Home ownership: Good thing or not?

Mark Perry takes a look at The Downsides of Widespread Homeownership; Have Americans Overinvested in Housing? Probably.

Up until about 1995 the home ownership rate was below 65%. Since then it has taken a bounce to nearly 70%. This is in response to social pressure, backed by government policies, that owning a home was a ‘good thing’.

In the past, owning a home was the major capital investment for many. It was the means by which they could invest their income disguised as a housing expense. That provided a nest egg for retirement security that was acquired as a necessary use of money earned. Good thing to save money, isn’t it?

One problem is that the money in housing isn’t working. It represents a net reduction in overall economic efficiency. From 1890 to 1990, the return on residential real estate was just about zero after inflation. By putting pressure on housing, its value bubbled and that created significant returns that became common after 1990. This asset appreciation was not based on productivity gains or other solid value, only on market pressure.

Perry also notes that owning a house ties you down. That tends to inhibit mobility in seeking better employment prospects. That is also not good for economic growth. Owning the home also changes politics – think of the famous California proposition 13 that froze property taxes. Being attached to a home also tends to promote land use regulations and other artificial constraints on development and change.

The point is that there are things to consider. The money pool has been big enough so that that home ownership, and the quality and extravagance of the homes owned, could grow significantly. But a part of that money pool was misdirected causing financial distress. In addition to that were consequences of the growth in home ownership that changed attitudes and positions that, in turn, created outcomes whose impact may not yet be completely visible.

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