As long time readers of this blog know, my family has been renting an apartment in NYC for the past 2.5 years. My husband bought a 1-bedroom shortly before we got married, and we sold it, as it turned out, at the exact bottom of the real estate market. Partly because the real estate market was in flux, and partly because we weren’t sure where we wanted to live long term, we rented a 2-bedroom apartment in the same building, and we’ve just kept re-signing the lease. For a variety of reasons, it looks like we will not be able to do that again this summer. So now what?
It’s a complicated question, but may involve buying a home, most likely outside NYC. As I’ve been researching our options, I’m reminded just how much our government privileges going into debt to buy a house. Not only is the mortgage interest deductible, in many cases the interest rate has been lower than it would be due to the existence of Fannie and Freddie (we will see how that all shakes out now).
So why, exactly, do we elevate home ownership as this good worthy of billions of dollars of subsidies? Policy makers claim that home ownership is a good with positive externalities. It helps people build wealth, and leads to stable communities, in which there is lower crime and better maintenance, and kids do better in schools.
But all of these have a flip side. There’s an interesting article on some of them here (discussing Was Home Ownership Overrated?) People say that renting is “throwing money away,” but if your home declines in value prior to your needing to move, home ownership means throwing money away too. Millions of people have lost equity in their homes over the past few years. Some will stick around long enough to recoup it, but if your home declined 25% in value (not unusual in some of the bubble areas) it’s going to take many years of 2-3% growth to get there. Assuming that 2-3% growth starts up again soon. Plus, home owners have money that’s being thrown away too, in the form of property taxes, closing costs, etc. A landlord can build these into the rent, but at least here in NYC rents are low enough relative to mortgages that you really can’t.
Subsidizing the single-family, detached house has caused Americans to move far out into the suburbs and exurbs (“drive until you qualify.”) This adds to commute times. Commuting, in studies of subjective well-being, is pretty much the low point of people’s lives.
As for stable communities, this is also a way of saying that the transaction costs in buying and selling a home are incredibly high. You usually lose money if you move within a few years. Stability sounds nice, but you could use the words “high friction” instead, which sounds less positive. With our fast-moving economy, you want people to be able to move where the jobs are. Many home owners these days are stuck in areas of rising unemployment, unable to move to areas of lower unemployment because, shockingly, housing prices are also falling in areas of higher unemployment. Obviously, there are arguments that it’s nice when people stick around and get to know their neighbors, and their kids attend the schools for decades, and the parents have time to get involved in civic organizations, but these have to be weighed against the problem of people being trapped.
All the subsidies means that there’s not really a great supply of nice rentals in good school districts. So we will probably wind up buying. But one of the reasons this has been such a difficult decision is that we’re not sure we want to commit to one area for multiple years. What do you think, is home ownership a good deal or not?