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Why home ownership is U.S. obsession
Edmund Phelps, director of Columbia University's Center on Capitalism and Society.
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TEXT OF INTERVIEW
Kai Ryssdal: So you grow up, get a good job, marry, you have a couple of kids, and buy a house. It's the American dream, right? But a lot people got in trouble chasing that last part and helped take the economy down with them. In today's installment of Taking Stock, our series of occasional conversations with people who can give us the longer view of our economic situation, Columbia University economist Edmund Phelps and American attitudes toward home ownership. Phelps says that dream of owning a house has been fueled, in large part, by the government.
EDMUND PHELPS: Democrats and Republicans have been very keen to make home ownership almost a national purpose. President Clinton got through Congress a 1997 act to force mortgage lenders to relax the conditions on loans for low-income people. And then there were tax breaks on capital gains and houses in 1998. But I have to say that it isn't just public policy. The banks, which used to have something to do with business lending, sorta of lost their expertise in that area, and they began to focus all their lending efforts on residential mortgages and other soft targets.
Ryssdal: Let me ask you this, though. Because if the government gets rid of the home-mortgage interest deduction, I for one will be extremely annoyed, and so will the 70 percent of Americans who own their own homes. I mean, it would be a sea change in the way we look at homes in this country.
PHELPS: Yes, it would be. But to me it makes a lot of sense. Because, look, this is a very funny kind of asset in which the owner of the asset gets the services of the asset -- the shelter and the comforts and so forth that the asset provides -- and at the same time, as if the owner was paying income tax on those services, the owner gets to deduct the mortgage costs.
Ryssdal: Is that a bad thing?
PHELPS: Yeah, to me that is quite crazy. There are only two logical ways to go: one is to deny mortgage-interest deductibility because no tax is being paid on the benefits, or start taxing the benefits.
Ryssdal: You're a renter, aren't you?
PHELPS: I am a renter, you caught me. But that's not why I have these positions. It just happens that I'm a renter.
Ryssdal: Well, when you live in New York City it can be tough to own, right?
PHELPS: Lots of us here in New York City are renters, yes. We're a very strange breed.
Ryssdal: Well, even though you've made peace with the idea of renting, for a lot of people it is a dirty word out there. I mean you have to make the rent every single month. You're just giving this check over to the land lord, and you're not getting anything out of it. Do me a favor and weigh the pros and cons of renting or not.
PHELPS: If you rent, that's it. You don't have to pay any interest to anybody. You don't have to pay any maintenance costs to anybody. You don't have to worry about whether the boiler is going to break down. While if you own your own home, you have a hundred aggravations. Maybe the roof will leak while you're overseas. In strict money terms, there is no reason to think there is a systematic, long-run, sustainable, durable difference between the two.
Ryssdal: Is this home-ownership obsession that we've had, has it affected the rest of our economic lives? Does it change the way we save? Does it change the way we spend in other regards?
PHELPS: Of course, while house prices were going up, that became a substitute for saving. People would refinance their homes, take the profit and spend that, hoping that prices would go up again. And then they would do the same thing and spend that. But I do think this home-ownership craze does tie in with a newfound fashion for spending rather than saving. I'm old enough to remember in the 1930s and the 1940s when thrift, frugality was considered an important virtue. In those days we all knew Benjamin Franklin's aphorism, "A penny saved is a penny earned." Today, the official doctrine seems to be that a penny spent is a penny earned.
Ryssdal: Do you think professor that there's a way to change the housing paradigm in this country? That it is the American dream, and if you have the material means, you ought to buy a house.
PHELPS: I'm hoping that the administration and other thought leaders will succeed eventually in bringing the country back to the older idea that the American dream is having a career, getting a job, and getting involved in it, and doing well. That was the core of the good life. That's what we have to get back to, and get away from this mystique that the most important thing in your life that could ever happen to you is to be a home owner.
Ryssdal: Edmund Phelps at Columbia University. Thanks so much for your time.
PHELPS: You're welcome. Good to be here.
Ryssdal: Edmund Phelps won the Nobel Prize in economics in 2006. He's the director of Columbia University's Center on Capitalism and Society.
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There are exclusive two dietician structure to go: one is to contain mortgage-interest destructibility because no tax is beefiness mercenary on the benefits, or start taxing the benefits. http://www.testbells.com/642-902.html
Homeowners might as well reap the benefits of mortgage-interest deduction while they can. The government will be taxing them on the property for eternity for services they don't even use. so as far as taxing on services in this arguement. they do and more.
Ownership has it's advantages. Unfortunately, one of them isn't liquidity. With rising unemployment, mobility is a great advantage. Depressed pricing precludes many home owners from competing for employment because they're tethered to homes that may well be worth less than their debt. It's an awful burden on principle centered home owners many of whom for no reason other than our current economic condition will be forced to default not just on their loan, but on their principals.
There are good arguments here to both sides, however, renting or owning? Is one really better than the other? No, what really matters it that the people who do decide to buy can afford to do it without depending on "other" income, such as overtime from their job. I worked in HR where we had lenders call and try to make us say that the OT the RN was getting was "guaranteed". Which we would never do. And now even the hospitals are suffering in this ecomony and having to cutback on staffing. No more OT or frivolous incentive pay. So don't get into a loan on the hopes that you'll make ends meet by working 50 hours a week, (no matter how GREAT a price the house is) that's just irresponsible and how we got in this mess in the first place.
Just one question- If we all rented, who would one? Big brother? The term "projects" comes to mind. Some big company? Hmmm, like AIG? It's a business decision, that also ties in with dreams and wishes. I pay a mortgage, and that is the decision I have made. But owning is not the panacea either. There is no 'one size fits all' solution.
To Ben Leshi, I absolutely agree with everything you say. Bailing out irresponsible homeowners with taxpayer dollars is WRONG, IMO. They should just let them be foreclosed on, so a responsible renter can have the opportunity to become a responsible homeowner at a realistic price. You sound like a very responsible renter, and I agree with your philosophy of taking the good along with the bad, and being responsible for both. With your
outlook, I think you'll make a fine homeowner and hope you manage to achieve
that in the near future(if that's what you want). The Renters' "Ship" is coming in, and the next year or two will be an unprecedented oportunity for
any renters that want to, to become homeowners.
To Glen Peters, you're absolutely correct. I know one retired couple here on LI that rent - they pay $1000
a month for a 1 bdrm apt, and that's at
a "senior" apt complex. The husband has alzheimers and goes to a an adult day-care program, while his nearly 70 year old wife continues to work F/T in order to make ends meet. Some "retirement".
To Mike G, yes you're *always* going to be paying SOME form of "rent", even if you own the house free and clear. It's called "property taxes", and unless you're fortunate enough to own a home with an alloidal Title(available in only 2 States, AFAIK), property taxes
are a fact of life, but I for one, would rather pay a few hundred bucks a year and own the place, than pay a few hundred bucks a MONTH, and NOT own. To me, in the long run, there is just no comparison - owning(free and clear) beats the heck out of renting, especially as one approaches retirement age.
Plenty of landlords fail in their commitments to maintain properties, ensure adequate security to allow renters to insure their assets etc. So you either put up with it, do it yourself (improving their property at YOUR cost) or move. I own my owm home outright,pay nothing to no one, and it's a joy. I bought my first home when I first started working, and yes, it was difficult at times, but it was worth it, the first home was paid off in my 30s and I've not paid a mortgage payment since. If you're a renter, you'll be paying the man forever, till you're old and gray, still having to make that monthly rent check no matter what.
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