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 isnt 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.

Eduardo M. Peñalver is the Allan R. Tessler Dean of the Cornell Law School. The views expressed in the piece are his own, and should not be attributed to Cornell University or Cornell Law School.

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