Should government keep on subsidizing homeowners?
Taxpayer supports for homeowners are three times the bone that government throws to renters.
This post comes from Marilyn Lewis of MSN Money.
Should nearly everybody be a homeowner? It's a discussion -- OK, argument -- going on in Washington, D.C., and at a lot of water coolers and dinner tables.
The National Association of Realtors, not surprisingly, is a big fan of widespread homeownership. The NAR website elaborates on the benefits, including "financial gain, stability, health benefits, benefits the children" and "social benefits."
Health benefits? The NAR doesn't explain. It does, however, link to this Harvard study, "The Impact of Homeownership on Child Outcomes" (.pdf file), which concludes:
We observed that children of homeowners have better home environments, high cognitive test scores, and fewer behavior problems than do children of renters.
So, children of homeowners are smarter and better behaved.
The study goes on to recommend:
These findings suggest homeowners support programs should be targeted at households with young children.
Make of that what you will.
A nation of homeowners
The point is, the gospel of homeownership has been nearly unassailable, particularly in the last decade or so.
The national rate of homeownership:
- Grew from 55% in 1950 to 66.2% in 2000.
- Reached 69% -- the highest since 1900 -- in 2004.
- Has retreated to 67.2%.
- Is expected drop some more.
Last week, the straight-talking head of the Federal Deposit Insurance Corp. (the FDIC is the agency that guarantees your money will be in the bank when you go to take it out) shared her interesting take on the question.
In a speech to the Housing Association of Non-profit Developers (read her remarks here), Bair said it's time for government to rethink its goals. Sixty-nine percent is "unsustainable," she said.
As an aside, she disagreed with critics who blame the Community Reinvestment Act for encouraging inappropriate rates of homeownership among unqualified buyers by encouraging lending in poor neighborhoods. Subprime lenders are to blame, she said.
Most of the subprime and high-risk nontraditional mortgages were made by non-CRA lenders. And these loans were made in large volumes because for a time they were highly profitable and because Wall Street would buy them and securitize them. It's as simple as that.
Rethinking homeowner subsidies
Bair is no liberal. She's a pro-choice Republican, mentored by Sen. Bob Dole and appointed to the FDIC in 2006 by President George W. Bush. (You may have seen her on the cover of Time magazine recently, as one of the "Sheriffs of Wall Street.")
- Bing: More about Sheila Bair
She is also someone willing to voice uncomfortable truths -- even question the gospel of homeownership. In her speech to the nonprofit developers, Bair seemed less interested in pointing blame than in urging Americans to think about the fact that government policies support homeowners to a far greater degree than they support renters. She said:
It is estimated that when you add up the mortgage interest deduction, local property tax deductions, and exclusions on capital gains realized on the sale of owner-occupied housing … the taxpayer subsidies for homeowners are about three times the size of all rental subsidies and tax incentives combined.
Bair didn't prescribe a solution. She just wants us …
… to take a hard look at the full range of housing policies and programs. And we need to ask: Will they improve standards of living for all Americans or just a few? And will our policies lead to sustainable improvements for the long term, or are they just a short-term fix?
In fact, hers was not the only shot across the bow to homeowners last week. "Any debate also needs to consider a long-taboo topic: the large tax subsidies for housing," said the Wall Street Journal blog Heard on the Street last week in a post on mortgage reform (subscription required).
Are you attached to your mortgage interest tax deduction? Your local property tax deduction? Your capital gains exclusion on the sale of a primary home? Let's appreciate them while we can. Sounds as if they may be on the chopping block before long.
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