He uses the subprime crisis and the housing (not-quite) crisis as an opportunity to check premises:
But here’s a question rarely asked, at least in Washington: Why should ever-increasing homeownership be a policy goal? How many people should own homes, anyway?
Good question. Much of Krugman’s piece is entirely reasonable, straightforward economic analysis (e.g., the fact that renters can relocate, to a better job for example, more easily than a homeowner can). Point conceded.
As for me, I am on record as opposing repeal of the mortgage interest deduction, not so much because I think it was a wise policy decision ab initio (I don’t), but because it would be fundamentally unfair to those taxpayers who reasonably relied on that deductibility when making their “rent or buy” (and subsequently their “if buy, then buy what”) decisions in the first place. As unfair as the tax code may be, arbitrarily changing the rules after the game has started only makes it more unfair.
More (via EclectEcon):
borrowing to buy a home is like buying stocks on margin
Only if you don’t believe in that pesky notion of actually paying off your mortgage and building some bona fide equity in the property over time.
Better to say “borrowing to flip a home is like buying stocks on margin.” But that wouldn’t exactly buttress Krugman’s thesis, which is that home ownership (rather than home speculation) is also risky and costly.
Backpedaling a bit:
Because the I.R.S. lets you deduct mortgage interest from your taxable income but doesn’t let you deduct rent, the federal tax system provides an enormous subsidy to owner-occupied housing.
True enough, but which do you think Krugman would prefer: making both deductible, or neither? (I would guess “both” — but with caps to make the tax code yet more progressive.)
Incidentally, the deductibility of mortgage interest, along with certain other deductions — is limited beyond certain income thresholds (i.e., if you’re rich enough, then your ability to deduct mortgage interest becomes limited). Which, to liberals, still means that the rich “don’t pay their fair share.” Somehow.
More thoughts at EconLog.
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Elsewhere on the topic of “homeownership as public policy” —
The subprime mortgage fiasco is sending tremors through Wall Street and has brought the U.S. economy near (if not into) recession. For African Americans and Latinos — the primary victims of the debacle — the mortgage meltdown may widen the considerable gap in wealth that already exists between whites and people of color.
…
“We estimate the total loss of wealth for people of color to be between $164 billion and $213 billion for subprime loans taken during the past eight years. We believe this represents the greatest loss of wealth for people of color in modern U.S. history,” the Boston-based organization United for a Fair Economy noted in its report “Foreclosed: State of the Dream 2008.”
As I noted in a comment over at To The People:
When banks refused to loan to unqualified minorities to purchase unqualified properties, they were denounced as “redliners.”
When banks commenced loaning to unqualified minorities to purchase unqualified properties, they were denounced as “predatory lenders.”
For these disingenuous malcontents, it’s always the same: You start at “denounce” and then work your way back to fit the particulars.
See also, “Predatory Borrowers.”
7 responses so far ↓
Link J. Philip // Jun 24, 2008 at 1:50 am
I think you are being rather kind to Mr. Krugman, who lives in a 5000 square foot home in Princeton. Easy for him to talk, and I think Kip's Law is applicable here. The reason home ownership is important is because it stablizes the hell out of the economy. Renters don't buy washing machines, put up decks and swimming pools, or landscape their front yards.
The ripple effect of ownership is massively positive, and people who build equity in their own domicile have a ready made asset for their retirement, give their heirs more economic traction, and stimulate far more growth.
This, by the way is the economic argument for why even the most rabid bigot should still support gay marriage. Married people adopt, buy swingsets, minivans, clothing, and in general circulate commerce far more than unmarried people do. Home ownership factors into that also, because as families grow so does their need for a home of their own.
Krugman doesn't get this, apparently, and asks rhetorical questions for their intellectual novelty rather than their true merit. Ownership is bloody important, it should have a tax benefit (as should child bearing and marriage), and even questioning that isn't so much thought provoking as it is cerebrally challenged.
Link Chris // Jun 24, 2008 at 7:56 am
Are you telling me that minorities had built up over $160 billion in equity over the last several years on subprime loans? I find that a little difficult to believe. Far more believable is that the homes that the banks owned were worth over $160bn, but that isn't exactly the same as lost wealth is it?
Link 5000 Square Foot Homeowners Shouldn’t Cast Stones « J. Philip’s Real Estate Blog // Jun 24, 2008 at 8:55 am
[...] commented on this KipEsquire post on the same article which was more [...]
Link Dr. Kenneth Noisewater // Jun 24, 2008 at 9:03 am
"Redlining" isn't simply the practice of not loaning money to unqualified minorities for unqualified properties. It's the practice of deeming large swathes of property unqualified simply because a lot of minorities live in the area, without regard to the individual financial circumstances of the prospective borrowers.
I think someone can both be against redlining AND against the sort of no-doc mortgage originating practices that put a lot of greedy borrowers into homes they couldn't afford, put a lot of money into the pockets of greedy mortgage brokers, and put a lot of worthless paper into the portfolios of investors.
Link J. Philip // Jun 24, 2008 at 9:39 am
Dr Kenneth,
The problem is that the intellectually dishonest, agenda-driven types will blur the lines between responsible underwriting and redlining to make political hay.
I predict that the caution we can expect to see from lenders who have redicovered sanity will yield another column in another year or two from Mr. Krugman (especially if McCain is elected) that minorities have been unfairly excluded from ownership opportunities.
Link KipEsquire // Jun 24, 2008 at 10:03 am
Dr. Noisewater,
Sure, just like taking Suzette Kelo's land to give it to Pfizer was a "public use."
JP is correct: As a matter of partisan politics, "redlining" is usually defined as, "whatever you want it to mean in order to further your agenda."
Link Dr. Kenneth Noisewater // Jun 24, 2008 at 11:02 am
JP and Kip:
I understand both your points. I'm not here to say who is and who isn't an appropriate target for your particular brand of libertarian ressentiment. But absent an actual example of the sort of damned-if-they-do, damned-if-they-don't criticism of banks coming from the likes of Krugman, the To The People comment starts to look a bit like a claim that predatory lending and redlining aren't actual business practices that have occurred but simply products of leftist imagination.
Maybe I'm inferring too much from the comment.