West Hawaii Real Estate | September 28, 2018 15
America needs to revive the American dream of homeownership
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he idea of helping the
lower-middle class by using
the federal government to
encourage homeownership
is, to put it mildly, out of favor. There’s
a popular narrative that the housing
bubble of the 2000s — and, by extension,
the financial crisis and the Great
Recession — were caused by the
government making or encouraging
cheap loans to low-income Americans.
That narrative is a myth — the leading
cause of the bubble was private banks
making bad loans, mostly to speculators
rather than to low-income owneroccupants.
But the myth is unlikely to
die, meaning that it will be an uphill
battle to convince recession-scarred
Americans to support the idea of expanding
homeownership.
That’s a shame, because for all its
drawbacks, homeownership is still a
crucial source of wealth for everyone
who isn’t rich.
There are big obstacles to building
wealth for many Americans. Stocks —
the obvious alternative to real estate
— can be extremely volatile, and
lower-middle class people can’t afford
to run the risk of having their assets
wiped out. Stocks are also difficult to
understand; people who try to invest
their own money tend to do very
badly, and people who use professional
managers to invest for them
tend to pay large fees that swamp
their returns. This keeps low-income
people out of the market.
Housing certainly has its own
disadvantages — it’s undiversified,
and it can tie people to the economic
fortunes of a specific location. But
despite the occasional market downturns,
housing tends to be a pretty
good long-run investment. If lowermiddle
class wealth is to be rebuilt
without resorting to something like
a social wealth fund, there are few
better alternatives to housing. And
lower-middle class wealth desperately
needs rebuilding.
Housing also has benefits that
can’t be counted in dollars. Although
housing is an important part of the
economy and the largest financial
asset of most homeowners, it’s also
a form of social equity. Good school
districts tend to be in communities
full of single-family homes with little
rental housing, and homeowners
often are more involved in local government
than renters, giving them the
power to structure their communities
to suit their interests. Because local
control over schools and land use is
so entrenched in American society, it
will be difficult to give renters anything
close to equal opportunity in
America without giving them a path
toward homeownership.
Homeownership can also encourage
low-income people to build more
wealth on their own. Monthly mortgage
payments can act as a behavioral
nudge that prompts people to
save more each month. And homeowners
have an incentive to maintain
their dwellings, which both improves
the quality of the housing stock and
helps teach people the basic skills of
property management.
If the government is to expand
homeownership, it should do so in
a way that avoids the mistakes of
the bubble period. Previous policies
often made it easier for lower-income
Americans to borrow money in order
to buy houses. But this loaded them
up with debt and put them at risk of
default — similar to government encouragement
of student loans. Instead
of repeating this mistake, the government
should give low-income grants
to put equity into homes.
Several programs like this already
exist. The Department of Housing and
Urban Development allows families
that qualify for housing vouchers
in some areas to use them to help
purchase homes and
pay ownership expenses
instead. First-time homebuyers
are eligible for a
tax credit. HUD also used
to administer the AmeriDream
down-payment
assistance program, but
the policy never reached
many people and was
discontinued in 2008.
These programs, or
similar ones, would form
the foundation of a broader policy
to encourage lower-middle class
homeownership and equity building.
They would ideally be expanded to
cover more areas and more people,
and cover more housing costs. The
increased expense could be funded
by federal wealth taxes or inheritance
taxes, perhaps with some contribution
from local property taxes or land
value taxes. This would amount to a
form of direct wealth redistribution —
a worthy attempt to fight the inexorably
increasing wealth inequality that
has caused much consternation in
recent years.
But the program would need one
more element to make it work —
new housing construction. If lowincome
homebuyers use their government
grants to simply bid up the
prices of existing homes, the result
will be a transfer of money to existing
homeowners, not to new homebuyers.
Again, the analogy with student
loans — which allowed colleges to
simply increase their tuition, rather
than provide more spots for prospective
students — is apt.
The solution is for the government
to make these grants conditional on
cities building more housing units.
This would be a powerful financial
incentive; if a city is willing to increase
density and to allow the construction
of more multifamily housing, it
would receive more federal money in
the form of home-equity assistance. If
combined with more direct incentives
for dense development, would help
combat the nationwide housing shortage
that has persisted since the crisis:
So a government homeownership
program would have to look
very different from the efforts of the
past. Giving low-income Americans
grants to buy new houses, rather than
lending them money to buy old ones,
would be a wiser path to rebuilding
the American Dream.
ElEctrical
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