22 August 2009

New American Dream: Renting

Article from Wall Street Journal requires a subscription to view in its entirety.

It's time to accept that home ownership is not a realistic goal for many people and to curtail the enormous government programs fueling this ambition. By Thomas J. Sugrue

...Surveys show that Americans buy into our gauzy platitudes about the character-building qualities of home ownership—at least those who still own them. A February Pew survey reported that nine out of 10 homeowners viewed their homes as a "comfort" in their lives. But for millions of Americans at risk of foreclosure, the home has become something else altogether: the source of panic and despair....

... One third of respondents don't believe that they will ever be able to own a home. And 42% of those who once purchased a home, but don't own one now, believe that they'll never own one again.

...In France, Germany, and Switzerland, renting is more common than purchasing. There, most people invest their earnings in the stock market or squirrel it away in savings accounts. In those countries, whether you are a renter or an owner, houses have use value, not exchange value.

... the story of how the dream became a reality is not one of independence, self-sufficiency, and entrepreneurial pluck. It's not the story of the inexorable march of the free market. It's a different kind of American story, of government, financial regulation, and taxation.

We are a nation of homeowners and home-speculators because of Uncle Sam.

It wasn't until government stepped into the housing market, during that extraordinary moment of the Great Depression, that tenancy began its long downward spiral. Before the Crash, government played a minuscule role in housing Americans, other than building barracks and constructing temporary housing during wartime and, in a little noticed provision in the 1913 federal tax code, allowing for the deduction of home mortgage interest payments.

Until the early 20th century, holding a mortgage came with a stigma. You were a debtor, and chronic indebtedness was a problem to be avoided like too much drinking or gambling. The four words "keep out of debt" or "pay as you go" appeared in countless advice books. As the YMCA told its young charges, "If you can't pay, don't buy. Go without. Keep on going without." Because of that, many middle-class Americans—even those with a taste for single-family houses—rented. Home Sweet Home didn't lose its sweetness because someone else held the title.

In any case, mortgages were hard to come by. Lenders typically required 50% or more of the purchase price as a down payment. Interest rates were high and terms were short, usually just three to five years....

...Herbert Hoover signed the Federal Home Loan Bank Act in 1932, laying the groundwork for massive federal intervention in the housing market. ...Frankin Roosevelt created the Home Owners' Loan Corporation... created the Federal Housing Administration, ...instituted 25- and 30-year mortgages, and cut interest rates...and created the Federal National Mortgage Association (Fannie Mae) which created the secondary market in mortgages...

Easy credit, underwritten by federal housing programs, boosted the rates of home ownership quickly. By 1950, 55% of Americans had a place they could call their own. By 1970, the figure had risen to 63%. It was now cheaper to buy than to rent. Federal intervention also unleashed vast amounts of capital that turned home construction and real estate into critical economic sectors. By the late 1950s, for the first time, the census bureau began collecting data on new housing starts—which became a leading indicator of the nation's economic vitality.

... Tens of millions of Americans owned their own homes because of government programs, but they had no reason to doubt that their home ownership was a result of their own virtue and hard work, their own grit and determination—not because they were the beneficiaries of one of the grandest government programs ever. The only housing programs prominently associated with Washington's policy makers were underfunded, unpopular public housing projects...

Federal housing policies changed the whole landscape of America, creating the sprawlscapes that we now call home, and in the process, gutting inner cities, whose residents, until the civil rights legislation of 1968, were largely excluded from federally backed mortgage programs. Of new housing today, 80% is built in suburbs—the direct legacy of federal policies that favored outlying areas rather than the rehabilitation of city centers. It seemed that segregation was just the natural working of the free market, the result of the sum of countless individual choices about where to live. But the houses were single—and their residents white—because of the invisible hand of government.

But by the 1960s and 1970s, those who had been excluded from the postwar housing boom demanded their own piece of the action—and slowly got it. The newly created Department of Housing and Urban Development expanded home ownership programs for excluded minorities...

During the wild late 1990s ...New tools, including the securitization of mortgages and subprime lending, made it possible for more Americans than ever to live the dream or to gamble that someone else would pay them more to make their own dream come true..

... If there's one lesson from the real-estate bust of the last few years, it might be time to downsize the dream, to make it a little more realistic. James Truslow Adams, the historian who coined the phrase "the American dream," one that he defined as "a better, richer, and happier life for all our citizens of every rank" also offered a prescient commentary in the midst of the Great Depression. "That dream," he wrote in 1933, "has always meant more than the accumulation of material goods." Home should be a place to build a household and a life, a respite from the heartless world, not a pot of gold.

UPDATE: here are a few studies about the effect of apartments on nearby
housing values:

Apartments Have Positive Impact on Property Appreciation Rates

Effects of Mixed-Income, Multi-Family Rental Housing Developments on
Single-Family Housing Values

America's Working Communities and the Impact of Multifamily Housing

National Multi Housing Council has resources about "Apartment Myths":


Mark Miller said...

I agree. Government interference has wrecked the housing industry. This could almost be a COAST position paper.

Anonymous said...

I find it interesting that in this grand survey of the federal government's involvement in housing through the centuries, the author left out the Homestead Act -- you know, the law that allowed people to acquire their own parcel of farmland for free if they lived on it for five years (or so I remember from Jr High Social Studies). If that wasn't "government interference" in housing, I don't know what would be. People were actively encouraged to settle, build houses and live in certain areas.

(Not that I'm against "government interference," I'm a firm believer in a mixed economy. Look around the world, the best places to live mix capitalism with government programs that take over where the market fails. The only question is, what's the best balance?)

Blue Ash Mom

Quimbob said...

Know of a book or more in depth article on how the home loan industry evolved from the 1800s to the mid 1900s ? (god, I love boring crap !) I have read that Harry Kissel was involved in he early 20th century but it is sketchy at best.

CityKin said...

I'm not saying I totally agree. Generally speaking, homeownership is good. However, thinking of homes as investments leads to some bad stuff including more generic houses in newer subdivisions IMO. But I do think the stigma of rental, if there is such a thing, should be removed. Renters are also more flexible and fit better in dynamic economies in which moving a lot may be critical.