It might be more accurate to say it’s unproven. “All sorts of things keep people from being mobile,” says Richard K. Green, director of the Lusk Center for Real Estate at the University of Southern California, who has debated Oswald on the topic. He observes that age and marital status are highly correlated with homeownership, but also are factors that can keep families from being mobile even if they’re renting.
The attack on homeownership is closely linked to an attack on the 30-year fixed-rate mortgage. You’ll hear it dismissed as a curiosity that wouldn’t exist at all if not for massive government support via government guarantees via Freddie Mac and Fannie Mae. That supposedly makes it a relic, ripe for replacement by the private sector, which of course has only your best interests in mind.
But that’s incorrect. The pre-payable 30-year fixed mortgage remains the pillar of the American housing market, and for good reason.
As David Min of UC Irvine has pointed out, the 30-year fixed loan inoculates homeowners from interest rate risk and places it where it belongs: on financial institutions that can plan for interest rate changes and hedge against them. In the recent crash, short-term adjustable-rate loans cratered because their borrowers couldn’t manage the sudden jump in rates; the 30-year mortgage kept millions of people in their homes because they could afford to sit tight.
There’s no real doubt that homeownership is a goal that should be encouraged by government policy. Homeowners vote more often than renters. They engage more with neighborhood and community groups. Studies suggest that their children do better in school and are more likely to graduate from high school and move on to postsecondary education.
The difference in the length of homeownership is the single largest factor underlying the wealth gap between black and white families, according to research by Thomas Shapiro of Brandeis University. That’s important because from 1984 to 2009 the gap in median net worth tripled, from $85,000 to $236,000. Much of the difference is home equity, which gives home-owning families a leg up in helping relatives with down payments, lowering the cost of borrowing and improving access to credit, Shapiro has found.
It’s true that some of these advantages were sapped by the housing crash. But many long-term homeowners were still able to weather the storm better than renters.
It’s also true that renting is a good choice for many Americans, including young people who may need to move often at the outset of their careers. And it’s proper to question whether the mortgage interest tax credit is the best tool for promoting homeownership. Green, for one, advocates replacing it with a refundable tax credit, which could be phased out for wealthier homeowners and wouldn’t encourage people to buy bigger homes than they need just to capture the tax break.
But the worst thing that could happen as a result of the debate over housing is that government policy could reverse. Already credit is tighter for low- and moderate-income Americans than it should be. Removing the government-sponsored housing lenders, Fannie Mae and Freddie Mac, from the market, as many conservatives advocate, would close the housing market to those borrowers even tighter.
That’s the wrong option. “People still want to be homeowners,” Green observes. Why would we want to stifle an aspiration so beneficial to society and the economy?
Michael Hiltzik is a columnist for the Los Angeles Times. Readers may send him email at mhiltziklatimes.com.