Houses and Homes
There is nothing like being both a buyer and a seller in the current housing market to focus one’s attention on the avalanche of housing news available these days (current status: national market down; local market down; my micro market stable). Within this informational bounty, however, I have found few news articles as thought provoking as this NY Times piece.
The article explores how the new no-money down, interest only, adjustable rate loans encouraged a subtle but distinct change in how we think about the homes we live in; a shift from buying homes as homes to buying houses as investments.
For decades, Americans bought homes. Doing so signaled the buyer’s middle class status and commitment to his or her community. The housing market was relatively stable, so most long-term owners would eventually see a tidy profit on their purchases. But their homes were first and foremost places to live. In the midst of the recent housing bubble, that changed. We still, of course, lived in our houses, but rapidly escalating prices and the lack of other savings encouraged owners to start viewing their houses first and foremost as investment vehicles.
This shift is obvious to anyone who, like me, is an HGTV addict. Rarely do you see an HGTV host praise a homeowner’s decision to paint her house purple because it is her daughter’s favorite color. On a recent episode, one woman tried to explain to the host that while she and her husband had probably “overinvested” in their beautiful backyard, they valued outdoor living and thought the decision was worth it – even if they did not recoup the money on the resale. The host looked at her as if she were speaking Klingon.
This shift – from houses as homes to houses as investments – raises interesting public policy questions. Should the government subsidize (through the mortgage tax deduction) this type of investment? The mortgage tax deduction for owner-occupied residences now costs $430.2 billion and is projected to be the fourth largest federal tax expenditure in 2007-2011. Subsidizing home ownership this way may have been a reasonable public policy choice when such ownership brought with it the type of investment in and care for a community that increased property values and quality of life for entire neighborhoods, but does it makes sense in light of an investment mentality that may be encouraging (or forcing) people to “walk away” from purchase choices gone bad?
And what of the social phenomena that promotes home ownership as an essential part of the American dream? If achieving home ownership requires the type of high-risk loans that contributed to our recently burst bubble, is it time to start rethinking our national mantra extolling the virtues of ownership for all? If so, how can we change our public dialogue so home ownership is no longer viewed as an essential element of a middle-class life? The current housing crisis offers us an opportunity to think about these types of underlying issues.