An article in The New York Times summarizes the arguments of two economists that concluded that increases in home ownership may lead to increases in unemployment. I’ve always thought of home ownership as a waste of capital since people go out and borrow money to put into an asset that generates no income.
In my opinion the only beneficiaries are the banks that sell a consumer the money, and the initial landowner/developer that, though its affiliation with savvy real estate agents, that persuaded you to buy the property in the first place.
The economists mentioned in the Times’ piece describe home ownership as a negative externality on labor markets. Think of an externality as either a cost or benefit accruing to society as a third party member to some primary transaction between buyer and seller. In this case the externality is a negative because, according to the economists, home ownership may create a roadblock to further community development; the “not in my back yard mentality” that may prohibit the introduction of new businesses into an area.
I also found interesting the articles allusion to the negative impact home ownership may have on the flow of human capital. If you are tethered to a 15-year or 30-year mortgage, are you going to move cross country to a job? The best human capital may not be moving to areas of greater opportunity because it is tied to an investment of financial capital that is not performing in terms of generating income.
What does this mean for public policy? It means that we have to examine why we turn a blind eye to policies that encourage us to stay stuck in debt versus move our capital around more freely. The “ownership society” of former president George W. Bush was based on home ownership and President Obama is indirectly carrying that torch with the “preserve the middle class by modifying their mortgages” policy carried out by the Treasury Department.
The positions taken by the economists mentioned in the article are definitely in the minority and won’t be bought into the mainstream any time soon by policy makers or the general consumer public. Just look at those pre-2007 mortgage refinance ads popping up on TV more and more. Telling Americans that their dreams of home ownership may be leading to a nightmare of economic morass won’t set well with them.