Owning a home has become as American as apple pie and baseball. Much of the nation's strong middle class has historically had a great amount of its wealth as equity in its homes. Indeed, the government has taken great lengths over the years to ensure that residential real estate was made affordable through tax incentives and government-sponsored enterprises that kept mortgage interest rates low. Homeownership has definitely been billed by Washington and the media as a part of the American Dream, but should it be?
A recent Time magazine cover story questions this conventional wisdom. So are many academics and policymakers as Washington decides how to reshape its housing finance policy. The question posed above is an important one.
Buying a Home is Great, But So Is Buying a Toaster
For starters, there are some good reasons to buy a home. When you pay it off, your housing costs are limited to taxes and maintenance. If you like interior design, then you have free reign to make the home your own. The list goes on.
But there are also lots of fine reasons for buying other things. It can also be great to buy a toaster. Then, if your bread gets a little stale, you don't have to throw it away, but can make croutons. You can also make other tasty toasted snacks, like some delicious French bread pizza. Yet no one is out there saying that the government should be subsidizing toasters, because owning them is part of the American Dream.
So what makes homeownership different? Well possibly that shelter is a basic human necessity. But, you can rent and still get that shelter. At this time, most of the advantages for buying instead of renting are provided by the U.S. government, like the mortgage interest tax deduction. If you take out the government's influence, then homeownership and renting begin to look a lot more similar in terms of financial advantage. In fact, if you aren't in a very stable place in your life, then buying a home can actually make matters worse, as it could limit your labor mobility, and your closing costs and fees might not be covered if you must move only a few years after buying.
What is the American Dream Anyway?
Since there's no huge intrinsic advantage to buying instead of owning that immediately suggests it should be considered part of the American Dream, let's take a different approach. What sorts of things should be considered a part of the American Dream? While probably a dozen or more criteria could be thought up to embody such principles or endeavors, I'd like to suggest three that should all be met for anything to qualify: capability, versatility, and essentialness.
First, for something to be a part of the American Dream, all Americans should be able to enjoy it -- no matter their occupation, income, or other characteristics.* For example, parents should be able to earn enough money to provide a relatively decent life for their family. Sure, some people live more comfortably than others, but it's a fairly uncontroversial statement that no family in America should remain below the poverty line if both parents are employed and hard-workers. All Americans should be capable of living all aspects of the American Dream.
Homeownership doesn't fit with this criterion. First, some people simply don't earn enough money to buy a home, particularly if the government wasn't already subsidizing prices. Second, even if people do make enough money, some careers with income instability don't mix well with owning a home. For example, if you're a freelancer or entrepreneur with wild income swings, a bank might not give you a mortgage. But one's income level or stability should not reflect whether he or she can live the American Dream.
Next, the American Dream's various components should be desirable to everyone. For example, the freedom to choose one's own path in life is something all people would value. That doesn't mean everyone necessarily gets precisely where they want to be in life, but they have the opportunity to try. Anything said to be a part of the American Dream should be sufficiently versatile so that all people desire it.
Again, homeownership fails this test. For example, if you work in Manhattan, then you might simply find it unpalatable to buy a home. Either you don't want to pay outrageous monthly maintenance fees for an overpriced co-op in Manhattan, or you don't want a 45-minute commute each way to live in the suburbs. And that's okay. You would then be better off renting. If there are good reasons why someone might not want something, then it isn't part of the American Dream.
Finally, each component of the American Dream should be necessary for ultimate contentedness. Think about the freedom of speech. If you couldn't legally say what you believed, then you would certainly feel like something was lacking from your life. This doesn't even mean this freedom needs to be exercised, just present. Americans should feel every part of the American Dream is essential to their happiness.
On this one, homeownership clearly doesn't pass. To see why, imagine a very wealthy businessman living in Chicago. He has a wife and kids. They rent a beautiful apartment near the lake. Should he feel like there's a gaping hole in his life because he doesn't own a home? Of course not. If he isn't in a position to live the American Dream, it's hard to imagine who is.
Don't misunderstand this analysis. Homeownership can be great in many situations. There are certainly reasons why people may find it desirable. But not every can own a home, not everyone would want to own a home, and no one needs to own a home to be happy. For those reasons, and probably others, it shouldn't be considered to be a part of the American Dream.
*Excluding physical, psychological, or mental constraints.
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