Homeownership Subsidies

An interesting post by Eric Posner about the subsidies we see in homeownership in this country, and the subsequent distortions it causes in the housing markets:

Home ownership has some attractive features—you needn’t fight with your landlord, or worry that he will terminate the lease—but it is basically an enormous financial gamble that many people, particularly low-income people, shouldn’t make. Your neighborhood, for reasons outside of control, could become worse over the years; in addition, you might find that you need to move for family or employment reasons. If you are a low-income person, most of your savings will be tied up in your home, which means that you will be inadequately diversified against these future risks. These basic truths were obscured for many years because home prices tended to increase and not to collapse during recessions, but home ownership is just a kind of investment and does not enjoy immunity from the business cycle.

I think this is an interesting point - though I wouldn’t place such an emphasis on those with low incomes. I’d say it can be true for people of all income levels - especially in more urban areas. Felix had an interesting post a while back about how buying was slowly becoming more attractive, although it wasn’t *quite* there yet.

The most interesting point of all, I think, is the negative stigma renting has. You are simply throwing your money away, the common saying goes. Yet when you take a realistic look at the numbers, the proper answer to this saying is, not necessarily. Just think of the person who bought a condo in 2004 in Miami, Las Vegas, Detroit or Phoenix. I imagine right now they wish they could just leave when their lease was up.

[Updated]. I followed through to the Richmond Fed paper linked to from Marginal Revolution. It’s worth your time!