|Author: The Economist Magazine|
Two articles from The Economist magazine. The first, "Shelter, or Burden?" argues that social benefits of home ownership look more modest than they did and the economic costs much higher.
The second, "Building Castles of Sand," points out that governments mistakenly spent a fortune encouraging people to buy houses. Abstracts of the two articles appear below.
In the U.S. and other countries offering mortgage-interest deductions and other such incentives, homeownership is encouraged because it is believed to boost wealth, entice people to save money, and increase neighborhood investment. This article says that some experts find fault in such policy and emphasize that the push for homeownership sparked huge subprime mortgage default rates and led to the economic crisis.
The U.S. homeownership rate fell to 67.5 percent last year from 69 percent in 2004 as 2.3 million families lost houses to foreclosure. According to Paul Krugman, Nobel laureate in economics in 2008, "Given the way U.S. policy favors owning over renting, you can make a good case that America already has too many homeowners."
Some experts believe homeownership subsidies have made the economy more volatile, encouraged homeowners to extract equity to finance their spending habits, and increased lenders' risks. They insist that people could generate wealth outside of homeownership by investing in the stock market or owning rental properties. Others point out that neighborhoods with high rates of homeownership do not perform better than those with high rental rates, noting that foreclosures have deteriorated some communities by pushing down the values of surrounding properties.
The U.S. housing policy favoring homeownership has contributed as much to the current financial crisis as bankers, predatory insurers, and other players currently facing blame. Many governments, including the United States, subsidize housing through either tax credits or other means because studies have suggested that homeownership leads to more stability in neighborhoods, higher academic success among students, and greater participation in local democracy.
However, recent research indicates that local stability may prevent homeowners from searching for jobs outside their area, and money pumped into the market will artificially boost house prices and distort the market. This opinion piece suggests that a housing policy focused on homeownership not only encourages a reliance upon public funding, but also exaggerates the booms and busts of the housing market. Governments should consider reducing and ultimately eliminating housing subsidies and phasing out capital-gains tax advantages provided to houses.