Ownership Subsidies: Dream Homes or Disasters?

Las Vegas mid-century home with Edsel.jpg

Home ownership has been considered an integral part of the American Dream for as long as anyone can remember. Now it has come under scrutiny, notably in a June Wall Street Journal piece by Richard Florida, which claims that that home ownership reduces employment opportunities for young adults, since it limits their mobility. To support ownership, others — particularly Wendell Cox — have argued that home ownership levels do not correlate with the economic productivity of cities, and cite the rapid suburban development in the Sunbelt as evidence that home ownership is as valuable as ever.

My inclination is that the truth lies somewhere in between the two sides of the debate. For the sake of simplicity, I'll refer to them as New Urbanist supporters versus Smart Growth opponents (I realize these are broad generalizations). While they disagree on the merits of home ownership, there's an interesting point of agreement: both sides oppose subsidies to homeowners. I'd argue that both sides should focus on getting the issue of discontinuing subsidies onto the national agenda.

Like many 20-something young professionals, I have no aspirations towards home ownership. I ditched my car when I moved out of the suburbs, and I refuse to sign a lease that lasts more than three months. This affords me the flexibility that my life as a freelancer requires. If I were in a profession that didn’t call for a great deal of mobility, perhaps home ownership would be appealing. When North America was a manufacturing powerhouse, most people were in that situation. But an increasingly dynamic labor market requires an increasingly mobile workforce... to an extent.

For those of us in the 18-30 demographic who work in fairly mobile industries, home ownership isn’t necessarily as big a hindrance as Florida suggests. There are people like me who work in volatile industries and simply can’t be tied down to one city, but we're in the minority. For the majority, it really depends on the location. If your home is within commuting range of a major city, it should be possible to find work in your field without uprooting.

But jobs come before home ownership in order of priority. In a scenario where state and local governments create a fiscal climate inhospitable to economic growth, rather than chase cheap housing, people migrate to the strongest economic region (for example, the Sunbelt).

While home ownership isn’t going to be obsolete any time soon, in decaying cities like Detroit and Buffalo, and in towns far from urban centers, it can be a major hindrance to finding a job. Home owners invest a large amount of their net worth in their homes, and it becomes difficult to simply abandon unsellable homes and pay rent in a new city, though this does happen. There are roughly 90,000 abandoned homes in Detroit alone. Old manufacturing and resource town centers are especially vulnerable, since their economies typically lack the diversity to attract new employment opportunities. This isn’t a fault of government policy, but an unavoidable economic reality.

Incentives such as the omnibus of initiatives created by the Bush administration’s Ownership Society led to an increase in home ownership levels. But no good can come of home owner subsidies; they lead to inflated prices and distorted patterns of urban development. A survey of first time homeowners in 2009 by Keller Williams Research found that 10% of first time home buyers were primarily motivated to purchase a home because of the $8000 tax credit. A further 4% were primarily motivated by low interest rates. This may seem trivial, but it should be pointed out that the average age of first time US home buyers has decreased to 26. That is a full 8 years younger than in the UK, where the average age is on the upswing. While higher home costs in the UK (partially due to more stringent land use regulations) are probably a major factor, one cannot help but think that the First Time HomeBuyers Tax Credit and subsidized mortgages contributed.

Subsidies for home ownership are incongruent with the ideological underpinnings of both New Urbanists and Smart Growth opponents (who are mainly conservatives and libertarians). Some Smart Growth opponents are likely to be in favor of these subsidies, since they buy the rationale behind the Ownership Society model. Namely, they believe that 'pride of ownership' leads to flourishing communities. On this point, they are probably correct. But the 'pride of ownership' argument is based on the ‘broken window theory' that blight leads to an increase in crime. Ownership Society partisans argue that since owners have more of an incentive to maintain their homes, high home ownership rates should lead to less crime. There is quite a bit of evidence to support this theory. Then again, apartment renters do not control yards or frontage, so the 'pride of ownership' argument seems far less relevant with respect to high density development.

Both sides should take a time out to get the issue of ending housing subsidies on the national agenda. In the wake of a major recession caused partly by misguided housing and mortgage policies, this is an issue that could gain traction with the electorate. The two sides will have plenty of time — and issues — to fight over later.

"Mid-Century Suburban Home," Paradise Palms Home, Las Vegas, Nevada by Roadsidepictures

Steve Lafleur is a public policy analyst and political consultant based out of Calgary, Alberta. For more detail, see his blog.



















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  • Since the mortgage was

    Since the mortgage was invented, only two options have been presented to the dweller: rent or own(giam can). There has to be a third way (thuoc giam can).

    For many nomads in the population, the timeshare industry presents an enticing model (best slim). Large networks of housing owned not by a deed, but by points, that allow users to trade back and forth (nam linh chi).

    This industry however refuses to invent a new paradigm (nhan sam). Tied as it is to Wall Street, few have enough guts to get off the debt cycle that it has created for itself, preferring instead to cling to a withered economic vine hoping someday for rain.hang xach tay

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    I have to agree with you

    I have to agree with you that home ownership is not appealing for young people. I worked in Los Angeles up until 3 months ago when I got tired and bored of the city. Now I work for a San Jose junk removal company and I am pretty much having fun around here. It is true that I moved out of boredom and not job mobility but you never know when something better pops-up and you have to move.

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    One aspect that wasn't

    One aspect that wasn't covered goes something like this. I too am a young professional working as a freelancer. I move from place to place often depending on the opportunities I can find. I pay rent for a simple apartment without any fancy bathroom vanities with sink or other luxury items. Still, when I do the math, if I double the amount I pay for rent, I can take on rates for a home that I'll end up owning. For now, I enjoy my freedom and my flexibility but when the time will come to raise a family, being a home owner will be among my priorities.

    As the government struggles

    As the government struggles to come up with spending cuts and revenues, housing subsidies are an obvious place to look. I just wish to give a huge thumbs up for the nice info you have got here on this post.
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    I'm probably yet another one

    I'm probably yet another one of those early 30-somethings not really keen on buying a house for a number of reasons. For one where I live ( Bay Area) is extremely expensive and buying a house with almost any income is in my opinion a risky move. Another reason is that in my field, you're lucky to have a job for more than a year. Thus I have no faith in knowing where the paycheck will come from next year or even next week. Thus buying a home to me means you are suddenly locked down in a situation where before being laid off or between jobs meant a minor inconvenience versus suddenly being in dire financial straits because the mortgage- which in the Bay Area is still about 40% more than renting- will be relentlessly due every month. Ironically I've rented the same house for over 7 years so far, which according to the latest local data is longer than most people "own" their house these days. Somehow I don't see a big difference here other then that I've managed to save up quite a bit of money since my rent is still drastically lower than my "Homeowner" brethren.

    My plan is probably also drastically different from most people's. I grew up in the sticks outside a small Southern town. Houses and for that matter large chunks of property can be bought for sometimes well under $100,000. We've been saving for over 8 years now. What we've saved in the Bay Area to date means that we could move to such a place and basically buy a house or a house on some land for cash with a comfortable amount leftover. With that done, suddenly the whole job situation changes. We could simply do occasional freelance or maybe work at some small daytime job making perhaps not great wages, but that wouldn't matter since the house would be paid-for and all that would be left would be utility payments and the obligatory contribution to retirement plans. I can live in just about any environment. Most people I know either grew up and live in a metro or a rural area. Neither can live in places different from what they know because they are uncomfortable doing so. I've lived in both and can still live in either. In today's world its an advantage to be able to remain flexible.I guess what I'm saying is that I've lived in the rat race and can easily leave it, returning to where I came from.

    Ownership Subsidies

    There is a time to rent and a time to buy and most of us can make up our own minds given proper information.

    Many of the US housing markets are cursed by both subsidies and penalties which doubly distort the market.

    Smart Growth, driven by local government, imposes passive penalties (What Randall O'Toole calls the planners' penalty) while Federal Government and State governments try to overcome the penalties with subsidies.
    Get rid of the penalties and the need for subsidies will disappear.

    The key aim of urban development economics should be to keep the price of urban land as low as possible so that owners invest in improvements rather than the land itself. THe improvements will be much less subject to price volatility and offer real security as opposed to the rigged land market.
    Also when land itself is cheap councils can afford to buy open space, and heritage land and so on.
    When housing land is unaffordable all land is unaffordable.

    Owen McShane, Kaiwaka, New Zealand.
    Director, Centre for Resource Management Studies.
    http://www.rmastudies.org.nz/

    This is a great piece and

    This is a great piece and being a 20-something young professional like the author, I can relate to the burden that owning a home could potentially be in hindering geographic flexibility. I am also in complete agreement that the home ownership subsidies need to stop...in too many cases people were purchasing homes for all the wrong reasons before the recession hit.

    Home ownership is an aspiration that is not going to go away anytime soon, but the thinking about the concept of a house as an investment vehicle needs to shift back to the concept of a house as a home for living and setting roots down.

    Adam Mayer

    Given the mobile american is it still possible to set roots?

    Given the number of job changes occuring in current careers, many of which may involve re-location is setting down roots no longer viable? I definitely agree that a house should not be seen as an investment just a place to live. This has been true for some times for corporate types where companies end up paying the realestate transfer fees as well as the moving. When an exec moves say 10 times in 30 years few roots can set. Perhaps root setting will now be reserved for retirement.

    thanks for information

    I'm (son spec) thank for this article, about me: son mykolor, son kova

    A Third Way

    Since the mortgage was invented, only two options have been presented to the dweller: rent or own. There has to be a third way.

    For many nomads in the population, the timeshare industry presents an enticing model. Large networks of housing owned not by a deed, but by points, that allow users to trade back and forth.

    This industry however refuses to invent a new paradigm. Tied as it is to Wall Street, few have enough guts to get off the debt cycle that it has created for itself, preferring instead to cling to a withered economic vine hoping someday for rain.

    For the many professionals recently laid off from timeshare companies, this article suggests a great opportunity to create a third way for the digital nomad, the early 20s nomad, the retired nomad, and the many other nomads that exist in America.

    Richard Reep, M. Arch.
    Winter Park, FL

    The time between job shifts and homeownership

    Given that the process of changing homes you own has about a 10% transaction tax imposed by the real estate industry (real estate commissions, title insurance, appraisal fees, lawyer fees, tax check fees,....) In a stable price environment one should figure on staying in the house 6 to 7 years to make it pay. However that is not consistent with the rates of mobility in our society.

    At least 10%

    Typically, when you move into your new house, you start buying stuff for it. Drapes/curtains (and they add up quickly). Appliances. More tools for the yard work.

    I have no data, but I would guess another 2% for such "stuff".

    Dave Barnes
    +1.303.744.9024
    WebEnhancement Services Worldwide

    Good Point

    While I didn't really get into why housing is a financial drag for highly mobile people, real estate fees are certainly one of the key concerns. Of course, in a booming market flipping a house after a few years can be profitable. It's a gamble. It might makes sense for a knowledge worker in Silver Springs, Maryland, or suburban Boston to buy a home, but it's a major risk for a young person in Scranton or Cleveland.