Less Americans Own Their Own Home; The Result of a Good Program Gone Bad by Lack of Regulation

It Was Not Broke, But They Fixed It Anyway

The concept of home ownership as a social benefit has been a long standing part of American economic society.  It is true that home ownership is not all benefit and no societal cost, but the benefits of home ownership in an economy are substantial, and significantly greater than the negative aspects of it.

Home ownership does a number of positive things.  It promotes community stability, it results in residents being far more involved in the community and less alienation by families. A person who owns the house they live in is much more likely to maintain it and maintain the quality of the neighborhood.

Home ownership has a strong economic benefit, as the mortgage is paid off and equity increases a home owner acquires wealth.  Conservative economic philosophy has long encouraged an “ownership” society, and home ownership fulfills this goal. Even if prices do not increase, at the end of 30 year mortgage the homeowner has a physical and financial asset and more economic security than if he or she did not own the home.

The downside to home ownership is primarily in that it limits labor mobility.  An unemployed worker who owns his or her residence has more difficulty moving to a new job at a new location than one who does not own their home.  Reckless financial decisions on the part of the homeowner can also cause difficulties, as the economic crisis the U. S. is still in shows.

But overall the benefits to society and the individual of owning a home would seem to far outweigh the negatives. So it is not good to learn that the U. S. is experiencing a decline in homeownership. 

Between 2000 and 2010, the ownership rate, defined as the percentage of owner-occupied housing units to all occupied housing units, declined by 1.1 percentage points to 65.1%, with declines in every region. While the rate remains at the second-highest level since data collection began in 1890, it is expected to continue falling as more Americans choose to rent homes instead of own.

The reasons for this decline are obvious.  The housing bubble, which was created by the failure of regulatory authorities to do their job, and the failure of privatization of mortgage companies like Fannie Mae and Freddie Mac have made it impossible for many Americans to stay in their homes, and for others to buy a home.  This will have negative consequences for decades.

The chart also shows the limits of monetary policy.  With mortgage rates at record lows, and a 30 year fixed rate mortgage at just below 4% the demand for housing should be huge.  But buyers cannot buy, because they do not have the confidence or the income or both that would allow them to buy.  Monetary policy in the form of low interest rates is a necessary condition for economic stimulation, but it is not a sufficient conditon.

Government programs, like VA loans, FHA loans, the creation and growth of government owned companies like Freddie and Fannie fueled a huge boom in home ownership, as the graph shows in the eara 1945-70.  These programs showed that government housing programs can work.  But success was not good enough, someone had to say that the “economic philosophy” behind government ownership of mortgage companies like Freddie and Fannie was contrary to American capitalism, and so they became private companies.  But they retained their implicit government guarantees, and borrowed and invested so recklessly that they have done great damage to an American industry.

The Dismal Political Economist does not expect that America has learned its lesson.  Privatization of government operations, and de-regulation of vital areas of the economy like Finance are coming.  In the long term this will be an economic disaster.  But when a group of people gain power, a group that is absolutely, totally, completely and unwaveringly certain of their positions, regardless of facts, logic and data, a disaster are what happens.