Time to Stop Pushing Homeownership?

Photo Source: National Archive

A recent article by Jerusalem Desmas in The Atlantic made a bold claim: The Homeownership Society Was a Mistake. Like all of Desmas’ writing on housing (check out her work in The Atlantic and in Vox), the piece is extremely well-reasoned and researched, and definitely worth your time to give it a full read. But is her argument correct?

Desmas is certainly right in pointing out that the veneration of homeownership in the U.S. is no natural phenomenon. Beginning with the New Deal, our government began putting its heavy thumb on the scale in favor of home purchases—for white people, at least. We still provide tens of billions each year in homeownership subsidies, including mortgage insurance and remarkably generous tax treatment. Intertwined with government largesse are powerful cultural and marketing forces that elevate homeownership: nearly three-quarters of Americans say owning a home is a higher measure of achievement than having a successful career, raising a family, or earning a college degree.

As Alex Schwartz writes in his seminal book, Housing Policy in the United States, “Regardless of political affiliation, race, ethnicity, or class, virtually all Americans regard homeownership very positively. Not owning a home is unimaginable to countless homeowners and achieving homeownership is a vital goal for many renters. . .. (H)omeownership is widely considered essential to achieving the ‘American Dream.’”

That dream’s benefits can be quite tangible. Although the Trump-pushed 2017 tax reform made mortgage interest and property tax deductions largely benefits taken by the wealthiest only —as discussed in the previous post on tax policy and landlords-- the exemption of up to $500,000 tax-free income for married couples selling their home is still a huge benefit to homeowners across income brackets. Understandably, most Americans see homeownership as a no-brainer financial investment.

But that this is not always the case, as Desmas writes:

The consensus that homeownership is preferable to renting obscures quite a few rotten truths: about when homeownership doesn’t work out, about whom it doesn’t work out for, and that its gains for some are predicated on losses for others . . . For many people, homeownership is a largely beneficial enterprise, but for others, particularly young, middle-income and low-income families as well as Black people, it can be risky. 

The danger of relying on homeownership as a nest egg helps lead Desmas to her clear prescription:

Fundamentally, the U.S. needs to shift away from understanding housing as an investment and toward treating it as consumption. No one expects their TV or their car to be a store of value, let alone to appreciate. Instead, Americans recognize that expensive purchases should reflect their particular desires and that the cost should be worth the use they get out of them . . .

Arguments for Continuing to Support Homeownership

One counter-argument to Desmas is that choosing to cut off government support for homeownership now is akin to pulling up the ladder to economic and housing security right after multiple generations of white people have safely scaled the top rung. As chronicled in Richard Rothstein’s Color of Law and elsewhere, the U.S. white middle class was created in significant part by government-subsidized home purchases that were largely off-limits to Blacks and other persons of color.

Those racist housing policies are a big reason why there is such a startling contrast in Census data on wealth by race. With most U.S. households holding a majority of our wealth in our home, Black households have on average just $9,567 in net worth, compared to White households that enjoy an average net worth of $171,700. Instead of cutting off the flow of homeowner benefits, perhaps we should beef up enforcement of the Fair Housing Act and even pursue housing reparations or other race-conscious funding programs so that Blacks can finally get the same homeownership boost we have already handed to white households?

Another refutation of Desmas’ demand is that the huge popularity of homeownership is not just a product of its reputation as a strong financial investment. Schwartz’s analysis and ongoing survey data show the same thing we see with our renter clients in our law school clinic: nearly every one would prefer the stability and autonomy of owning the roof over their heads.  And for good reason, given that so many of their landlords have refused to make basic repairs, retaliate when the tenants complain, and force displacement by refusing to renew leases for arbitrary reasons.    

Homeownership Gone Wrong

Yet I agree with Desmas—as long as we replace the sometimes illusory American dream of homeownership with a more solid guarantee of housing security for all.

First, she is right that even our generous government subsidies do not ensure that homeownership benefits everyone. For several reasons, the Black-white wealth discrepancy does not get erased when Black households own their homes. For example, even when factors like schools, commute times, and crime rates are factored in, homes in Black-majority neighborhoods are worth significantly less than comparable homes in white-majority neighborhoods. And Black home purchasers were the biggest casualties of the mortgage abuses of the early 2000’s and the foreclosures that followed.

Prof. Keeanga-Yamahtta Taylor calls abuses using the powerful lure of homeownership “predatory inclusion,” which often turns out to be more of American nightmare than dream even after the foreclosure crisis led to tightened mortgage regulations. We still see in our clinic many low and middle-income renters being exploited by rent-to-own arrangements or mobile home purchases where the requirement of leasing the land where the home is situated can be disastrous.  (More in a future post on the rigged mobile home game and its wealthy new players.)

The elevation of homeownership hurts society more broadly, too. For the disproportionately white households that do benefit financially from homeownership, their fiscal reliance on the value of their homes too often incentivizes toxic behavior.  Racial discrimination in home lending and sales was driven not just by governments and lenders, it was fueled in significant part by white homeowners fearing the loss of their nest egg due to integration. Those same forces motivate aggressive NIMBY-ism resisting affordable housing all across the country. As historian Rick Perlstein has written, “A home-owning American working class (behaves) like a bourgeoisie—more interested in preserving home values than extending the circle of social solidarity  . . .A social democracy that depended on homeownership was always a social democracy poised to swallow itself.”

In a nation with limited public pensions and a tattered safety net, individuals’ and families’ laser focus on preserving home value is quite predictable. Since homeownership is far and away the top source of U.S. family wealth, Canadian writer Dan Darrah says that our houses provides a “Fig leaf” that covers for our lack of universal social and economic rights. “Neoliberal governments have been happy to let the home function not just as a place to live but also a retirement plan,” he writes.  

But, Desmas rightly points out that the fig leaf is not large enough to obscure the inequities in the U.S. economy. So she pairs her call for removing homeownership boosts with government action to make renting a home a much more stable and pleasant experience. Rent control, good-cause-only termination of rental agreements, strong enforcement of housing codes, and support for forms of wealth creation besides homeownership would change the landscape for U.S. renters. Activists like the People’s Action Home Guarantee provide more details about such a vision than Desmas had space to provide.

But Desmas does repeat her call for a huge increase in housing construction, also a Biden administration priority. To that I and other tenant advocates would add an equally loud call for a much larger commitment to non-market housing via expanded vouchers and a revitalization of public housing. That is a must, given that a trickle-down market-rate housing surplus is unlikely to provide solutions for the millions on sub-poverty incomes. “In much of the country, there is actually no shortage of rental housing. The problem is that millions of people lack the income to afford what’s on the market,” Alex Schwartz and Kirk McClure have written. They do the math, noting that the maximum rent very low-income people could reliably pay would not even equal private landlords’ costs. “Covering the difference between what these renters can afford and the actual cost of the housing, then, is the only solution for the nearly 9 million low-income households that pay at least half their income on rent,” Schwartz and McClure insist.

Is this possible? Other nations have shown that universal housing access and a deemphasis on homeownership are both doable. “We’ve very much been brainwashed into thinking that homeownership provides stability that rentership can’t,” says Jenny Schuetz of the Brookings Institute. “(But) we could create that sort of long-term stability of payment for renters, which would allow them to stay in neighborhoods for longer and to put down roots and be part of the community without being pushed out by financial circumstances.”

Desmas outlines what that kind of policy shift would look like:

Policy makers should completely abandon trying to preserve or improve property values and instead make their focus a housing market abundant with cheap and diverse housing types able to satisfy the needs of people at every income level and stage of life . . .The government should encourage and aid low-wealth households to save through diversified index funds as it eliminates the tax benefits that pull people into homeownership regardless of the consequences.

This would be a major shift in the policy approach the U.S. has followed for generations. But I think it’s a solid proposal. What do you think? I’ll share this post on Facebook, Twitter, and Instagram, so please let me know your thoughts there.