It always seems to happen this way: Our nation’s housing policy gets dissected in the context of a larger debate over deficit reduction. With too little money to go around, politicians and think tanks question whether the country should be “spending” so much money to support homeownership. Wouldn’t tax dollars be better allocated to a national information architecture, alternative energy technology, or support for rental housing?
The current debate in Washington has laid bare the federal government’s support of homeownership through tax deductions, secondary mortgage market guarantees, and underwriting criteria, among other things. The backing adds up to a sweet, but arguably necessary deal for potential home buyers and the builders who serve them, at least when market conditions are ripe.
The current system looks like good public policy when you consider surveys such as the one recently undertaken by The New York Times. Nine out of 10 Americans still think that homeownership is an important part of the American dream. This, even though home values will fall 35 percent nationally before the housing recession is over.
We’re finding similar sentiment in research we’re conducting with homeowners and renters to determine whether there’s a “new normal” in buyer psychology. Early focus groups suggest that the drive to own a home remains strong. The problem, people report, is that it’s very difficult to buy a home these days given high down-payment requirements, stricter underwriting, and uncertain job conditions.
A gulf has developed between what people in this country want and what the well-heeled experts in Washington think is good for them. As senior editor John Caulfield points out in his feature this month (“Slings and Arrows,”), the housing industry is under attack in Washington from influential people on the left and right who question why the government subsidizes homeownership when we have other presumably more pressing challenges—when our ability to compete on the international business scene is in jeopardy, when we are at the mercy of foreign energy sources, when our children are falling behind in the international classroom, when our roads and bridges are crumbling.
Politicians who want to curtail the home mortgage tax deduction have their work cut out for them, even if it disproportionately helps wealthier people who itemize their returns. Surveys by The New York Times and the NAHB show that people believe they have a right to their mortgage interest deduction. They still believe that homeownership is a key part of their wealth-building strategy.
Homeownership isn’t some theoretical economic concept. It’s something that affects people day in and day out, just like going to work and taking care of your family. It’s much more important to people than somewhat smaller classrooms, a marginal reduction in gas prices, or the added reassurance that a bridge may not give out.
Unfortunately, the major club that housing advocates used to hold over the head of U.S. policy makers—that the economy can’t function without it—doesn’t represent the same threat as before. The national economy is recovering without the help of the housing industry. It is now clear, however, that the economy may not get much better without a boost from housing production.
Even President Obama, whose re-election chances have definitely taken a hit from the lack of progress on unemployment, admitted in a town hall session last month that his administration didn’t do enough to support the housing market.
That said, it seems unavoidable that housing give back something in the larger debate over deficit reduction. Every sector of the economy will have to contribute if the nation is going to cut its enormous debt. Let’s just hope policy makers use a scalpel rather than a Bowie knife. The outcome can’t set back a weak industry even further.
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