This post at Sullivan’s brings up something I have always wondered about- why does the government do such much to encourage home ownership? Tax credits, ta breaks and write-offs, etc. What is the history of this? How did it come to be? Why do they think it is a behavior they want to encourage? Why does the government prefer someone who owns a home over someone who rents?
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Nazgul35
If I had to guess…I would think it had something to do with the post-WW II environment…trying to avoid a repeat of what happened to vets after WW I.
Also the need to transfer back to a non-military driven economy…the government encouraged home ownership and the explosion of suburbs to help with the post war period.
And as usual…it stuck.
freelancer
sigh.
“‘Cuz Shut up! that’s why!”
Okay, you can punch me in the neck now.
Ajay
I am pretty certain it was originally meant to stimulate economy. Corporations benefit as more people buy homes and wall street rejoices. Essentially we are socializing corporate profits indirectly and screwing the lower income group as for them, affordability of homes dereases.
Recently a study came out comparing Canada and US. Canada has the same % home ownership as the US and is significantly more affordable and it doesnt see the volatility in home prices as we do in US. Also, IIRC, Canada doesnt have the tax credit.
Politically Lost
It’s the “American Dream” and all that.
Much like the tax and social policies that encourage marriage and spawning children.
Promoting the nuclear family through better tax advantages.
Personally, I think its misguided but our country is generally run by god believers that want to socially engineer our society into a form they think is best.
beltane
I’m assuming it was something concocted by the banking industry. Not only does the deduction give special rights to homeowners, but it encourages the taking out of larger mortgages. Those of us with smaller mortgages and/or cheaper properties end up using the standard deduction anyway, so this is obviously not a policy that encourages people to live within their means. But what’s good for the bankers is good for…the bankers.
chuck
It’s a stable asset (well it *usually* is) that’s in the hands of the middle class for the most part, and not a constant drain being funneled up to an aristocratic landlord class. It’s a good thing in principle. Of course when people leverage that asset and borrow money year after year on the anticipated future value of that home in order to live beyond their means, it sort of defeats the purpose.
Of course “living beyond ones means” these days also includes things like getting medical treatment.
DMD
This explanation is as good as any: http://online.wsj.com/article/SB10001424052970204409904574350432677038184.html
.
“No man who owns his own house and lot can be a Communist.” — William Levitt
The Republic of Stupidity
Philosophically, I believe it (home ownership) was seen as a way to build up a certain level of prosperity in the population.
I don’t think this is necessarily a bad thing. When people own their own homes and can pass some of this worth on to their children, it does make for a more stable society.
The problem we’ve had over the last couple of decades is the stagnation in real wages and people turning to their home equity as a way of funding their lifestyles. They assumed the value of their houses would just keep going up and they started treating those houses like giant credit cards.
Strangely enough… it would appear to be a form of socialism on the govt’s part, huh? Odd… how the righties have NO PROBLEM with THAT bit of socialism..
OldK
Same reason the government gives seniors everything they want: higher rates of voting than the population at large.
Roger Moore
Three reasons:
1) They think home ownership is helpful to build good communities. People who own homes are supposed to have a heavier investment in keeping it functioning well than people who are free to pull up stakes and move the moment things get bad.
2) Homeowners vote, and giving them big stacks of money will help to get their votes. Canceling programs that help them pay for their houses will upset them and lose votes.
3) Many of the tax breaks, especially the mortgage interest deduction, are really subsidies to banks. No more need be said.
Cathy W
A homeowner theoretically has a stake in the community – socially, a tie to a neighborhood, and financially, an asset to protect. And having that asset represents a bit of economic security – in theory, if you got that 30-year fixed early in your working life, that mortgage payment represents a smaller and smaller fraction of your income as time goes on, and if nothing else you’re building equity for yourself instead of your landlord.
(Please note my liberal use of the word “theory”…and we won’t talk about the bitter laugh I laughed when I contemplated the prospect of buying a house “early in my working life”.)
Brian
I would love to see that study, esp. as far as affordability.
harlana pepper
How about child tax credits and favoring families over single people?
PanAmerican
Home and road building provide lots of jobs.
Dave
On behalf of homeowners everywhere and in the immortal words of Mr. Peabody…quiet, you.
I think the other comments nail it. Stable middle class (when not swallowing “leverage your house” bullshit), encourages stable communities and benefits banks. All of which then benefits whichever political party gave them all of this wonderful stuff.
EconWatcher
We may have gone overboard with various incentives for homeownership, including of course the tax deduction for mortgage interest. But I think there is some truth to the notion that owners are more vested in their neighborhoods than renters, and that can have some positive sociological benefits (neighborhood crime watches, attention to cleanliness, focus on school quality, etc.)
Penfold
Both true. It also has intellectual roots in Jefferson’s ideal of gentleman farmers and in the idea, now seen as conservative, of that era that–in essence–those who own the country should run it, in the sense that a man invested, literally, in the nation would be more inclined to care about its welfare. This idea remains in the pop sociology notion that owners take better care of their neighborhoods than renters, and that there is less crime in those neighborhoods, but this isn’t necessarily backed up by data (some studies I’ve seen do, some don’t).
To take a broad example, New York still has the highest percentage of renters of any of the large US cities, while over the course of the last 20 years taking its overall crime rate to the lowest per capita. In fact, it has for several years now had fewer homicides in absolute terms than Chicago, despite a 167% higher population. Obviously, this can be explained by different policing measures, demographics, etc., but it is precisley this that shows that rent vs. own is not necessarily a decisive factor.
ChrisB
Some quick internet research (by Googling deductible home mortgage interest history):
http://www.nytimes.com/2006/03/05/magazine/305deduction.1.html?pagewanted=print
http://www.taxfoundation.org/blog/show/1382.html
Zifnab
@The Republic of Stupidity:
This. I mean, on a whole, I like the idea of home ownership as a means of spreading the wealth. When you own your own property, you have an asset that appreciates with time and can’t be easily taken away from you. You don’t need a large income stream to keep property you own. Property taxes are significantly lower than rents.
And, from a small town perspective, you don’t want dense urban environments exactly because of those property taxes. A $10 million high rise holding 1000 people is much less profitable to the city and state than 250 properties ranging from $100k to $500k with families of four.
Then there’s the car culture and the suburb culture and the sheer quantity of land in the United States. Encouraging people to own property also encourages people to develop the land. If everyone lived in packed little enclaves like New York or Chicago, we wouldn’t have all these miles of strip malls and fast food joints. Vast tracks of land would remain wilderness because who the hell would want to go out there? But spread everyone out with their own patch of land, and you’re going to have to build commercial and industrial real estate along side it, and pretty soon you’re filling in the vast untouched American frontier.
Brian J
This article seems to say that it was a general interest deduction combined with a cultural norm that owning a home was the right thing to do that led to this monstrosity. Read the entire article, but here are the money paragraphs:
Dave
This post reminds me of that scene in Field of Dreams where Kevin Costner’s daughter chokes on a hot dog, Dr. Archie Graham walks off the field and knocks it out of her, and a Mark goes, “when did all these ballplayers get here?”
Brachiator
The federal government has long given a preference to familes, i.e., married people, especially married people with children, and America has also had a tradition of homesteading. When land was opened up in various states and territories, no one in his right mind would think, “let’s build an apartment building.” Apartments are more a part of medium sized and larger cities.
That said, a lot of home tax breaks, including the mortgage interest deduction has been kinda accidental. The NY Times did a good article on this a while back (“Who Needs the Mortgage-Interest Deduction,” March 6, 2006). Hopefully the link works.
http://www.nytimes.com/2006/03/05/magazine/305deduction.1.html?scp=1&sq=Who+Needs+the+Mortgage-Interest+Deduction&st=nyt
A few nuggets:
Brian J
I don’t think there’s anything necessarily wrong with owning a home of any type. I just don’t think there’s any reason the government should encourage it, particularly since the system we have in this country seems to be ass-backwards in every way, as it works for those who have more instead of those who have less, makes us less healthy, and damages our environment.
Starfish
@harlana pepper: An institution, be it church or state, can exist only so long as it has people. If we do not have incentives to create more people, the state or church or whatever will eventually die off.
Brian
There are a variety of political, social, and economic factors (too numerous to name) that went into the government encouragement of home ownership. If you’re interested in an engaging look at how the suburbanization of the U.S. occurred, I’d highly recommend the book Crabgrass Frontier.
http://www.amazon.com/Crabgrass-Frontier-Suburbanization-United-States/dp/0195049837
Penfold
One of the points made by some of the corporate conservative crowd that is valid, though is a less-than-miniscule part of the real estate valuation bubble and the “subprime crisis”, is that some of the New Deal Consensus-era home ownership programs may have outlived their usefulness. Specifically, I think of the 30 year mortgage.
On the one hand, it’s great because it lets people, particularly at the lower end, afford a house where they might have had to rent otherwise. On the other, over a long period of time, the more effective credit extended in a market, the more likely asset prices are to inflate.
Since it’s unlikely that America at large is likely to adopt an urban/European renter culture, I’m not suggesting we discourage home ownership tools, particularly those that will benefit the working and lower classes, but if we were to actually do the work of REALLY overhauling the financial system, reworking home ownership incentives/programs could be a part of that.
Dave
The “stake in the community” line is so charming. The notion that owning a home fosters community should be preposterous on its face. It fosters the proprietary, period. It’s more about excluding “them” than fostering “us.” Postwar suburbs, as far as I’m concerned, exist in no small part because of racism.
Pete
It’s so that when people have minor illnesses or short hospital stays they can sell their houses to pay the $100,000 bill rather than declaring bankruptcy or resorting to cooking meth. QED.
The Grand Panjandrum
It would make more sense to either get rid of it, or disallow the deduction for landlords but allow it for those who actually pay the tax–the tenant.
Those tied down by homeownership are generally more of a burden on the economy during a recession because they are tied to a house and far less likely to find work elsewhere. How many people would move if they could sell the house they live in? The prospect of relocating for work is much more onerous when you are tied to a house.
KG
it’s about stability. you own a home (or rather, you have a mortgage on a home), you’re much less likely to pick up and leave for a new job in another state. since you’re less likely to get up and go, you’re also more likely to become interested in the local goings on, thus, in theory, creating a better local community (if you’re young but going to be stuck at this house for 20 years, then you’re going to be interested in things like the school district being good, even if you don’t have kids; or making sure your councilmen aren’t skimming off the road funds from the state and federal governments).
That’s the theory, I don’t know if it works like that in practice.
Nazgul35
oh yeah…and banks too.
RodeoBob
Home ownership is seen as a societal good for a few reasons:
1.) Equity. For most Americans, for most of the modern era (post WWII), home equity represented the most common form of savings people had. Of course, once Greenspan decided to lower interest rates to encourage people to withdraw that equity, the numbers shifted.
2.) Improvements. Renters have no reason to improve their properties, only (at best) to maintain them. And home improvements tend to be disruptive to tenants, which is why they’re avoided by-and-large unless a space is vacant, so landlords don’t improve properties unless they can’t rent them as-is, or want to charge more rent.
3.) Community. This is the real ugly part. Even if you could show that renters and homeowners change addresses with equal frequency, the consciousness of renting is one of temporary dwelling. Sure, some people do settle in to a rental for a long while, but most rentals are transitory. People that aren’t staying long don’t care as much about long-term improvements like walkability or mass transit or greenspaces. They care about public safety, and parking.
Tax policy is often used to push a social agenda. Home ownership is one example, marriage with only one working partner would be another.
geg6
This is one of my own personal bugaboos, along with all the special privileges given to married people. Fuck that. There are few bigger suckers on the taxpayer tit (excepting corporations who, for some reason, get tax breaks even though they are not homeowners or parents either) than married homeowners and double that if they have kids. I get screwed royally at tax time because I don’t have a husband or kids and can’t afford to buy a house (and wouldn’t even if I could because it would be too much for me to maintain). I pay more in taxes than anyone else in my family even though my household income is less than half of theirs. It’s ridiculous. I use many fewer government services and I pay more. It pisses me off royally.
Brachiator
@Brian J:
Looks like we both found the same article.
In addition, the National Association of Realtors(NAR) are fighting off any proposals, which began with the Bush Administration but have been considered by Obama, to modify the deductibility of mortgage interest. Not surprisingly, they view buying and selling real estate as a fundamental right.
http://www.realtor.org/government_affairs/mortgage_interest_deduction
Zifnab — If everyone lived in packed little enclaves like New York or Chicago, we wouldn’t have all these miles of strip malls and fast food joints.
Why would anyone view it as desirable to be packed into little enclaves?
phein
Along with the mortgage interest deduction is the property tax deduction. For me, taken together, those are worth $25,000 / yr in deductions. Without the property tax deduction, the mortgage interest deduction isn’t worth much, and vice versa. In a way, the mortgage deduction is subsidizing local property taxes on larger properties, which means money for schools, parks and libraries for the most part. By contrast, property taxes on houses on smaller lots, or apartments or condos, aren’t usually great enough to offset the costs of services provided to the residents (at least in Illinois).
liberal
@Starfish:
Uh huh. Because no one would ever have children if the government didn’t have favorable tax incentives.
Mornington Crescent
It’s because those who own property tend to be wealthier and vote more regularly than those who rent. In effect, it’s another way to transfer money from those who have less to those who have more.
Billy K
As harlana pepper said, it’s not just homeowners, it’s married people with kids that are favored by our government. As a very adult single person who rents, I get really sick of it.
The fact is, homeowners with a wife/husband and children are much easier to control. They have a lot to lose. Me? just some guitars and computer equipment. I could join the revolution at any moment!
General Winfield Stuck
OT
Fuck politics, fuck Qwest, but all hail all the little critters. Here is a heartwarming video of Alvin having lunch.
If you want me I’ll be in the Salad Bar.
geg6
@EconWatcher:
Please provide some proof of this. I live in a neighborhood that is primarily renters and we watch out for each other, have nice yards and gardens and decks, and 2 of us (in a 2 block area of multi-family homes) have children but we all pay school taxes and support our local school through taxes and political action. I’ve been to New York City and I know it is primarily people who rent. I don’t see anyone I know there not giving a crap about how they live or how their neighborhood looks. I think this is some sort of conventional wisdom that sounds true but isn’t really.
Jess
It would be nice if they’d lower the cap on mortgage interest deductions and raise it on student loan interest deductions. But I suppose a population chained to their real estate is more docile than one trained to question and think critically…
Also, this.
slag
What @Cathy W and @KG said. It’s the same reason that homeowners often prefer neighbors who are also owning as opposed to renting. Has to do with both community and financial investment.
However, they’ve done studies on whether or not owners truly are better community citizens, and the results seem mixed, at best.
Brick Oven Bill
The theory goes that the reason that higher-income people who lived in houses in the 1960s, were relatively more stable and productive Citizens than those who did not live in houses, was because these people lived in houses, discounting HBD.
Therefore, the theory went that if the government got everybody in houses, it will change the human behavior of the lower classes. This has been a colossal failure, done a number on my home equity (grrrrr), will likely bring down the economies of the West, and give rise to whatever comes next.
We need to come to grips that, to a significant degree, intelligence and other human traits are inherited and not granted by government. No Child Left Behind is another government disaster based in this Creationist theory.
Zifnab
@Dave:
You can’t just blame such a massive cultural phenomenon on racism. For one thing, that would suggest you’d see more suburbs in the more racially charged areas of the country. But New York, Chicago, and San Fran have more sprawl as any city in Texas or Arkansas.
Cities have been perceived as cramped and dirty since they started sprouting up. Suburban living was embraced by European royalty long before it became the norm in the US. You can’t tell me the German princes and English lords were building coastal villas and summer homes deep in the country side just because they wanted to get away from black people.
The only reason you saw more of it in the US than Europe was because the US had more acreage to spread around.
MattR
While I support eliminating this (and many other) deductions, I wonder how feasible it is to do as a practical matter. As has been pointed out, there are quite a few families that include that deduction as part of the “true” cost of their house and own houses that they would not be able to afford without it. Given the precarious nature of the current real estate market, I don’t think we want to be doing things that would stimulate more foreclosures.
So how do we fix this? Can we phase it out over time to minimize the impact? Or maybe raise the standard deduction so fewer people will take advantage of it? Or there was The Grand Panjandrum’s idea to give the same deduction to renters isntead of to the landlords (NJ does something like this for property taxes)?
Zifnab
@Brick Oven Bill:
The theory? Link plz?
Jess
@MattR:
Just lowering the cap would be a good move, IMHO.
Chaz
@Starfish – You don’t have to encourage the “creation of more people”. Folks seem to manage just fine on their own.
mk3872
Juan – It so that people have more to borrow against to spend more $$. It is what drove the economy during the Bush W & Clinton years.
With more to put up for collateral, banks are more willing to make loans and issue credit to homeowners.
Bob (Not B.o.B.)
I don’t care if government policies such as the mortgage interest deduction also benefits banks. It helps people afford a home, which is a good thing.
Renting in most markets is crazy if a person has the ability to buy. Any landlord (myself included) will tell you that. Buying a home is the best way for most families to build wealth. Granted deregualtion totally screwed that up recently, but historically, those who cannot buy, don’t raise their standard of living, nor do they have anything to borrow against for emergencies or to start a buisness etc.
Yes people have overbought and overmortgaged, but that doesn’t mean buying is a bad idea.
I would not live somewhere where I could not afford to buy a home.
Bob (Not B.o.B.)
I don’t care if government policies such as the mortgage interest deduction also benefits banks. It helps people afford a home, which is a good thing.
Renting in most markets is crazy if a person has the ability to buy. Any landlord (myself included) will tell you that. Buying a home is the best way for most families to build wealth. Granted deregualtion totally screwed that up recently, but historically, those who cannot buy, don’t raise their standard of living, nor do they have anything to borrow against for emergencies or to start a buisness etc.
Yes people have overbought and overmortgaged, but that doesn’t mean buying is a bad idea.
I would not live somewhere where I could not afford to buy a home.
ericblair
@Ajay: Recently a study came out comparing Canada and US. Canada has the same % home ownership as the US and is significantly more affordable and it doesnt see the volatility in home prices as we do in US. Also, IIRC, Canada doesnt have the tax credit.
About affordability, I doubt that’s the case looking at big-city (Toronto and Vancouver especially) real estate. Canada does not have a mortgage interest tax deduction, and there is no such thing as a fixed rate mortgage like in the US: you basically get a balloon mortgage that rolls over every few years.
From what I understand, banks in Canada make money the old-fashioned way by gouging everyone with fat fees instead of betting on the horsie track. I think the banks did want to open up American-style liar loans and such, but the Finance Minister at the time told them to piss up a rope.
tripletee
@geg6:
Why do you single, childless renters hate America? (slurp slurp slurp)
Olly McPherson
@Bob (Not B.o.B.):
Maybe it’s just living in Chicago, but the whole notion of “affordability” seems laughable. As does the notion that buying is inherently better than renting–tell that to all my friends whose one- or two-bedroom condos are underwater.
Of course, Chicago could be the exception, but it seems most big metro areas are. And I’ll take the tradeoff of renting in the city vs. buying in the burbs.
MattR
@Jess: I have no problem with that lowering the cap since the people at the top end typically dont need the help (or have fallback options if they are forced to sell their McMansion). But for those who want to completely eliminate the deduction, I am curious how they would do it. One other factor I forgot in my previous post is that rental and purchase prices generally differ in a way that takes the deduction into account. Removing the deduction would bring those prices together, meaning either rents rise or house prices drop.
Brachiator
@The Grand Panjandrum:
New Jersey and a few other states allow renters to get a credit for part of this. But to say that the tenant deserves the break more than the landlord is a bit odd. It ain’t the tenant’s property.
Huh? All kinds of stuff can tie you to an area. If you have a working spouse, or kids in school, and nearby family, you might not want to relocate from a desired area.
The equity in a home is also one of the biggest assets that some people have (at least those who had rational mortgages).
EconWatcher
Geg66, the alleged social benefits of homeownership seem to be a tough issue for the regression-analysis jocks. Here’s some apparently credible discussion:
http://www.chicagofed.org/publications/workingpapers/papers/wp98_20.pdf
Your anecdotes and my anecdotes of course can’t prove the truth. But I guess I’m persuaded by the old line that “no one ever took a rental car to the car wash.” It seems implausible to me that, all other things being equal, higher rates of homeownership wouldn’t result in more individual investment in the community. And it’s consistent with my own life experiences: I certainly have been more invested in what’s going on locally in places where most of my net worth was tied up in my home.
But you’re correct to suggest that such “surveys of one person” (me) aren’t very good evidence.
slag
BOB doesn’t believe that all men are created equal. Which makes him a real American.
geg6
@Bob (Not B.o.B.):
Again, as I challenged someone above, provide some evidence that this is true. I have many doubts that you are correct. My rent and renter’s insurance are about 1/3 of what I’d pay if I owned a house. The money I save on not paying a mortgage, homeowners insurance, and all the maintenance costs of a home goes into my retirement and savings. It is what allowed me to pay cash for my car. It is what allows me to take vacations and go out to dinner and buy new shoes and such. I call bullshit on the idea that a home is the best way for an average person to build wealth and I think someone like me is crazy if they DO buy a house. In fact, crazy doesn’t cover it. You have to be crazy and really, really, really stupid.
Brick Oven Bill
Here is your friend Zifnab, President Bush playing God in 2002:
Today, President Bush announced a new goal to help increase the number of minority homeowners by at least 5.5 million before the end of the decade. The President’s aggressive housing agenda will help dismantle the barriers to homeownership by providing down payment assistance, increasing the supply of affordable homes, increasing support for self-help homeownership programs, and simplifying the home buying process & increasing education.
Homeownership is a cornerstone of America’s healthy, vibrant communities, and benefits individual families by helping them build stability and long term financial security. But sadly, homeownership is out of reach for many Americans — especially for minority families. For millions of these families, homeownership is a distant, unreachable dream.
The African-American homeownership rate was 27.5 percentage points below the white rate, and the Hispanic rate was 28.8 percentage points below the white rate.
Notice that it was Bush-Kennedy who created the No Child Left Behind act. These are two men who were raised in isolated compounds in wealthy communities.
EEH
@geg6: Being married has never panned out for my husband and me tax-wise and we started off our married lives as homeowners, too. Up until about three years ago, we had to send a check off to the IRS every single year until we started having additional money withheld from our paychecks. We have no children. The interest deduction for our mortgage is small and pretty much worthless because we bought our inner-city home for $81,000 with very low interest when houses were selling starting at $140,000+ in “better” neighborhoods. This was right about the time that house prices were starting to take off, the market went crazy after that.
My personal opinion is that the married advantage only comes into play if only one spouse works and there are children.
Zifnab
@Bob (Not B.o.B.):
You’re left with a bit of a riddle though. Are home prices artificially inflated by the implicit subsidy of mortgage interest deduction? If I can afford $12000 / month for my house, and I know I’m getting an extra $2000 back a year in taxes, that’s that much more house I can afford to buy. Of course, that’s that much more house everyone else can afford, too. So now we’ve all got an extra $2000 / year in house money to spend. Which means we can all buy more expensive houses. Which, in turn, drives up the price.
Of course, I could be wrong, and the tax benefit could have no impact on housing prices. But any time you start handing out free money to lots of people for a specific product, I’m always leery of what that does to prices in the long run.
Brick Oven Bill
You and Deborah Solomon should hang out slag.
slag
@Brick Oven Bill: Did someone mention shepherd’s pie? I hear merry old England has the best shepherd’s pie. However, from my experience, their apple pie leaves much to be desired.
liberal
@EEH:
There don’t have to be children. The big advantage is if one spouse doesn’t work. Look at the tax tables the IRS provides.
MattR
@geg6:
If this is true, you would be crazy to buy. However, I did a similar comparison before I bought a condo five years ago. Taking the mortage interest deduction into account, it was the same cost for me to rent as it was to buy. But I gained a swimming pool, tennis court, freedom to geta dog (a huge factor actually) and a few other things i am forgetting.
As Bob (Not B.o.B.) said, deregulation and the current bubble have messed the comparison up recently. If I had been looking to buy two years earlier, it would have been an even bigger no-brainer to buy. If I had waited another two years, the numbers would have reversed and there was no way I would have bought.
EEH
@liberal: Yeah, I agree with you on that. Early in our marriage, a tax professional pretty much told us the same thing.
kid bitzer
john, you do realize that there used to be property-qualifications on voting, right?
i.e., that unless you owned property, you were not even a full citizen? no franchise for you?
this was standard in the u.k. until 1832. after that, some renters could vote, not all.
in the u.s., there were property qualifications for voters up through the jackson administration. it’s a state-by-state thing, so i hesitate to make a blanket claim, but i suspect that not a single person voted for george washington who was not a property-owner.
so the picture is: if you rent, you are not even a real citizen. you can’t vote. so of course, if you can vote, you are going to vote for the interests of property-owners.
that’s the historical background. what we see now is, in large part, a hang-over from that.
Zifnab
@Brick Oven Bill:
You provided this:
But failed to actually produce the theory he was running on. His proposal was to increase the minority homeownership, but the intent was never actually stated. I’d love to hear the theory behind the claim – that “people who lived in houses in the 1960s, were relatively more stable and productive Citizens than those who did not live in houses” – but I don’t see this included anywhere in here.
MattR
@Zifnab: You are letting Brick Oven Bob off too easy. His full claim is that “people who lived in houses in the 1960s, were relatively more stable and productive Citizens than those who did not live in houses” BECAUSE they lived in houses.
trollhattan
Agree with those who point out that for two-income families it’s often a marriage penalty, taxwise. Our accountant frequently advises clients who’re thinking of getting hitched to do it out of the country and not here in the States, to avoid just that.
Encouraging homeownership is generally a good thing, but our real estate markets have become so perverted by the financial system and our various out-of-whack local markets that it’s not universally true. It’s very market-specific. In regions where the affordability index is reasonable, there is a typical rental stock and there is modest but steady increase in home values (not huge swings up and down) yes, owning is better than renting for a large portion of the population.
I will state absolutely that my neighborhood has gone through a phase where most of the rental houses have gradually reverted to owner-occupied and it has improved the neighborhood immeasurably. I do not like owning among a high concentration of rentals.
Brick Oven Bill
“Homeownership is a cornerstone of America’s healthy, vibrant communities, and benefits individual families by helping them build stability and long term financial security.”
I will explain this Zifnab. President Bush states that communities with people living in their own homes are ‘healthy and vibrant, stable and secure’. This used to be true back before the social engineers began their work. Now it is not true. What the President implies is that the reason renting / government housing communities are less ‘healthy and vibrant, stable and secure’, is because the populations do not live in houses.
Brilliant Logic.
This theory began in the 1960s, thus my timeline. My theory is different and goes that those of wealth and birth (Bush/Kennedy), those of Artificial Law, are threatened by ‘healthy and vibrant, stable and secure’ communities and seek to replace their concord with discord, weakening them.
Their goal is to concentrate wealth and power.
Brachiator
@kid bitzer:
Right, but this could be land or other personal property. And in the US, things quickly became interesting.
http://www.historynow.org/09_2004/historian.html
Later, it became advantageous to try to add immigrants to the voting rolls:
http://www.historynow.org/09_2004/historian1b.html
But Rhode Island was the bizarre exception.
The Dorr War took care of this.
The Other Steve
I noticed last year when doing taxes that being married the itemized deductions barely were more than the standard deductions. That was not the case when I was single.
Now that I’m fully aware of the being married tax penalty, i want it fixed. :-)
Very Reverend Crimson Fire of Compassion
@Starfish: Uh, evolution came up with an incentive for child-conception a long time ago. It’s the primary drive behind almost every decision made by every organism that engages in sexual reproduction. The idea that the human population requires some form of religious or political support in order to continue to grow (like that’s a good thing, given our limited resources) is bullshit of the purest ray serene.
Billy K
@Chaz:
They mean white people.
Sentient Puddle
Figures that as I write a big long post, the site craps out. Let’s try again…
@geg6: Well, I’ll throw out myself as the counterexample. Bought a house back in May. It wasn’t something I was seriously considering for a while, but after doing some back-of-the-envelope calculations with my bank, I determined that I look at houses in a price range that initially made me feel uncomfortable, and have a mortgage payment of maybe about $100 more a month than my rent at the time. I ended up shooting a little higher still, and even then, after accounting for all expenses (utilities, insurance, etc.), I’m only paying $200 to $300 more a month, which is quite comfortable for me.
And then further, I’m a single guy, so it’s a lot more space than I need. I got two extra bedrooms that I could rent out, undercutting whatever a renter would be paying for an apartment, and making myself come out even further ahead.
Of course, this all said, my case is pretty much heavens aligned. The market crash caused prices to crater, I had a nice chunk stored away that made for a good down payment, my credit was near flawless, I got a sub-5% rate on a loan, I pocketed a cool $8000 on top of all this…yeah, probably not the kind of experience that most people would have at any arbitrary point in time. But by my experience, what Bob said rings quite true to me, and I’m sure there’s plenty of other people/families/renters-turned-owners who are in the same boat if they bought during the summer too.
twiffer
tax implications aside, i prefer owning to renting. simply because it is my place. i don’t need permission to paint the walls, knock down the walls, rip the carpet, get rid of horrible wallpaper from the 60’s. no one can tell me i can’t have a dog or a cat or too many fish. i don’t have to keep renewing a lease. my rent doesn’t keep going up each year. i feel more settled.
the interest deduction is nice. so was the one for my student loans. as for the tax credit, that’s just for first-time home buyers. so, if you, say, sold a house because you moved and rented for a bit while you looked for a new place, you don’t get it. in that way, yeah, it’s a lure to home-ownership. but, the benefits of owning vs. renting or renting vs. owning are mostly going to be personal.
i’m about to purchase the home i’ve been renting for nearly a year. now, and only now, do i feel like i can finish unpacking. renting, i never felt completely comfortable in the place.
The Other Steve
@geg6: Look on the bright side. You could live in BrickOvenBill’s neighborhood.
ericblair
@The Other Steve: Now that I’m fully aware of the being married tax penalty, i want it fixed. :-)
Easier said than done. Most countries (I think) that have income tax don’t have a joint filing option; everyone files their own taxes. The joint filing and therefore marriage penalty is a big kludge driven by the fact that some states are community property states.
If you just have individual filing in a community property state and one person makes all the money, by law you would divide this income into two and report half of the income on each spouse’s return. Windfall for high income one earner households due to progressive taxation. So now you have to make joint returns to offset that. Fiddle with this all you want, and you’ll still end up with a marriage penalty for two equal-income spouses and a marriage bonus for disparate-income spouses. You’d have to kill off community property to really fix this.
geg6
@MattR:
Dude, I pay $360/mo plus my electric (about $100) for my 2BR apartment. Find me a house that will cost me that and perhaps I’d consider buying. Otherwise, I’ll stay renting because I like paying cash for a car and having a retirement savings that I might actually be able to live on when SS goes belly up just as I am able to receive it. My renter’s insurance is $12/mo.
So my total housing cost is $472/mo. I have no yard to take care of, no snow to shovel, no plumbing or electrical problems or upgrades to pay for. My rent went up for the first time in 4 years this year. It went up from $350 to $360/mo.
The biggest bitch is that I get no write offs for anything at all. Seems to me that the less you cost a municipality, state, or nation, the more they should reward you for that. But, no. Buy a gigantic McMansion, even if you can’t afford it, and have a passel of kids and the governments reward you like you’ve done something like throw yourself on a hand grenade to save the entire US Army.
I would, however, like to have pets. But my man has dogs and I can play with them there.
Stefan
Your anecdotes and my anecdotes of course can’t prove the truth. But I guess I’m persuaded by the old line that “no one ever took a rental car to the car wash.” It seems implausible to me that, all other things being equal, higher rates of homeownership wouldn’t result in more individual investment in the community.
I’d certainly take my rental car to the car wash if I drove it for eight years, which is how long I’ve lived in my rental apartment. Believe me, I clean my place up — it’s where I live. In NY many people stay in rental apartments for decades, and are just as invested in their communities as any owner.
slippy
@Politically Lost: If you ask Cal Thomas, our country is run by lazy liberals who want to engineer a perfect society through the public schools. A theme he harps upon often.
Because, an informed populace scares the shit out of conservatives.
zoe kentucky in pittsburgh
A lot of this depends on where you live– over the past 15 years I’ve lived in DC, Boston, Chicago, San Fransisco and currently live in Pittsburgh.
DC? Housing and rental market were both pretty nuts. I lived there during the big boom in the early to mid 2000s, where modest houses tripled and quadrupled in price in a year or two. Now they have a condo glut and lots of people scooping up foreclosed houses. It’s a high risk market with big fluxuations, however, rents are pretty high as well. If you have the money to put down it makes sense to consider buying.
Boston, Chicago and San Fran? Buying isn’t an option unless you are loaded, renting was far cheaper, although still pretty pricey on a non-profit worker’s salary. I always had roommates, couldn’t afford not to.
Pittsburgh? Totally stable housing market, a great place to buy, in fact our house has increased in value by about 25% in the past 3 years– because we intentionally bought in an up-and-coming neighborhood. We’re in the east end of the city, minutes from downtown, in a very diverse old neighborhood, in large houses that are on very little land. Our house at one point was broken up into several apartments, as were many of the houses on our street. It’s a lovely old street of 100+ year old houses– when you walk down the street it’s obvious which are rentals and which are owned. Renting here is so cheap that buying doesn’t cost a lot more, it’s one of those cities where almost anyone can find something for their budget.
What is the difference between living somewhere where everyone are renters v. where most are owners? Everything. It’s visible when walking down the street. Pride in the neighborhood, upkeep of properties, people view where they live as both home and an investment to maintain and protect. I’d rather own than pay someone else’s mortgage. But for us it only makes sense because we plan on staying here for a LONG time.
As for the mortgage interest deduction? Huge bonus for us because I’m self-employed and run our business from our house– so it helps A LOT. My partner and I have been together for 10 years, can’t legally marry in PA, so even though both of us own the house only one of us can take the interest deduction.
Nutella
Home ownership is assumed to make people more conservative, because they have something to conserve. The mob won’t be breaking windows if the windows belong to them. That could be true.
It is also assumed that home ownership will make people more prosperous. That isn’t true. Some studies (sorry, no link) show that areas with higher levels of ownership also have higher levels of unemployment because the people are less able to move when the jobs do.
HyperIon
Is this thread dead?
If not, I have a few OT observations.
The site was unavailable for sometime today.
Now it is really slow.
I still have no edit button (FF 3.0.1.4), win2k.
I looked in the FAQ is it is full of stuff that IMO does not constitute a frequently asked question.
My FAQ is: when will the site redo be done?
MM
@geg6:
Well, I have a mortgage that costs only slightly more than what a rent on a good 2 bedroom apartment would be. However in exchange I get a tax credit, 600 additional square feet of space and no connected walls, so I don;t have to worry about the neighbors’ TV and they don;t have to woryy about my music.
In addition, I get to use a portion of that tax credit every year to make improvements to the house to increase energy efficiency, thereby saving me even more money on my utility bills. I also get a lawn to go sit in when I’m stressed, a garage to keep my car in and I don;t have to worry about my landlord popping in, which means I can be as clean or as messy as I want.
The tax break that I get along with the reduced energy bills have enabled me to buy my car with cash, pay off all of my other debt, put money away for my retirement and take vacations and such.
Of course because we have differing definitions of a wise investment I’m really really stupid, so what the fuck do I know.
Rick
“No man who owns his own house and lot can be a communist,” he once said. “He has too much to do.” — William Levitt
Corey
@Bob (Not B.o.B.):
I almost spit out my coffee when I read your remark that you would “not live somewhere where I could not afford to buy a home”. What exactly do you suggest for those of us who could not afford to buy a home regardless of location? Just disappear?
The problem with subsidizing homeownership is perfectly encapsulated by your comment: it benefits people who don’t need help to begin with at the expense of those who do. Homeownership may build wealth, but only for those who already have some. Renters, meanwhile, don’t typically have wealth to begin with but aren’t given the opportunity to build any, as homeowners already have a monopoly on tax credits, rebates, and the like.
cminus
@geg6,
Not all homeowners own houses, though. I bought a one-bedroom apartment for my single and childless self because I was sick and tired of skyrocketing rents forcing me to move every two or three years. (By way of example: in 1998 I moved into an apartment while police were engaged in a pitched battle with a pack of squatters who had settled into the burned-out shell of the building across the way; in 2000 the penthouse apartment in the building next door sold for over a million dollars.) I finally bought an apartment in 2002, and despite the housing crunch comparable units are still selling (and moving!) for over three times what I paid for it.
Sometimes, if you don’t buy, you’re not going to be able to stay.
pseudonymous in nc
@twiffer:
Public rental housing in Europe typically provides this kind of freedom to redecorate and remodel– plus the local authority or housing association will, from time to time, refit your kitchen and bathroom, install new windows or more efficient heating systems.
So it’s certainly not a given that rented housing should be like a car rental, if the conditions of renting are not so vastly different from those of ownership. Others have mentioned NY, where rent control clearly has some impact.
One problem in the US is that there are too many private landlords who got into the business because of a late-night infomercial, and a public housing sector that has been steadily ghettoized over time. Yes, there are bad areas of public housing in Foreign, but there are also good ones where people stay for decades at a time, spending their money on other stuff or saving it for retirement.
pseudonymous in nc
It’d be fun to see B.o.B. start whining if all the people who rented in his part of the world vanished overnight. Life would suddenly get a whole lot more inconvenient for everyone’s least-beloved commenter.
Badtux
Some premises:
1) During the Great Depression the US experienced enormous labor mobility, as waves of people moved around the country seeking work or simple subsistence, overwhelming the social networks of various places where they ended up. Home ownership reduces mobility (since you need to sell the home before you can move) and thus reduces the chances of this happening.
2) Government in the post WWII era was dominated by big business and real estate interests. Big business wanted to keep labor forces static rather than moving around the country looking for better wages.
3) Real estate interests wanted more-gullible individuals to be purchasing homes rather than institutional investors who presumably would be better able to do due diligence and would be harder to con into buying a $10,000 home for $20,000. (Talking 1950’s prices here folks, big money back then).
4) The Big Three auto makers wanted to encourage suburbs and car culture in order to sell more autos, and were a significant player in the post WWII era, even to the point of setting military procurement policy such that rival automakers such as Studebaker and Willys were basically driven out of business or could not obtain military contracts for their vehicles. Thus an unholy alliance with the real estate interests, who wanted to purchase vast pieces of land and build suburban tract housing on that land and make vast profits.
5) Even to this day it is believed that owning your home, rather than renting, leads to social stability. If you own your home you are less willing to engage in risky behavior in opposition to monied interests such as participation in A.N.S.W.E.R. because if arrested for such participation, you could end up losing your home in order to pay for the attorneys needed to keep you from becoming Bubba’s bunghole babe.
6) And finally, some well-meaning liberals claim that owning your own home means you’re not at the mercy of landlords who can arbitrarily raise your rents or evict you, though you may be at the mercy of a homeowner’s association that can arbitrarily raise your association dues or fine you for ridiculous “infringements” such as leaving your trash can by the road for one minute too long after the trashman runs. Of course, all those people who can no longer pay their mortgages and were evicted because suddenly the interest rates shot up to 10+% might laugh or spit at you if you say that to them, and in a deflationary spiral like we’re in right now, mortgages (and all debts) are effectively rising in real terms even if you were smart enough to get a fixed-rate loan so that they are not rising in nominal terms.
My take on it: #6 is the only reason to buy a home. Whether it is worth it to you depends on a variety of factors, such as if you work in a field where labor mobility can give you an advantage, if you engage in political activism where your home could be seized by State action as punishment for taking effective action (as vs. simple blabbering) to oppose an oppressive system that impoverishes the many in order to enrich the few, and whether the price of owning vs. the price of renting makes sense (and remember, you need to extend that out based on your historical mobility, if you’ve never lived in one city for more than three years it makes no sense at all, while if you’ve lived in the same apartment for five years, it makes a lot of sense). Adjustable-rate loans make no (zero) sense if #6 is your objective, since your objective is stability payments and residency and having someone in control of how much you pay was what you were trying to get away from. But this is not why the government subsidies for home buyers exist — rather, it is because of the other reasons (1-5). An immobile population worried about having their homes seized if they “illegally” organize an “illegal” union and have an “illegal” strike is less likely to join a general uprising against the monied interests who own them, and there’s simply more profit involved in selling real estate to rubes rather than to institutional investors…
– Badtux the Semi-anarchist Penguin
miwome
Yes. Part of the problem, according to some economists (possibly I read this in a Krugman column, but it was a long time ago and I don’t really remember) is that the government figured it had a good thing going and went too far with it, trying to keep the homeownership numbers going up instead of letting them reach an equilibrium. There really are some people who shouldn’t own homes, whether that’s due to economic circumstances, lifestyle, or personal characteristics. Part of the reason the housing bubble blew up is that it was including a lot of people who probably never should have bought a house.
The other reason I know of is that it was part of the “ownership society”, which is basically what a few commenters have said about anti-socialism and the idea of people having a stake in their community. I suppose the other problem with the housing bubble is that with the advent of “house as financial asset” rather than “house as home”–flippers being the extreme of this–you lose any sense of stake in a community. You get absentee landlords and people who are not only willing but probably planning to pull up stakes when the market seems like it might reward them for it. As a result you get way too many transactions in what is meant to be a pretty staid, stable market, and you lose all the stabilizing influence that homeownership was meant to encourage.
Jeanne
You never saw It’s a Wonderful Life?
David
To defend it to some extent, I have seen studies that I cannot now remember, that point to the levels of crime in neighborhoods with home ownership go down significantly after the magic 50% ownership level. According to the study, levels of renting higher than 50% in a neighborhood lead to property crime and a downward spiral of other crime – and small wonder because no one has an ownership stake.
According to this theory, a few landlords + a lot of renters = lots of property crime… and without the subsidies, I would suspect there would be a lot more renters, or a lot smaller houses in the US (or both).
mattH
Which is why those suburbs are so walkable.
Henry Bayer
Why does the government give tax breaks to homeowners? To balance the tax breaks they give to landlords renting houses.
If you buy a house and rent it to someone, come tax time, you get to legally lie to the government. “Yea, I’ve got a pile of money in my bank account from this year’s rents, but the house is wearing out and will be worth absolutely zero in 20 years. Subtracting that out, I just broke even and owe no taxes!” Twenty years later, roll it over to other housing and depreciate again.
Without balancing breaks to homeowners, houses for sale would be bid up by wealthier landlords with their tax advantages, and eventually almost all houses would be owned by the wealthy.
Stefan
People that aren’t staying long don’t care as much about long-term improvements like walkability or mass transit or greenspaces. They care about public safety, and parking.
And which is why places with lots of mobile renters who don’t stay long, such as, say, Manhattan, don’t have walkability or mass transit or greenspaces.
geg6
@MM:
Well, as I mentioned above, my rent is $360 a month. I looked into buying about 5 years ago (and I live in a suburb of Pittsburgh, so the housing bubble barely broke foam here) and the least I’d have paid for a house/mo was about 2 to 3 times what I’m currently paying (and back then, my rent was $350). I don’t hear any noise from my neighbors and I have no connected walls.
My landlord makes the improvements, which I then am able to capitalize into utility savings. I, too, have a lawn to sit in but no responsibility to maintain, a garage for my car, and it is illegal for a landlord to just pop in without notice. And FTR, mine has never even tried. He informs us by phone and in writing at least 3 days before needing entrance, with the exception of an emergency when we call him.
Well, our definitions of a wise investment would obviously differ as I have no idea how similar your situation is to mine. Mine is that I make a very small salary in my higher ed job. I have a choice as to what to do with my money. It boils down to one of two choices. Buy a house because of the tax break, but not be able to afford a car, any sort of recreation, and to heat or maintain the place. Or keep renting in a nice, low cost place in a good, safe neighborhood and be able to keep the lights on, get to my job, and do something other than huddle under piles of blankets 8 months out of the year reading by candlelight.
So you’re only stupid if your situation is the same as mine. Which is what I said above.
AJ
In a word: “Socialism!”
In a Reich-wingnut world: “IslamoFacistGun-HatingLiburalCommie Socialism”!
chris
It’s a stable asset (well it usually is) that’s in the hands of the middle class for the most part, and not a constant drain being funneled up to an aristocratic landlord class.
That’s only true if you pay cash for your house. Otherwise it’s a constant drain being funneled up to an aristocratic mortgage-underwriting class.
Guess which kind of home ownership is actually subsidized? (Hint: not the kind where you actually own your home.)