Subsidizing the American Dream
Matt Yglesias ponders government policy with respect to home ownership:
If we didn’t subsidize howmownership, people would own less home and own more stocks and bonds instead. Some of that owning “less home” would come from people renting rather than buying, and some would come from buyers simply buying smaller houses. That’s be good for the environment, and more capital would be available for business operating in non-housing sectors. Meanwhile, I feel like if we weren’t specifically encouraging an ideology of home ownership (“American dream” and all that), you might get less of the risky behavior that seems to be causing trouble of late. I feel like there are a lot of people who would never dream of doing something so exotic as margin trading who’ve been basically willing to do the same thing with their investment in the housing market. If anything, it seems to me that we should be work at the margin to discourage people from treating their homes as speculative investment commodities.
A number of Matt’s commenters raised objections to the above line of thought, perhaps best summarized by the line:
Homeownership is encouraged to make sure economics and democracy are properly aligned.
That’s all well and good, but this still doesn’t say why government (as opposed to, say, one’s family or friends, or the desire to have a golden retriever, or the wish to paint one’s living room midnight blue) needs to “encourage” the consumption of owner-occupied housing — especially via massive tax code subsidies as is currently the case. I mean, if it were a matter of, say, having a 30% home ownership rate vs the actual 69%, the mortgage interest deduction might make more sense. But there are plenty of good reasons to own a home entirely independent of the government cash involved, and countries whose governments subsidize home ownership to a lesser degree than ours (Britain, for instance) enjoy home ownership rates comparable to America’s.
Thing is, it’s not even clear the tax code actually boosts the ownership rate, because that’s not the same thing as boosting the consumption of owner-occupied housing (which current policy most assuredly does accomplish). I think it’s entirely possible that the increase in the consumption of owner-occupied housing observable in increases in average home size and amenities (and, of course, price) largely cancels out hoped-for gains in the ownership rate (especially in areas where the subsidized increase in demand can’t easily be accommodated by new inventory).
What we should be asking ourselves is: is the cost of the tax subsidies and attendant misallocation of capital justified by the extra (say) three points of home ownership we may (or may not) gain as a result.
My guess would be “no.”