TCS Daily

The Bourgeois Party And Its Base

By James Pinkerton - October 28, 2005 12:00 AM

Is your house worth too much? Many top politicians seem to feel that way. Why else are they laboring so hard to reduce housing values?

Of course, the Bush administration and a broad bipartisan coalition in Congress wouldn't put it like that. These leaders would deny that their goal is to pop the bubble, or even to prick it a bit. However, government policies are better judged by their impacts, not by their intents. And it is the Republicans, who control the White House and Congress, who are driving this home-price-reduction campaign.

Do they know what they are doing? Consider two examples.

First, the Mack-Breaux tax commission, known formally as the President's Advisory Panel on Federal Tax Reform, has been flirting with reducing the home-mortgage deduction. The idea first floated months ago, and it has bobbed below the surface for a time, but as late as Tuesday, it is continuing to float through Washington. Many economists say that it won't be the end of the world if the mortgage-interest deduction gets fiddled and diddled. But homeowners -- seeing headlines such as "Housing prices may get doused by tax revision," which appeared in The Ventura County Star on October 23 -- might beg to differ.

The stated motivation for these changes is to simplify the tax code, as well as promote economic growth by improving incentives for saving and investment. That sounds great, but the Mack-Breaux bunch, by proposing to increase some incentives, will inevitably decrease other incentives, such as carrots for home ownership. And the biggest economic asset most people have, of course, is their home. So Mack, Breaux, et al. might be helping some savers and investors -- and hurting others, including homeowners. It's a tricky game, and at the moment there's no certainty that any of these changes will be enacted.

Second, the White House and Congress are changing the playing field on which Fannie Mae and Freddie Mac play. In a nutshell, the House and the Senate are both eager to restrict the ability of these so-called "Government Sponsored Enterprises" to function; the Senate and the White House want to severely restrict them, the House less so.

Fannie and Freddie were chartered by the feds decades ago to expand homeownership by lowering the cost of the money needed for such ownership. Proponents say that Fannie and Freddie have succeeded in doing just that -- helping more Americans achieve the American Dream. Opponents say that "Fan-Fred" offer a risky and un-economic subsidy to homeowners. Debate on this issue has been dragging on for years.

But there's no debate on one point: Nobody asserts that the legislation before Congress, if enacted, would make it easier or cheaper for would-be buyers to get financing for their home purchase. In fact, as their battered stock prices show, the years-long legislative effort has already clouded Fan-Fred's once-bright prospects. So in that sense, the chief proponents of the anti-Fan-Fred legislation, the big banks, have already scored something of a victory. And there's another bit of collateral damage: the share prices of home-building companies have fallen as well. These data points suggest that Wall Street now sees trouble ahead for the housing industry -- another Washington-wrought downturn?

One must also ask: Is a victory for the banks really a victory for the homeowning middle class? Moreover, is it a victory for the Republican Party, which has labored so long and hard to position itself as the champion of the Heartland, in contrast to the past perception of the GOP as the champion of High Finance?

Indeed, it's been the Republicans who have made such a big deal about ownership, and expansion thereof, in recent years. The 2004 Republican Party platform, for example, devotes an entire chapter to "ushering in an ownership era." As the document proclaims:

        Ownership gives citizens a vital stake in their communities and their 
        country. By expanding ownership, we will help turn economic growth 
        into lasting prosperity . . . With President Bush's leadership we have 
        taken great strides in making the dream of ownership available to millions 
        of Americans, and in the next four years the President and Republicans 
        in Congress will unlock the door to ownership for many more.

That's good politics, as the '04 elections proved.

In fact, the last century's worth of electoral history offers vivid proof that expanded homeownership coincides with expanded Republican fortunes, and contracted homeownership aligns with contracted party fortunes.

In 1900, some 46.5 percent of American householders owned their own homes, according to the Census. And at the same time, the country was solidly Republican; William McKinley & Co. controlled the White House and both houses of Congress. But by 1940, the percentage of Americans who owned their own home had fallen to 43.6 percent. The Depression had something to do with that -- and that's the point: Herbert Hoover's GOP had failed to protect regular folks from economic disaster and proletarianization. So the 30s and 40s were the peak of Democratic power. Indeed, a completely partisan Democrat might have argued to keep America proletarian, by encouraging renting and discouraging owning. Then all America might have the political coloration of New York City -- that is, a deep blue city of renters.

But to their credit as citizens, if not to the betterment of their party, the New Dealers were eager to see more Americans owning their homes. Ever since the 30s, it's been a major objective of Uncle Sam -- using tools including the mortgage interest deduction and Fannie and Freddie -- to create an ownership society.

And so the predictable happened; as Americans became more property-owning, they became more politically conservative. By 1980, the homeownership rate had soared all the way to 64.3 percent. And because homeowners are inclined to stage property-tax revolts, such revolts are exactly what happened: The Democrats, the party of big government, were the big losers in the anti-tax wave of the late 70s and into the 80s. No wonder Ronald Reagan and the Republicans took control of Washington in 1980; for the most part, the GOP has controlled DC ever since.

By 2004, homeownership had climbed even higher, to 69 percent. Surely it's no coincidence that Republicans are more powerful than they've been for three-quarters of a century. That seems to suggest there's a pretty good linkage between rising homeownership and rising Republicanism.

By the same token, it stands to reason that if home ownership falls, or if the value of homes starts to fall, that's bad news for elephants -- and good news for donkeys. History shows it: When Americans become more bourgeois, they support the bourgeois party.

So again we might ask: What are the Republicans thinking as they undercut their own base constituency of homeowners? Does the GOP really think that voters will be grateful to the party that reduces their wealth?


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