Rethinking Home Ownership

A few Canadians are rethinking this whole home ownership thing:

During the month of March, some 1,300 single detached homes were sold in Vancouver, for a total of $1.35 billion. This was the subject of news reports because it meant the average selling price of a home in that city hit $1 million.

Home ownership has long been considered an act of responsible citizenship, associated with middle-class values such as independence and personal stability. But $1 million for a house? That's hardly the road to independence or stability for anyone in the middle class. The weight of the mortgage would be more oppressive than any feudal arrangement between lord and serf.

...The idealization of home ownership is both an American and Canadian phenomenon. Both countries had frontiers to settle and homesteading movements. Today our home-ownership rates are identical. About 69 per cent of Americans and Canadians are homeowners - or were homeowners, because those numbers are pre-recession and, at least in the U.S., many have lost their homes.

...Yale economist Robert Shiller, writing in The New York Times, noted that homeownership violates the central tenet of personal finance - that people should diversify their wealth. Because a home usually represents a disproportionate chunk of a family's capital, the family is in trouble if the house value collapses. As Shiller puts it, "Why should housing consumption be better than other consumption, or investments that people might choose?"

Writing in the journal National Affairs, Vincent Cannato of the University of Massachusetts traces the increase in U.S. homeownership over the past 80 years, showing how the rise was orchestrated by government elites who believed that a citizenry of homeowners made for a more civilized nation.

The unintended but invidious consequence was to normalize personal debt. The most notorious pro-ownership policy is the one allowing Americans to deduct the interest on their mortgages, thereby encouraging them to borrow more money. "Saddling people on the economic margins of society with large mortgages turned out to be a bad idea for borrowers, lenders, and the country as a whole," writes Cannato.

...Canada, thankfully, has never had a mortgage deduction, though we came close. In 1979 Joe Clark promised to introduce one but he never had the chance. No Canadian government has revisited the idea, knowing that it would only inflate house prices and cause families to take on more debt than they can manage.

...And then there's always the unmentionable - rental apartments. It's true that renting has traditionally held low status in North America, but anti-renting prejudice is misplaced. As Yale's Shiller points out, Switzerland seems to be a country of renters - the homeownership rate is a measly 34.6 per cent - yet it's a successful and stable society.

Answering to a landlord is not necessarily worse than answering to a bank, and not all that much different when you've put just five per cent down on a house worth 10 times your income.