Home Ownership Myths

With the recent negative housing data and Congressional action on tap, it is time to pose one of my favorite questions: why does the IRS treat homeowners better than renters? This may be blasphemy from a financial professional, but there are times when the cost and commitment involved with ownership do not add up. This sentiment was thought to be positively un-American in the past, but given the current state of the housing market, there might be some converts out there.

There was no better cheerleader for the real estate industry than President Bush. In 2002, he introduced the “Homeownership Challenge,” which included policy initiatives that were intended to increase homeownership, especially for minority groups. The rationale was that owning a home made good economic sense and from a sociological standpoint, homeowners tend to be more involved with their communities. (The more cynical would also point out that homeowners tend to vote in greater numbers than renters.) President Bush summed it up when he said that “Owning a home lies at the heart of the American dream.”

That has all of the emotional weight of a good ad campaign, but the admirable goal led to some lousy outcomes. For example, because the message from on high was to allow more people to buy homes, mortgage companies created new products to expand the ranks of potential borrowers. In the era of easy credit and a housing boom, you can understand how quickly we went from enabling the American Dream to lending money to anyone with a heartbeat.

Six years after President Bush’s declaration, the housing and credit bubbles expanded and then popped, putting many homeowners under a mound of debt, or worse, into foreclosure. As a result, the percentage of American families owning their own homes is no higher than it was six years ago and according to the AP’s Jeannine Aversa, “Americans are collectively carrying nearly 20 percent more credit card debt and 35 percent more home mortgage debt than in 2004.”

I never liked the idea that homeownership was subsidized in this country, which occurs through the IRS allowance of mortgage interest deduction. There are many people who should own homes and there also many who should not. Why do we make a judgment about which ones are more deserving of government assistance? It seems unfair that the cautious renter who has not accumulated the means to purchase a home is treated worse than the reckless buyer who slapped down 5% and was able to write off his mortgage interest payments for a year.

I realize that this particular tax gift is unlikely to go away. I could only imagine the revolt that would occur if changes in the tax code included repealing the mortgage interest deduction. OK, I can accept that fact. But its time for us to shift from the myth of homeownership and instead praise financial prudence---I can’t imagine a better concept that could occupy the heart of the American dream.