Monday, June 23, 2008

Should Homeownership Even Be A Policy Goal? No

Listening to politicians, you’d think that every family should own its home — in fact, that you’re not a real American unless you’re a homeowner. Because the I.R.S. lets you deduct mortgage interest from your taxable income but doesn’t let you deduct rent, the federal tax system provides an enormous subsidy to owner-occupied housing.

In effect, U.S. policy is based on the premise that everyone should be a homeowner. But there are some real disadvantages to homeownership.

1. There’s the financial risk. Although it’s rarely put this way, borrowing to buy a home is like buying stocks on margin: if the market value of the house falls, the buyer can easily lose his or her entire stake.

2. Owning a home also ties workers down. Even in the best of times, the costs and hassle of selling one home and buying another — one estimate put the average cost of a house move at more than $60,000 — tend to make workers reluctant to go where the jobs are.

3. There’s the cost of commuting. Buying a home usually though not always means buying a single-family house in the suburbs, often a long way out, where land is cheap. In an age of $4 gas and concerns about climate change, that’s an increasingly problematic choice.


~Paul Krugman in today's NY Times

6 Comments:

At 6/23/2008 4:02 PM, Blogger OBloodyHell said...

While this does need to be taken with a strong grain of salt (it is that idiot Krugman, after all) there is some merit to this position.

I don't agree, but I'll grant that it's a matter of how you weight things that tips it one way or another.

My primary comment about the downside to property ownership (which Krugman fails to deal with, at least in that blurb) is that, with modern government and litigation, you are far more subject to blackmail by various bureaucrats at all levels, as well as subject to extortion by attorneys over bogus claims of damage. Unlike some assets, it's a pretty visible and immobile one, and likely represents a huge proportion of your own assets, making you sensitive to loss or legal assault.

In short, it's very hard to say "F*** You!" to certain power blocks and make it stick unless you're ready to go postal on them.

Going from assets as a liability to assets as a power source is not trivial.

 
At 6/23/2008 4:48 PM, Anonymous Anonymous said...

Much as I don't like to agree with Paul Krugman occassionally he does offer a fairly well reasoned piece albeit with the usual partisan swipe at George Bush. The fact that the present tax code favors home ownership over renting indicates that home ownership has been a public policy goal for a considerable time prior to the arrival of GWB.

What Krugman fails to acknowledge is that home ownership acts as a forced saving plan in a nation that has in recent years had a negative savings rate. In many instances, a home is the primary asset used to finance retirement.

While we might also be tempted to concur with Krugman in the face of the recent housing downturn that there are many homeowners whose mortgages exceed the value of their asset, this group however definitely does not represent the majority or even a large share of homeowners. MP posted these numbers about a month ago.

On this basis, Krugman's analysis seems at best incomplete.

 
At 6/23/2008 11:27 PM, Blogger juandos said...

Hmmm, one can easily get the impression that Krugman didn't read Friedman's, "Free to Chose" or if he did, he didn't understand it...

 
At 6/24/2008 5:34 AM, Blogger OBloodyHell said...

> Krugman didn't read Friedman's, "Free to Chose" or if he did, he didn't understand it...


I don't think it required his latest polemic to grasp THAT little bit of obviosity...

 
At 6/24/2008 8:48 AM, Anonymous Alex said...

I wonder if Krugman is advocating dropping the tax deduction (or, subsidy) for homeowners, or giving renters one as well...

 
At 6/24/2008 9:59 AM, Blogger juandos said...

"I don't think it required his latest polemic to grasp THAT little bit of obviosity"...

I was being a bit sarcastic OBloodyHell...:-)

 

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