Let's Phase Out Home Ownership Subsidies

Somewhere along the line our politicians decided that homeownership was good for America. Now granted a man or woman that owns a own home seems more likely to take care of their city and invest in the local community than a renter but there are other ways to achieve this goal and I haven’t seen any data to really support this assumption. But owning a home does tend to keep a family from moving even though the jobs have shifted to another part of the country. And clearly all those homeowners that could not afford their homes and have abandoned them recently have not done much to beautify their old neighborhoods.

From the early 1900’s government has been subsidizing home ownership and that subsidy keeps on getting bigger. Voting against home ownership subsidies is almost seen as un-American. It has been an addictive drug for the American economy with virtually no one challenging it.

Now let me say up front that my wife and I have two lovely homes, and far more square footage, and bathrooms than we need. We have participated in this subsidy. But the madness has to stop. We need to find a way to phase out these housing subsidies and push American investment into areas that will strengthen the US economy long term and make us competitive not just a better place to watch Sunday NFL games from the a comfortable television room. And I say this knowing that reducing home ownership subsidies will decrease the value of my two homes.

Here are some ways we subsidize home ownership. We allow you to write off your mortgage interest on not only your first home but your second home as well. We allow you to write off the property taxes not only on your first home but your second home. If you make up to a half a million dollar profit when you and your wife sell your first home then it is tax free. We subsidize and force our banks to make low down payment mortgage loans and then recently we have been giving $8,000 tax credits to first time home buyers. All of these have made buying a home a very good investment (until lately). Almost a no-lose proposition. As a result for decades the price of homes increased far faster than most investments. And these subsidies were a primary driver in the long term increase in home prices.

The logic goes that homes are expensive so we need to subsidize them more, which just leads to them being yet more expensive than they otherwise would be. So then we have to subsidize them even more. In the end, homes end up no more affordable than they would have been without the subsidies. But we end up with far bigger homes, far more homes, a big national debt and a struggling economy.

Owning a second home in Hawaii or Florida has always been more fun than owning IBM stock or investing in a new wafer board technology. But what possible societal reason is there for subsidizing the ownership of second homes? This is not only a middle and upper class subsidy but it sucks out investment dollars from areas like technology, medical device inventions, and agri-business innovation that tend to make the US dollar stronger and lead to long-term job growth. The net result is that our country has invested far too much in housing rather than businesses that would have resulted in exports to other countries and investments that would give us a long term competitive advantage.

So here are some of the results of all of these subsidies. From 1960 through 2007 the average size of a new US home went from about 1200 square feet to about 2700 square feet (a 125% increase). At the same time that homes have been getting bigger the number of housing units (this includes all homes, second homes, condos, mobile homes and apartments) per person went from about .32 housing units per person to about .42 (31% more per person). The net result is that the square footage per person increased by about 190% per person.

Now Washington (and our State governments) are far less likely to reduce these subsidies than to expand them. After all if something isn’t working then do it bigger and better - never question doing away with it. It appears that Washington will expand the $8,000 new home owner tax credit beyond its original expiration date this November and include existing home owners.

This is the problem with subsidies – once we get addicted to them it is almost politically impossible to ever stop them. Think back to our subsidies for tobacco farmers over the years – they were kept in place long after we knew that smoking killed. We get far too much investment in what sounded like a good idea 50 years ago but makes no sense today.