TCS Daily

What's Wrong With Home Ownership?

By Michael Rosen - November 28, 2007 12:00 AM

What's wrong with home ownership?

Not much, if you ask me. But don't take my word for it: I am a new first-time homeowner.

Others, however, would beg to differ. In December's Atlantic Monthly, Clive Crook takes a hatchet to American policies—such as the mortgage interest tax deduction—that favor home ownership.

Crook's anti-home piece strikes a particular chord now, especially as several Republican presidential candidates have proposed some version of the "fair" or "flat" tax, both of which would likely scrap the mortgage interest deduction.

And as the housing bubble continues to deflate, many ordinary Americans are wondering whether government policies have pumped up the bubble and are now responsible for its fizzling.

Despite all of these concerns, my wife and I took the plunge a few weeks ago and purchased our first home. As we adjust to life as masters of our own domain, I had occasion to read and meditate on Crook's piece, which he dedicates to exploring the question of whether it's "good for society that Americans aspire to own homes, rather than merely live in them."

Crook—who also writes for National Journal and the Financial Times—argues (citing a study) that home ownership makes workers less mobile, which tends to "calcify whole economies."

He also contends that homeowner associations "act as cartels" by imposing draconian zoning rules on their neighborhoods.

And he believes that the mortgage interest tax deduction, which costs $80 billion per year, incommensurately favors the wealthy (who itemize their taxes) and drives up the loan burden on all homeowners.

Let's take these one by one. First, it's probably true that in certain old-fashioned "company towns," home ownership can become a pair of golden handcuffs, which can quickly decompose to copper if and when the company relocates to Mexico or China.

But the vast majority of American housing stock lies in big cities and their suburbs and exurbs where labor markets are expansive enough that nobody's necessarily locked into a job, which makes being "stuck" in a locale because of a house less constraining.

And in fact, being wedded to your property isn't necessarily a bad thing, contrary to Crook's second point. Like any investor, a homeowner tends to look after her asset with great rigor and spends a great deal of time and energy trying to help her investment appreciate.

I'm already discovering this from personal experience. It's not as if I haven't take good care of the various apartments I've rented over the years. After all, I lived in those places and took pride in the home that I (and my wife) made there. Home is where the proverbial heart is, and a home needn't involve ownership to be homey.

But there's something about knowing that the buck stops with you that nourishes a fastidious responsibility (and feeds ulcers). This tendency naturally expands beyond the walls of the home to the neighborhood, where even if for only for purely self-serving reasons, a homeowner does everything he can to enhance his surroundings, whether it be by adding parks, improving schools, or supporting religious institutions.

Crook himself acknowledges that, even controlling for other factors, "owners spend more on maintaining their homes, vote more, play a more active part in local politics, and work harder to improve their neighborhoods."

True, some homeowners associations—think New York co-ops—badly overindulge this urge and severely restrict the freedoms of their members. But an HOA, by its very nature, is a voluntary organization of individuals that can play an important role in civil society.

These benefits are amplified among the poor and working class, for whom the achievement of home ownership truly amounts to a dream come true. There's a reason the efforts, years ago, of some city governments to convert dismal housing projects into ownership opportunities for low-income residents bore so much fruit.

Which brings us to the third point: the mortgage interest deduction. Crook is right that it benefits higher earners proportionally more. But even at $80 billion annually, it's a miniscule ripple in the lake of the federal budget ($2.8 trillion), let alone in comparison to the ocean of our GDP ($13 trillion). The advantages that that amount provides to tens of millions of middle-class Americans far outweigh its costs.

What's more, lower-income and minority families have recently become homeowners at an unprecedented clip. Since 2002, the rate of minority home ownership has topped 50% for the first time ever while over 2.5 million minority families have become new owners. So at a minimum, the mortgage interest deduction hasn't hurt those who benefit from it least.

And as for the increased loan burden, yes, if there were no deduction, mortgages would necessarily become smaller. But they would simultaneously become more painful, since they'd have to be paid out of pre-tax dollars. I haven't read any studies suggesting that this change would yield anything but a wash.

Still, Crook's piece isn't entirely misguided. He correctly points out the distorting effects of the $100,000 home equity line of credit (HELOC) tax deduction for non-home-related expenses. This policy incentivizes consumerism, which isn't necessarily a bad thing but which is entirely unrelated to the public goods associated with home ownership.

In other words, the ability to leverage one's home to purchase a flat-panel TV (and, fittingly, the world's largest plasma will cost you about half of the deductible cap) may help American retailers but it doesn't directly contribute to neighborliness, community-building, or property values.

Thus, it certainly makes sense to me to phase out this particular deduction or to more clearly require that the $100,000 HELOC be tied to improving the home itself.

But otherwise, Crook inflates the problems associated with ownership and minimizes its blessings. America would be a richer place—in every sense of the word—if even more of us owned our living spaces.

Michael M. Rosen, TCS Daily's Intellectual Property columnist, is an attorney in San Diego.


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