Most people take the benefits of home ownership for granted. But does that mean the government should take aggressive measures to support it? Eating spinach has benefits too, yet there aren't tax credits for buying spinach or giant government-sponsored entities that help to subsidize spinach prices. So something must be pretty special about home ownership to explain the government's actions that promote it. Are they justified?
There are actually two questions that need to be addressed here. First, is home ownership an absolute good? This is actually both normative and economic. If that question is answered in the affirmative, then the second question is whether the government's involvement is necessary to make home ownership sufficiently widespread. Let's consider each.
Is Home Ownership an Absolute Good?
For years, most Americans have believed that it's good when more people own their homes. But Wall Street Journal Economics Editor David Wessel makes a strong argument today that questions this common wisdom. It can be summed up by the following sentence:
The success of a mortgage-financing system should be gauged not only by how many people own their homes, but by whether it can absorb shocks without crumbling.
What underlies this notion is that everything is good in moderation, but problematic in excess. As the real estate bubble taught us all too well, home ownership is not an exception to this rule. When the government steps in to make something too widely available, economic distortions creep in.
So just why is owning a home good? Here are several common reasons advocates give:
1. Economic benefits are achieved compared to renting, like the interest tax deduction.
2. Mortgage borrowing occurs at a relatively low interest rate.
3. A house can be like an investment if it appreciates.
4. It creates positive externalities, like better community involvement.
5. Once your mortgage is paid off, housing costs are limited to maintenance.
Above, the first two reasons aren't entirely honest. They are only benefits of home ownership because the government has made them so. The benefits the first point describes are due to various tax incentives provided to homeowners. The second is largely due to the government-sponsored entities helping to create liquidity by taking on much of the market's mortgage risk.
An argument for why the third reason doesn't always hold up can be found here. As the U.S. the housing market returns back to normal, home price appreciation will likely fall back to low levels. If you're looking for an investment, you can generally get a much better long-term return on other opportunities than on a home.
The fourth reason is somewhat doubtful, and refuted in this post by Felix Salmon. Like homeowners, long-term renters would also take pride in their communities. Any evidence otherwise would likely suggest more a correlation than causation relationship.
The last reason, however, is a solid one. It is, indeed, nice when you no longer have to make a mortgage or rent payment once you own your home. Of course, as homes age, maintenance costs increase. While it isn't likely that this would overshadow the cost of continuing to rent, renters don't have to worry about maintenance. Consequently, this benefit probably isn't quite as strong as it seems.