Brookings co-director for Economic Studies Ted Gayer has an interesting piece condemning the government for its insistence on assisting homeowners. Recent actions like the home buyers tax credits have made their generally less obvious support of home ownership even more transparent. But there's also the government sponsored mortgage companies and mortgage interest deduction, which have a huge effect on the housing market. Of course, all this makes for a culture where renters are wrongly seen as second-class citizens. Gayer makes some really great observations.
First, he wonders whether the first-time home buyer credit might be blamed for the plight of the rental market:
Indeed, the credit may unintentionally be weakening the rental market. The rental vacancy rate for the third quarter was 11.1 percent, which is a historical high. The Consumer Price Index showed a decline in rent by 0.1 percent for October. The weak market was also reflected in the housing starts data, as starts with two or more units fell by 34.6 percent in October.
In theory, it's almost certainly true that a first-time home buyer credit would hurt the rental demand -- that's kind of the point! But I am not sure it's fair to blame the entire vacancy rate rise on just that. The recession certainly has something to do with it as well. Still, he has a point that the government here is hurting one market in order to prop up another. Though, I doubt many renters are complaining that rental prices are declining.
He also points out the staggering preference of the government for homeowners:
In a timely analysis, the Congressional Budget Office (CBO) just published an overview of all federal programs that support housing. According to CBO, in 2009 the federal government devoted almost four times the amount to support homeowners ($230 billion) compared to renters ($60 billion).
CBO estimates that the homebuyer tax credit will cost $14 billion in 2009. The Joint Committee on Taxation estimates that the extension of the tax credit will cost $11 billion more. But by far the largest tax incentive is the mortgage interest deduction, which cost government coffers about $80 billion in 2009. Aside from the inefficiency of this tax subsidy, it is also not equitable, as over 70 percent of the dollar benefits accrue to households with adjusted gross income greater than $100,000 per year.
That last sentence is an excellent point. Even if you believe homeownership is a good goal for Americans to attain (which is debatable), it still caters to the wealthiest Americans. For the extent to which the government should be involved in private enterprise, almost no one thinks it should be helping relatively wealthy Americans.
Interestingly, Gayer makes all of these strong arguments without even explicitly mentioning the massive Fannie and Freddie or homeowner bailouts. I've long found it bizarre that the government is so intent on pushing homeownership. Unfortunately, I don't see its attitude changing no matter which party is in control.
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