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In today's economy, mortgages can be a millstone. That's new. Time was, workers expected to stay with one company for decades and see a steady rise in annual income. But these days, being in the workforce is a game of constant reinvention. Workers expect to change companies, even professions, multiple times. Households are much more likely now than in the past to see income dip dramatically even if only temporarily. In the late 1960s, about 7% of households experienced a decline in income of 50% or more over a two-year period, according to Brookings Institution economist Karen Dynan. In the mid-2000s, some 12% of households saw such a drop. Yet a mortgage, typically a homeowner's largest expense, is as rigid and unforgiving as ever. For homeowners, quickly adapting to new financial realities is rarely an option. Homeownership may provide a sense of stability to families, but stability in today's economy isn't always a virtue. What families need in order to maintain income is the flexibility that homeownership works against.
Solving or Causing Problems?
Earlier this year, Fannie Mae conducted a survey on homeownership. The top reason people gave for buying: "It means having a good place to raise children and provide them with a good education." The second: "You have a physical structure where you and your family feel safe."
The belief that owning a home is the gateway to safer neighborhoods and better schools is deeply embedded in the national psyche. Remember what Jack Kemp said: Homeownership can save babies. Yet the evidence that homeownership actually brings other benefits is decidedly mixed. On the surface, the results are often impressive. In 1997 academic economists Richard Green and Michelle White found that children of homeowners stay in school longer than children of renters and that daughters of homeowners are less likely to become teenage mothers. A 1999 study by Denise DiPasquale and Edward Glaeser concluded that homeowners are more likely to vote in elections and be involved in community organizations.
Yet the researchers who conduct such studies often warn about taking the findings too far. Just because two qualities show up at the same time doesn't mean one is causing the other. DiPasquale and Glaeser, for instance, attribute a big part of their findings to the fact that homeowners move less frequently: they have more time in a community than renters do to get involved. A 2009 study in the journal Real Estate Economics found that kids living in owned homes are less prone to drop out of high school, but whether a family owned a car had an even stronger correlation. Should we give cars the credit? Or should we instead realize that both home and car ownership are probably markers of something else, like a stable family life or living in a nice neighborhood?
There is really only one effect that seems consistently caused by homeownership: owners invest more time and money in the physical upkeep of their homes. They are more likely to make repairs. They are more likely to garden.
In the U.S., homeownership typically goes with living in single-family detached dwellings. Eighty-nine percent of stand-alone houses are owned, while just 17% of apartments are. There is a logic to this: for a landlord, an apartment building provides an economy of scale that a suburban development doesn't. But that means that a system that glorifies and subsidizes homeownership pushes people to live in suburbs, where they, or developers, can find more-affordable patches of land on which to build. Of course, it's fine to choose to live miles from a city, but that choice comes with broader consequences. People who live in detached houses use 49% more energy like electricity and natural gas than people who live in buildings with five or more apartments, according to data from the Energy Information Administration. Suburban living requires driving a car practically everywhere, which in turn means that U.S. energy policy prioritizes cheap oil whatever the geopolitical and environmental consequences.
There are reasons people like living in leafy green suburbs. In Crabgrass Frontier, the 1985 classic on suburbanization, Columbia University historian Kenneth Jackson traces America's centuries-long idealization of agrarian life. Cities accumulated industry and disease and accidents. Who wouldn't want to escape to a home and yard of their own? But these days, Cleveland's Cuyahoga River doesn't catch fire, Pittsburgh has clean air, and fish markets and docks don't ring the island of Manhattan bike paths and baseball diamonds do. Cities aren't for everyone. But maybe they would be for more people if we didn't all feel as though at some point we were supposed to move to the suburbs and buy a house.
Own a Home? Here's Some Cash
Since the benefits to society of owning a home are hazy, you might conclude that individual families should be left alone to decide whether to rent or buy. Yet Washington throws more than $100 billion a year in tax breaks and subsidies at buyers through the mortgage-interest and property-tax deductions, the capital-gains exclusion and Fannie Mae and Freddie Mac, which help keep home loans cheaper than they would be otherwise.
None of this is particularly fair: there are no blanket subsidies for the tens of millions of American families that rent either because they choose to or because they have to. Nor are these tax breaks efficient economic policy. In 2001 the Congressional Budget Office estimated that only half the benefit of the government's implicit backing of mortgages through Fannie Mae and Freddie Mac was passed along to borrowers in the form of lower rates. The other half went to the companies' shareholders and to banks as higher profits.