It's Time to Look Beyond the 'White Picket Fence' of Home Ownership
Now that the Senate has passed the tax bill, it’s high time we put our partisan griping aside and take a closer look at it. And while many have bemoaned the changes to the mortgage deduction as a plan to hurt homeowners, it is an element of the plan that both Republicans and Democrats should support.
Real estate professionals have come out against the plan, crying foul and claiming that it will eliminate incentives for homeownership and make more turn to renting. It all sounds like an awful deal for average Americans, but we need to check our logic.
In the middle of the twentieth century, owning a home had become a signal that one was middle class. Throughout the second half of the twentieth century, we used government programs, funds, and tax incentives to increase home ownership. When lower-income families started to buy homes, it seemed as though they were no longer lower-income families. They were homeowners after all – and home owners are middle class Americans.
But ultimately, this logic doesn’t hold: We’re confusing a symptom with the cause. Back in the day, home ownership was the observable symptom that was a result of having at least a middling income. In trying to advance more to the middle class via home ownership, we’ve tried to change the cause by creating the symptom. That’s like making someone’s forehead hot in an attempt to give them the flu.
While homeownership can be a wonderful thing, it is not what actually creates a wealthy lifestyle for Americans. In fact, too much homeownership can be quite bad for our economy and our way of life.
Homeownership encourages more people to live in suburbs as opposed to renting in cities, which in turn increases commutes, the pollution associated with them and the stress that inevitably comes with that daily grind. Homeownership also impairs the mobility of our labor market by tethering people to their mortgage. For our economy to be healthy, and for future wealth to increase, we need a dynamic and flexible labor market – one where people have the ability to up and move as opportunities change.
Homeownership has simply become too much of a false idol for Americans. We seem to pity those who have to rent as though something is wrong with them. In reality, it is our sentiments that are askew. Renting really is the right choice for many people out there, and we’re distorting their choice away from it by consistently having pro-housing policies.
Homeownership can be a great thing, and the tax plan that made its way through the Senate today will in fact discourage homeownership. That sounds like a backwards outcome. Why would we ever want to discourage something so good? It is as simple as remembering that too much of a good thing is bad. Part of the Great Recession of 2008 was caused by programs that promoted something good: homeownership for all. While we may not currently face a problem of the same scale, it is clear that we’ve biased our society’s homeownership mindset in many ways. With this new tax plan, we’ve finally taken a few fingers off the scale and reduced the distortion towards homeownership.
In taking a few fingers off the scale, we should not be surprised that real estate professionals are crying foul about the new tax plan. They see it for what it is, and so should we. We’ve propped up home purchases, and in reality, larger home mortgages for far too long. We’ve given the real estate industry an extra slab of pork and now we’re finally taking it back. We should be neither surprised nor worried that they are upset about such events.
For all that is good about this shift, there are still changes that need to be made. For instance, those who owned a home before this plan gets implemented retain the old deduction. Grandfathering in previous homeowners creates a situation where people are effectively taxed (because they lose a tax break) if they move – so an area of the mortgage deduction still remains that discourages the mobility our society needs.
Nonetheless, the plan should be touted by both Republicans and Democrats. For Democrats, the change to the mortgage deduction diminishes what frankly was, and still will be, a very regressive tax policy. For Republicans, the tax code gets simplified that much more and the flexibility of the country’s economic environment increases.
Given our cultural sensibilities, it is a tough reality for us to accept, but the American dream should not be a home and a white picket fence for all. For the benefit of those with middle incomes or below we need to see beyond the picket fence – and if we can do that, we can see the benefits from even the most lamented elements of this new tax plan.