Home ownership is the new whipping boy, not surprising given its central role in the credit crunch. The economist has run several articles questioning the value of home ownership to society, and other opinion outlets are chiming in. The lynchpin of the argument is labor mobility; home ownership decreases it and reduces economic efficiency. This leads to the recommendation to reduce incentives for home ownership in order to better approximate the socially optimal level of home ownership, e.g., reduce or eliminate the home mortgage deduction.
Interestingly, technological developments have been favoring labor mobility. Job search engines make it easier to find the jobs. Social networking lowers the personal cost of moving by making it easy to stay in touch with the people from whom you move away and to get in touch with the people to whom you move toward. Community recommendation sites reduce the cognitive load in becoming an expert in a new area. Mapping sites and GPS technologies mean getting lost is a thing of the past. Rental listing sites makes it easy to find a place to live.
Given these technological advancements, and a weaker domestic labor market due to globalization, I expect that the new generation will be far more mobile than my generation. I do not think telecommuting is a mitigating factor; after all, if you can do the job from Kansas, you can do it from Bangalore, thus physical presence will command a premium. I think the real danger going forward is not oversupply of home ownership, but undersupply. This is doubly true given young people will have the experience of a housing market crash increasing their level of risk-aversion.
Therefore, reducing incentives for home ownership is an improper policy response.
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Right on.
ReplyDeleteReading through that economist article, most of the arguments boil down to "over the past 20 or 30 years, X has been the case, but from 2007 - 2008, Y was the case!" They make odd comparisons such as the performance of housing versus equity while leaving out imputed rent...which would make a major difference in the return on investment. Indeed, looking at the data in the Economist article, it seems that (over the long term) home ownership is a net benefit to the population- the last two years of hell notwithstanding. So I am wary when people argue that long standing notions ought to be abandoned merely because they were suboptimal in a very specific, extreme event.
While labor mobility may be decreased in an illiquid housing market like today, I don't think the evidence has shown that mobility really does see a net decrease as housing increases. First, wealth is a massive driver of both labor and income mobility, and housing is a proven builder of wealth over the long term (again, despite the past two years) if only as a savings vehicle. Second, the Economist points out numerous benefits correlated with Home Ownership- including better educated children- which in and of themselves are associated with a more mobile population. Are these benefits netted into the analysis? It doesn't seem so, since many of the benefits won't be seen until the next generation of workers.
Unless you can make a persuasive case that the current hell was created by these housing policies (rather than, say, a Fed pumping money like a junkie pumps heroine) this just doesn't make sense to me. Now, I'm not big on any subsidy, but as you said the question is whether eliminating these subsidies is an appropriate *response*, and I've got to say no.