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On the burden of home ownership
Sunday, April 19, 2009
The Harper's image and title on this subject are much more compelling than the ones below, but The Economist provides a timely update on the now-familiar story in this report.
Shelter, or burden?The National Association of Realtors still touts that, don't they?
The social benefits of home ownership look more modest than they did and the economic costs much higher
IN A scene from the film “It’s a Wonderful Life”, a happy couple is about to enter their new home. Jimmy Stewart, whose firm has sold them the mortgage, reflects that there is “a fundamental urge…for a man to have his own roof, walls and fireplace.” He offers them bread, salt and wine so “joy and prosperity may reign for ever”.That embodies the Anglo-Saxon world’s attitude to home ownership. Owning your own roof, walls and fireplace, it is thought, is good for householders because it helps them accumulate wealth.
You have to wonder how long that will be the case if there are no appreciable gains in home prices for years to come, an outcome that is more likely than any other.
Back to the story...
It is good for the economy because it encourages people to save. And it is good for society because homeowners invest more in their neighbourhoods, engage more in civic activities and encourage their children to do better at school than do renters. Home ownership, in short, benefits everyone—not just the homeowner—and the more there is of it, the better. Which is why it is usually encouraged by the government. In America, Ireland and Spain, homeowners can deduct mortgage-interest payments from taxable income.Yes, conventional wisdom is often wrong...
Yet the worldwide crash was bound up in this supposed miracle of social policy.
It's funny how all the booming Western economies of a few years ago such as the U.S., Ireland, England, and Spain, all of which had massive housing bubbles, were not seen for what they were at the time by more people.
The graphic in this story is also well worth a look as it plots German home prices alongside prices in the bubblier countries. Those Germans never did get with the no money down, no income verification required approach and - surprise! - no housing bubble.
There's a second story on housing in the current issue as well - Building Castles of Sand.
To their credit, The Economist was an early spotter of the global housing bubble as it was forming.
ooo
This week's cartoon:
6 comments:
As a long time renter that transitioned to home ownership last year I can attest that "owning" a home is easily more costly and more labor intensive than renting.
Glad to see you back Tim, again best wishes for you and yours.
Yes -- good to see you back. Those family "events" make you appreciate life all the more........
Becoming a member of a housing coop is a good alternative.
One thing those consumed with thinking of the world in terms of dollars (economists, investors, etc) sometimes forget is that there are indeed other benefits to home ownership that don't translate into money.
Freedom to do what you want in your own home, the knowledge you won't be forced to move every few years as landlords sell out, being able to establish a business at your home (often prohibited), the enjoyment of a nicer lawn and yard than in most rentals, often a better set of neighbors (stable neighborhoods here have few homes for rent), etc, etc, etc.
I spend about the same to own as to rent after taking into account tax deductions and other factors. The real cost is a$100,000 down payment tied up making nothing. But that's not a huge sacrifice these days.
In other markets I've lived in owning would cost nearly double what renting costs. And the way some people live in soulless suburban subdivision neighborhoods full of transients on tiny unprivate lots, I do wonder why they bother owning, as the rental experience is barely any different for them. In fact, it can be much worse, as I witness a lot of conflict between people sandwiched together like rats in a cage. At least when you're renting you can move in less than a year.
But yes, the days of home ownership being a path to wealth are probably gone for a long time. Still, there is more to life than dollars and cents.
The Germans are much more inclined to RENT than say Americans.
The urge to "own" you home is fairly new for most of the western world, historically speaking. In Victorian England the vast majority of folks rented their entire lives and there was no drive or regret about not owning. In fact, it was often considered more sensible to rent because people were very mobile during the industrial revolution and one never knew when their family might be "moving up". Owning a house would tie you to an unsutable neighborhood, in the event that you income grew.
I suspect the ownership drive spread from America, where there was plenty of land for everyone, over to Europe. It is interesting to see how the societal expectation has turned almost 180 degrees in about 100, 150 years.
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