New York Times columnist Paul Krugman takes a shot at the American Dream, suggesting that home ownership isn’t the social or economic panacea that many make it out to be.
Currently, the government subsidizes home ownership by making mortgage interest payments tax deductible and by providing cheap financing through government-supported entities like Fannie Mae and Freddie Mac. Homeowners are more invested in a community’s future, the argument goes, so society benefits from subsidized home ownership. Krugman says not so fast.
For one, borrowing money to buy an asset is an inherently risky enterprise: “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.”
Secondly, argues Krugman, home ownership impairs labour mobility and results in higher unemployment:
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.
Finally, says Krugman, there are costs associated with the longer commutes associated with home ownership and suburban living:
Buying a home usually though not always means buying a single-family house in the suburbs, often a long way out, where land is cheap. In an age of $4 gas and concerns about climate change, that’s an increasingly problematic choice.
The sceptics will say that all of these costs are more than outweighed by the social benefits. Owners, they say, tend to build better communities than more transient renters. Maybe, but this is difficult to quantify. Renters have plenty of incentive to invest in their communities. In any event, part of the solution to the housing crisis will be the sober realisation that some of the people who bought homes during the boom shouldn’t have in the first place.