Wednesday, October 06, 2010

International Comparison of Home Ownership Rates

In his testimony before a Senate subcommittee last week, American Enterprise Institute's Alex Pollock provided an interesting international perspective on homeownership rates around the world:

"In the days of Fannie and Freddie’s pride, their representatives and political supporters used to frequently say, “American housing finance is the envy of the world!” It really wasn’t, at least based on my discussions with housing finance colleagues from other countries. But many Americans—including members of Congress—thought it was, just as they mistakenly thought and said that the U.S. had the highest home ownership rate in the world. We didn’t and don’t. This is apparent from the International Comparison of Home Ownership Rates (see chart above). The U.S. ranks 17th of 26 economically advanced countries, or about two-thirds of the way down the list.

I think we can agree that we would like our society to have a property-owning democratic citizenry, which includes widespread home ownership. But the international perspective makes it clear that many countries achieve home ownership levels as high or higher than ours with no government-sponsored enterprises. It turns out that these levels can be achieved without tax deductions for the interest paid on home mortgages, without our very unusual practice of making mortgages into non-recourse debt, without government mandates to make “creative” (that is, riskier) loans, without 30-year fixed-rate loans, and with prepayment fees on mortgages.

Of course, as bubbles and busts in other countries show, you can also get in trouble with different systems. At a minimum, we should never assume that the particular historical development so far of the U.S. housing finance system is definitive."

36 Comments:

At 10/06/2010 10:44 AM, OpenID American Delight said...

Government policy is self-contradictory. Government tells people to save their money and offers federally guaranteed savings accounts, and at the same time they tell people to throw their money into real estate by buying a home, then they give tax advantages to invest in equities through their 401Ks, etc.

They should just butt out and let people figure out what to prioritize for themselves.

 
At 10/06/2010 11:31 AM, Blogger Ann Jessica Lien said...

Here in Norway we have lots of government lead incentives for home ownership; we have tax incentives that favor buying houses/appartments rather than investing in stocks and other equity, the state also enable cheap loans both for students and home owners. That may explain our high rate!

 
At 10/06/2010 11:51 AM, Blogger Benjamin said...

Oh yeah baby, let's get rid of the home mortgage interest tax deduction.

It wastefully funnels torrents of capital into single-family detached housing or condos, totally vitiating free market incentives and price signals.

You will never, ever hear right-wingers talk about that! No waa-waa about the biggest government intervantion into capital of all!

Dr. Perry deserves a gold star!

 
At 10/06/2010 12:04 PM, Blogger juandos said...

"It wastefully funnels torrents of capital into single-family detached housing or condos, totally vitiating free market incentives and price signals"...

Wastes?!?! Liberals will say anything without one scintilla of shame...

"But the international perspective makes it clear that many countries achieve home ownership levels as high or higher than ours with no government-sponsored enterprises"...

Yes indeed...

This is what happens when unrestrained GSEs don't have to answer to the same laws as private enterprise does...

 
At 10/06/2010 12:14 PM, Blogger Earl said...

We the people don't really get to study how other nations work, there would be very little opportunity to compare how we achieve home ownership. I know about one other country and it does nothing like the Americans do for home ownership.

 
At 10/06/2010 12:42 PM, Blogger Andy said...

It would be interesting along side of this list to show which countries have government incentives for housing. I'd point out that Canada has no federal mortgage program yet their ownership is higher.

 
At 10/06/2010 12:46 PM, Blogger Buddy R Pacifico said...

I was surprised to see Switzerland with the low ownership rate of 36.5%. I thought about how this could be in such a prosperous coutry. I think it is probably that home ownership is actually acheived without government guarantees and subsidies.

 
At 10/06/2010 12:52 PM, Blogger morganovich said...

benji-

how can you simultaneously push for QE to save the real estate market and the massive borrower subsidy of inflation that you constantly promote, then argue against deductible mortage interest?

do you not see that they pull in opposite directions?

when you increase mortgage payments 20-50%, what do you think happens to the real estate market you are so desperate to save?

you do realize this is not just mortgage interest though, right? there is no "mortgage interest tax deduction", just an overall interest tax deduction that dates to 1913.

all corporate interest payments are made with pretax dollars (they count as an expense). all you'd need to do is incorporate or file as a sole proprietor and it would be staus quo ante. this is how anyone with even rudimentary savvy leases a a car.

so are you proposing to eliminate all interest as a corporate expense? how is that not a cost of doing business? are you going to demand that corporations pay on revenue, not income?

seriously, what is it you are planning to do here? do you want to rework our whole set of corporate tax law? (because anything less will have no effect)

i don't think you have any grasp of the complexity of this issue.

 
At 10/06/2010 1:09 PM, Blogger Benjamin said...

Morgan-

Well, it is true, we are stuck with the homeowner mortgage interest tax deduction for now. Too many people have bought houses on the assumption that tax code would not be altered in a way to lower the value of their largest investment.

On QE, we need to it boost economy in general, and commercial real estate.

On corporate income taxes, I think the should be eliminated and replaced with a higher federal gasoline tax.


If you want the whole story, I would elminate all income taxes, and replace with national retail sales tax (excepting medical and food), pollution taxes, gasoline taxes and taxes on cigs, alcohol and pot.

 
At 10/06/2010 2:00 PM, Blogger spencer said...

Singapore is ranked number one.

Housing there has an interesting history.

Starting in 1960 the government started a major program of building what it called public housing and providing the long term financing for individual to buy the apartments and homes in the public housing.

This program has been widely credited for raising the homeowners ship rate from barely over 50% to its current high levels.

So the example of Singapore actually demonstrates exactly the opposite of the point you are trying to make.

 
At 10/06/2010 3:23 PM, Blogger PeakTrader said...

The U.S. has the best and biggest private sector in the world (and the largest consumer market). U.S. homeowners live in better and bigger houses.

However, if the U.S. reduces income inequality and eliminates student loans (or reduces higher education), the homeownership rate may increase, and living standards may decrease.

 
At 10/06/2010 3:43 PM, Blogger morganovich said...

QE will not boost the economy, just drive inflation and leave debts for future generations.

policies like zero rates and QE are useful only in very specific kinds of situations (liquidity crunches and a need to finance the acquisition of productive assets)

they will not work now. there is already too much debt and capacity under utilization. the latest boom was in non productive assets. there is nothing to buy and re-purpose.

QE will not boost the economy, and the real estate benefits of inflation and cheap money are just a wealth transfer from savers to those who overspent.

for someone who gets so upset about "transfers to red states" you sure seem to favor "transfers to benji"...

 
At 10/06/2010 3:46 PM, Blogger Jet Beagle said...

Benjamin: "Oh yeah baby, let's get rid of the home mortgage interest tax deduction. ... You will never, ever hear right-wingers talk about that!"

Not sure if your statements are just ignorance or if you are intentionally untruthful.

Mark Perry may or may not be a "right-winger", but he definitely has advocated the elimination of the home mortgage interest tax deduction.

I'm fairly certain most people consider the CATO Institute to be a right-wing organization. They have also argued that the mortgage interest tax deduction should be eliminated.

If you wish, I can provide more links to conservatives who openly support eliminating the mortgage interest tax deduction.

I'm not arguing that all right-wingers agree with Mark Perry and with the Cato Institute. I'm just arguing that your statement is wrong. I doubt that pointing out your errors will prompt you to do any research in the future. But perhaps it will help others make decisions about your credibility.

 
At 10/06/2010 4:10 PM, Blogger Jet Beagle said...

Here's another link for you, Benjamin:

Rising Repulican star Paul Ryan, in his Roadmap to America's Future called for the simplification of the tax code, including the elimination of the mortgage interest tax deduction.

 
At 10/06/2010 4:26 PM, Blogger juandos said...

"Starting in 1960 the government started a major program of building what it called public housing and providing the long term financing for individual to buy the apartments and homes in the public housing"...

Gee! Singapore had their own version of Freddie Mac and Fannie Mae replete with its own housing fraud problems...

Thanks Spencer...:-)

 
At 10/06/2010 4:50 PM, Blogger Ron H. said...

"I doubt that pointing out your errors will prompt you to do any research in the future. But perhaps it will help others make decisions about your credibility."

JetBeagle, anyone who has read more than one or two of Benji's conmments has likely already decided that he has zero credibility. I personally like it that he comments here, as he provides comic relief and is a handy target for venting.

By the way, I would probably characterize the Cato Institute as libertarian rather than right-wing. The Institute states that it favors policies "that are consistent with the traditional American principles of limited government, individual liberty, and peace."

 
At 10/06/2010 4:53 PM, Blogger JMG said...

Back in 1975 our leftist authorities of the time have frozen rents because, it was well known, landlords were exploiters of the poor tenants. Of course there was a halt in private construction for renting. The time went by and when our country joined the euro, the un-heard of extremely low rates of interest plus the willingness of bankers to lend it provoked a surge in construction for private ownership. Meantime, the freezing of rents began being slowly lifted, with so complicated a regulation for old rents that many landlords of old houses didn't bother to go through the red tape. To cut a long story short, the old tenants are now the proud owners of apartments. They don't pay rent, but they pay instalments to bankers. First for 20 years, then 25, then up to forty years, as the economic situation deteriorated. And of course heavy repairs, which were the responsibility of the landlords, are now the responsibility of the owners. On top of this, moving from one town to another in quest of jobs has an extra difficulty: you are stuck with your house; the market is depressed for real-estate; and rents, if houses are available, are too high. Wisdom to be deducted from this short story I leave to the discretion of readers.

 
At 10/06/2010 5:22 PM, Blogger Jet Beagle said...

Ron H,

Perhaps I'm using an out-of-date definition of the term "Right Wing". Barry Goldwater led the Right Wing in my formative years. As I remember them, Goldwater's principles were definitely consistent with liberty and limited government. Not so sure we could consider him an advocate of what current libertarians consider "peace", but those times of Soviet expansion were definitely a different era.

Is it possible that the Right Wing from yesteryear allowed the liberal media to redefine the term? In my mind, the Right Wing leaders in the 1960s were Barry Goldwater and William Buckley - not George Wallace and Spiro Agnew. But the media focused on the latter type conservatives and made "Right Wing" into a negative term.

 
At 10/06/2010 6:02 PM, Blogger Ron H. said...

Jet, it's tough, isn't it? I wish people and ideas would accommodate themselves more easily to the labels we try to apply. :-)

I checked the Wikipedia definition of Right Wing, but that's no help, and in fact is extremely confusing.

I guess when I saw "Right Wing", I read "Conservative", which Libertarians are not.

Here's a fun little exercise called "The World's Smallest Political Quiz". If you answer "I Agree" to all of the statements, you can consider yourself a Libertarian.

Libertarians are almost always associated with the Austrian School of economics, free markets etc.

By the way, George Wallace was a Democrat.

 
At 10/06/2010 6:57 PM, Blogger Benjamin said...

Morgan-
I don;t see ow favoring QE is a Transfer to benji.
Yes, I own property, but I also work, I have some investments, I run a business.

My biggest stake is in a healthy domestic economy. I want the economy to boom. That is no crime in my book.

Ron, Pal Jet Beagle--Peanut Gallery:

Please, a few Repubs might say they favor elimination of the home mortgage income tax deuction. I like what litle I know about Paul Ryan. He will go nowhere if he favors wiping out the home tx deduction.

The R-Party is a conferation of feckless poltroons, waving flags to obscure their true grifting natures, and scare-mongering to hide their paucity of real solutions.

 
At 10/06/2010 7:11 PM, Blogger juandos said...

"The R-Party is a conferation of feckless poltroons, waving flags to obscure their true grifting natures, and scare-mongering to hide their paucity of real solutions"...

Yes Ron H. this fits pseudo benny to a T: "I personally like it that he comments here, as he provides comic relief and is a handy target for venting"...:-)

 
At 10/06/2010 8:07 PM, Blogger Hydra said...

Morganovitch is correct. All the mortgage dedeuction does is crate parity between homeowners and landlords. Absent the deduction, my neighbor and I would trade houses and then rent them back.

 
At 10/06/2010 9:57 PM, Blogger Ron H. said...

"Absent the deduction, my neighbor and I would trade houses and then rent them back."

IIRC you can deduct mortgage interest on a 2nd home or a house you rent out if you actively manage it, unless your income is high. Check with your tax person.

HOWEVER the IRS won't allow a deduction for the arrangement you describe if its only purpose is to avoid taxes.

Also consider that there are occupancy requirements to get favorable treatment of capital gains as a homeowner when you sell.

 
At 10/07/2010 6:14 AM, Blogger randian said...

I'm surprised Denmark gets above 50% ownership. They have a nasty tax policy where they tax you on imputed rents if you own your home. That is, the rents you could have received, if you were a landlord and not a homeowner, are considered income to you and taxed as if you had actually received them.

 
At 10/07/2010 7:38 AM, Blogger Paul said...

I don't know how Benji The True Economic Conservative can keep showing up here after he makes an ass of himself time after time.

First the sweeping assertion:

"You will never, ever hear right-wingers talk about that! No waa-waa about the biggest government intervantion into capital of all!"

Never ever!

Then, once somebody points out his idiocy...

"Please, a few Repubs might say they favor elimination of the home mortgage income tax deuction."

 
At 10/07/2010 7:52 AM, Blogger Paul said...

It's also worth pointing out how eliminating the home mortgage deduction would hurt blue states much more than red states. This would in turn exacerbate the federal allocation disparity that Benji is so obsessed with.

p.s. the article is about a Bush proposal to severely cutback the home deduction, providing yet another example proving Benji's world class ignoramus status.

 
At 10/07/2010 8:21 AM, Blogger remo0622 said...

What would be more telling is the equity of homeowners. 100% homeownersship with 0% equity isn't very positive.

 
At 10/07/2010 10:04 AM, Blogger Hydra said...

"100% homeownersship with 0% equity isn't very positive."

================================

You gotta start somewhere. How would that be any worse than 100% renters with 0% equity?

 
At 10/07/2010 10:10 AM, Blogger Hydra said...

"I'm surprised Denmark gets above 50% ownership. They have a nasty tax policy where they tax you on imputed rents if you own your home."

=================================

How is that any different from what we do here? We tax you on the imputed value of your home as if you had sold it.

That works in Denmark as long as rents are higher than mortgage paymenst, which may well be the case there. What happens if rents ever take a dive? Same thing as happened here when home values tooka dive, local government went into a land of hurt.

 
At 10/07/2010 10:34 AM, Blogger Hydra said...

"HOWEVER the IRS won't allow a deduction for the arrangement you describe if its only purpose is to avoid taxes."

==================================

In that case a lot of things that are done to avoid taxes are in trouble. Last I knew legally avoiding taxes is still legal. You are not required to pay any taxes that you do not owe.

I own his house and he owns mine. I rent from him and he rents from me. We rent at fair market rent, and thesales are at fair market value. There is nothing substatnively different from this than the same situation in which we both own properties and rent them out at arms distance.

Even the IRS says you are not required to pay any more taxes than legally prescribed. As long as the purchas and rental transactions are legal transactions, IRS would be hard pressed to argue that they are not subject to the same tax treatment as any other legal transaction.

We would not even have to sell, just keep the ones we have and rent each others house. We might not even have to move: we would each be squatters on the others rental.

Anyway, the example was only to illustrate the point. If they eliminate my tax deduction, I might very well move out and rent it to someone else, to get the deduction back, and then go rent a place to live in from some other landlord, who is doing the same thing. How is IRS to know, or decide if it is only to avoid taxes? And anyway, avoiding taxes is perfectly legal, even if it is sometimes business stupid and tax smart.

The whole idea of eliminating the mortgage deduction is dumb as toast, unless you want to eliminate all business dedctions as well. The premise that people use to argue against it makes no sense, unless you want to fix the whole tax code. If that is the case, then make that argument and don't argue nonsense piecemeal.

What you say about second homes is a diffeent situation from an investment property that you do not live in. If yu get to pay capital gains in this market, count yur blessings, but most rentals with good cash flow just never get sold until the oner dies, at which point the new owner gets a new basis.

 
At 10/07/2010 11:53 AM, Blogger morganovich said...

benji-

it's a subsidy to anyone with a mortgage or significant debt.

it comes at the expense of those with cash, equity, and bond savings.

you constantly rail against transfers to states and subsidies, but seem fine with this one from savers to borrowers.

my point is that you are totally inconsistent in you views. that leads me to believe that you are looking for your turn at the trough.

 
At 10/07/2010 12:00 PM, Blogger morganovich said...

ron-

hydra is correct. there is nothing illegal about tax avoidance.

that said, i'm not sure hydra's structure would work as you can only deduct interest on your primary residence.

an easier structure would be to buy your own house through a corporation you own, then rent from the corporation.

this makes interest payments a clear expense for the business and therefore deductible.

you then pay rent to make the after tax profits of the corporation a couple of dollars a year.

bingo, we're right back where we started.

if you can file as a sole proprietor, you may not even need to do that.

there is no way to eliminate the individual interest tax deduction for mortgages without reworking the whole corporate tax system and it's pretty difficult to argue that interest paid on a factory mortgage is not a legitimate business expense.

 
At 10/07/2010 12:03 PM, Blogger randian said...

How is that any different from what we do here? We tax you on the imputed value of your home as if you had sold it.

Taxes on imputed rents are not in lieu of property taxes, they're in addition to them. Besides, 50% of imputed rent is a lot more money than 1-2% of value.

Denmark charges a national property tax of 1% up to 407,000 Euro in value, 3% above that. In addition, there is a municipal property tax levied on land value of between 1.6 and 3.4%, depending on location. Denmark also charges a property value tax on foreign properties owned by Danish residents, subject to potential offset by applicable tax treaties.

 
At 10/07/2010 12:49 PM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 10/07/2010 1:58 PM, Blogger Ron H. said...

morganovich said...

"that said, i'm not sure hydra's structure would work as you can only deduct interest on your primary residence."

That's not entirely true, but may depend on your income. Many deductions decrease and disappear with increased income.

I know that you can deduct expenses including mortgage interest for houses you own as rentals if you actively manage them. This includes hiring a property manager, but doesn't include owning shares in a REIT or limited partnership which are considered passive investments.

"an easier structure would be to buy your own house through a corporation you own, then rent from the corporation."

I'm sure there are ways to structure ownership of your primary residence to avoid taxes, but the scheme "Hydra is suggesting has been disallowed by the IRS. If it were allowed, there would be few homeowners, only landlords and tenants.

The IRS disallows tax avoidance schemes from activities that have no hope of making a profit, but are only engaged in to avoid taxes. Tractor pull contests are another such activity. The IRS has ruled that contestants have so little hope of profiting from prizes awarded that the expenses involved couldn't be considered business expenses.

I realize I'm not providing references, and I hope you won't ask for them as I don't have much time right now.

 
At 10/07/2010 2:39 PM, Blogger morganovich said...

the very fact that IRS rules are so difficult to pin down and understand is clearly part of the problem, but i know for a fact that the strategy of creating a corporation (or reit) and using it to buy a house that you then rent to yourself works. i know multiple people who have done it.

the corporation covers all its expenses through your rent payments, then profits from long term appreciation of the house and building up equity.

one of the other interesting side effects of this strategy is that it's much cheaper to sell the house and you don't need a realtor. there is no title change. you just sell the corporation.

 

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