The Questionable Practice of Subsidizing Homeownership

The Richmond Fed, of all institutions, recently published an article critical of the subsidization of homeownership. Some takeaways:

• Government attempts to boost homeownership, dating from Clinton's "National Homeownership Strategy," resulted in the loosening of lending standards that led to the financial meltdown.
• The tax deduction for mortgage interest encourages people to buy bigger and more expensive homes.
• An assortment of government subsidies steer more investment capital to the housing market than would otherwise occur. This has resulted in an overinvestment in housing relative to other capital goods.
• It is not clear that using one's home as one's primary investment is a sound financial decision. The opportunity costs of other investment choices are generally not taken into account.
• Homeownership reduces labor mobility.
• Because of the interest homeowners have in keeping the property values high, they have a bias toward land-use regulations. These restrict the number of houses that can be built in a given area, keeping inventory low and values artificially high.
• Notable quote from Nobel-prize-winning economist Edmund Phelps: "It used to be that the business of America was business. Now the business of America is homeownership."

These observations support the argument that suburbanization has been a terrible misallocation of resources.