I think it's clear enough that this rise in the number of people renting their homes has, in practice, been driven by economic hardship. And hardship, obviously, is a bad thing. But at the same time, I think the habit of using the homeownership rate as a general indicator of economic progress is a bad one. There are pros and cons to owning versus renting, plus at any given time in any given market the financial imperatives may point in one way or another.

Given all that, it seems that there's no reason for our policy and rhetoric to include a strong bias in favor of homeownership. Renting gives people more flexibility about where they live, which is probably a good thing in a continent-sized economy where there can be a lot of localized booms and busts. What's more, a house you own combines two elements -- a consumption good element and a savings element. Renting separates that out -- you rent as much house as you feel like consuming, and then you save money by buying mutual funds or whatever. When people own they tend to wind up living inside they mutual fund, which means buying a bigger house than they might have rented, which distorts energy consumption patterns and all kinds of other things.

Consequently, I think that over the long term we should try to shift toward policies -- especially tax policies -- that are more neutral between buying and renting. This can probably be accomplished by capping the home mortgage interest tax deduction at some inoffensively high number, and then not raising the cap as inflation eats it away. Lots of people would still own homes if we did that, but it would be somewhat fewer people, and they'd probably own somewhat smaller homes, and national savings could then be more focused on potentially production investments.