There’s Little Public Benefit in Homeownership

By Edward Glaeser.

"It is a terrible mistake to artificially boost the homeownership rate by subsidizing borrowing. Before 2007, America chased the chimera of an “ownership society” and ended up creating a “foreclosure society” instead.

Homeownership is a good option for people who want to live in a single-family house for the next seven years or more. Homeowners can customize their property. They are hedged against rising costs of housing. Ownership creates incentives to maintain a home. Understandably, 84.4 percent of occupied single family detached dwellings are owner-occupied.

For Americans who don't plan on settling in any one neighborhood, or who like dense apartment buildings, renting is more attractive. Renting saves the fixed costs of realtor’s fees, and limits exposure to housing price swing. In apartment buildings, renting avoids condominium fees and coop boards. Consequently, 87 percent of occupied units in multifamily buildings are rented.

There is little public benefit in pushing people to own rather than rent homes, just as there is little public benefit is squelching the market for leased cars. Homeowners are somewhat better citizens, but we shouldn’t screw up the $28 trillion housing market in the hopes of mildly increasing engagement in local politics. Moreover, when homeowners get involved in politics, they often try to stop new development which makes housing less affordable for everyone else.

Homeowners who pay off their mortgages or who are lucky enough to experience rising housing prices do become wealthier. But making it easier to borrow reduces the need to save for a down-payment, and owners can also be hit by falling prices.

Subsidizing homeownership has bad side effects. Owners are less mobile, which makes it harder for them to move from high unemployment places to high wage places.

Since big apartment buildings are overwhelmingly rented, inducing homeownership pushes people away from urban centers. The American Dream can be realized in a rented urban apartment just as easily as behind a suburban white picket fence. There is no reason to stack the deck against America’s cities, which are more economically productive and require less household energy use.

We shouldn’t worry about less homeownership, but we should worry about high housing costs in America’s most productive places. But the right response to high housing costs is to permit more building, not to subsidize homeownership. Homeownership subsidies just push prices up further. America should never again use public policy to prod people to over borrow in the vain pursuit of high homeownership rates."