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Wednesday, August 11, 2010

Economic mobility and home subsidies

A friend of mine, Steve Lafleur, argues that subsidies for home ownership are not good public policy. In today’s economy many young people require mobility in their profession. It is becoming more and more common for people to live in multiple cities throughout their lives. So home ownership can often act as a anchor holding down someone’s progress, since so much of an individual’s economic resources goes into a house.

Here is a section of the article:

Home ownership has been considered an integral part of the American Dream for as long as anyone can remember. Now it has come under scrutiny, notably in a June Wall Street Journal piece by Richard Florida, which claims that that home ownership reduces employment opportunities for young adults, since it limits their mobility. To support ownership, others — particularly Wendell Cox — have argued that home ownership levels do not correlate with the economic productivity of cities, and cite the rapid suburban development in the Sunbelt as evidence that home ownership is as valuable as ever.

My inclination is that the truth lies somewhere in between the two sides of the debate. For the sake of simplicity, I'll refer to them as New Urbanist supporters versus Smart Growth opponents (I realize these are broad generalizations). While they disagree on the merits of home ownership, there's an interesting point of agreement: both sides oppose subsidies to homeowners. I'd argue that both sides should focus on getting the issue of discontinuing subsidies onto the national agenda.

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Posted by Hugh MacIntyre on August 11, 2010 | Permalink


Here we go again with yet someone else trying to tell people, in this case home owners, what is best for them. People like this must look with nostalgia at the old Soviet Union with its centralised planing for anything and everything.

Posted by: Alain | 2010-08-11 11:18:49 AM

Alain, agreed.

We don't need to be figuring out why people are mobile or not. We don't need to scrutinized anything about home ownership. The only thing needed is to end all home subsidies. That's it.

For some people they will limit their career to live in a certain place. Others will move around. Both can own homes. One may live in their home, the other may rent theirs out.

Posted by: TM | 2010-08-11 12:50:38 PM

TM, in my opinion all subsidies should be terminated. It remains unclear however just what subsidies American home owners receive other than the interest on their mortgage being deductible. Assuming they actually do receive subsidies, I would be against singling them out from all the other subsidies.

Posted by: Alain | 2010-08-11 1:48:39 PM

Alain, I see your point. The thinking behind any subsidy must be eliminated otherwise we will eliminate but gain another somewhere else. Yet I think any subsidy should be eliminted, even if one at a time.

Posted by: TM | 2010-08-11 1:56:40 PM


F&F (Fannie and Freddie) and the FHA (Federal Housing Administration) subsidize housing in the U.S. by insuring mortgages and guaranteeing mortgage-backed securities. Having the U.S. gov't insure and guarantee mortgages essentially drives down interest rates on mortgages and mortgage-backed securities. This point is essential to understanding the subsidy. In a free market, there would be no guarantee and interest rates would be much higher (in order to compensate the lender for risk). Since the lender does not take on any risk, the rate is lower. Make no mistake however, there is no free ride in the system. Mortgage lending is not made less risky by a gov't guarantee. The losses end up occuring regardless. Except in this case the taxpayers foot the bill instead of the lender.

Posted by: Charles | 2010-08-11 2:23:46 PM

The CMHC does the same in Canada but is much more conservative than its American counterparts.

Posted by: Charles | 2010-08-11 2:24:33 PM

Why is it that I get called a communist every time I advocate for eliminating subsidies? As Charles pointed out, there are plenty of subsidies to homeownership. The one that he omitted was the first time home buyers tax credit, valued at $8000.

Posted by: Steve Lafleur | 2010-08-12 12:37:43 AM

Wait a second...so claiming that the government shouldn't be trying to get you to live in a certain way (subsidies are meant to promote home ownership over other means of living) makes you a Soviet?
You do realize that eliminating these subsidies would lead to a much freer housing/apartment market, and is fundamentally anti-communist in nature, right?

Posted by: Chad | 2010-08-12 7:44:26 AM

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