Is home ownership a net gain to society?

Great Debates
1

In the thread about abolishing tax deductions, a big topic is the home mortgage interest deduction. Since that’s the biggest deduction the average American family has, it makes sense that it’s at the forefront of the discussion.

Several people mentioned the importance of the government promoting home ownership, since it is in general good for society. But I’m not so sure. It’s questionable if the mortgage deduction really provides an incentive to own a home. It gives people more money to buy houses with, which drives the price of housing up, but only for those who owned before the deduction was introduced. But, let’s assume that it does. Do we want to encourage home ownership? Is it really a net gain for society?

Pros:
[ul][li]Home owners care more about keeping their communities strong, which helps improve local businesses, schools, and lots of other things.[/li][li]Home ownership (with mortgage) provides a sort of automatic savings plan for many people, which relieves the government (taxpayers) of some support burden for people in old age.[/li][li]Home ownership increases property values, which provides more money to state and local governments.[/li][/ul]

Cons:
[ul][li]Home ownership limits mobility, causing higher unemployment.[/li][li]Going into debt for home ownership contributes to the generally poor financial state of many people.[/li][li]Home ownership concentrates investment risk. Home owners (starting out, anyway) generally have a much less diverse portfolio.[/li][/ul]

Obviously, not an exhaustive list. Some of those were mentioned in the other thread. Some are my own thoughts. My position is that in attempting to actively promote home ownership, the government does more harm than good. Instead of a home being a stable economic base, the housing market has become more leveraged and speculative. And I have a feeling that the economic downside of decreased mobility is substantial.

2

I am a strong proponent of home ownership. My main reason is that most landlords that I’ve dealt with have been very dishonest and unethical. They try to squeeze as much money out of the tenants as possible while avoiding maintenance and other things that they should pay attention to. There’s a fundamental disconnect when a person owns a residence but doesn’t live there; he or she doesn’t suffer when the place starts falling apart, and thus has a motivation to cut corners and save on expenses. Home ownership cures that problem.

Furthermore, an owner has more freedom than a renter. No one comes around telling owners how many nails they can put in their own walls or how they have to take care of their own garbage. If freedom is a good thing (and most folks here seem to agree that it is) then that’s another plus for ownership.

3

Is it safe to assume that in the United states…
[list=a]
[li]if you rent your home, it’s very likely you live in an apartment, and[/li][li]if you live in a house/villa you most likely own it?[/li][/list]
If so, does this deduction (inadvertedly or not) promote moving from apartment to a house or otherwise getting a bigger place? Then there are effects beyond those of change of ownership like higher standard of living, spending proportionally more of your income on residence, urban sprawl, etc.

As for driving up the prices; true, but there’s a limit to that - pre-owned houses can’t cost more than building your own brand new one. As for higher property values bringing more money to local government being a ‘pro’ for society; isn’t that dependent of in which way you think the balance between local and federal money should be shifted (starting from the current position)?

Naturally, either extreme (everybody owns or everybody rents) isn’t good for society.

Things are quite opposite here in Sweden right now:
Market forces are pushing for converting rental apartments into resident-owned apartments and the government are seeking out ways to slow this process down. The governments reasoning goes something like this:

Those with poor economy need to rent. If most people own their apartments, there will be few landlords - in extreme cases only the ones owned by the local municipality (which must do landlording despite the assumed unprofitability). This lowers competition in the home rental business and thereby shifts the market advantage towards the landlords. The ones negatively affected aren’t in a position to vote with their feet.

My position is that society benefits most from having both a healthy market for buying homes and a healthy market for renting. If this can be achieved without geographical constraits on the alternatives (you can choose neighborhood first, ownership (or not) later), isn’t that the ultimate freedom for the consumer?

4

[QUOTE=Bagistan]
Is it safe to assume that in the United states…
[list=a]
[li]if you rent your home, it’s very likely you live in an apartment, and[/li][li]if you live in a house/villa you most likely own it?[/li][/list]
[/QUOTE]

No, this is not a safe assumption. In many areas people rent houses. I’m renting half a duplex right now, looking to buy one.

5

The government promotes home ownership so real estate can remain a viable business for thousands of overpaid morons who are good at lying.

6

[QUOTE=Bagistan]

As for driving up the prices; true, but there’s a limit to that - pre-owned houses can’t cost more than building your own brand new one.
[/QUOTE]
Sure they can. Quite often, buying a parcel of land and building a home on it is less expensive than just buying a home. It all depends on several factors, of course, but often you can get more for your buck by building yourself.

7

[QUOTE=iamthewalrus(:3=]
In the thread about abolishing tax deductions, a big topic is the home mortgage interest deduction. Since that’s the biggest deduction the average American family has, it makes sense that it’s at the forefront of the discussion.

Several people mentioned the importance of the government promoting home ownership, since it is in general good for society. But I’m not so sure. It’s questionable if the mortgage deduction really provides an incentive to own a home. It gives people more money to buy houses with, which drives the price of housing up, but only for those who owned before the deduction was introduced. But, let’s assume that it does. Do we want to encourage home ownership? Is it really a net gain for society?

Pros:
[ul][li]Home owners care more about keeping their communities strong, which helps improve local businesses, schools, and lots of other things.[/li][li]Home ownership (with mortgage) provides a sort of automatic savings plan for many people, which relieves the government (taxpayers) of some support burden for people in old age.[/li][li]Home ownership increases property values, which provides more money to state and local governments.[/li][/ul]

Cons:
[ul][li]Home ownership limits mobility, causing higher unemployment.[/li][li]Going into debt for home ownership contributes to the generally poor financial state of many people.[/li][li]Home ownership concentrates investment risk. Home owners (starting out, anyway) generally have a much less diverse portfolio.[/li][/ul]

Obviously, not an exhaustive list. Some of those were mentioned in the other thread. Some are my own thoughts. My position is that in attempting to actively promote home ownership, the government does more harm than good. Instead of a home being a stable economic base, the housing market has become more leveraged and speculative. And I have a feeling that the economic downside of decreased mobility is substantial.
[/QUOTE]

Can you clarify “home ownership” as opposed to what?

In particular, as opposed to renting from other personal property owners, or as opposed to the government owning the housing for the masses?

Those are two quite different questions.

8

I think it’s a good thing that has gone bad. It used to be that one had to make a substantial down payment on a home, It’s tending towards a no money down and even interest only loans, meaning that you are almost renting from the bank now.

9

[QUOTE=iamthewalrus(:3=]

[ul][li]Home owners care more about keeping their communities strong, which helps improve local businesses, schools, and lots of other things.[/li][/ul]

[/QUOTE]

As a non-home owner that’s deeply involved in my community, I’ve always resented this attitude that home owners “care more about the community” and that renters are some sort of blight. I’ve found that, especially as home ownership has become more and more of a speculative money-making situation rather than a means to an end (having a place to live), many owners could give a shit about the community and locality; all they care about is making the most out of their “investment” in as little time and with as little effort as possible. This includes unjustified teardowns and building garish new dwellings that are completely out of character with the neighborhood’s established vibe and character, indiscriminate amateur (without screening, without infrastructure) renting, and of course a good number of foreclosures that torpedo the value of surrounding houses and turn into weed-covered blights.

10

[QUOTE=Bagistan]
Is it safe to assume that in the United states…
[list=a]
[li]if you rent your home, it’s very likely you live in an apartment, and[/li][li]if you live in a house/villa you most likely own it?[/li][/list]

[/quote]

In any community, there are usually houses for rent. I know of several near us, and we rented half a house before we bought. The more suburban the place, the more likely a renter will be in a house.

There is moving to a better location, for instance out of the city, where most people rent, to the suburbs, where most people own. There is also being master of your own destiny, not having to ask the landlord when you want to paint or hang a picture. When I rented I’ve always had good landlords, but it is still better to do it yourself. The biggest reason is that when home prices go up, you get equity in the home, of course.

It depends on the size and location. Many areas are built-up, so if you want to live in a certain neighborhood you have to buy an existing house. Builders go for big houses, with better margins. Some people have a thing about making the house just perfect for them (though you are usually limited to the plan of the development) while others like a house where the bugs have been worked out.

Many towns have low cost housing requirements, where a builder must somehow construct affordable housing along with the McMansions. I’m not sure how successful this has been in general.

11

There is only one key problem with home ownership: It’s not liquid enough.
There is an enormous burden in time and wasted money when houses must be sold.
If this problem were addressed as a society, many of the economic disruptions relating to the housing market would be eased.

What could help make things more liquid?
For one, require all liens to be recorded in one place so title searches would be instantaneous and cheap.
For another, provide a way for buyers and sellers to pre-qualify for all mortgages and bridge loans, so those things don’t take time.
Standardize all single family home contracts with one provided by the state, so there are no negotiations, and future reneging or lawsuits, over wording.

And at some point the stranglehold of the realtor fixed percentage system has to go.
In these days of instant on-line listing and viewing, the primary service they rendered, the Multiple Listing Service, and home viewings, can go away.

12

What we think pretty much doesn’t matter because the real estate industry has so much money that they can and do buy politicians regularly. We could think home ownership is the worst blight on America since crack cocaine and it wouldn’t make a dime’s worth of difference.

13

Better factor in all the foreclosures. There are lots and growing. Credit is getting destroyed for many people.

14

[QUOTE=gonzomax]
Better factor in all the foreclosures. There are lots and growing. Credit is getting destroyed for many people.
[/QUOTE]

This isn’t always a problem with housing itself. More a problem of people over extending themselves. So everyone should rent to a few rich landlords, then having a little networth for themselves? I guess I don’t get what the debate is here. Ban homeownership?

15

[QUOTE=Cassie In The Attic]
What could help make things more liquid?
For one, require all liens to be recorded in one place so title searches would be instantaneous and cheap.
For another, provide a way for buyers and sellers to pre-qualify for all mortgages and bridge loans, so those things don’t take time.
Standardize all single family home contracts with one provided by the state, so there are no negotiations, and future reneging or lawsuits, over wording.

And at some point the stranglehold of the realtor fixed percentage system has to go.
In these days of instant on-line listing and viewing, the primary service they rendered, the Multiple Listing Service, and home viewings, can go away.
[/QUOTE]

Typically, all liens are recorded in one place (within each county), that being the public records of that county. Even so, the title search is not “instantaneous”; it is, however, not unduly time consuming, nor is it particularly expensive. A title search on a property can generally be completed in about an hour, and will only cost a couple hundred dollars (if that).
I’d agree to your suggestion to allow buyers to pre-qualify for mortgages (why would a seller need a mortgage, unless she was also a buyer of another property?); frequently, though, a buyer can get pre-approval of a loan, based on his credit. The lender, though, is still going to want information on the property that is being used as collateral (i.e. its appraised value), which can’t occur until the property is identified.
You want to remove the ability to negotiate a contract? There are standard contracts produced for home sales that already exist, but are you really suggesting that there can be no measure of negotiation to account for the unique circumstances of an individual sale?
Finally, I’d point out that realtor commissions aren’t fixed, and can be negotiated. It may be standard for the realtors to split 6% of the price, but this isn’t mandatory. Nor do all deals occur with the involvement of a realtor (due, in part, to the resources you’ve identified).

16

[QUOTE=ParentalAdvisory]
This isn’t always a problem with housing itself. More a problem of people over extending themselves. So everyone should rent to a few rich landlords, then having a little networth for themselves? I guess I don’t get what the debate is here. Ban homeownership?
[/QUOTE]

It is a problem with the financial institutions and the laws they lobbied through congress.

17

[QUOTE=Cassie In The Attic]
There is only one key problem with home ownership: It’s not liquid enough.
There is an enormous burden in time and wasted money when houses must be sold.
If this problem were addressed as a society, many of the economic disruptions relating to the housing market would be eased.
[/QUOTE]

An “enormous burden”? Obviously we can’t swap houses as easily as we buy milk and eggs, but that’s more of an advantage than a disadvantage. People who buy a house to live in it generally like the stability and solidity that it brings, I would think.

18

It is usually the only saving people gather in their lives.

19

[QUOTE=ParentalAdvisory]
I guess I don’t get what the debate is here. Ban homeownership?
[/QUOTE]
No, not ban it. But maybe we shouldn’t be promoting it so much. Basically, in the other thread about removing tax deductions, it seemed to be taken as a given that the home mortgage deduction is a good idea, that it’s vastly better for people to own the houses they live in. I personally don’t think it’s particularly worthy of promoting, and in fact we might want to provide incentives against it, especially in the current climate of zero-down idiot-ARMs and the common wisdom that houses are a great long-term investment.

Sorry for starting the thread and abandoning it. I’ve been without internet most of the weekend.

Chief Pedant, I’m not contemplating a communist revolution. Home ownership as opposed to renting from a private owner.

I just wanted to quote this because it was so amusing. It’s sad that, in matters of real estate, running a glorified database query takes only an hour and costs a few hundred dollars.

20

Isn’t it easier just to compare neighborhoods with higher rates of home ownership vs. neighborhoods with higher rates of renters?

I’ve been in all types of neighborhoods, growing up. From what I’ve seen, there’s a definite trend toward a higher standard of living in neighborhoods with higher home ownership rates.