Sunday, December 21, 2008

The cult of home ownership

Good article in today's Times about how the Bush Administraton helped light the fuse under the current economic meltdown by pushing universal home ownership and hence encouraging bad mortgage loans.

Needless to say, there's plenty of blame to go around. Just look at the tax code, both its decades-old features and the Clinton Administration-directed changes thereto that I noted in a recent entry here. The only thing distinctive about the Bush Administration's adding a bit more gas to the fire is the lack of fit with its ostensibly pro-market attitudes.

But I must say, I've never gotten this political cult of homeownership. True, there is some at least slight evidence of positive externalities from home ownership in some settings because people are more committed to the location. (This can have nasty playouts as well, however, e.g., more assiduous racial exclusion.) But on the other hand, investment in more economically productive assets, e.g., via stock ownership, might have positive social externalities as well. Plus, home ownership is often (usually?) a really lousy investment choice from a personal standpoint. It's wildly under-diversified, if you're not rich enough to have a home plus lots of other assets, and leveraging it creates huge downside economic risk (as we've seen).

Once the dust settles, perhaps the government should seek from now on to discourage home ownership, encouraging those who aren't enormously investment-savvy to hold more diversified asset portfolios that are much less leveraged.


Israel Penhos said...

Are you really proposing policies to discourage home-ownership now? Wouldn't that further depress home-values and their concommitant derivatives?

Daniel Shaviro said...

Agreed, now is the wrong time, and one might want to target new homes if possible. But it certainly makes sense to remind ourselves of the mistakes of the past.