Renting versus Owning
Earlier this week, Krugman had an op-ed criticizing the longstanding policy of encouraging homeownerhip. His bottom line was that homeownership is not for everyone, and that government shouldn’t be trying to push as many households as it can into that form of tenure:
There are, of course, advantages to homeownership — and yes, my wife and I do own our home. But homeownership isn’t for everyone. In fact, given the way U.S. policy favors owning over renting, you can make a good case that America already has too many homeowners.
Krugman mentions three costs of homeownership: financial risk, immobility, and long commutes. The third is more a product of land-use policies as homeownership, since there is no reason, apart from poor land use laws, for homeownership to be more affordable (in absolute terms) in the farthest flung suburbs. Liberalize zoning regulations within urban cores, and that problem largely disappears, particularly in the present environment of high gasoline costs. The second “cost” (immobility) is actually both a cost and a benefit. As I and others have argued, the immobility of homeownership stabilizes neighborhood communities by increasing the cost of exit. And the stability of communities of homeowners gives them some unique and attractive characteristics. There is obviously a tradeoff involved in assuming such immobility, but it’s not clear that it’s a net negative, even for low-income homeowners.
The one cost that I think Krugman is correct in identifying is financial risk. Historically, however, this has been manageable, and, as William Fischel has suggested, even the risk of homeownership is not an unmitigated evil, since it pushes homeowners to become very attentive to local politics. On the other side of the coin, and unmentioned by Krugman, is the risk of renting in an unregulated market. Today’s USA Today has an article about people pushed into homelessness because the property they were renting was foreclosed. We could also talk about people pushed out of rental housing by rising rents due to gentrification or by condominium conversion. The precariousness of renting generates a number of problems, including social dislocation and academic instability for the children of renters.
To point to the downsides of renting is not to disagree with Krugman’s bottom line position that we may be doing too much to encourage homeownership. Rather, I just want to suggest the (hopefully friendly) amendment that any policy shift away from that goal should be accompanied by efforts to provide greater protection and stability to renters. Economists are not very fond of rent control, housing codes, and eviction protection, but those sorts of policies help to provide renters with some of the benefits of owning. They obviously come with their own costs, but it’s not clear to me either (1) that the magnitude of the costs of a well-designed rent-control or housing code regime outweigh the benefits for renters or (2) that those costs can’t be dealt with through remedial government policies.
Krugman is an ultra-elitist liberal who knows what’s best for the rest of us … but Bush is right that owning your own home is part of the American Dream. Does Krugman really want to take away that dream? He probably does … his fellow ultra-elitist liberals have also condemned (because of carbon footprints and climate change) things such as drive-through windows, turning on Christmas lights too early in the season, building bonfires on beaches, buying food or flowers that were shipped long distances, etc. They would be laughable if they weren’t listened to by so many gullible people.
My city has about 70% renters. many but certainly not all by choice. Rent control makes for some equaling of justice. I’m hardly an ultra-liberal elitist but I would laughingly ignore having Bush tell me how to live the ‘American Dream’. I’m hearing some white flight people in outer suburbs suffering from high gas commutes. My advise would be to forget ‘American Dream’ and learn American pragmatism coupled with Christian simplicity.
What is Robert Reid talking about? What is an ultra-elitist liberal? Is that like a kinged checkers piece? Or just somebody who recognizes the reality of climate change and thinks we should do something about it, even if it means you don’t get your fourthmeal? Why is owning a home part of the American dream? Is owning a car part of that dream too? How many cylinders?
I suspect that, if mortgage interest was not tax deductible (as is the case in Canada and England) people might think twice about undertaking huge mortgage obligations. Now that the mortgage silliy seasons appear to be subdued in most markets, home ownership can be identified as the truly risky business that it is. I have had the same house (built in 1916) since 1978 and the amount of my “disposable income” that it has taken to keep the place from falling down is truly astronomical. And now that I am retired and no longer have mortgage interest to deduct, I am seriously doubting the wisdom of not selling and renting (no condos for me, please …. talk about assuming risk!).
Yes, Grant, owning a car (indeed, two cars!) is part of the American Dream (though they do NOT have to be powered by gasoline–they simply have to get us where we’re going in speed and comfort) … if you asked that question to be facetious, it’s no substitute for an argument. But if you asked it seriously, you are as out of touch with the dreams and desires of your fellow citizens as Mr. Krugman …
So for your edification, let me explain that an ultra-elitist liberal is someone like Krugman who is quite willing to admit that he got his: he owns his own home but is bold enough to suggest–as part of national policy–that the level of prosperity he has achieved, while right and proper for him to enjoy, may not be what everyone else deserves … of course, what this means is that other people need to tone down their dreams a bit, set their goals lower, accept what they have rather than try for more … and all for what people like Krugman consider to be the good of their fellow citizens, mankind, the planet, etc. (But note: Krugman is not moving out of his home to serve the cause, is he?)
Ironically, why aren’t the liberals all cheering $4 gasoline? That’s what they wanted all along–for the government to tax gas so muich that people would reduce driving … well, they are reducing the driving but the liberals are quiet about how wonderful this is because: 1, the money is going to the oil companies and not the government, and 2, they know they’d get lynched if they did!
“Christian simplicity” is all well and good for monks and nuns who’ve retreated from the real world–but those of us who have to live in the real world with real families will want something a bit better … and eventually the same technology and industry and even Big Business Corporations that supply our current prosperity will also find ways to solve our current energy supply/energy cost problems and even climate problems … it’s astonishing how short-sighted people can be: gas has only been $4 for a few weeks, the housing bust has only been around for a few months (I’ve lived through two boom-bust cycles just during my 15 years of home ownership … there will be more). Read some history, get some perspective, and as The Good Book says (I mean the Hitchhiker’s Guide to the Galaxy, of course): DON’T PANIC
Jimmy, I’m right behind you.
When we bought our house, we made sure we bought something modest, the mortgage of which was about equal to the rent we were paying for our apartment. We refinanced a couple of times to bring the monthly payments down, and now the heap is about paid off.
Rent in our old apartment has about doubled, so whatever money we’ve put into the house was offset by the rent increases we would have incurred. I think it’s probably been an even trade.
Moving to a rural community, however, has meant longer commutes to work, and greater distance from cultural events in the city. It has moved us closer to elderly parents and into a better (and cheaper) school district.
But even if you make good financial decisions about home ownership, the whole experience takes its toll in marital stress. What color to paint the house, how often to mow the yard, what to do about the hole in the fascia boards that the robins moved into, how often to replace the appliances, and where to store the ever-mounting pile of junk that expands to fill the space available. It’s a never-ending source of bickering over stuff that doesn’t amount to a hill of beans.
I can’t wait to get shut of this place, move to the city near the grocery store and laundry, and buy one of those old-lady carts with a lid that doubles as a seat for when you’re tired. Best of all, Raber and I would have back the common enemy that made our early married life so idyllic: The Landlord.