Friday, February 13, 2009

Promoting the housing sector

When government interferes in the economy it causes decisions to be made and actions to occur that otherwise wouldn't be the case. This is bad because if something wouldn't take place without government intervention you can make a safe bet that it's probably a poor idea. If it was a good one then you wouldn't need government to promote it.

An excellent example of this is housing. Most politicians take it as an article of faith that home ownership is a great thing and equate it with realizing the American dream. Democrats love it. President Bush promoted it. Senate Republicans even tried including a $15,000 home purchase tax credit into the stimulus bill.

As Richard Florida points out, however, there is a good case to be made that home ownership has some rather negative economic side effects:
If anything, our government policies should encourage renting, not buying. Homeownership occupies a central place in the American Dream primarily because decades of policy have put it there. A recent study by Grace Wong, an economist at the Wharton School of Business, shows that, controlling for income and demographics, homeowners are no happier than renters, nor do they report lower levels of stress or higher levels of self-esteem.

And while homeownership has some social benefits—a higher level of civic engagement is one—it is costly to the economy. The economist Andrew Oswald has demonstrated that in both the United States and Europe, those places with higher homeownership rates also suffer from higher unemployment. Homeownership, Oswald found, is a more important predictor of unemployment than rates of unionization or the generosity of welfare benefits. Too often, it ties people to declining or blighted locations, and forces them into work—if they can find it—that is a poor match for their interests and abilities.

As homeownership rates have risen, our society has become less nimble: in the 1950s and 1960s, Americans were nearly twice as likely to move in a given year as they are today. Last year fewer Americans moved, as a percentage of the population, than in any year since the Census Bureau started tracking address changes, in the late 1940s. This sort of creeping rigidity in the labor market is a bad sign for the economy, particularly in a time when businesses, industries, and regions are rising and falling quickly.
Not to mention the fact that government emphasis on home ownership helped stoked the boom that produced the bust we are now in. This is just another classic case of politicians shooting the messenger when confronted with information they disagree with.

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