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June 24, 2008

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Monthly Payments on the American Dream

I want to talk about home ownership!

Paul Krugman is back in top form with a column that reminds me why I’m a Krug-fan in the first place.

It’s about the huge preference that U.S. policy expresses for home ownership vs. renting. Krugman goes through all the micro-scale concerns — including a great comparison that likens buying a house to buying stocks on margin — but then there’s an interesting macro-perspective:

Owning a home also ties workers down. Even in the best of times, the costs and hassle of selling one home and buying another — one estimate put the average cost of a house move at more than $60,000 — tend to make workers reluctant to go where the jobs are.

So at the societal scale, do strong policy incentives for home ownership create, on the whole, a less mobile workforce? I think that’s interesting and worth talking about! On one hand, it’s obviously good to support people as they put down roots and become a more permanent part of a community. On the other hand, it’s 2008, and the economic map of the U.S. is changing fast!

Very curious about any questions, ideas, rants, links, etc. on home ownership out there. (Living in San Francisco, the issue is entirely academic, so my aim is to live vicariously through the snarkmatrix.)

Posted June 24, 2008 at 10:59 | Comments (7) | Permasnark
File under: Briefly Noted, Snarkpolicy


For the moment, the issue is academic for me as well, for the exact opposite reason, I imagine, as Robin. I own my home (which is probably a stretch of the meaning of the word own) and I'm not going anywhere in the next few years.

What I'm interested in is that stretch of the meaning of the word ownership. Most people do not in fact own their homes, but, in effect, rent them from the mortgage holder. (Sure you have the whole equity thing thrown in if you're lucky, but what percentage of homeowners cash out their equity, sometimes repeatedly?)

The value of homeownership to the community is actually largely opposed to the value that the homeowner thinks that he/she is receiving. Communities promote homeownership precisely to try and keep people from being free agents in the broader market, but to keep people in a particular location and to encourage them to invest in a community both financially and otherwise instead of testing their maximum value on the broader market.

Thus, I think that communities, be they local or broader should encourage homeownerwhip, but such encouragement might hold up better to Krugman's perceptive criticism if framed more in terms of a community's investment in individuals rather than a (largely dishonest) appeal to fiscal self-interest.

Thus, a socialist argument rather than a capitalist one. The major objection might be that a person who believes that their home serves their financial self-interest might be more likely to remain an invest in a community rather than one who is merely "grateful" for a community subsidy.

I'm quite taken w/ your perception that the definition of the word "own" in this case is highly, highly flexible.

I don't know if it's inappropriate or even "flexible" so much as it is "complex," "specific," and "socially determined." It's not like we have wildly varying meanings of what we mean by "ownership" in the case of homes, or that the ownership referred to is all a sham. Gavin does indeed own his home, or co-owns it, along with the mortgage holder. His name is on the title, he negotiated the purchase, and he can decide to sell it; the mortage holder can't do any of those things. Once he builds a little equity, he can borrow against it. He's legally responsible for it, if anyone gets hurt on the property, and so on. Those are rights and responsibilities that renters quite rightly don't have, and which Gavin pays and continues to pay (and pay and pay) for. The bank agress to loan Gavin (or whomever) the money to purchase the house, and the loan is secured against an interest in the property. It's not really that complicated.

I know this very well because I have, in the not too distant past, tried to live out an alternate arrangement to home ownership. Despite a thousand attempts by everyone involved to obscure to others and themselves what the ownership situation was, at the end it became startlingly clear what everyone's role was.

So, enough said about that. The question is, whether the current arrangement and conception of ownership is either untenable or, at the very least, no longer worth subsidizing. Or: whether some alternative arrangement would, in a Rawlsian sense, benefit everyone.

I'm taken with the idea that homeownership is a deliberate inefficiency in the labor market. Like pensions and employee-based health care, it's designed to keep workers in place: it's just that the loss-leading benefit wound up being more costly than expected. Another question is whether workers are willing to accept that inefficiency, or deliberately introduce it, for some other reason.

In Ulysses and the Sirens, Jon Elster calls this behavior prebinding: we deliberately forego future choices in favor of locking in an arrangement that is either beneficial now (a fixed rent payment in favor of a fluctuating future one) or because the reduction of choices is itself somehow meaningful or valuable. Odysseus tells his crew to bind him so he can hear the siren's call but not be lured to his death. There's something in many of us that doesn't want to pick up and move, to leave our jobs and our homes. We find comfort in those certainties. Yet those certainties can also be oppressive, and they can also be uncertain.

Tim is correct to point out that while I went for rhetorical impact with my "renting from the bank" line, it's not terribly accurate. The responsibilities and benefits of a homeowner and a renter are clear and distinct.

Still, I hold to my observation that homeownership is different that most other forms of ownership, not necessarily in that one takes possession of the object before it is paid for—after all, credit is ubiquitous—but more that the system seems to be increasingly designed so that the object is never paid for, and this is the normal state of things. Maybe it would be useful to compare the model of homeownership to 99 year leases in London and car leases. Maybe not. It may be the explosion of unsecured credit that makes the operation and terms of a collateral-based loan seem odd.

As is often the case with Tim, I find myself supporting my idiosyncratic terms for their own idiosyncracy, but without much additional to argue, since I'm largely in agreement.

Still, let's swap house/apartment stories! That's the real meat here. :-)

As is often the case with Gavin, I disagree with him just to prove I'm smarter than he is. In that spirit -- screw the stories! Let's have oddball half-cocked policy prescriptions!

Like -- what if we got rid of the mortgage interest subsidy and instead gave homeowners a big frontloaded credit on their down payment when they bought their homes? Lots of things in favor of this, like:

1) it rewards saving, not borrowing, since the less you pay down, the less of a credit you get;

2) it helps mitigate the pain of the current credit crunch, which allowed people to pay much less down on their homes (but doesn't reward banks who do that);

3) Building and buying and selling homes is what drives economic growth, not ownership as such;

4) It helps to reduce the transaction costs of moving, which again, more than ownership as such, reduces employment mobility.

5) It is a pain in the ass to find ways to incentivize renting, since everyone has conflicting interests. I posit (but shall not prove) that we need to find some way to change homeownership, rather than radically change renting. I mean, there are zoning things for affordable housing and some kind of rent control that potentially make sense in the latter, but I can't think of anything that makes a whole lot of sense, especially at the federal level.

Thoughts? Other ideas?

Why not just let people who can afford housing buy or rent however they want, and subsidize rent payments for the poor?

Posted by: PoN on June 25, 2008 at 06:51 AM


1) I don't think anyone's suggesting anything that conflicts with that. But, if there is (as Gavin argues) a compelling social interest to promote long-term residence (either through home ownership or long-term renting) and that the mortgage interest subsidy either no longer meets that need or has some negative side effects, it's worth exploring other kinds of incentives.

2) Subsidies for the poor are great. And with Section 8, we already do that. But here it's the middle or the lower-middle class who are the "problem": Gavin who bought in one city (who might have a hard time moving), Robin who can't buy (and therefore lives in a relatively homogeneous and rootless city), and Tim who almost bought but very soon may not be able to rent, but just barely fails to qualify for health care, housing, or child care assistance (and who would therefore benefit from some kind of workforce/student housing or subsidy). And we're young, college-educated, with probably better futures ahead: older people in similar circumstances have vastly compounded problems.

3) I forgot to mention benefit #6 of my scheme: simpler tax filing. Most people wouldn't need to file a full 1040 unless they bought or sold a house.

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