Homeownership has let us down. For generations, Americans believed that owning a home was an axiomatic good. Our political leaders hammered home the point. Herbert Hoover argued that homeownership could "change the very physical, mental and moral fiber of one's own children." Franklin Roosevelt held that a country of homeowners was "unconquerable." Homeownership could even, in the words of George H.W. Bush's Secretary of Housing and Urban Development (HUD), Jack Kemp, "save babies, save children, save families and save America." A house with a front lawn and a picket fence wasn't just a nice place to live or a risk-free investment; it was a way to transform a nation.
Houses owned by the people who lived in them, we believed, created social and financial stability more-involved citizens, safer neighborhoods, kids who did better in school. No wonder leaders of all political stripes wanted to spend more than $100 billion a year on subsidies and tax breaks to encourage people to buy.
But our leaders, with our encouragement, went much too far. The dark side of homeownership is now all too apparent: foreclosures and walkaways, neighborhoods plagued by abandoned properties and plummeting home values, a nation in which families have $6 trillion less in housing wealth than they did just three years ago. Indeed, easy lending stimulated by the cult of homeownership may have triggered the financial crisis and led directly to its biggest bailout, that of Fannie Mae and Freddie Mac. Housing remains a drag on the economy. Existing-home sales in July dropped 27% from the prior month, exacerbating fears of a double-dip recession and accelerating the accompanying slide in stock that took the Dow Jones industrial average to a seven-week low. And all that is just the obvious tale of a housing bubble and what happened when it popped. The real story is deeper and darker still.
For the better part of a century, politics, industry and culture aligned to create a fetish of the idea of buying a house. Homeownership has done plenty of good over the decades; it has provided stability to tens of millions of families and anchored a labor-intensive sector of the economy. Yet by idealizing the act of buying a home, we have ignored the downsides. In the bubble years, lending standards slipped dramatically, allowing many Americans to put far too much of their income into paying for their housing. And we ignored longer-term phenomena too. Homeownership contributed to the hollowing out of cities and kept renters out of the best neighborhoods. It fed America's overuse of energy and oil. It made it more difficult for those who had lost a job to find another. Perhaps worst of all, it helped us become casually self-deceiving: by telling ourselves that homeownership was a pathway to wealth and stable communities and better test scores, we avoided dealing with these formidable issues head-on.
Now, as the U.S. recovers from the biggest housing bust since the Great Depression, it is time to rethink how realistic our expectations of homeownership are and how much money we want to spend chasing them. As members of both government and industry grapple with re-envisioning Fannie Mae, Freddie Mac and the rest of the housing finance system, many argue that homeownership should not be a goal pursued at all costs. "There is this notion that being housed well is synonymous with being a homeowner," says Raphael Bostic, assistant secretary for policy development and research at HUD. "That narrative has got to change."
The concept of mass homeownership seems an inseparable part of American mythology. The U.S., we tell ourselves, has always been a nation of bootstrapping immigrants, a place where, in the 19th century, anyone with enough endurance could head West and collect a homestead.
Yet it wasn't until the 20th century that Washington started throwing major resources at turning everyone into a homeowner. In 1919 the government took over the Own Your Own Home campaign that the National Association of Real Estate Boards (the present-day National Association of Realtors) had launched. As Secretary of Commerce, Herbert Hoover was a booster, declaring that "maintaining a high percentage of individual homeowners is one of the searching tests that now challenge the people of the United States."
The Great Depression didn't make that test easy. As the economy collapsed and foreclosures swept the nation, first Hoover, elected President in 1928, and then Franklin Roosevelt signed a series of laws to get banks lending again, including legislation creating the Federal Housing Administration to insure mortgages and the Federal National Mortgage Association (Fannie Mae) to buy them up, thus freeing banks to lend even more. These new agencies went hand in hand with the establishment of a new sort of loan, one lasting for 30 years at a fixed rate of interest. The 30-year mortgage was a revolution, a stark contrast to the short-term loans that had been the norm until then; it put homeownership within the reach of many more families. It made perfect sense. At a time when 25% of workers were jobless and a third of the lost jobs were in construction and related trades, kick-starting housing was a smart piece of economic stimulus.