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The case against ownership

Posted by Binyamin Appelbaum  March 6, 2008 11:20 AM

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The latest New Yorker carries an essay by James Surowiecki arguing that America needs to reconsider its crush on home ownership. Surowiecki writes, quite reasonably, that ownership isn't good for everyone.

His major concern is that homes are hard to sell. In investing terms, this is called a lack of liquidity, which is bad because it means you're stuck when prices fall. He goes on:

Homeownership also impedes the economy's readjustment by tying people down.... It's good for people to be able to leave places where there is less work and move to places where there's more.

Surowiecki is following other writers fascinated by the work of Andrew Oswald, an English economist who wrote in a 1996 paper that areas with higher home ownership rates also have higher unemployment rates.

Examples in the United States include Alabama, Michigan and Mississippi -- areas with some of the nation's highest rates of ownership and unemployment.

If people could leave those places more easily, the people would benefit. So would states that have jobs. As for Alabama, Michigan and Mississippi...

(This theory isn't as favorable to the Boston area as it might seem at first glance. Though our ownership rate of 64.7 percent in 2006 was among the lowest in the U.S., one of the consequences is that our residents can move elsewhere more easily if our economy sours. The upside is that our residents can move within the region more easily to adjust to smaller shifts in the economic weather.)

Unfortunately Surowiecki closes by tiptoeing past the consequences of his argument, which presumably include adjustments to the plethora of government policies that reward ownership and punish renters.

To paraphrase Harry Truman, it would be more interesting to read a one-armed economist.

This blog is not written or edited by or the Boston Globe.
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26 comments so far...
  1. Not trying to own your own just doesn't make sense to me. Aside from those trying to purchase too much home, the benefits far outweigh the ability to up and move, arguably the only benefit to renting. Owning your own home, and more importantly keeping up with the payments, improves your credit, allows you to access those plethora of government policies and builds equity. Done sensibly homeownership allows you to take the money that would be spent on rent, and not beneficial in the least, and put it towards a mortgage which ultimately gains you ownership. Paying rent only pays someone else's mortgage. Paying your own improves credit, allows for tax incentives, buys ownership and gives you pride.

    Posted by Me March 6, 08 11:58 AM
  1. Well, then maybe landlords should start letting people have dogs again. That's the beginning and end of my crush on home ownership.

    Posted by UncleJulie March 6, 08 11:59 AM
  1. There's more than just economic concerns here. If everyone just said "to heck with ownership" for the sake of being able to pick up and move more freely, communities would inevitably suffer. We'd become a nation of transients. Nobody would have a stake in making a neighborhood better, because they could just pack up and leave.

    Crime rates do tend to be higher in places with higher percentages of renters, such as large cities. I realize that correlation isn't causation, but it still might be a factor.

    Personally, I'd love to own. The idea of having a roof that belongs to me, and a yard that my daughter can run around in, is extremely appealing in spite of the attendant foibles of home ownership (the roof might leak, the yard needs mowing and raking, etc).

    My home, where I can make as much noise as I want, where I can hang pictures without asking a landlord's permission, where I can make my own bloody repairs without waiting for the landlord to have time (though I feel compelled to disclose that I do have very good and responsive landlords at the moment). That's what I'm looking for.

    Of course, that will never happen if the government keeps propping up house prices artificially.

    Posted by Greg D March 6, 08 01:41 PM
  1. Many homes are in dis-repair. Many homeowners have no idea how to properly maintain a home. They dont want to invest the time, and they dont want to spend the money. Thus, with our harsh weather, much the New England housing supply is simply awful. As somebody who loves his home and loves working on his home, I sure would appreciate all of those people who dont invest a dime in their home to just sell and move to a condo. It be much nicer owning a home amongst others who are also passionate about their homes.

    Its not owning a home is a bad idea. Its that those that do own homes, and take good care of them, are punnished by the cheap slouch next door.

    Also, homes are way too expensive. The moment a home is built, mother nature and all here glory try to reclaim it. Homes should be more affordable, to allow the homeowner to spend the money on proper maintenance. Otherwise, Mother Nature will always win.

    Posted by Proud Homeowner March 6, 08 01:43 PM
  1. A home which you live in is a terrible investment. Home prices historically appreciate at or slightly above the rate of inflation (3-5%). That is a terrible ROI. A property that you rent and generate a positive cashflow from is a fine investment. And when home prices are artificially inflated, like they are currently, and you can rent for half or more the cost to own, renting just makes sense, especially when you can make double digit returns in other asset classes.

    Posted by John March 6, 08 03:27 PM
  1. Agreed... Boston area landlords are the least dog friendly I have ever seen and I have lived in the South, Out West, and have many friends and family in the Midwest and Northeast. The same message is always true- NO DOGS or major $$$$ if you want to keep yours. Quite understandable why Eastern Mass has one of the lowest dog ownership rates anywhere in the nation.

    Clearly, I'm planning on buying a home ASAP- no way am I giving up my dogs for anything in the world.

    Posted by Boston Hates Dogs March 6, 08 03:28 PM
  1. The argument for not home ownership is the density which is eccologically benificial. Less land is needed when townhouses and apartments are built. One need not be dependent on cars, public transport can be within walking distance of dense development as one sees in european cities. The suburbia, and miles of daily commute is now accepted as American norm, artifically supported by government laws. Why else would mortgage payment be deductible from the income tax? We have to have better mass transit, public schools before people can actually think of giving up hastly built, super size homes built without an architect.

    Posted by ABM March 6, 08 03:35 PM
  1. Not only do renters not allow dogs, neither do a large percentage of condo associations unless you have a dog under 25Lbs. If you have a dog and can't afford a single family home but don't want to throw away your money on rent, it's very difficult landing a condominium that will allow our furry friends. It's not easy for young hardworking couples these days, especially when they consciously and wisely make the decision to hold off on children and instead, get a dog. Many young couples start off with a condo thinking its a wise choice in their stepping stone of life...I'm not so sure that is true right now.

    Posted by Young and the homeless March 6, 08 04:22 PM
  1. Uncle Julie - Buying a house is the biggest purchase most people will ever make. In the rent vs. own debate, are you seriously asking us to consider pets when determining which is the most fiscally sound option?

    As for Young and Homeless - "Wisely make the decision to hold off on children and instead get a dog." Are you comparing having children to having a pet? This subject matter involves weighing the financial pros and cons of owning vs. renting, can you and Uncle Julie please go rent a room at the zoo and stay away from grown up topics you are obviously not ready to discuss.

    Posted by Danny March 6, 08 05:42 PM
  1. From a financial perspective, the biggest argument for home ownership is that, in order to avoid homelessness, paying your mortgage acts as a form of "forced savings." In other words, most people don't possess the discipline to consistently put money away, say, in a basket of stocks (such as an S&P index fund). If they did, in many cases they'd be better off doing just that with their mortgage money, and then renting a place to live. It sounds counterintuitive, but what many people fail to consider is the actual price they've paid for a home, once interest, taxes and other expenses are taken into account. That $125K you paid in 1978 for your (currently worth) $800K home may actually total up to, say, $450K when all is said and done, thereby significantly reducing your actual paper profit.

    Posted by Jasper March 6, 08 05:48 PM
  1. Ownership is not automatically the best choice, once you consider property taxes, insurance, maintenance and the interest on a mortgage. Also, I could never afford to buy in the area where I live, which means I would not only face a significant increase in terms of the cost of having to own a car (including commuting to work via car or train) but also in terms of quality of life - a 90+ -minute commute each way vs. a 20-minute commute. Also, as an only child with older and not-well parents, I do need the flexibility to move if one of them gets to the point where they need me there. I'm not arguing the benefits of home ownership in general, either for personal reasons or for reasons of better emotional & financial investment in the community - just that it is not automatically the best choice for everyone. And those of us who are smart do invest in other areas!

    Posted by Mari March 6, 08 06:07 PM
  1. Most people inflate what they make on their HOME investment. They fail to also include expenses such as appliances, yardwork cost, taxes every year, etc. When you factor in all those costs, your ROI is not very high. Renting is cheaper but you trade off the freedom of ownership for the freedom to walk away.

    Posted by jaxson March 6, 08 06:11 PM
  1. I have been a home owner since 1978, first down in New Jersey where property taxes are higher than here and then 3 homes here in Massachusetts. Home ownership brings pride, security, stability to you and your family. Do not look at a home as an investment, instead look at a home as your anchor to a good and prosperous life. Renting makes the landlord rich and creates an environment of instability, as neighbors constantly move in and out.

    Don't let the present real estate conditions frighten you. Instead look at the possibilities that are becoming available that were out of reach only a short while ago.

    Posted by Pete March 6, 08 07:47 PM
  1. Owning a home just seems like a huge headache. I'm happy enough renting.

    Posted by b0bbydigital March 6, 08 08:11 PM
  1. What happens in 5 years when the boomers start unloading their mcMansions in droves and energy costs continue to escalate? Outside of first tier urban areas and some water front property, the cost benefit to risk ratio will be very high for a long time to come.

    Posted by AbeR March 6, 08 09:19 PM
  1. People get along in much of the world where the government does not subsidize homeownership. If government treated renters as fairly as home owners, perhaps those not able to afford to buy into the market would be able to on the savings or be able to take their money to a better, nicer place to live.

    Here's to tax deductions for RENT!

    Posted by Luis March 6, 08 10:44 PM
  1. In every dwelling I've looked at, it's instantly clear if it was intended for rental or for it's owner to live in. Rental places, at least outside the top luxury bracket, have corners cut everywhere. Carpets rather than wood floors, sloppy paint, refrigerators that don't keep a constant and even temp with freezers that don't reach zero, windows not installed properly letting outside noise in, sewer pipes that back up dumping sewage into the building... basically everything you would do right for your own home is done wrong or at best in sort of middling mediocrity.

    I have long wished for the day when I can own and equip my own home rather than live in someone else's property accepting whatever bland, soulless, cut rate and broken condition they care to maintain it in.

    Posted by Robert March 7, 08 12:26 AM
  1. Giving tax a deduction to a home owner is ridiculous. The U.S. is the only country in the world that subsidizes the wealthy and encourages individuals to go into dept. The housing bubble is popping and now the rich are whining and looking for more hand outs from Washington. When will America wake up?

    Posted by Arthur Imparato March 7, 08 02:25 AM
  1. Home ownership is all about quality of life for me. I have rented extensively and also owned four homes. I don't see home ownership necessarily as a financial boon although paying $1,700 for rent versus $2,000 to own my home seems to make sense to me. Owning my home gives me autonomy, privacy, comfort, pride and many more quality-of-life aspects that make life much more enjoyable for me. That is what is important. You can't take it with you so why not enjoy it.

    Posted by Louanne Poisson March 7, 08 03:39 AM
  1. In some ways, a home financed with a fixed rate loan can be a great hedge against inflation. In general, when the prices of goods increase, employers are forced to increase the compensation given during those high inflation years (again, this is in general). While inflation is negative to many aspects of personal financial prosperity, inflation, when it comes to housing, results in a lower monthly debt-to-income cashflow (as mortgage payments stay consistent, if we ignore property taxes, and nominal income increases). This is not true for renting. Despite this arguement, I believe renting in the Boston area is usually a good idea for young professionals, for the reasons above- which outweigh the arguement I have made here.

    Posted by Matt March 7, 08 08:17 AM
  1. Danny,
    Settle down. It was just a comment. Its more of a concern for people who already have dogs and wouldn't part with them than a consideration for people who don't have them yet. In fact, I always tell people now, with the benefit of hindsight, not to acquire a dog before you own your property with your own fenced yard, as it will reduce your choices. Even if you have a good rental situation for dogs, rental homes get sold and sometimes you have to move unexpectedly. There's no call to get insulting about it!

    Posted by Uncle Julie March 7, 08 08:43 AM
  1. I think renting is a waste if you can afford a fixed mortage. As long as you can put some money down and keep the payments reasonable to your income. Why I don't miss renting;

    1. You will never see your rent money again, it's gone and has built no equity (and my loan interest deduction for taxes is way more that the tax deduction for rent)

    2. In general, many people who rent tend to treat property poorly and create more damage. Why should they care, they don't own it? So what, take my measly deposit

    3. Assuming you make a wise investment and can buy a place with a fixed mortgage, if you were to sell the place within a few years even for the same price (not including closing/lawyer costs, etc), it's like you lived there "for free"

    4. Home ownership offers more freedom to create your dream space as you can change things without landlord permission

    I say if you can do it, it's in your best interest over time.

    Posted by renter no more March 7, 08 11:46 AM
  1. Homeownership isn't for everyone. We live in a society where people tend to live above their means. I talked many friends out of buying homes over the past few years by explaining the consequences of getting just any mortgage. Those that didn't heed my warning are now calling me to get them into a better program which they can't because they have no equity or they have tarnished credit. Before buying a home be prepared to put some money down and be prepared for the increased cost of upkeep and utilities - it is more than that rental. If you buy within your means homeownership brings about pride and wealth which renting does not.

    Posted by peanut's in brockton March 8, 08 05:18 PM
  1. Renter no more,

    1. You will never see your rent money again, it's gone and has built no equity (and my loan interest deduction for taxes is way more that the tax deduction for rent)

    If you assume that your rent is the same dollar amount as your mortgage then you are right. The only problem is that in the Boston area it typically costs 2 times the amount to own vs renting and the last time I checked banks were not giving that interest they collect back. Interest to the bank or rent to a landlord, six of one half dozen of another.

    2. In general, many people who rent tend to treat property poorly and create more damage. Why should they care, they don't own it? So what, take my measly deposit

    I rent now (sold my house in November of 2005) and we keep our apartment in great shape. You must be talking about lowell or lawrence.

    3. Assuming you make a wise investment and can buy a place with a fixed mortgage, if you were to sell the place within a few years even for the same price (not including closing/lawyer costs, etc), it's like you lived there "for free"

    I'm not sure what you are talking about here. Did the bank give back the interest you paid? Did the town give back the taxes? Did you not have to pay when that boiler let go? Let's not forget that the housing market is tanking right now. Say goodbye to your deposit.

    4. Home ownership offers more freedom to create your dream space as you can change things without landlord permission

    I couldn't agree more with this one.

    Posted by Pete March 10, 08 08:53 AM
  1. Matt - Right, owning a home is a hedge against inflation. It is also a disaster to buy a own (ie rent debt) during times of deflation. And right now, the US is in a deflationary environment. Home prices are going down, salaries have not gone up in nearly 8 years, stocks are down... this is deflation! All the rules are different during times of deflation.

    Posted by Middle March 11, 08 08:26 AM
  1. Middle, could you elaborate a bit for us non-economist-types? :-)
    You've written that "We are in a deflationary environment, and its only a matter of time before we all discover this. With the odds being that the US dollar is going to strength and the money supply is continuing to shink, this is a TERRIBLE time to rent debt ".

    Are you suggesting this is a porr time to buy, and if so, what are the potential pitfalls?


    Posted by JChristian March 13, 08 02:29 PM
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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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