Paul Krugman: Home Not-So-Sweet Home

[marmar]

from the NY Times:



Home Not-So-Sweet Home
By PAUL KRUGMAN
Published: June 23, 2008


“Owning a home lies at the heart of the American dream.” So declared President Bush in 2002, introducing his “Homeownership Challenge” — a set of policy initiatives that were supposed to sharply increase homeownership, especially for minority groups.

Oops. While homeownership rose as the housing bubble inflated, temporarily giving Mr. Bush something to boast about, it plunged — especially for African-Americans — when the bubble popped. Today, the percentage of American families owning their own homes is no higher than it was six years ago, and it’s a good bet that by the time Mr. Bush leaves the White House homeownership will be lower than it was when he moved in.

But here’s a question rarely asked, at least in Washington: Why should ever-increasing homeownership be a policy goal? How many people should own homes, anyway?

Listening to politicians, you’d think that every family should own its home — in fact, that you’re not a real American unless you’re a homeowner. “If you own something,” Mr. Bush once declared, “you have a vital stake in the future of our country.” Presumably, then, citizens who live in rented housing, and therefore lack that “vital stake,” can’t be properly patriotic. Bring back property qualifications for voting!

Even Democrats seem to share the sense that Americans who don’t own houses are second-class citizens. Early last year, just as the mortgage meltdown was beginning, Austan Goolsbee, a University of Chicago economist who is one of Barack Obama’s top advisers, warned against a crackdown on subprime lending. “For be it ever so humble,” he wrote, “there really is no place like home, even if it does come with a balloon payment mortgage.”

And the belief that you’re nothing if you don’t own a home is reflected in U.S. policy. 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.

In effect, U.S. policy is based on the premise that everyone should be a homeowner. But here’s the thing: There are some real disadvantages to homeownership.

First of all, there’s the financial risk. Although it’s rarely put this way, borrowing to buy a home is like buying stocks on margin: if the market value of the house falls, the buyer can easily lose his or her entire stake. ......(more)

The complete piece is at: http://www.nytimes.com/2008/06/23/opinion/23krugman.html

[izquierdista]

1. Paul needs some help

Usually he is a beacon of clarity, but something heavy must have fallen on his head before he wrote this piece. A home in not just an investment, something tying you down if your employer decides to move you 1000 miles on a whim. Home is where people live their lives and raise their families. Often it defines their culture and language and outlook on life. As Robert Frost wrote: "Home is where, when you have to go there, they have to take you in." It is the reason for having economies in the first place, not the other way around.

Now there is a difference between a house and a home. People may live in different houses in their home town as their needs in life change, but what they are working for, the reason they go to work every day, is to earn enough money to stay comfortable in their own homes. People can buy and sell different houses, but after a lifetime of work, they would like to have a home of their own to show for it, not a portfolio that generates enough income so that they can pay rent the rest of their days. Only bizarre people who live on redecorated pig farms and in Houston hotel rooms have that outlook on life.

[edhopper]

2. How many ways can you be wrong.

Many of the folks who bought homes in the last 4 years will never see their home worth that much again (that's why it was called a bubble). Losing hundreds of thousand in equity does not build for the future. Here in NYC many people rent their whole lives and stay in the same apt. It is their home. Read the part were talks about only treating property owners like citizens before you make a comment about pig farmers.
And if you have a mortgage, you don't own your home, you are renting it from the bank. People who took out Interest Only mortgages in recent years (you know, the ones Krugman says probably should not have bought) will never have a stake in their home. And since they now have negative equity, they will always owe more than their home is worth.
Yes, there are reasons beside finances to own a home. But buying in the midst of the biggest housing bubble in World History isn't prudent or wise.

[AndyTiedye]

3. Many Renters Got Forced Out of the City When Rents Went Way Up

Here in NYC many people rent their whole lives and stay in the same apt.

Only those who were living there long enough to have scored a rent-controlled apartment.

Many others got pushed out when rents skyrocketed during the bubble.

[edhopper]

4. The "City" is not just Manhattan

There are five boroughs with affordable rent in many areas. Presently renting cost about 1/3 of what the mortgage would be on the same property. Rent never rose anywhere as much as home and condo prices here.