Sunday, April 19, 2009
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.
This week's cartoon: