Housing remains one of our most domestic industries. The labor used to build the houses themselves is still local. Products we put into our homes (furnaces, plumbing, appliances, etc.) are still primarily made in the United States from domestic parts.
All that is changing. More and more work is being done off-site and more of the components installed have foreign origins. Now, without our thinking about it, the financing of our homes has become an article of international trade.
Once upon a time, our houses were financed locally. We went to Jimmy Stewart at the local savings bank and borrowed the money for our homes. But the folklore of America took over and home financing became an article of policy and then a commodity bought and sold internationally.
What is that folklore? We have been sold the idea that each and every American wants and deserves to own a home. That’s called the American dream. We subsidize home ownership by giving federal income tax deductions for mortgage interest, property taxes and certain homebuying transaction fees.
This is clear government interference in the investment/consumption decisions of Americans. Uncle Sam stands ready to help you year after year in paying for your house. Do we hear conservatives protesting? This is probably a massive gift to wealthier taxpayers. Do we hear liberals protesting? We hear no protest because we have come to accept the idea that home ownership is good without question and government (all of us) should subsidize it.
Why should we do this? Because, proponents will tell us, home ownership leads to better citizenship. People who have a stake in their neighborhoods tend to behave better, take care of property, vote, and give our society stability. Such arguments warm my heart.
Why not apply that same argument to automobile ownership? Let’s give all Americans the mobility they want and deserve. Interest payments on auto loans and taxes for licensing cars should be subsidized because those who have mobility can get around with human dignity if they have cars. Ask any teen: “If you ain’t got wheels, you just ain’t nobody.”
Federal subsidies for home ownership have been reinforced by the Depression-era financing concepts that start with the Federal Home Loan Banks, the Federal Housing Authority, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac). These programs have helped millions of us live in look-alike large homes on large lots in sprawling, poorly structured, energy-gobbling communities.
In Indiana, we have followed the national trend by offering homeowners lower property tax rates than are provided to other property owners. Why? “Well, them homeowners, them is good folk and votin’ folk, too.”
Today’s unresolved property tax crisis in Indiana and the international subprime mortgage market collapse are both direct results of this irrational insistence on home ownership as an article of public policy.
There is nothing wrong with home ownership. I’m for it. But there is something wrong with widespread approval of government’s preferential support for this form of asset accumulation.
Shouldn’t government policy be neutral when it comes to how people invest? Why encourage people to put their money into housing when education or old coins might be more profitable or pleasurable?
Shouldn’t government policy encourage land-use decisions that are beneficial to all of us over the long term? Does committing a large amount of land to urban development today give us the community and environment we will want tomorrow?
Marcus taught economics for more than 30 years at Indiana University and is the former director of IU’s Business Research Center. His column appears weekly. He can be reached at [email protected]