009 10:18 pm
In Canada, the home ownership rate is 68%, but they don't have a mortgage interest deduction, and the mortgage terms are more strict. So there must be many more factors at play. The government might as well stop subsidizing mortgages and save some money.
by Mark on Feb 25, 2009 10:21 pm
transit and civic pride won't find bin Laden and they won't fry an egg, either, but they will do a whole lot more than you might expect - namely, give people options to work outside the immediate confines of their neighborhoods, and allow them to think that their local economy was worth rebuilding. i thought GGW was kind of about these things.
as far as 'dynamism' and all the mba talk, i'm also a skeptic. i'm with dynamism in cities as referenced by Jane Jacobs, but this is not how you're using it.
we should not accept things in the future just because that is how they are right now. that includes things like accepting that folks will be so desperate for job satisfaction that they'll change jobs every 18 months -- we need to change the nature of work. or that all these people need college educations when only a small percentage of any population requires college -- we need people who can actually be part of the real economy, making/growing/doing useful things.
we need to start living sustainably. we need to shrink everything. build local economies. we need a drastic increase in leisure time -- let's go to 24-hour work weeks. end the wars. start growing our food locally.
you know, the usual. :)
all that said, i like the idea of people living close to work - Facebook used to offer $400 deductions for folks who lived within a mile of work, in downtown Palo Alto. but what are the downsides? for instance, do we want to build a bunch more one-company towns?
the whole idea of making it even easier for people to relocate seems to me to _really_ be able making it easier for companies to relocate. companies already play cities, districts, states, and countries off of one another to gain the most taxpayer subsidies possible. the homeowner tax credit may be regressive, but that can be addressed gradually.
national rental companies? eh. again - the whole thing seems to aim to make humans more, as Rummy would say, more 'fungible'. make us even more cog-like than we already are. make us even more brain dead than we already are. more subject to the whims of capital than we already are.
just my $0.02!
by Peter on Feb 25, 2009 11:36 pm
by calwatch on Feb 26, 2009 1:09 am
If an employer can get someone in china to rent a closet-sized room downtown and work the factor floor for 2 cents an hour 60 hours a week, the cost of oil still makes this cheaper than paying you to do it here. There's also plenty of day-labor work right here in the USA if you don't mind making 12K a year in cash or getting picked up at the 7-11 every morning. Cheap oil makes it cost-effective for latin americans to travel to the USA for better pay than they'd get back home.
If you pay off your house in 20 years, you own a house. If you pay rent for 20 years, you still don't own anything. You might as well flush your money down the toilet. The fact that property can loose value after you close the sale is besides the point - so does just about everything else you buy!
The problem is not that everyone owns houses. The problem is that people buy excessively expensive houses for their budget, and this is encouraged. Also there is nothing wrong with having lots of people living sprawled out across the land - historically this is the norm. The problem is that sprawled-out people are not farming the land and they are not self-sufficient, because cheap oil means they can buy food or clothes from someone working for 2 cents an hour in China or latin america.
With more expensive oil and tighter lending practices, these problems will be self-correcting. The news calls this a crisis, but really the nation is just going back to normal. The real crisis is that people still buy the myth that they are living in "suburbs" when really they are out in the country where they will soon need to be farming for their survival. Likewise, urbanites still still think that a city will get buy with just a bunch of spacious offices and parking garages, when really the city will soon be packed with manufacturing operations and dense masses of people.
Oil can no longer get or stay cheap without destroying the American economy, even the global economy. Any effort to rebuild will push fuel prices back to even higher prices than before, because oil supplies are in decline and the number of users has increased. High prices will do further damage to the economy. This vicious cycle will continue until we re-adjust to a less energy-intensive lifestyle.
By the way I found the google-maps streetview on that Oasis Dr. & Wonderland Dr. intersection in the picture. It's in Plano, TX, a bedroom suburb of Dallas, TX.
http://maps.google.com/maps?f=q&source=s_q&hl=en&geocode=&q=Oasis+Dr.+at+4300+Wonderland+Dr.,+USA&sll=37.0625,-95.677068&sspn=44.793449,67.851563&ie=UTF8&ll=33.058385,-96.781225&spn=0,359.975281&t=h&z=16&iwloc=cent&layer=c&cbll=33.052564,-96.777066&panoid=uQk6FWIXGZCXmw9GU7k3bw&cbp=12,230.98000323834185,,0,12.280197538860113
by Lee Watkins on Feb 26, 2009 8:23 am
by Lee Watkins on Feb 26, 2009 9:00 am
That's not true. Let's use your preferred payment system - paying it all upfront - as an example.
Two people have $400,000 available.
One person buys a $350,000 house and uses the other $50,000 to pay for insurance, transaction costs, property taxes and repairs over the next 20 years. At the end they have a house of an indeterminate value. Selling it has high transaction costs.
The other person puts their $400,000 into an assortment of investments with which they can get a modest 4% return. That gives them about 1200 a month to rent a place (assuming they have to keep adding money to the principal to cover increases in rent). At the end they have $400,000 plus all the money they added to the principal. And if they want to move they can do so much more easily and with less risk and less cost than the first person.
There is an opportunity cost to every purchase, including a house. It costs more to buy than rent. All that extra money going into the buying isn't going into something else. So you aren't using the same numbers in your statement above.
by David C on Feb 26, 2009 10:25 am
My initial points were:
1. It’s unwise to encourage ownership over renting the way we do. Both have their advantages. I would add that it’s unfair as it transfers wealth from renters (who are generally poorer) to owners (who are generally wealthier) and it’s unfair to DC where homeownership is only 47% (as of 2007) as opposed to 68% nationwide. I suggested encouraging renting, but would be open to not subsidizing owning.
Counterarguments:
Ownership is a good investment. There were arguments put forward that contradicted this, but in the end I think it’s moot. So, let’s say it’s true. If ownership is a good personal investment why do we need to subsidize it? Should we not instead subsidize things that aren’t a good personal investment but have high social benefits such as rooftop solar panels?
“It's a generally accepted microeconomic principle that ownership of a stake of anything, whether that be a corporation or a community, tends to result in involvement.” The studiy cited as proof said that (1) owners invest more in their human capitol, because they have lower mobility rates, and (2) that there is a connection between ownership and citizenship – but not that it’s causal; but (3) it also states that areas with high homeownership spend more on roads – again not causal. That report was written by Ed Glaeser , who wrote the Times blog post cited above against home mortgage deductions and which Slivinski cited in his report. The Wharton study states that home owners are less happy and are not better citizens. At best this is inconclusive and there is hardly enough, in my opinion, to justify the huge expense.
People invest more in their homes if they own. Ok, again let me concede that as it’s unimportant. So, 1) Do owner-renters invest more than landlords + tenants? 2) Is that good? Do granite countertops make my community better than Formica? Is it not possible that having people invest a great deal in their home makes them “house-poor” so that they stay in their home instead of going out into the community – and that THAT is not preferred?
The mortgage deduction keeps parity with landlords. – Landlord’s deduct interest (and depreciation) from earnings (rent) and capital gains. Owners deduct interest without having to account for rent and get some capital gains tax free. So if the point is to create parity it has failed. Owners have it far better than landlords.
2. We should allow people to take a tax deduction any time they move as long as they’re moving closer to work.
3. We should not allow people to take a tax deduction when they move if they will not live close to work.
No one really objected to 2 or 3, but there was a general argument against mobility.
It’s bad for communities if people move a lot. – I believe that’s true. But there are already significant barriers to moving. It’s expensive, people have roots and family. If someone decides it’s in their interests to move should we stop them? Is the argument that the community’s need to keep its cohesiveness is greater than the individual’s pursuit of happiness? If so, then should we limit people’s ability to move? Or is the argument that we should do more to make moving less necessary? If that's possible, then great, but I don't think it is to the degree needed.
People don’t need to be mobile if they have transit and a sense of responsibility – Hmm, I guess I don’t understand this. I guess the idea is that if people can walk outside and catch a train to anywhere they can work anywhere. But still, long commutes are not good for anyone, so while I’m a strong advocate for transit I recognize it’s limitations.
by David C on Feb 26, 2009 2:59 pm
1. The ultimate in mobility is the SRO/residential hotel, a housing option made pretty much illegal in North America since the 1960s, though still found in San Francisco and LA. Residential hotels require a minimal financial commitment - we're talking about rooms by the day or the week, and no need to provide furniture. At the high end, many of the 16th St. apartment buildings (the posh Camden Roosevelt, for instance) catered to wealthy families who had no interest in home ownership - possibly not even in owning furniture.
2. At the same time, the American interest in promoting home ownership isn't new. It goes back at least to the 19th century, and rhetoric about high levels of ownership have an even greater moralistic tone.
Baltimore is the extreme example. All those small-lot rowhouse neighborhoods were built to provide workers with easy access to home ownership. It wasn't just small lot sizes and compact houses - the whole ground rent system came about to make it possible to purchase a home without needing much capital. There's a Baltimore Sun article, I think 1905, in which the writer cheers the fact that something like five percent of the city's residents live in apartments. Home ownership in Baltimore remained high through mid-century, though it's declined since.
3. Much of the early work in town planning came out of 19th century philanthropist/industrialists. It's the school that built Pullman, south of Chicago; Hopedale, Mass.; and Forest Gardens, Queens. Set aside the stereotypical factory/mine housing scenario, in which a company retains ownership of housing in order to control workers. By 1900, the more progressive-minded industrialists had learned that the way to attract a stable, skilled workforce was to provide large family houses, and to encourage home ownership.
Draper, in Hopedale, Mass., maintained a boardinghouse for some time, in order to retain some single, transient workers with particular skills. Eventually they closed that operation down because the boarders were too little committed to their work and their community.
by David Ramos on Feb 26, 2009 4:50 pm
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