Thursday, September 2, 2010

Standing Up for Homeownership

By Brian Summerfield, Online Editor, REALTOR® Magazine

Is the traditional model of homeownership in need of an overhaul? Is it even worth defending? Five years ago, these questions might have seemed absurd, but today, several commentators are posing them — and often coming down in favor of extensive and expansive changes to the system.

For instance, the latest issue of Time magazine has a cover story controversially titled, “The Case Against Homeownership.” (An abbreviated version of the article is available online.) Author Barbara Kiviat begins the piece with the statement, “Homeownership has let us down,” and subsequently describes what she considers to be the “dark side” of this institution.

I’ve seen similar arguments come out in recent weeks, but I’ll pick on Kiviat’s because it’s timely, it’s high-profile, and it condenses most of the criticisms that opponents of the status quo of homeownership have made recently into a single body of work. Here are the broad strokes of her case:

1.Perhaps the government shouldn’t incentivize homeownership so much. Kiviat argues that incentives such as the mortgage interest deduction make owning a home seem more desirable than it really is.

2.Homeownership encourages sprawl. Because most home owners live in single-family detached dwellings, development tends to expand out to places far from city centers, which creates more of a strain on resources.

3.The social benefits of homeownership are negligible. Although some benefits — such as higher academic performance of children — appear to be related to homeownership, one can find a similar correlation with, say, car ownership. And neither of these matter that much.

4.A home isn’t necessarily a safe investment. Kiviat says a loose lending environment caused housing prices to shoot up, and many ordinary consumers were left holding the bag when credit tightened up and values plummeted.

One major issue with Kiviat’s overall argument is that she seems to be conflating a few other problems with homeownership. For instance, the institution of homeownership in and of itself did not cause the housing boom and bust. This was due more to special circumstances in the financial sector than it was to people wanting to own a home. The hazardous mortgage lending environment was largely a product of Wall Street’s efforts to bring in vast amounts of capital for investment without properly assessing risk. Without that, the housing bubble could never have been inflated to begin with.

Also, the rise of suburban and exurban sprawl cannot be explained solely by Americans’ penchant for single-family houses, which exist in major cities too. (Plus, there’s no shortage of apartment complexes and townhomes in many suburbs.) Infrastructure investments, inexpensive land, and lower cost of living also played a role in development of the outer rings of metropolitan areas.

Additionally, Kiviat’s claim that homeownership (and ownership in general) plays a nominal role in creating social benefits such as better education and greater civic engagement doesn’t hold up. She asks if we should “realize that both home and car ownership are probably markers of something else, like a stable family life or living in a nice neighborhood?” She means this question to be rhetorical, but it really isn’t. One could easily turn it around: Shouldn’t we realize that a stable family life or living in a nice neighborhood are probably markers of home and car ownership? Can Kiviat or any other person making a “case against homeownership” provide a common, clear-cut example of a stable family life and a nice neighborhood not being accompanied by large rates of homeownership?

Perhaps her most compelling argument is that the government distorts demand for homeownership through incentives. To be sure, there is room for honest disagreement about what and how much the government should do in the housing sector. But even here, Kiviat comes up short. First, she says “Washington lavishes homeowners with special treatment.” But compared to whom, exactly? Senior citizens? Manufacturers? The big investment banks that played a central role in the housing bubble? Why target home owners over any of these other groups? Near the end of the article, she vaguely advocates using “the levers of government to help create high-quality jobs.” Would that be “lavishing special treatment” on American workers, the majority of whom are presumably home owners?

Finally, Kiviat doesn’t really offer an alternative to Washington’s current role in housing. Instead, she points out — and complains about — the fact that the mortgage interest deduction exists and that home owners typically don’t pay taxes on profits from the sale of a house. Is she advocating getting rid of the MID and taxing home-sale earnings? It would seem that way, but she doesn’t provide much detail on what might be done differently.

The good news is that most Americans still see homeownership as a good thing, and even after the downturn, the reasons for opting to own a home over renting remain pretty much the same. But as these stories continue to come out, and they will, it will be critical for REALTORS® to continue to make the case for homeownership.

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