The Risks of Homeownership

Today's NY Times has a long article that links the collapse of the financial system to the Bush administration's vision of an "ownership society."

If you can fog a mirror, you've had it drilled into your brain that the American Dream depends on home ownership and that to achieve financial security and community respectability, you must carry as big a mortgage as you can muster and spend your weekends tinkering and puttering to enhance your "investment." These are articles of faith that are largely unquestioned, making it easy for the country to stifle a yawn and politely applaud when W made pitches that "stoked the mortgage bonfire:"



Let's just say that I was always skeptical of the unqualified benefit of owning a home, especially during the dreary period when I was a homeowner myself (as my own contribution to the literature on this subject attests). Every now and then, I run across the reports of others (both scholarly and anecdotal) that confirm my conviction. An example is this one, from a researcher at The Wharton School of Business, which doesn't address the financial aspects, but the psychological aspects of owning a home:

An interesting portrait of homeowners emerges from my analysis. I find little evidence that homeowners are happier by any of the following definitions: life satisfaction, overall mood, overall feeling, general moment-to-moment emotions (i.e., affect) and affect at home. Several factors might be at work: homeowners derive more pain (but no more joy) from both their home and their neighborhood. They are also more likely to be 12 pounds heavier, report lower a lower health status and poorer sleep quality. They tend to spend less time on active leisure or with friends. The average homeowner reports less joy from love and relationships. She is also less likely to consider herself to enjoy being with people. Contrary to popular belief, I do not find significant differences in family-related time use patterns, family-related affect, number of normal work hours, indicators of stress or measures of self-esteem and perceived control of life by homeownership.

I am indebted to Mr. Felix Salmon for the link to this research and for his insightful comment that:

For this we make mortgage interest tax deductible, we create monsters like Fannie and Freddie, we run election campaigns promising everybody their own home, we equate homeownership with the American Dream?

It turns out that Mr. Salmon has long believed, as I do, that homeownership is overrated, both in terms of its financial benefit and in terms of its supposed role as the bedrock of social stability, as he elaborates here.

Yes, if things go well then a homeowner ends up with a magnificent and hugely valuable asset which he owns outright. But if things go badly – and you only need one round of layoffs, or a single medical emergency – then the same homeowner can end up in foreclosure and bankruptcy. Those risks are much more remote for renters without huge debts – and make no mistake, a mortgage is one enormous debt. If owning a home is nice, then losing it can be devastating.

[snip]

My point is that the kind of people who have stable and successful lives will have stable and successful lives whether or not they own their own homes. Naturally, a lot of them will indeed end up owning their homes, but it's not a necessary precondition. And if you wanted an example of a place where millions of people have successfully had stable and successful lives for decades, it would be hard to come up with a better country than Germany – which has extremely low levels of homeownership.