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Subsidized homeownership

Economist Robert Shiller's recent NYT op-ed takes a look at homeownership subsidies.

Federal subsidies for housing essentially began in the Great Depression with, among other things, the creation of the F.H.A. in 1934 and Fannie Mae in 1938. It all started for a simple reason: more than a third of all the unemployed were identified, directly or indirectly, with the building trades. At the time, there seemed to be no way to reduce unemployment without stimulating housing, and much the same is true today.

But consider what will happen once the economy is again operating at full capacity. Basic economics tells us that when Americans, over all, spend more on housing, they must ultimately spend less on something else. Why should housing consumption be better than other consumption, or investments that people might choose?

This time, the best answer isn’t found in traditional economics but rather in American culture: a long-standing feeling that owning homes in healthy communities is connected to individual liberties that embody our national identity. Historically, homeownership has been associated with freedom, while renting — often in tenements or mill villages — has been linked to the oppression of a landlord.

Shiller poses a good question, but then equivocates, supplies what seems like the wrong answer. I wonder whether homeownership is really a "core value" and not a ruse that stems from the hyperfinancialization of the economy. It gets people involved with borrowing that shouldn't be, paying interest payments instead of rent with the idea that they are building equity -- no sure thing, as we have learned lately. I tend to agree with Ryan Avent that the idea that homeowners are better citizens is quai-racist hogwash. And I also think James Kwak is right that rather than make everyone pretend homeowners with big mortgages and fiscal sweeteners, we should attempt to remove the stigma from renting, as Shiller himself suggests. This seems a far better course than encouraging poor people to buy homes on credit so they can feel like respectable members of society -- that was part of Bush II's "ownership society" propaganda, an ideological rebranding of the caveat emptor society, and an alibi for what Jacob Hacker has described as the great risk shift.

Kwak also emphasizes Shiller's point that homeownership is not the best way to save:

The key point, which Shiller makes, is one that I’ve made to many of my friends thinking of buying houses: buying a house is colossally stupid investment according to the investing textbook, because you are taking on a high degree of leverage and putting more than your net worth not only into a single asset class, but into a single structure on a single piece of land. What makes it sensible, sometimes, are the mortgage interest tax deduction (an extremely regressive subsidy) and the fact that in many places you may want to live there are few viable rental alternatives, so you have to buy.

Maybe I need to move to Switzerland. Shiller:

Switzerland, for example, is a country with strong patriotism, a fighting spirit of national defense, a commitment to freedom and tolerance, and a low crime rate. Yet its homeownership rate is just 34.6 percent, versus 66.2 percent for the United States, according to the two countries’ 2000 censuses.

Swiss national identity doesn’t depend on homeownership. Instead, Riccarda Torriani, a historian at the Swiss Federal Department of Foreign Affairs, links the country’s sense of identity to such things as its system of direct democracy, which enforces popular participation in government; the idea that its citizens are frontier people (living in or near the rugged Alps); and a history of collective courage in defense of freedom, even when outnumbered.

Interesting, though the idea that you would call up a bureaucrat and get her to define the national character seems strange to me. The idea of a prescribed "national identity" seems part and parcel with ethnocentric nationalism. Despite all the rah-rahing about American exceptionalism, the most exceptional thing about America may be that it's a place where the national identity is that we have no specific national identity (like how the Pixies image was supposed to be that they had no image). You are supposed to be free to live how you want, which is why all those disdained religious sects came here in the 17th century, etc., etc.

On a related note, I found this argument (video) for eliminating Fannie and Freddie, by Raj Date, convincing.

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