In trying to figure out which is the chicken and which is the egg, let me begin with the cover story of the September 6 issue of TIME magazine, titled "Rethinking Homeownership," by Barbara Kiviat. Kiviat has covered business and economics for TIME for about eight years. She has long been an outspoken critic of the tax credits for home owners, and she's taken particular aim at the credits initiated by the Obama administration in November 2009.
Here is a link to the article. I encourage you to read it in its entirety. I hit some high points below, but no synopsis can do it justice.
- While we take for granted that homeownership is an integral part of America, the U.S. government did not start instituting policies that supported homeowners until the 20th century. That was when Secretary of Commerce Herbert Hoover stated that "maintaining a high percentage of individual homeowners is one of the searching tests that now challenge the people of the United States."
- In 1986, the tax code was rewritten to eliminate the deduction of interest from consumer loans, such as credit card debt. However, an exception was made for the interest paid on a mortgage, and this allowance has cost the government about $80 billion in lost revenue.
- It was the failure of Fannie Mae and Freddie Mac, the agencies help keep mortgage rates low, that needed a $150 billion bailout. Additionally, it is our blind allegiance to the benefits of homeownership that, in part, led 11 million current owners to now owe more on their mortgages than their houses are worth.
- In this economy, mortgages can actually be a burden. When homeowners lose their jobs, their mobility to a new position can be limited, as they are tied to the financial capital that is tied up in their houses. This is especially pertinent when the homeowners' mortgage are under water.
- The economic advantages to a community or nation of home ownership are greatly exaggerated. There are many vibrant economies in communities that have lower homeownership. It is the same story internationally. In Switzerland, one of the world's richest nations (GDP per capita: $73,798), two-thirds of the citizens rent. In Spain, with per capita GDP of less than $35,000, homeownership is near 90 percent. Where is the quid pro quo?
- Homeownership enabled access to cheap credit, which masked fundamental foundational changes in the U.S. Kiviat writes, "For decades, income inequality has been growing, and middle-class wages have been stagnant. In the eyes of at least some academic observers, cheap credit, especially when used to buy ever-larger houses, has been a way to get people to feel O.K. with their lot....Pumped up on credit-card debt and home-equity loans, we kept spending away and felt richer than we actually were.
What all this tells us is that we Americans had a party for many years, and today we are paying the bill. Money that could be used to pay for goods, such as autos, home furnishings, and electronics, are instead paying down down. At least in part, this contributes to the stalling of our economy, for until there is more demand for goods, there is less need for the people who make them, sell them, service them, or insure them. To blame one presidential administration or another -- either "the one who spent our money on a stimulus program" or "the one who looked the other way while financial leaders were running amok" -- is purely political and overlooks the fundamentals problems in our economy.
Hubert Humphrey once said "We believe that to err is human. To blame it on someone else is politics." Many of us need to look into the mirror for our current state. Or in the words of that great philosopher, Pogo the Possum, "We have met the enemy, and he is us."