By PAUL KRUGMAN
Published: June 23, 2008
Why should ever-increasing homeownership be a policy goal? How many people should own homes, anyway?
http://www.nytimes.com/2008/06/23/opinion/23krugman.html?ex=1371960000&en=fdaf2458938662ba&ei=5124&partner=permalink&exprod=permalink
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7 comments:
I couldn't agree with Krugman more on this. Besides from not having to deal with home repairs and getting pissed at white trash neighbors for bringing your property value down, renting would appear to give you a huge freedom compared to ownership. I've never understood the mortage tax credit and don't think it is fare nor smart long-term policy. I know owning can be a great investment, but part of the reason it is so great is the policy that encourages it. What if we had similar policies for investment in investing in gree projects (e.g. parks or habitat restoration)? These are just ideas and not entirely thought through but I do think its time to readjust our push towards home ownership!
I couldn't disagree with Krugman more. This is classic liberal hypocrisy. Obviously HE doesn't want to rent. Know why? Renting sucks, and I imagine most people would agree. Granted, it's necessary at times, especially when you're a young couple like my wife and me. So by all means let's keep the rental market.
But, as Pa Bailey says in It's a Wonderful Life, "It's deep in the race for a man to want his own roof and walls and fireplace." It's true. And I have to agree with Bush and the conservatives. Public policy should encourage home ownership because it gives people a greater stake in our democracy: in their neighborhood, their local schools, and their local government.
Krugman erects a straw man: "Presumably, then, citizens who live in rented housing, and therefore lack that “vital stake,” can’t be properly patriotic." That's an illogical leap, even for Krugman. The argument is not that people will be less patriotic if they DON'T have a home; it's that they'll be more involved (a bad thing??) if they DO have a home. Consequently, Krugman misses the point entirely. But perhaps missing the point WAS the point. After all, this is a N.Y. Times piece, and he's banking on Bush-hatred of his readers to wash over the shallowness of his argument.
Ian,
Following your logic reasoning, non-home owners will be LESS "involved". That seems to be the exact argument Krugman is disputing. Where is his logical fallacy?? The two statements you present are the ones that appear to be logically contradictory.
Absent externalities to homeownership the free market will provide EXACTLY the right ratio of owner:renter. So this discussion boils down to how big you think the externalities are. What is NOT relevant is how much owning/renting sucks...individuals are free to choose their living arrangement just like they are free to choose their own detergent. Yes the decision is more complex and there are larger costs involved, but the essence of budget constrained rationality still exists.
Historically, people have presented the externalities as near infinite. Personally, I'm with Krugman and I don't see how the externalities could be near as big as what gov't policy would suggest. Policy has more to do with pandering to populist public sentiments and appeasing real estate and financial lobbies.
Angel asked me to comment, so here goes.
Should government incent home ownership with tax cuts? Oh hells yeah. But I have a dog in this fight as a homeowner.
Theoretically, if you can afford rent, you could afford to buy the house you're living in assuming that the owner is making an interest adjusted profit. Owning is a benefit. Your money goes towards an asset. The only real reasons to rent are short term inhabitance and high income volatility.
I don't really even understand what Krugman's point is. Krugman has been pretty open about criticizing the regulatory atmosphere that led to the housing bubble, and now he's saying that we shouldn't own homes because of a housing bubble? Why not just fix the regulatory atmosphere?
Home-ownership helps to put assets in the hands of the middle and lower classes, and reduces the amount of their income that is spent solely on consumption (i.e. rent). Why shouldn't we incentivize that? Would Krugman rather have incentives for the poor to spend their money on consumption than on asset creation? He says the federal tax system acts as a subsidy for owner-occupied housing. It does no such thing. The federal tax system provides disincentives for renters. Should it? Maybe not. But the answer isn't to raise taxes for homeowners.
Mike,
The additional reason to rent is that investing in real estate has an inherent risk...a risk that is on average larger than what a lot of very smart people accounted.
You give a compelling argument for why I should want to buy a home. But you do not explain why you or anyone else should want me to buy a home. The costs and benefits you describe are private. If the private incentive is there to buy a home why do we need public policy to further encourage homeownership. You say "why shouldn't we incentivize that." But where is the market failure?...why SHOULD we incentivize that."
Also, what is the economic difference between a disincentive to rent and an incentive to own in the tax code?
klr,
My arguments were focused on the rhetoric employed in Krugman's argument. If the baseline is non-home ownership, then to say "Home ownership will make people more involved" is not logically equivalent to "Non-home ownership means people are less patriotic." My point is illustrated by analogy. If not having kids is the baseline, then to say "Having kids makes you more aware of child safety" is not logically equivalent to "Lack of kids means you don't care about child safety."
"...individuals are free to choose their living arrangement just like they are free to choose their own detergent." I couldn't agree with you more. You missed the point of my "Renting sucks" bit. That's my view of renting; I assume it's Krugman's since he doesn't rent; and I follow up with "I imagine most people would agree." If you give people their "druthers," I think they'd rather own than rent. But that's a statement that should be subjected to some statistical scrutiny.
"Policy has more to do with pandering to populist public sentiments and appeasing real estate and financial lobbies." Or it could just be that our gov't wants to help people achieve the dream of owning a home. Novel idea. Come on. What "real estate and financial lobb[y]" puts pressure on the gov't so they can offer risky, cut-rate loans to sub-prime borrowers? This is to offer no opinion of what regulation should exist for this type of lending, but it is to call into question your view of the political process.
Ian,
Your logical reasoning is comparing apples to oranges. Of course, if-then is not equivalent to not if-not then. But as soon as you introduce the language of more/less the inverse statement is true. So when you say people with kids know more about safety it is valid to say people without kids care less about safety. As soon as you say "don't care", you are introducing the logical fallacy.
No statistical scrutiny is necessary. If you think people act rationally, it doesn't matter what the empirics show. We don't need a statistical analysis to show which detergent people buy in order to determine what level of gov't intervention is necessary.
Krugman was primarily talking about mortgage interest deduction and gov't sponsored lenders. You don't think there are special interests with a stake in these policies?
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