For decades, owning a home has been one of the safest and most profitable investments an American could make, and the country has been alive to the fact. Households in the United States, taken together, spend nearly all that they earn, and save next to nothing. It is thanks only to high homeownership and rising home prices that they have seen their net worth grow. The nation’s housing has been both its savings and a key enabler of economic expansion: The long boom in house prices powered consumption that would otherwise have seemed unaffordable. That is why falling house prices—something that the country as a whole has not witnessed since the 1930s—are hurting so much, and why they pose such a danger to the economy.
The cultural importance of homeownership has deep roots. In many societies, owning property was once a requirement for full citizenship, and almost all Western democracies gave property owners the vote first. Even so, the United States is unusual in the importance its citizens attach to owning a home—and, as driving through the country’s endless suburbs leads one to conclude, preferably the biggest home possible. Lavish tax breaks have expressed and redoubled the enthusiasm for many rooms of one’s own, and for the titanic mortgages required to pay for them. The cultural attachment came first; the tax relief duly followed. Together, they seem immovable.
Yet housing weighs heavy on the mind today. And its weight on the economy is heavier than the current downturn suggests. It’s time to move beyond the subprime mortgage meltdown and ask a more fundamental question: Is it good for society that Americans aspire to own homes, rather than merely live in them?
Widespread homeownership, the theory goes, benefits the nation because homeowners—literally invested in their communities—make better citizens. A few years ago, the economists Edward Glaeser and Jesse Shapiro looked at the evidence and concluded that, by and large, this is true: Even allowing for confounding factors such as income, family size, age, and so forth, owners spend more on maintaining their homes, vote more, play a more active part in local politics, and work harder to improve their neighborhoods.
But there are drawbacks, too. Andrew Oswald, an economist at the University of Warwick, found that homeownership makes workers less mobile, which brakes economic growth and worsens unemployment, especially in areas blighted by the decline of locally dominant industries. Strictly speaking, whether this is a social problem is debatable. The costs of unemployment are borne mostly by the unemployed, not by others. Workers in company towns might be wise to spread their risk rather than sink their savings into a house close to the plant—but, you might argue, that is for them to decide. Yet Oswald argues that homeownership helps to calcify whole economies, which weakens the case for subsidy (and introduces the case for new taxes to discourage homeownership).