According to this WSJ.com article, The Housing Market's Dangers (free link):
One issue on which Republicans and Democrats agree is that more people should own their own home. It is part of President Bush's "ownership society" initiative. Homeownership has risen to a record 69% of all households, from 67.5% when Mr. Bush took office in 2001, despite persistent unemployment.
If Republicans and Democrats agree on something we should watch out. Why is it such a good thing for people to own their own home? We should let the free market decide if people prefer to own or rent. Renting has many advantages, most significantly the ability to move easily without having to deal with steep transactions costs associated with buying and selling a house. There is also less risk because you don't have to worry about the value of your home declining. And I love the covenience of having the apartment building's maintenance staff fix my broken sink while I'm at work!
Low interest rates get most of the credit, but Mr. Bush would like to nudge it along. His American Dream Downpayment Initiative, signed into law in 2003, offers as much as $200 million a year to subsidize first-time home buyers' down payments, especially for low-income and minority families. He has instructed his tax-reform panel to preserve tax breaks for homeowners. At the same time, he has tried to curtail rent subsidies.
Yet another wasteful government program spending the taxpayers' money based on a dubious social theory. And why do we need tax breaks for homeowners, a wealthier than average group that doesn't need a special tax benefit? Tax reform should be about simplifying the tax code and eliminating all of the complicated and unnecessary special tax breaks that make filling out a 1040 so time consuming.
But are these policies wise? Housing prices, adjusted for inflation, are up 36% since 1995, the steepest boom in at least 50 years, according to Dean Baker, co-director of the Center for Economic and Policy Research in Washington. "This is a particularly bad time to be promoting homeownership among young people," Mr. Baker told a media briefing last week. "A lot will see substantial losses in home value as a result of that bubble, which will be ending soon."
Since I don't own a home, I'm looking forward to the collapse of the housing bubble! Because there's no way I'll ever afford a house at these high prices unless I marry a rich husband (hmmm, that doesn't sound like such a bad idea).
But the point of the quoted paragraph, that a peak in housing prices is the worst time to promote home ownership, sounds like common sense to me.
UPDATE
Some other interesting posts I found on this topic: Accidental Verbosity and PrestoPundit.
7 comments:
I can see we agree on some things and not on others. That's the way I like it, gets boring otherwise. I'm blogrolling you. Great post on the why the war was justified BTW, succinct yet complete.
I live in the California Bay Area since 1976 and I have lived through a number of housing bubbles. There was a big bubble in the late 1970s, another big bubble in the late 1980s and a big bubble in the late 1990s. I expected housing prices to come down after 2001, and they did a little bit, but now they have been going up more.
Several points about housing bubbles at least in California:
1) Prices have usually come down 10-15% after the bubble burst, and then stayed relatively constant or slowly increasing before the next bubble came along.
2) The price fluctuations are much larger for expensive houses than they are for low-end houses.
To get a real collapse in the housing market, you have to have a big oversupply problem, with a lot more houses having been built then there is demand. This happened, for example, in Texas in the mid 1980s when the oil marked and the whole local economy collapsed. Absent a big collapse of the local economy and job market (not likely in Washington, DC area), the US will survive a burst of the housing bubble. This is not to say that some people will not be hurt, especially people who try to jump in and speculate in the housing market as it is peaking. I have known people who made that mistake in almost every boom, and one of them lost everything, including one person who lost a house he had lived in for 30 years and almost had paid for.
David, you're completely wrong about me. Unlike a lot of greedy voters, I have civic virtue. I would say the same thing about tax breaks for home ownership even if I owned one.
"Unlike a lot of greedy voters, I have civic virtue."
No, you don't. You're just as greedy as those who love the tax breaks they get from owning a home. It's just that you don't know it.
You are an alleged "libertarian." I hope you at least know that libertarians want smaller government. The reason they, and you, want this, is, as you've said, because you see a lot of programs as "wasteful government" programs "spending the taxpayers' money"; i.e., your money. Ergo, you care very much about not having to pay as much taxes as you do currently.
Same with homeowners. We're all looking for tax breaks. You just want smaller government to achieve that end. Same difference.
"Why is it such a good thing for people to own their own home?"
Boy, you're not playing with a full deck, are you?
dadahead, since you claim to be so much smarter than me, why don't you explain when it's appropriate for a blog owner to delete a post?
The mortgage interest tax break you get is not just your money you're getting back, it also includes other people's money, money of taxpayers who don't qualify for the tax break.
If home ownership tax breaks were eliminated, then the extra revenues could be used to lower everybody's taxes.
Why is it such a good thing for people to own their own home? We should let the free market decide if people prefer to own or rent. Renting has many advantages . . . And why do we need tax breaks for homeowners, a wealthier than average group Certainly not everyone wants/needs to own their own home, and renting does have some advantages, especially for young singles, new arrivals, and other variously transitional folk, and in certain environments (urban downtowns). But renting also has significant disadvantages, including landlords (Dig up my garden? Ah . . ok, Mr. H___), greater cost over time, no home equity, etc.
Note that along with the tax breaks, the ADDI supposedly focuses on " low-income and minority families," not a wealthier than average group (I take it as an article of faith that any law touched by Bush will have negative consequences, but let's pretend). Why would people want to encourage homeownership among these families, instead of letting the free market work its magic?
Some feel that home ownership will promote stability, better stewardship, and middle-class values. More realistically, home ownership can be a extremely significant economic advantage - not only is it significantly cheaper over the long run, it functions as a source of wealth and a major help with such things as college loans for the kids. Therefore, home ownership can be seen as a tool to help fix lesson some of the more intractable inequalities in American society. I know this is ideologically unacceptable, but just in case you were wondering. . .
(Not to say that a housing bubble is the best time!)
Noting that you've just recently graduated from college - it would be interesting to see if your ideas change as you (and other young libertarians) move through different life stages, as David suggested. Hey, if you manage to reconcile ideology and reality in some useful and personally satisfying way, hats off to you!
I do envy the freedom of having the maintenance staff fix stuff while you're away! (Although note that this is specific to apt. renting - we're shelling out a disgusting amount every bloody month for the first floor of a (subdivided) house, and each time the antique furnace has another problem involving a part not made since the Paleolithic (well, close enough) someone has to wait all day for the repair guy to show up, unfailingly with the coming of dusk . . .)
As I'm going to go over personification with the 8th graders this week, I can't help but jump on the "We should let the free market decide " bit. I know, I know, but still . . . it does subtly affect how people think about things.
-Dan S.
The Bog
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