Adam Posen had a smart piece over the weekend about the economically damaging cult of home ownership in the U.S. and U.K. focused mainly on the problems with home ownership promotion as financial policy. I’d like to extend the argument by noting how disastrous this policy dynamic is for housing policy. The goal of housing policy ought to be to bolster real living standards by making housing abundant and affordable without unduly siphoning resources off from other segments of the economy. If houses get cheaper, bigger, or better-located, that means real wages are rising—exactly what we want.
But promoting widespread ownership of urban and suburban real estate as the primary investment vehicle for middle-class families turns the whole thing on its head. A house is two things: a parcel of land and a complicated manufactured good that sits atop it. In other words, it’s a commodity and a consumer durable good—similar to a car (consumer durable) that needs gasoline (commodity) to run. But even though both automobiles and tanks full of gasoline are widely owned in the United States, politicians don’t run around trying to promote expensive cars and gasoline because we rightly recognize that this would reduce living standards, not raise them. But by encouraging mainstream middle-class families to make large leveraged investments in houses, you create politics around promoting housing scarcity. The problem here is that although any given person can certainly profit from the house he or she owns (or, more plausibly, the land it sits on) appreciating in value more rapidly than average, it’s extremely difficult to see how a nation as a whole is going to become more prosperous by houses becoming more expensive. If we banned the construction of new cars and trucks, then America’s existing stock of cars and trucks would become more valuable, but this would be a way of impoverishing the country, not enriching it.
The point isn’t that everyone needs to rent. Some people are carless and many people lease them, but most Americans do own cars; perhaps on a level playing field the same would be true of houses. But there’s no need to erect a vast policy superstructure whose point is to privilege home ownership over renting. The policy goal should be abundance, not ownership and investment gains.