Buy It!

According to the Planet Money blog, the Sick Old Lady of Finance, Fannie Mae, is seeking another booster shot from Uncle Sam to the tune of $8.4 billion. It's almost enough to make a person wonder whether keeping the old hag around is really worth it (to say nothing of her parasite-in-arms, Freddie Mac).

Let's forget for a second that certain sovereign creditors of the U.S. government might have an interest in the continued (ostensible) solvency of Freddie or Fannie. Looking at the primary intent of these institutions (that is, to implicitly subsidize homeownership), along with various distortion in the national tax-code and federal subsidies to lenders, does it make any sense in the long-term to continue forwarding a national policy that is, in the words of Paul Krugman, "based on the premise that everyone should be a homeowner." (NYTimes)

An Edwardo Porter article from 2005 says no. Here are some excerpts:

Arguments for the positive effects from a society of homeowners - what economists call positive externalities - stem mainly from the fact that homeowners have a bigger financial stake in their homes than renters do. This motivates them, so the theory goes, to take better care of their houses and communities. In short, it will make them better Americans.

The argument seems to be supported by compelling evidence. In a 1998 study, Edward Glaeser, an economics professor at Harvard, and Denise DiPasquale, then a social scientist at the University of Chicago who now heads the housing research firm City Research, analyzed data from the General Social Survey, a big national study carried out annually since 1972, and concluded that homeownership did relate to heightened civic activity.

For instance, they found that 77 percent of homeowners said they had at some point voted in local elections, while only 52 percent of renters said they had. About 20 percent of renters knew the name of their representative on the school board; 38 percent of homeowners did. Homeowners went to church more, and invested more in the upkeep of their homes.

But as alluring as the data may be, economists and social scientists haven't been able to determine whether homeownership is actually generating all the positive statistics or whether, instead, it's just that people who vote more are more likely to buy homes.

Owning a home relates to a bunch of other things, too, and it doesn't necessarily mean that homeownership causes or encourages them. For instance, according to the 1998 study, homeowners are older, richer, more likely to vote Republican, and more than half of them own guns, while only a quarter of renters do.

[...]

Beyond the difficulty of proving that owning a home generates positive social spillover, homeownership may also affect society in negative ways.

Homeownership limits mobility. According to census data, 31 percent of renters moved in 2003, compared with about 7 percent of homeowners. While this stability can be good for a community, the reduced mobility can become a problem in the face of a local economic downturn.

And homeowners may influence social policy to benefit themselves, at the expense of others. In a study of voters in California in 2000, Mr. Glaeser found that homeowners were more likely to restrict new home-building, voting for tough zoning rules and land-use controls.

"Homeowners have spearheaded the movement to limit new housing supply that has artificially inflated housing throughout the U.S.," Mr. Glaeser wrote. "This is the downside to having individuals who have incentives to keep price up."

The tax incentives might even be hurting America's inner cities, increasing the segregation of rich and poor.

Mr. Gyourko and Richard Voith, a former economist at the Federal Reserve Bank of Philadelphia who is now a partner in Econsult, a consulting firm, have argued that the mortgage interest deduction encourages richer families to buy bigger places in the suburbs and leave the more cramped cities to the poor.

At least until recently, it seems that the social good of home-ownership--home-ownership for its own sake--has been taken for granted among both policy makers and academics. Seems kind of silly now.