Fighting the last war on homeownership
With the sharp drop in home prices have come calls to slow or stop promotion of homeownership, especially among lower-income families. We hear from Richard Florida that homeownership is overrated and from Dean Baker that ideology is behind the initiatives that pushed too many people to take out mortgages. Some (like Peter Wallison) blame much of the economic crisis on government-sponsored homeownership incentives for low-income families. Even a Department of Housing and Urban Development (HUD) official recently told a crowd of academics that we may have pushed low-income homeownership too far.
Commentators like these are fighting the last war. True, when home prices soared relative to rents and to incomes, it was a bad idea to enable people to buy properties beyond their means in the hope that price booms would later bail them—and their creditors—out. But today, home prices and interest rates make home-owning unusually affordable. As recently as 2008, the median income family buying the median home would have had to devote 18 percent of its income to its mortgage payment. Today, comparable payments are 30 percent lower—only 13 percent of income. Homeownership is also far more affordable here than in most other countries. Americans can now lock in monthly housing costs that are low relative to their incomes and to their current rent and douse worries about rent’s inevitable climb over the next 30 years.
So why is housing still in the doldrums? And why is it still a drag on the economic recovery? It’s not because people have lost their preference for ownership; a late 2010 survey found that 84 percent of Americans still believe owning makes more sense than renting. The biggest barrier is apparently financing. Over half of families in the $25-50,000 income range don’t think their credit is good enough to get a mortgage. Banks have apparently done such an about face that they won’t lend even to people trying to buy homes they can easily afford.
One way out is to adopt my homeownership voucher proposal. By phasing out the $7+ billion Low Income Housing Tax Credit (which subsidizes new housing construction), we could help 1 million families reduce their shelter costs, buy homes, increase the demand for owner-occupied housing, save the government at least $10 billion dollars over the next five years , and possibly jumpstart the residential construction industry. Unfortunately, this and like-minded proposals aren’t getting any traction because too many policymakers are obsessed with yesterday’s problems.