Homeownership is overrated and the government went too far in pushing it on the American people, Paul Krugman writes in today's New York Times. He suggests it's time for America to "drop the obsession with ownership."
We couldn't agree more. Four months ago we wrote: "The social engineering program entitled the 'ownership society' has failed and ought to be abandoned."
It's important to remember that however greedily mortgage lenders piled into the ownership society with their liar loans and interest only, adjustable rate loans, the underlying policy was a special kind of compassionate conservatism--that is, a policy informed by the good intentions of people who believe in harnessing the market to enrich themselves while encouraging social progress.
Now it may be going to far to say that all roads paved with good intentions lead to Hell but a traveler looking back on the roads travelled by American society over the past few decades could be forgiven the overstatement. This isn't the place to run through the entire gamut of well-begotten social engineering programs. The list is too long for workday reading, and the results too depressing for a day in which the Dow has flatlined.
So let's stick with the one on everyone's mind. We termed it The Great Homeownership Experiment. The proximate cause goes back to the early years of this decade, when the newly elected George Bush decided to make the increase of homeownership a central part of his presidency. Indeed, he declared that those who resisted the call to push homeownership beyond the natural limits of the marketplace un-American, un-Christian and very possibility racist.
"The only way we can have a better society is to make sure those who don't have a house have the opportunity to get one," Angelo Mozilo said. The fact that he could, as the head of Countrywide, become fabulously wealthy while doing this is evidence, we suppose, of the conservatism of this compassion.
Krugman points out, however, that our obsession with ownership goes back far further. Through tax breaks and other incentives, we punish renters in favor of owners. Renters are somehow treated as second-class citizens, perhaps event dangerous dissenters from the American dream. But now that the dream is fast becoming a national nightmare thanks to the well-intentioned plan to make it a reality, we can't help but nod our heads when Krugman urges that its high time we "try to open our minds to the possibility that those who choose to rent rather than buy can still share in the American dream -- and still have a stake in the nation's future."
Home Not-So-Sweet Home [New York Times]
Posted by ab , Jun 23, 2008 3:57PM
god i hate to agree with anything krugman says.
Posted by guest , Jun 23, 2008 4:00PM
John, if you care to list them i will be happy to read the entire gammut of well-begotten social engineering programs. what else is on your mind? I've got nothing to do until 6 at least.
Posted by Anal_yst , Jun 23, 2008 4:02PM
Lots of homeowneders around still likely think they have a natural right to own their own home (although their understanding of the term "own" is likely shaky, at best)
Posted by StMarc , Jun 23, 2008 4:04PM
Even a blind squirrel finds a nut once in a while.
Of course in this case DB is the squirrel. Krugman is the nut. But that doesn't mean he's wrong. Those are the odds, but it's not proof or anything. In this case, he makes a point.
M
Posted by guest , Jun 23, 2008 4:10PM
Please get your facts straight!!! Homeownership was a major platform of the Clinton administration. Important legislative changes were made during the Clinton Presidency which ultimately led to the current crisis.
Posted by Investorcluzo , Jun 23, 2008 4:10PM
I believe that home-ownership is naturally a good thing (despite some of the negatives listed in the story). however, the means by which people obtained homes was a failure. perhaps government/banks/do-gooders should have offered education instead of ninja loans and ownership propaganda. if you put down 20% and had a cash cushion when buying your home (yes that's a high hurdle), we would see far fewer people out on the street complaining they were defrauded and the CDO/RMBS crisis may have been avoided...
Posted by guest , Jun 23, 2008 4:11PM
Private ownership is capitalism. Public ownership is socialism. Which do you support?
Posted by guest , Jun 23, 2008 4:11PM
Please get your facts straight!!! Homeownership was a major platform of the Clinton administration. Important legislative changes were made during the Clinton Presidency which ultimately led to the current crisis.
Posted by guest , Jun 23, 2008 4:11PM
Please get your facts straight!!! Homeownership was a major platform of the Clinton administration. Important legislative changes were made during the Clinton Presidency which ultimately led to the current crisis.
Posted by guest , Jun 23, 2008 4:11PM
Please get your facts straight!!! Homeownership was a major platform of the Clinton administration. Important legislative changes were made during the Clinton Presidency which ultimately led to the current crisis.
Posted by guest , Jun 23, 2008 4:12PM
Please get your facts straight!!! Homeownership was a major platform of the Clinton administration. Important legislative changes were made during the Clinton Presidency which ultimately led to the current crisis.
Posted by StMarc , Jun 23, 2008 4:14PM
Incidentally, it is very ironic that one way the government makes the inflation numbers look lower is that they figure changes in housing costs based not on what housing, y'know, costs, but on what it would cost to rent your house from yourself.
I think if they're going to do that it would only be fair to let renters deduct what interest on a loan to buy their rentals would be. Since one of the primary reasons people rent is that they don't have the income/credit score to qualify for cheap loans, this could get interesting in a hurry, especially if we base it on actual costs and not some made-up estimate. :)
M
Posted by guest , Jun 23, 2008 4:14PM
easy there, spazarella
Posted by John Carney , Jun 23, 2008 4:14PM
Repetitive guest,
You are right that Clinton pushed it. But Bush really made it his own. It's all there in his policies and speeches.
Posted by Investorcluzo , Jun 23, 2008 4:17PM
is there an echo in here? doesn't the little note to the left of the comment box say "Please only submit your comment once." foshizzle!
Posted by guest , Jun 23, 2008 4:29PM
Sorry Mr. Carney. The excesses of the past few years are directly attributable to the "tinkering" that took place during the Clinton years. Absent these legislative changes, it is highly unlikely that the silliness that occurred since 2005 would have ever been tolerated.
Posted by Bulging Bracket , Jun 23, 2008 4:30PM
It's the leftists like Acorn and Krugman that claimed to find redlining and racism everywhere, rather than Bush, who are to blame. The aphorisms surrounding rented goods always apply and are the chief reason why ownership is good. The other being that a mass bourgeoisie is much healthier than a society where everyone rents - much easier to burn get a mob to burn down their landlord's house rather than their own!
Krugman (since writing for the NYT) makes Maoists look reactionary, so his opposition to any form of capitalism is unsurprising. Agreeing with the form but not the substance of an argument from a vile entity like him is cause for distaste, rather than celebration on the front page, and should be accompanied by extensive explanation of why he's an ignorant jackass.
Posted by guest , Jun 23, 2008 4:33PM
A republican with a stuttering problem...is that you George W.?
~Lexsteelz
Posted by GinNTonic , Jun 23, 2008 4:43PM
Agreed with ab. Krugman is a blubbering self-righteous dbag (I think O'Reilly is too), but I think he's on to something here.
Posted by Anal_yst , Jun 23, 2008 4:50PM
Krugman's argument(s) are hardly original, remember reading something about this months ago (maybe in wsj op-ed?), but krugman (somehow) has a bigger stage from which to cry foul than most.
Posted by guest , Jun 23, 2008 4:50PM
It was the ability to pass on 100% of the risk of these loans that led to this situation. Brokers arranged the loans, banks sold the loans to the street, and the street packaged them and sold them on to investors.
Any business that allows someone to generate fee income while passing the cashflow and all the associated risk on to someone else is going to lead to a train wreck unless all parties are careful with their due diligence. Once all the parties got it into their heads that real estate values were only going to go up, it was just a matter of time before everything went down the crapper.
Posted by BlackSwan06 , Jun 23, 2008 5:04PM
@4:50 fully concur... The Homeownerpalooza years created a lot of warped incentives without adequate recognition of the inherent risks, and consumers forgot that "past performance is not indicative of future results" with respect to home appreciation... And the folks in these stinky mortgages were, often times, not savvy enough to ask the hard questions about the basic assumptions/conditions that would keep them out of foreclosure (re: Investor Cluszo's point). Even though it is the school of hard knocks, hopefully more prospective buyers will not regard renting as a Mortal Sin and ask the right questions before signing the paperwork...
Posted by Anal_yst , Jun 23, 2008 5:17PM
StMarc @ 4:14 brings up an interesting point: What would happen if we changed the incentive structure re: rent vs. buy decision?
Renting sucks since you're "throwing money down the drain" (especially in NYC/London/etc), but what if there it wasn't all for naught?
I haven't thought this one out, curious if anyone has any opinions/thoughts already...
Posted by terry , Jun 23, 2008 5:34PM
if krugman rarely comes up with something intelligent, then upgrade your sources. clive crook was talking about this 6 months ago and i'm sure others were before him.
http://www.theatlantic.com/doc/200712/real-estate
Posted by guest , Jun 23, 2008 5:38PM
If you were to incentivize renting, you would have to simultaneously find a way to stop landlords in high-demand areas from increasing price. Consumer willingness to pay stays constant, so if they are seeing a lower effective price, they will be willing to pay more. Since demand for rentals, esp in NY, london, etc. is still very high, there would have to be a mechanism to limit price increases.
Posted by guest , Jun 23, 2008 5:44PM
Krugman is a BA in Sociology masquerading as a PHD in Economics. What a douche.
Posted by guest , Jun 23, 2008 5:58PM
tell me that your headline doesn't say "Obession"
Posted by guest , Jun 23, 2008 6:11PM
The easiest way to incentive renting would be to remove or tighten the tax deductibility of mortgage interest. Perhaps limit it to first mortgages, not HELOCs, or some such thing. Of course that would never happen in a million years.
Posted by Cincinnatus C , Jun 23, 2008 7:15PM
You are an obession, I cannot sleep
I am a possession unopened at your feet
There is no balance, no equality
Be still I will not accept defeat
I will have you, yes I will have you
I will find a way and I will have you
Like a butterfly, a wild butterfly
I will collect you and capture you
You are an obession, you're my obession
Who do you want me to be to make you sleep with me
(x2)
I feed you, I drink you by day and by night
I need you, I need you by sun or candlelight
You protest, you want to leave
You say there's no alternative
Your face appears again, I see the beauty there
But I see danger, stranger beware
A circumstance in your naked dreams
Your affection is not what it seems
You are an obession, you're my obession
Who do you want me to be to make you sleep with me
(x2)
My fantasy has turned to madness
All my goodness has turned to badness
My need to possess you has consumed my soul
My life is trembling, I have no control
I will have you, yes I will have you
I will find a way and I will have you
Like a butterfly, a wild butterfly
I will collect you and capture you
You are an obession, you're my obession
Who do you want me to be to make you sleep with me
(x2 an fade)
Posted by Cincinnatus C , Jun 23, 2008 7:20PM
krugman is crazy...he and other nutjobs like 'financial guru' suze orman use the whole CDO/subprime meltdown as an excuse to have fun/masturbate while playing devil's advocate re home ownership, in the process confusing alot of prospective homeowners.
says krugman: "First of all, there’s the financial risk. Although it’s rarely put this way, borrowing to buy a home is like buying stocks on margin: if the market value of the house falls, the buyer can easily lose his or her entire stake"
um, not really, since volatility is less and market value isn't measured daily on home values, and a margin call is therefore less likely.
i stopped reading after this, plus it was annoying how long he spent pounding home the point about how people say you're not an american unless you own a home.
Posted by guest , Jun 23, 2008 7:36PM
As long as fewer than 50% of homeowners default on their mortgages, the loose lending policies were a net positive for the borrowers.
Posted by Anal_yst , Jun 23, 2008 7:41PM
@ 7:36
HUH?
@ Cincinattus C
Don't get me started on that oompa loompa/mozillo-looking Orman....
I think 5:44 put it very nicely though, despite having some decent points, Krugman tends towards douchiness (not that he's at-all alone in that, obviously)
Posted by Joseph di Jersey City , Jun 23, 2008 8:38PM
Finally people have stopped encouraging me to buy. For years I've had to explain (often to no avail) how I can rent a place for considerably less than the all in costs of ownership. Nevermind trying to explain that a good way of valuing real estate is the net cash flow available from renting out a place that you own and how it's not smart to buy when you would have large negative cash flow. Also nevermind that for most people owning makes a single place in a single market a huge and leveraged part of their investment portfolio. That, as many are learning, is risky.
If someone really wants to own a house and doesn't care about it as an investment that's fine - they correctly see it a spending based on a lifestyle/psychological decision.
Posted by guest , Jun 23, 2008 8:45PM
5:38, if the reserve price for renters went up, then landlords would charge more-- but supply would also increase, and the increased rents wouldn't be as large as the new tax break. The only loser is the government collecting less income tax (and shifting demand upward).
Posted by guest , Jun 23, 2008 11:20PM
In every one of Bush's State of the Union speechs (except this year) he has exploited the incresing number of home owners as evidence of the health of the economy and the success of his economic plan. But like his "abstinence only" policy (In 2006, for the first time in U.S. history, a majority of all births to women under 30 — 50.4 percent — were out of wedlock)it was a absolute failure.
Krugman may be a left leaning semi crackpot, he may have not have been the first person to point out the stupidity in home ownership for all, but that doesn't mean what he said doesn't have merit.
If Bush had an issue with Clintons policies vis-a-vie home ownship he could have changed them. Isn't that what changing adminstrations is all about?
Posted by Horselover , Jun 24, 2008 12:32AM
hope we can get them for free one day! like u go online dating and get free service from, say, _RIDERLOVE.COM_ my friends get a load from there anyway!
Posted by guest , Jun 24, 2008 7:57AM
715 somebody say feet?
Posted by lemmerdeur , Jun 24, 2008 10:56AM
Carney, I told sac to sell his stupid house in Sacramento in 2004. Someday, Bush will scrap enough constitutional amendments to allow me to substitute saying "I fucking told you so" with a simple yet satisfying back-handed bitchslap.
"Ownership" ten years ago was having 10%, 20% or 30% equity. No-money-down, interest-only ARMs don't make a person an owner, they make them a debtor.
Posted by guest , Jun 24, 2008 4:32PM
Even the word "homeowner" is a misnomer if the mortgage is not yet paid in full. Are you not "renting" from the mortgage lender?
You "homeowner", please default 90 days on your payments and see how fast you get "evicted for non-payment of rent"