The Ownership Society: R.I.P.
The Bush administration is packing its bags and about to head out the door. As they leave, we should insist they take the garbage with them. Among the items in the garbage pile should be the "ownership society."
With the collapse of the housing bubble throwing the economy into the worst recession in 70 years and the stock market deflating to levels not seen for more than a decade, the ownership society's proponents have not been anxious to talk about this concept lately. However, that shouldn't stop the rest of us from bringing up the topic.
Just to be clear on definitions, what distinguished the proponents of the ownership society from other people is that they argued for "ownership" as an end in itself. In the case of Social Security, the ownership crew wanted workers to take the risk of market fluctuations and bad investment choices, rather than having the guaranteed retired income provided by Social Security.
Their argument implied that these risks were ends in themselves. The returns from individual accounts could easily be beaten by the collective investment of Social Security money, which would lead to lower administrative costs than individual accounts. Incidentally, the higher administrative costs associated with individual accounts would mean higher income to the financial industry.
When it came to housing, the ownership crew wanted everyone to be a homeowner. It is easy to show that in normal times it will not make sense for many people to own. There are large transactions costs associated with buying and selling. (Incidentally, these transactions costs are income for the financial industry.)
Typically, the round trip cost of buying and selling a home, which includes realtor fees, points on mortgages, the cost of appraisals, title checks and other items, will be close to 10 percent of the sale price.
This is a substantial addition to housing costs for a family who will only be in a house for a short period of time. For a family buying a $300,000 house, that incurs 10 percent round-trip transaction costs, the addition to their housing expenses will be $7,500 a year (more than $600 a month) if they live in this home for four years.
Tens of millions of families will live in their homes for less than four years. Changing employment and family situations or health factors often force people to move. For younger, less stable families, homeownership is likely to be a bad financial bet.
Of course that's the case in normal times. Encouraging people to buy homes as the bubble was pushing house prices to ever more unsustainable levels in the years 2003-2007 was the height of foolishness. This social engineering by the ownership society crew helped to inflate the bubble to ever more dangerous levels. The new homebuyers in these years, at least in the bubble markets, saw any wealth they had managed to acquire destroyed in the collapse.
While we should not expect any mea culpa's from the ownership gang, we should demand an end to their influence on public policy. In the case of retirement policy, the focus must be on providing mechanisms through which people can put aside money for a secure retirement. We don't have time for those who want to give people "ownership" at the cost of a secure retirement.
In the case of housing policy, the goal of public policy must be to give people good secure housing options. In some cases, this will mean homeownership. However, for many families, at certain points in their life renting will be the better option.
A serious housing policy must ensure that good rental options exist. It should also seek to provide renters with some of the housing security that homeowners now enjoy. For example, restrictions on the grounds for which tenants can be thrown out of their homes (which exist in many cities) would provide renters with much greater security.
The disaster hitting the economy and the country's homeowners should force the Obama administration to rethink national housing policy. If progressives had been responsible for promulgating the same sort of disaster as the ownership society crew, they would not be allowed near the halls of power for the next half century.
We don't have to banish the ownership crew, just their ideology. We need a serious discussion on housing policy that focuses on the goals that we want to achieve. We can't afford the luxury of a housing policy that is driven by an ideology of homeownership.
-- This article was published on December 15, 2008 by The Guardian Unlimited.