Be It Ever So Humble…

Inspired by a Times article, first Yglesias, then Krugman, then Ezra, then Ezra again write about the question of renting vs. owning your home.

The most important pieces to read, in my rarely-humble opinion, are Krugman’s and the first one of Ezra’s that I linked to.  Krugman is typically sensible, making a well-rehashed argument that federal policies which made it too easy to borrow money helped overinflate the housing bubble.

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. On top of that, government-sponsored enterprises — Fannie Mae, Freddie Mac and the Federal Home Loan Banks — provide cheap financing for home buyers; investors who want to provide rental housing are on their own.

As I recently mentioned, I think that Yglesias, on questions other than foreign policy, often sounds depressingly like the mid-20’s Ivy League-educated urban dweller that he is and has always been.  In this case, he says

Given all that, it seems that there’s no reason for our policy and rhetoric to include a strong bias in favor of homeownership. Renting gives people more flexibility about where they live, which is probably a good thing in a continent-sized economy where there can be a lot of localized booms and busts.

Ezra, as is not entirely unusual, has a slightly broader view of the world than the ‘everyone should live like me’ Yglesias plan.  But he still seems to trend a bit too far to the pro-rental side of the argument, insofar as he can’t seem to bring himself to admit that there are actually benefits to buying your home as well, beyond one token “That had some good effects.”

Which is not to say we should start evicting people from their homes. But it’s worth asking whether we actually want to make it government policy to encourage ownership.

Well, look.  As liberals, I think we all think it’s fair for the government to have policies, including tax policies, which encourage certain behaviors over others, because the government, or at least the people in charge of making the policies, think that it would make the country a better place if more of that particular behavior was going on.  In particular, this is important when the behavior you’re trying to encourage is either expensive, or difficult, to do.  For instance, we don’t need tax programs encouraging people to play with their dogs, because people (at least, normal, really American, dog-loving people) like to play with their dogs.

On the other hand, we do need policies encouraging people to eat well, because it’s expensive to eat healthily, and also more difficult to cook dinner from fresh food than it is to eat quick, processed dinners.  Now, I know part of the reason the processed food is cheaper is because of our absurd tax subsidies, but let’s overlook that for the moment.

In the same way, it’s expensive to buy a house.  For many people, it’s really hard.  In particular, in a consumerist society where people have proven to be less-than-fantastic at saving a serious portion of their incomes, for lots of people, home ownership might never have become the norm.

And, contrary to what Ezra and Matt think, there are real and tangible benefits to homeownership.  The place you rent is your house, and the place you own is your home.  There are real differences between the two.  I’m not going to go into all the details, but you have a vested interest in the quality of your home, with a much longer time span than your house.  Even renters don’t want to live in their own filth, but they lack the buy-in to make siginificant upgrades in the place they live.

Similarly, when you own a home that you plan on renting out, it’s in your interest only to keep it modern and updated enough to continue renting it out.  It’s not worth making improvements to the house which make it a better place to live, but don’t increase the amount you can rent it out for, like high-quality landscaping, solar panels, and the like.

And, finally, there is the fact that, when you pay your mortgage, you are, in part, actually buying something, equity in your house, which increases your net worth.  Now, there is typically a pretty big gap between owning and renting (and, as Ezra pointed out today, that gap grew wildly quickly through the housing bubble), and if you are fiscally responsible, it’s quite possible to take that extra money which you aren’t spending on the roof over your head and use it to buy stocks or some other long-term investment.

Only, people don’t do that.  We’re not a nation of savers.  There are tons of ways in which smart policy wonks suggest that we work around that, such as opt-out policies on 401(k) plans.  But one way to force people to save is to get them to buy a house.  Some small portion, and a little more every month, of the money they send off goes into the value of the house.

Now, I’m not going to argue that the deck isn’t overly tilted in favor of home ownership vs. renting right now.  But, in my opinion, there is good reason for the government to put in place policies which encourage owning, and make it easier, a fact which is oft-overlooked in this debate.

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One Response to Be It Ever So Humble…

  1. Shane says:

    It probably shouldn’t be overlooked that both Matt and Ezra are young people… I don’t think many people their age have begun to seriously consider home ownership for themselves. So, yeah, Matt likes to think he’s living the life that everyone should lead (or something like that), but his experience in that life is somewhat limited.

    I wouldn’t be surprised to see their perspectives change a bit as the age a little. :)

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