Monday, October 28, 2013

Urbanism and Homeownership

Most public policies, and virtually all politicians, strongly endorse home ownership.  It’s a route that I’ve followed in my life.  But there are legitimate questions, especially when it comes to urbanism, about whether homeownership should be encouraged.

I have a long history of home ownership.  Of the 37 years since I graduated from college, I’ve lived in my own home for nearly 30.  I’ve owned six different homes, scattered between Walnut Creek and Seattle.  And I’ve been a committed homeowner, tackling home improvement projects on most of the homes.

I continue to own a home and to do home improvements.  This blog is being written during a break in pre-holiday painting projects.  Indeed, because of my wife’s color sense, there are fifteen cans of paint in a variety of shades and glosses stacked on the back counter.  It makes me yearn for my first condominium.   When I purchased that home, all of the walls were off-white.  Five years later, all of the walls were still off-white and I didn’t own a paint brush.  I was young, naïve, and unmarried.

Although I’ve generally been an active homeowner, I’m uncertain on the subject of urbanism and home ownership.

On one hand, home ownership gives a sense of belonging to the community.  Although I don’t have the data to support this belief, it seems reasonable that homeowners care more deeply about their urban neighborhood and are more likely to participate in activities that strengthen the neighborhood.

On the other hand, a key element of urbanism is the availability of alternative housing options within a neighborhood, from apartments for young adults to single-family homes for families to luxury condominiums for active seniors to assisted living.  To move fluidly between those options requires a light-footedness that is inconsistent with homeownership where a move requires a sale that can be a slow and expensive process.

Adding to my uncertainty is a pair of recent articles.  Writing in Atlantic Cities, Richard Florida finds that homeownership correlates inversely with overall economic activity.  Florida admits that correlation does not equal causation, but provides several reasons why the correlation may occur.  He notes that a weak economy may lead to a lack of employment mobility which encourages buying a home in one’s community.  He also suggests that weaker economies offer a lack of alternative investment opportunities which make a home the default investment.

Complementing Florida’s work are the comments by recent Nobel Laureate Robert Shiller, noting the homeownership between 1890 and 1990 was generally a neutral investment, performing roughly the same as the stock market.  He describes the belief that home values will rise forever, implying that homeownership is a financial necessity for households, as a recent and unsustainable phenomenon.

To what does all this add up?  Nothing definitively.  But it certainly suggests a need for continued study and discussion.  And I still suspect that the tax deduction for home mortgage interest is an idea whose time has passed.  (And I write that as a homeowner.)  As I’ve suggested before, the economic disruption that would result from abrupt termination of the deduction would be excessive.  But phasing out the deduction over 20 years might be reasonable. 

And now, there’s a paint brush with my name on it.  I miss off-white.

As always, your questions or comments will be appreciated.  Please comment below or email me.  And thanks for reading. - Dave Alden (


  1. I think that homeownership reduces employment mobility, not the other way around. For example, I know of one couple who refinanced a home last year at a 3.5% interest rate. They now have a strong disincentive to ever sell that home, since they'd pay a much higher interest rate on their replacement home. They'd also likely lose their Prop 13 protection against rising property taxes. If they were to move and rent out the home for more than three years, they'd lose their homeowners' exemption from capital gains taxes. So they're very much stuck in that house.

    To the extent that others share their predicament, our laws and policies have created a nasty "lock-in" effect which prevents homeowners from seeking better employment opportunities. This is inefficient, and a drag on growth (though it's hard to predict how large a drag).

    1. Lori, thanks for the comment. Yeah, I'd always thought the same as you, that homeownership slowed mobility, especially under Prop 13. I was surprised when Florida made the other side of the case. However, his case was based on Romania and I'm sure he knows more about Romania than I do.

      It's possible that both arguments, that homeownership slows mobility and that limited mobility options encourage homeownership, are both true.

    2. Delving back into my auxiliary brain, I find this: Does High Home-Ownership Impair the
      Labor Market?
      , David G. Blanchflower and Andrew J. Oswald (PDF)
      , which suggests that, yes, homeownership slows labor mobility, increases commute times, and leads to fewer new businesses.

  2. Thanks, DanLyke, for that link. Very alarming results, given our government's policy commitments to homeownership.

    1. Dan, I join Lori in thanking you for the link. It's right on target.

    2. It seems to me that, given the emphasis on homeownership as a savings mechanism that we have in this country, that any move away from ownership (as further urbanization generally assumes, whether through condo fees or flat-out rentals) would need to be accompanied with a larger social aid and retirement safety net.

      Don't yet have a full thought on this, but just what came up when Econoclast pointed out the policy commitments.

    3. Dan, I don't agree. As Shiller points out in the link above, homeownership was basically a neutral investment from the late 19th to late 20th century. One could have done as well taking the leftover funds after paying the rent and putting them in the stockmarket. One could argue that a mortgage payment is enforced savings, preventing the homeowner from blowing the money on something frivolous, but I don't think we need a better safety net because people lack discipline.

      I actually agree that we'd be better served with a better safety net. I just don't believe that decreasing homeownership is a valid grounds for needing one.