Taking Stock
Why home ownership is U.S. obsession
Kai Ryssdal speaks with Columbia Professor Edmund Phelps about the reason why so many Americans want to own their own homes.
Edmund Phelps, director of Columbia University's Center on Capitalism and Society. (columbia.edu)
More on Housing - Real Estate
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TEXT OF INTERVIEW
Kai Ryssdal: So you grow up, get a good job, marry, you have a couple of kids, and buy a house. It's the American dream, right? But a lot people got in trouble chasing that last part and helped take the economy down with them. In today's installment of Taking Stock, our series of occasional conversations with people who can give us the longer view of our economic situation, Columbia University economist Edmund Phelps and American attitudes toward home ownership. Phelps says that dream of owning a house has been fueled, in large part, by the government.
EDMUND PHELPS: Democrats and Republicans have been very keen to make home ownership almost a national purpose. President Clinton got through Congress a 1997 act to force mortgage lenders to relax the conditions on loans for low-income people. And then there were tax breaks on capital gains and houses in 1998. But I have to say that it isn't just public policy. The banks, which used to have something to do with business lending, sorta of lost their expertise in that area, and they began to focus all their lending efforts on residential mortgages and other soft targets.
Ryssdal: Let me ask you this, though. Because if the government gets rid of the home-mortgage interest deduction, I for one will be extremely annoyed, and so will the 70 percent of Americans who own their own homes. I mean, it would be a sea change in the way we look at homes in this country.
PHELPS: Yes, it would be. But to me it makes a lot of sense. Because, look, this is a very funny kind of asset in which the owner of the asset gets the services of the asset -- the shelter and the comforts and so forth that the asset provides -- and at the same time, as if the owner was paying income tax on those services, the owner gets to deduct the mortgage costs.
Ryssdal: Is that a bad thing?
PHELPS: Yeah, to me that is quite crazy. There are only two logical ways to go: one is to deny mortgage-interest deductibility because no tax is being paid on the benefits, or start taxing the benefits.
Ryssdal: You're a renter, aren't you?
PHELPS: I am a renter, you caught me. But that's not why I have these positions. It just happens that I'm a renter.
Ryssdal: Well, when you live in New York City it can be tough to own, right?
PHELPS: Lots of us here in New York City are renters, yes. We're a very strange breed.
Ryssdal: Well, even though you've made peace with the idea of renting, for a lot of people it is a dirty word out there. I mean you have to make the rent every single month. You're just giving this check over to the land lord, and you're not getting anything out of it. Do me a favor and weigh the pros and cons of renting or not.
PHELPS: If you rent, that's it. You don't have to pay any interest to anybody. You don't have to pay any maintenance costs to anybody. You don't have to worry about whether the boiler is going to break down. While if you own your own home, you have a hundred aggravations. Maybe the roof will leak while you're overseas. In strict money terms, there is no reason to think there is a systematic, long-run, sustainable, durable difference between the two.
Ryssdal: Is this home-ownership obsession that we've had, has it affected the rest of our economic lives? Does it change the way we save? Does it change the way we spend in other regards?
PHELPS: Of course, while house prices were going up, that became a substitute for saving. People would refinance their homes, take the profit and spend that, hoping that prices would go up again. And then they would do the same thing and spend that. But I do think this home-ownership craze does tie in with a newfound fashion for spending rather than saving. I'm old enough to remember in the 1930s and the 1940s when thrift, frugality was considered an important virtue. In those days we all knew Benjamin Franklin's aphorism, "A penny saved is a penny earned." Today, the official doctrine seems to be that a penny spent is a penny earned.
Ryssdal: Do you think professor that there's a way to change the housing paradigm in this country? That it is the American dream, and if you have the material means, you ought to buy a house.
PHELPS: I'm hoping that the administration and other thought leaders will succeed eventually in bringing the country back to the older idea that the American dream is having a career, getting a job, and getting involved in it, and doing well. That was the core of the good life. That's what we have to get back to, and get away from this mystique that the most important thing in your life that could ever happen to you is to be a home owner.
Ryssdal: Edmund Phelps at Columbia University. Thanks so much for your time.
PHELPS: You're welcome. Good to be here.
Ryssdal: Edmund Phelps won the Nobel Prize in economics in 2006. He's the director of Columbia University's Center on Capitalism and Society.
Comments
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From anchorage, ak, AK, 04/18/2009
Homeowners might as well reap the benefits of mortgage-interest deduction while they can. The government will be taxing them on the property for eternity for services they don't even use. so as far as taxing on services in this arguement. they do and more.
From Scottsdale, AZ, 04/09/2009
Ownership has it's advantages. Unfortunately, one of them isn't liquidity. With rising unemployment, mobility is a great advantage. Depressed pricing precludes many home owners from competing for employment because they're tethered to homes that may well be worth less than their debt. It's an awful burden on principle centered home owners many of whom for no reason other than our current economic condition will be forced to default not just on their loan, but on their principals.
From Tempe, AZ, 03/31/2009
There are good arguments here to both sides, however, renting or owning? Is one really better than the other? No, what really matters it that the people who do decide to buy can afford to do it without depending on "other" income, such as overtime from their job. I worked in HR where we had lenders call and try to make us say that the OT the RN was getting was "guaranteed". Which we would never do. And now even the hospitals are suffering in this ecomony and having to cutback on staffing. No more OT or frivolous incentive pay. So don't get into a loan on the hopes that you'll make ends meet by working 50 hours a week, (no matter how GREAT a price the house is) that's just irresponsible and how we got in this mess in the first place.
From California, MD, 03/30/2009
Just one question- If we all rented, who would one? Big brother? The term "projects" comes to mind. Some big company? Hmmm, like AIG? It's a business decision, that also ties in with dreams and wishes. I pay a mortgage, and that is the decision I have made. But owning is not the panacea either. There is no 'one size fits all' solution.
From Long Island, NY, 03/30/2009
To Ben Leshi, I absolutely agree with everything you say. Bailing out irresponsible homeowners with taxpayer dollars is WRONG, IMO. They should just let them be foreclosed on, so a responsible renter can have the opportunity to become a responsible homeowner at a realistic price. You sound like a very responsible renter, and I agree with your philosophy of taking the good along with the bad, and being responsible for both. With your
outlook, I think you'll make a fine homeowner and hope you manage to achieve
that in the near future(if that's what you want). The Renters' "Ship" is coming in, and the next year or two will be an unprecedented oportunity for
any renters that want to, to become homeowners.
From Long Island, NY, 03/30/2009
To Glen Peters, you're absolutely correct. I know one retired couple here on LI that rent - they pay $1000
a month for a 1 bdrm apt, and that's at
a "senior" apt complex. The husband has alzheimers and goes to a an adult day-care program, while his nearly 70 year old wife continues to work F/T in order to make ends meet. Some "retirement".
To Mike G, yes you're *always* going to be paying SOME form of "rent", even if you own the house free and clear. It's called "property taxes", and unless you're fortunate enough to own a home with an alloidal Title(available in only 2 States, AFAIK), property taxes
are a fact of life, but I for one, would rather pay a few hundred bucks a year and own the place, than pay a few hundred bucks a MONTH, and NOT own. To me, in the long run, there is just no comparison - owning(free and clear) beats the heck out of renting, especially as one approaches retirement age.
From Perth, 03/30/2009
Plenty of landlords fail in their commitments to maintain properties, ensure adequate security to allow renters to insure their assets etc. So you either put up with it, do it yourself (improving their property at YOUR cost) or move. I own my owm home outright,pay nothing to no one, and it's a joy. I bought my first home when I first started working, and yes, it was difficult at times, but it was worth it, the first home was paid off in my 30s and I've not paid a mortgage payment since. If you're a renter, you'll be paying the man forever, till you're old and gray, still having to make that monthly rent check no matter what.
From new york city, NY, 03/29/2009
Unless you pay cash for your home you're still a renter. Either you're renting the real estate or you're renting the money to own it. That's a fact.
From Chicago, 03/29/2009
It looks like this thought was touched on; however, I'll add that I'm also curious to know if Phelps lives in a rent controlled apartment.
03/28/2009
I am reading all these opinions here about owning a home versus renting one, benefits. Which is actually better? I personally rent.
I would accept the idea that the home ownership has some benefits as mentioned here in some of the opinions.
The problem I see is that the home ownership can not be a one way street for the owners. What I mean is that owning a home is a big responsibility. You have to pay property taxes,insurance,utilities,pay the mortgage maintain it and etc, and one should not count on ever rising prices to make up the difference of this responsibility if the paycheck can not handle it.Homeowners should also realize that housing ownership is not a gamble as it has been up to now.It should not only be a good thing to own a home when prices are rising but it should be the same when prices are dropping even if it means that it might destroy you financially. It should not be allowed to just dump a home (that promotes such great things as mentioned here by passionate homeowners) and walk away and have the taxpayers pick up the tab as it has happened. I think,I would say to the homeowners the congress should pass such laws that
once you agree to pay a mortgage the loan to the bank should only be a recourse loan by law( a recourse loan will mean that if you do not pay the loan, the lender will come after you with everything they got till they get paid).After all a homeowner borrowed the money with the intent of paying it,right? This will mean that a homeowner will rip both the benefits and the downfall of the home ownership when tables turn and not just dump the home into the foreclosure and pass it to the bank when things go sour. The congress should also remove the interest tax deduction benefits as that leads to home price speculation and does not treat everybody the same, such as us renters.Only then can we discuss here in this forum the real benefits or fallouts of owning a home.
Only then can a homeowner tell us how much sleep is he getting at night to make sure he keep paying the mortgage as well as the benefits of owning a home and strong communities.
03/28/2009
Why do so many people here make ridiculous assumptions about the professor's home? His point isn't that everyone should rent. It's that public policy that tilts so heavily in favor of property ownership damages the economy without creating unalloyed benefits for individuals or societies. The combination of mortgage-interest deductions and capital-gains exemptions for homeownership is an abomination. The tax burdens on workers could be lightened if we stopped treating homeowners as a new-age aristocracy. And I'm baffled by the person who defended homeowners against accusations that, as a group, they have long favored racial segregation. The post says that New Yorkers of Chinese descent have bought a bunch of houses in NE Philly and rented them out. That is not a defense of homeownership. In fact, it is the opposite, because these owners are landlords.
From Long Island, NY, 03/28/2009
Peter Tobias, two things I'd like to comment on:
1)Phelps(as someone pointed out), as a
University Professor, may indeed be living in heavily subsidized or even free housing(we don't know at this point), but if so, Phelps' comments should be taken with a goodly pinch of salt, as his views may be slanted by his personal housing situation. It's easy to "pooh-pooh" the idea of home ownership hwne one is occupying what may indeed be a heavily subsidized and
unusually favorable rental situtation in an Ivory Tower. Again, we don't know if Phelps has such an advantage, but if he does, his views carry less weight, IMHO.
As for "fetish", I would say buying a sensible modest home that is well within
one's means(such as our parents and grandparents did) isn't a "fetish". Done right, and under the right circumstances, it was smart, and a solid way to systematically "move up the ladder" in a safe, prudent and conservative manner.
What I consider a "fetish", is what so many irresponsible homeowners did, and wound up bringing financial disaster upon both themselves and now, even those of us who had nothing to do with the credit crisis, housing crunch, bank failures and economic meltdown that now threatens us all:
Buying homes they couldn't afford, buy McMansions to feel and *appear* wealthy,
taking out HELOCS and 2nd mortgages to finance marble countertops, the best Sub-Zero has to offer, and adorning their driveways with expensive toys, all the while indebting themselves for an entire working lifetime to do so, and totally dependant on home prices rising forever, to have a chance at being able to afford such a lifestyle on an income that at it's core, simply
can't sustain that lifestyle. THAT's a fetish, IMO.
From Austin, TX, 03/28/2009
Watching Marcitz, thanks for the polite response. I think it may highlight how to properly frame this discussion. I lived in Houston for 20+ years - coincidentally moving there right after the oil (and related housing) boom of the mid-1980's burst. Since that time, housing prices have been stable and increasing moderately. We had no real bubble here, nor did we get a corresponding bust. Even in this environment, I sold my house last month for quite a bit more than I paid in 2001. We are now looking to buy in another relatively stable market - Austin, Texas. My experience is rational stable housing markets.
California, New York, Vegas or Florida - on the other hand - have been anything but stable markets for the last 10-15 years - and I think that represents an entirely different experience. In those markets, I concede, I think I would rent. Actually, and I hope this doesn't anger anyone, I won't consider living in those markets precisely because the cost of living (a large part of which is housing) is too high in my opinion. I think many home buyers in those markets made mistakes by buying high, trading up houses, cashing out equity, adding over the top home improvements and now had to face their margin call.
But my contention is not just that home buying is more attractive or unattractive depending on the real estate market you are in. I think consumer prudence plays a huge role as well. Even in your neighborhood, if a prudent person bought a home they could afford 10 years ago and then stayed put, pre-paying their mortgage when possible, maybe refinancing but never cashing out equity, and avoiding upgrades they could not afford to pay cash for - my contention is that person is doing just fine today. Of course, I am assuming that if the same prudent consumer was forced to move in 2005, they would have recognized prices were irrationally high and chose to rent. My point is: perhaps we are both prudent consumers given the markets we live in.
From Long Island, NY, 03/28/2009
I wanted to add one other point to my previous post: Even in it's present run-down condition, I could rent out my future retirement digs for $250-300 a month, effectively getting the property I can't presently live in due to economic/job circumstances, to pay my rent up here on LI while I wait for the economy to turn around, while the best a renter (stuck in a lease) could hope to do, is sublet and maybe break-even.
In short, I have the same flexability of being able to relocate and rent wherever I want, with the added advantage of having the option to put my
little dump to work for me, and pay if not all, at least a significant portion of my rent, wherever I choose to live.
From Minneapolis, 03/28/2009
Phelps has it right, homeownership has become a fetish in American politics, instead of being part of a personal decision to rent or to own. For the future of democracy and capitalism, it is important that many people own something, to have a stake in society, but what they own, should be left to themselves and not skewed by the tax code: stocks, bonds, CDs, or a house, if they do want to.
From Sunnyvale, CA, 03/28/2009
Both renters and home owners in this blog defend their point of view to rent or own, however their argument is missing a point: renting or owning does NOT necessarily apply to every household in the U.S.
For example, if you examine house price statistics in small midwest towns across the country (Dataquick), you may notice that house valuations did not depart from 2-3x the household income; some actually stayed in line with 4% inflation rate. However, San Francisco bay area (the place I live in) has seen house prices quadrupled from 1996 to 2006. People who could not normally afford due to their low income bought $800-900K 3-bedroom startups and shacks with ARM and often with no money down (thanks to Clinton's 1997 act). Their argument had been "house prices are going up; if something happens, I sell it for more than I bought it for". Their greed was rewarded when "overall" median house price came down close to 30% from its peak for the past 2 years; now, they are either slaves to an eternal debt or being foreclosed. Of course, some of these people were innocent; they were simply the victims of their realtors, loan officers and followed the "flock" syndrome: "everyone is buying one! Why not me?".
This economic crisis will be with us for a long time; the unemployement rate in CA has climed over 10% and indicators show higher figures for 2010 and 2011.
If you are employed in CA (especially in the Bay area) and thinking of buying a house here, think at least four times; then take a cold shower and think some more! Because, neither the pride of home ownership nor your next granite countertop would be as important as putting a meal on the table for your family every day.
From Palo Alto, CA, 03/28/2009
David S, actually it is quite possible because it depends when everyone bought their house because that forms the cost basis upon which they determine their rental price (well actually the "floor" of the rental price). The market determines "the ceiling" and they find a price somewhere between those two.
Their cost basis could be much lower than those of other houses thereby leading to a lower rental for a comparable property. So I live in Palo Alto and while houses have gone up 3X in the past 10 years rents have gone up about .5X. Using your logic this isn't possible if you go out on that limb. Of course, and this still weirds me out, now that prices are falling you would expect rents to come back up but in fact they are falling as well (I assume that mini-bubble will end soon).
So yes it is very possible. I have comped my rental property to others for sale and it is much cheaper for the same property.
Also everyone forgets that interest is rent (money that is thrown away) as is property tax (again that will vary with your cost basis)
Oh and with my rent I don't worry about my security deposit going up. In an owned home equity is like a security deposit that can wind up demanding you chip in to it. Just ask anyone who is underwater. They now have a massive security deposit that they have to PAY to get OUT of their current place. At least I'm allowed to leave my place and at worst I give up 1 months rent.
Check out this link in which those reaching retirment are worse off than renters:
http://money.cnn.com/2009/02/25/real_estate/boomer_wealth_evaporating/index.htm
Thank you, however, for giving a logic based argument (which we may still disagree on) as opposed to an emotion based argument.
From Austin, TX, 03/27/2009
Watching Marcitz, you said "You may find that renting may actually be cheaper." So your argument is that in my retirement I might find a landlord who will rent me a comparable property for an amount less than the cost of the landlord's property taxes and maintenance (gardners, roofs, painting) etc. Sounds good, and I admit it is not impossible (especially in this market), but I am going to climb out there on a limb and suggest most landlords want to rent at a decent profit.
I also forgot to add that a fixed rate mortgage is also just that - fixed. If you assume 3% inflation, over the long term and in real terms my mortgage decreases 3% every year while your rent increases 3% a year. Maybe that is not a huge deal to some, but the mortgage on my first house in 1995 was $474. It was a lot to me then, but now I might have enough change lying around the house to cover a monthly payment. Of course, the key to the benefits I find appealing is to never cash out your equity. In my book, if you are going to cash your equity every few years, you should absolutely be renting.
Again, I have nothing against renting ( I am a renter now), but it is not for everybody.
From chicago, IL, 03/27/2009
Mr. Phels, are you in rent-controlled apartment?
From Palo Alto, CA, 03/27/2009
By the way when you retire your home isn't free even if its paid off. You still have property taxes (which are more expensive in retirement because you are in a lower tax bracket therefore they return less on April 15th) as well as maintenance (gardners, roofs, painting) etc... You may find that renting may actually be cheaper.
Also you may want a different lifestyle. With more time on your hands you might want to live in the big city as opposed to the suburbs (or vice versa)
Again I'm not advocating one or the other but these blanket statements that one is better without any actual math being done is silly to dangerous.
http://www.watchingmarcitz.com
From Durham, NC, 03/27/2009
I'm not sure who's got bigger cajones and perplexing world view, this insulated Columbia prof or the AIG exec DeSantis with the stadium sized hubris.
From Austin, TX, 03/27/2009
I don't think Mr. Phelps is wrong, so much as he elects to overlook the what ought to be the primary goal of home ownership: minimizing expenses during retirement. I prefer to own, but chiefly because I don't want to pay RENT OR A MORTGAGE when I retire. My mother and grandmother were both able to save money each month with social security as their chief source of income. Owning their property outright was a huge reason why. At my age (41) - social security is anything but secure - so home ownership is just a small piece or my overall retirement planning.
From Palo Alto, CA, 03/27/2009
Mr. Yun,
The study dealing with homeowners fighting racial integration was a Harvard study and not a Penn Study. Additionally the Penn (Wharton) study I linked to is from 2009 so it is hardly old and it is the one that says, and I quote, "There is little evidence that homeowners are better citizens."
Here is the link:
http://real.wharton.upenn.edu/~wongg/research/The%20American%20Dream.pdf
With respect to the Harvard study it did say this was an issue during the 1960s and 1970s but here is the quote from that study and how home owners are trying to limit supply anyway which prevents first-time home buyers (many whom are minorities).
Here is the quote from that study:
"What's more, homeownership has a dirty little secret, according to a study by Harvard researchers Edward Glaeser and Jesse Shapiro.
"Homeowners, not renters, have been more aggressive in fighting racial integration, especially in the 1960s and 1970s," the Harvard study stated. "More recently, homeowners have spearheaded the movement to limit new housing supply that has artificially inflated housing throughout the U.S. Essentially, as owners have organized, they have started to act like local cartels, restricting new entry into the market."
From Bellvue, CO, 03/27/2009
True, many people prefer to rent, but where did Professor Phelps get the idea that having a successful career is an older and inherently better dream than owning one's own home?
Besides the "territorial imperative," owning a home can satisfy basic human needs for security, safety, constancy, and personal freedom in a way that renting does not. I would bet the desire "to own" came into vogue with the invention of agriculture and permanent settlements.
I live in an area with very low housing turnover. Few of us cashed in when real estate prices skyrocketed. Most of us have been here for decades and intend to be here until we die. We are nesters. These "funny assets" are not just houses, they are our HOMES.
It upsets me to think that a Nobel Prize winner and economics professor does not seem to understand the concept of "home," apart from its monetary significance.
From Wickenburg, AZ, 03/27/2009
The New American Dream?
Be both an landlord and a tenant!
That's right - you by my house & I'll buy yours! We'll pay each other full service rentals to include energy costs, cable TV and internet and get to deduct not just mortgage interest but interest on appliance purchases, deductions for yard maintenance, repairs, etc. - Plus we get to depreciate everything too! We'll not only have non taxable cash flow but write-offs against other income as well!
From Long Island, NY, 03/27/2009
For some people, renting makes perfect sense, and, at least in the short term, will probably be cheaper than owning.
But as a couple of other posters here
suggested(and I agree), renting as a lifetime housing strategy is probably not such a good idea - unless you have a *solid* and substantial guaranteed income that you can depend on to pay your rent(and any and all increases that may occur over time), I personally think it's much better to aim for a retirement in an inexpensive, low-tax home that you own free and clear, rather than be stuck paying market rent
for the rest of your life on a fixed income.
Sure, there's subsidized housing for seniors, but there are often waiting lists, and let's face it, with the TRUE National Debt being said to be more like $60 trillion, would you bet the farm that those subsidies will still be around and available when you're ready to retire?
And what about Social Security? I have 11 years to go, and I'm not betting the farm that EITHER of those programs will be there for me when I need them. How's your IRA looking these days? What if the PBGC goes under, and with it, your pension check?
In these uncertain times especially, I think it's much better to plan your retirement with the *possibility* that some or all of the income you were expecting may be reduced or eliminated.
I rent here on LI, but own a cheap little 3bdrm fixer upper in an excellent location south of the Mason-Dixon that I got for the price of a good used car. I bought it as "insurance" for the security of owning a cheap little place free and clear, and having the prospect of actually being able to retire now be a real possibility.
Property taxes are $150 a year. That works out to about $13 a month. If you were to rent a 3 bdrm in the same area, it'd run you at *least* $400 a month. If all I'm gonna have to live on is a meager $800 or so from SS, I know where *I* wanna be when I retire.
From Las Vegas, NV, 03/27/2009
It's interesting to note that most of the pro-renters talk in numbers and facts and most of the home-ownership proponents speak of dreams and fantasies.
From Las Vegas, NV, 03/27/2009
It's interesting to note that most of the pro-renters talk in numbers and facts and most of the home-ownership proponents speak of dreams and fantasies.
From Austin, TX, 03/27/2009
My, my, the comments here are more interesting that the actual article. It appears that many people have been thoroughly brainwashed by the real estate industry. It's simple: housing is a COST. You have to live somewhere. If it is cheaper to rent than buy (as has been the case during our recent bubble) then you are better off renting. Period.
As an investment, housing does NOT always go up. (Look at Japan - 24 years of flat or declining real estate values, and on a tiny island with a dense population!) Yes, housing sometimes crashes hard, as we are currently witnessing. Making your retirement dependent completely on selling your house later on has been shown to be a bad move, in light of recent events.
We've got a whole generation of people who have only seen housing values rise, and now that it is going down they can't compute the new information. Take a look around.
03/27/2009
It's "leak" not "leek"...unless you have vegetables growing on your roof. Wake up editor...hmmm...is anything else wrong with the article???
From Alameda, CA, 03/27/2009
Over the last 25 years I've rented and I've owned. I much prefer renting - it's cheaper, I have more free time, and I've lived in better neighborhoods and generally have had more freedom. I will also be able to retire comfortably with the money I've saved. I don't know how homeownership could improve on that.
From Philadelphia, PA, 03/27/2009
Mr. Marcitz,
The study at Penn was actually an old research page with a paper on SARS, and the housing market. I failed to see the relevance of your argument. Also, I am actually half-asian, so please do not EVER make assumptions about one's race in a forum. In any regard, about 15-20% of landlords in Northeast Philadelphia are actually Chinese. Many Chinese come down from New York, buy property, and rent it. So there goes your argument about owners resisting racial integration. And, they rent to wide array of ethnic people. In fact, Philadelphia has one of the nation's largest populations of immigrants. Before you make such large deductions from just a few isolated statistics I advise you to take up residence in a large urban area like Philadelphia, get involved with the community, and then explain to me the obvious differences between families that rent, and families that own their homes. Also, why do you think immigrants come here? Why are they so intent to make money? Where do they transfer that money? They buy homes, and property. They know for a fact that ownership is a key to community, and that community makes their presence stronger in a city, and state. This mortgage crisis is a temporary problem, but the fact remains... home, and property ownership is the key to long-standing wealth, and societal organization.
From Charlotte, NC, 03/27/2009
The 30 year mortgage was a good idea from it's inception in the late 30's to 1980. Since that time, it's been a nightmare. What are people thinking investing in a home when our government has been working full time destroying our economy since 1980. The only sensible option since 1980 has been investing in your 401k and or IRA. For those that did sensibly since that time, they have a retirement income today. Can homeowners that bought in the past 30 years say that now?
From San Francisco, CA, 03/27/2009
Of course owning your own home is a great ideal. What got lost in the push to make this ideal a reality was AFFORDABILITY. It is a pathetic, disgusting propoganda foisted on the middle class by the way too smart for themself greedy bankers and their investors who created the negative amortization nothing down adjustable rate loan that fueled the propoganda of home ownership is some kind of great thing. Having a roof over your head is all that matters. If you want to own it and make it your home, great. If you want to rent it, great. You can't take it with you, now can you? I'm a real estate agent and it sickens me, JUST SICKENS ME to see the lust that people had to buy a home as if their sense of self worth was tied into owning a home. And now these people are renting again. It was a SHAM! The only thing that matters is what you do for other people - your work, how you care for your family and whatever community you find yourself in. Having your name on a Deed recorded down at City Hall is NOT what gives ANYONE any more value than anyone else. America has become a land of opportunists. The opportunity for big business to turn us ALL into the land of the greedy and the home of the slaves to our debt. It's time we ALL looked in the mirror and pulled the plug on our system which creates this insane stack of cards with what, maybe 3% of us on top and the rest of us looking up drooling to be like them? I say smack down that house of cards and get rid of any incentive to carry debt - that's right - get rid of the mortgage deduction. REGULATE the banks and keep them banking ONLY and not speculating. Devalue all our overpriced assets and then homeownership for the massess can become a sustainable reality because it will be AFFORDABLE.
From MO, 03/27/2009
To me, home ownership was never about hoping to get money out of the equity later on. To me, the dream of home ownership was about pulling up in the driveway and seeing my children playing in their own backyard. Tending to the lawn and garden, taking pride in being able to fix something that is mine, and watching the trees that I planted mature into something beautiful; something beautiful that I created, and something one can never get from renting. And about being able to have the final say in how I want to paint it or make renovations. It's always been about something larger than simple financial ownership and the "hope" that I'll get a payday down the road. Which, if I stay here long enough, pay down the mortgage and eventually sell it. Then I do get a pay off. Last I checked, you don't ever get that with renting an apartment.
From San Diego, CA, 03/27/2009
"If you rent, that's it. You don't have to pay any interest to anybody. You don't have to pay any maintenance costs to anybody. ..."
Give me a break, if he pays normal rent, the rent will cover interest and maintenance for guess who: the landlord that "owns" the property.
I am a renter, but at certain price point between rent and own, renting does not make that much sense.
From Palo Alto, CA, 03/26/2009
OK to clarify a few things:
1. No one is comparing apples to apples. With accelerating home prices and declining rent prices there actually was a point where renting was better than owning (financially, not emotionally, speaking). No one can say one is better than the other until they run the numbers as no one here is doing (and as a Marketplace listener I expected better from you)
2. The mortgage income tax deduction actually is a disadvantage. It just encourages people to raise the price of the house to eventually eliminate the advantage of the benefit (NOTE: Any increase in income chasing a, somewhat constrained good, means that prices get bid up and income tax deductions raise effective income). Its a zero sum game that only raises your interest payments in the end (because the principal needed is more due to larger home prices) which means the bank actually makes more money (remember they are the bad guys nowadays and you are only helping them out). Eliminate the deduction and new home buyers (current homeowners would, truthfully, be screwed) would see lower prices commensurate with the decline in the kickback from the government. That means lower interest costs and more money, net, in their pocket (again current homeowners would see their housing values fall)
3. Mr. Yun you are SO WRONG about the value of home-ownership on community. Study after study (I've listed some below) show that there is practically NO social benefit of homeowning vs. renting. In fact (and with a last name of "Yun" I would pay close attention to this fact) home-owners had been those leading the charge AGAINST racial integration in their neighborhoods. Turns our renters are actually more relaxed, more social and, yup, have better sex. Additionally these housing bailouts are a tad racist/classist and are bad for current homeowners in the long run. Don't believe me check out these links:
http://real.wharton.upenn.edu/~wongg/research/The%20American%20Dream.pdf (Its a long academic study but just read the first paragraph)
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2003/03/02/CM173810.DTL (renters have better sex, too)
http://watchingmarcitz.com/2009/02/22/obama-hurts-100-million-to-help-9-million/ (this shows how home bailout programs have a dark underbelly)
http://www.theatlantic.com/doc/200903/meltdown-geography/6 (why renting is actually the answer to the problem we now face)
http://www.npr.org/templates/player/mediaPlayer.html?action=1&t=1&islist=false&id=100961300&m=100961277 (NPR story on why renting may be better so now that is 2 NPR programs turning coat on the American homeowner)
4. Mr. Brooks you are also wrong in a challenging position about saying you are saving for your retirement. If you rent for less than it costs to own you can save the difference and provide for your retirement just like these renters:
http://money.cnn.com/2009/02/25/real_estate/boomer_wealth_evaporating/index.htm
5. Oh and to all of those that claim to be homeowners how many of you actually did 0% down adjustable rate mortgages under the assumption that if the adjustment was too much you would simply refinance again. Guess what - YOU ARE RENTERS (with an option to buy). Well that's OK because its like a stock and it will go up in value..wait this just in...they don't always go up in value. So now you are a renter that owes a big chunk of your savings back to your landlord/mortgage banker. To make the analogy clearer think of the amount you are underwater in your home value as the "security deposit".
This is not to say that home ownership or renting is better than one another. I am a renter who will become a homeowner when its cheaper than renting. They are equally valid lifestyle choices that work differently for different people and it surprises me that the majority of comments on this thread lack that nuanced perspective. To butcher Shakepeare (who I think was mostly a renter) - "The homeowner doth protest too much".
Want a different perspective check out:
www.invisiblerenters.com
or
watchingmarcitz.com
From Philadelphia, PA, 03/26/2009
From the interview, it sounds that Mr. Phelps doesn't quite understand the concept of ownership. And, how home ownership, while burdensome at times, is an integral part of pride, self-worth, and identity. When an individual owns property or land, that person is tied to it. They are tied to the community, and the other owners around them. As a teacher in the Philadelphia Public School system, many of our students are transient. While I'm sure this is due to socio-economic reasons, it takes a huge toll on families. Children that are constantly moving from apartment to apartment end up having no real community identity, and in terms, have no real ties to a community. I'm sure there are tons of studies about the effects of transience on personal, and professional relationships. Now, home ownership reduces the transience of families to some degree, and it builds stable communities where children can form lasting bonds with one another. The parents are more invested in communities, and it builds a safe environment for families, and children to grow. I'm sure today's guest didn't really think about the community impacts of traditional home ownership. And, how communities being crippled through foreclosures, and growing transience in this country will ultimately affect the economic growth of our economy in the years to come.
From Parachute, CO, 03/26/2009
Mr. Edmunds is probably a renter because he lives in a rent controlled apartment near Columbia University and has paid nothing in rent for the last 30 years.
From winston-salem, NC, 03/26/2009
Clearly, the Prof needs to get out of NYC.
From Eden Prairie, MN, 03/26/2009
Perhaps Prof. Phelps is a truly free man. Either he is so wealthy that the sky is a limit on his road through his life, or his is so destitute that there is no material thing for him to carry with along his way. In any way, he is out of touch with most of us. We, the people, work our way out of servitude. For us, ownership of a homestead is one of the mayor steps towards freedom.
[How to make it easy to pronounce? Yarek Half-tech ? :-) ]
From Seattle, WA, 03/26/2009
I think Mr. Phelps needs to get out of the ivory tower and talk to some real people. We bought a house responsibly, not to spend money (see our 10-year-old car and all-second-hand baby toys) but because owning a house means something personally to millions of families like us. I want to plant whatever flowers I love because I "own" the yard. I want my baby daughter to be able to use crayon all over the walls without worrying about the landlord. From the beginning of time, people have wanted "a place to call my own." For millions of regular families, not the financial wizards that Phelps lives near in rented luxury apartments, this is why we want to own a modest home.
From West Hartford, CT, 03/26/2009
If the goal of the interest tax credit is to encourage home ownership, why don't you get a credit for actually owning the house? The credit as it exists now creates an incentive to have more debt, not more equity. I think Professor Phelps point is that home "ownership" has been marketed as a symbol of responsibility and good citizenship, even when the bank is the one that owns the home. Owning is right for some people but not for everyone.
From Troy, MI, 03/26/2009
I don't know what to say. Yes went to far, but why should wealthy people be the exclusive property owners? One's house is an asset. Something you own and can sell or pass on in your estate? Something no one could just take from you, or raise your rent every year, or set limitations. And, why should I take my income and make someone else rich. Being too lazy to fix a furnance is not a good reason. Owning your home represents independence. Renting is ok for some, but to go back to the days when only the very rich owned and everyone else added to their wealth by leasing a space, is going backward and is only good for a privilged few. Don't let this odd and anomolus time cause us to go back to pyrimad capitalism.
03/26/2009
In Mr. Phelps argument supporting the elimination of the income tax mortgage deduction, he points out how the homeowner does not income tax for “the services of the asset”, and should therefore be denied the privilege. He goes on to compare renting to homeownership in terms of maintenance costs. However, he does not consider how the home owner’s maintenance and repair expenses contribute to the economy by employing contractors and consuming raw and finished materials, all of which are taxed. While I believe that Mr. Phelps argument is technically correct, is it a good idea to pull more money out of the economy at this point? Recent events have shown that the American worker cannot count on big industry for steady employment.
From Mammoth Lakes, CA, 03/26/2009
In more normal times, inflation and building equity are fundalmental goals of home ownership. Inflation creates tax incentivized capital growth and paying off the balance is saving. These are worthwhile goals of homeownership. I understand that rent has a place in our life. But the virtue of value building is to be lauded as well.
From Peekskill, NY, 03/26/2009
Mr. Edmunds started by saying that home owners get all the benefits of a house and then a tax right off. After saying that this did not make sense he then mentioned that homeowners also have all the maintenance concerns.
He then said that renters do not have any concerns, but he failed to mention that all of the homeowners' concerns are built into rent prices. He never considered that only the interest on the loan can be written off and the lender pay taxes on those gains.
I am a fan of Marketplace, but this interview was a waste of time.
Take care,
Troy
Mr. Edmunds said that people should change their emphasis from homeownership to career. What he failed to mention is that unlike college professers most Americans cannot count on having a career today. Companies stopped offering individuals careers when they changed the name of the Personnel Department to Human Resources. People get laid off all the time now. In fact, the discussion of Charlotte, NC quickly showed a woman who thought she would retire from Bank of America, but was instead laid off. Mr. Edmunds lives in the professorial bubble of a stable career while a large number of jobs have gone abroad.
The discussion of homeownership completely missed the concept of no longer having a large home payment after the mortgage is paid off.
From Amherst, MA, 03/26/2009
Wow! I am not surprised that there are strong reactions to Professor Phelps comments. Homeowners (I am one) do not take offense. I do not think Phelps is criticizing your lifestyle choices. I for one found the questions he raised important questions that usually do not get attention. The current cultural imperative to borrow and spend rather than conserve and save deserves our collective attention and analysis. There are many ways out of our current situation (I refuse to call it a crisis). Stimulation of spending is certainly not the only way or in my opinion even the best way. Contraction is healthy and appropriate and we should take the opportunity to rest and recuperate. I am not worried about the economy contracting. I am not worried about people saving. I am not worried about the value of my home or my wages decreasing. I am worried about my friends and neighbors losing their jobs. That would be my number one priority. The solution to that problem does not require stimulating an economy that has been on "steroids". Rather it requires that we all work together to insure that everyone is taken care of. Insuring that everyone has a job, a place to live and adequate food. Maybe I am reading too much into Phelps comments, but that is what I heard - a call for a re-examination of what quality of life means and what might be an enhanced collective dream. Written with a "grain of salt" Bob Greeney
From Camillus, NY, 03/26/2009
I was astonished by your Columbia Nobel laureate and his views on home ownership. First, the emphasis which Americans place on home ownership is not a recent phenomenon. It stems from the Jeffersonian ideal of the small farmer, and the cherished opportunity to control one’s own destiny. Home owners don’t need to worry as much about noise from the next apartment; about roaches coming in from that apartment; about trash collecting in shared spaces. They also don’t need to worry about being thrown out of a favorite set of digs within30 to 60 days at a landlord’s whim.
Even for the dirtiest, most slovenly person, however much filth he may generate and be willing to live with, someone else’s filth and squalor is anathema. One may not be rich or energetic enough to repaint very often; but tired paint becomes more irksome when the remedy is a landlord’s responsibility. Small wonder that nearly every woman and man desires, at some point, to have a home of their own. Even mobile young professionals, who want, or need to move frequently, hope to settle somewhere, someday. Many are as much as anything else seeking the ideal space to do so.
Then there’s the tax issue. Current demographic trends make it highly desirable for the government to encourage home ownership, and with it, a stake in maintaining property. Anyone who has ever tried renting property in low or middle income areas knows how difficult is to collect rent on a consistent basis, and how difficult it can be to find tenants that are considerate of a landlord’s property. Everyone hates the landlord. Lower income people cannot afford to pay the costs of shoveling snow, mowing lawns and picking up litter; but most are also unwilling to take care of these chores themselves, even when contractually obligated to do so. Many even allow trash to collect, or fail to set it out for collection in a lawful manner. In such cases, the landlord receives the citation.
The bulk of the American population is becoming poorer and less considerate of the property of others. Low income neighborhood rentals breed angry, alienated tenants as well as angry, do-nothing slum lords; it is nearly impossible to run property honorably and profitably in such areas. The money just isn’t there. Tax breaks for homeowners encourage low income home ownership. Owners have a stake in their homes and their neighborhoods, and the proliferation of low-income rentals that so often degenerate into slums is arrested. Those who succeed in making it happen for themselves live better. There is no mystery here, and little question that the tax breaks that support lower class home ownership are a bargain in consideration of the benefits provided
From Richmond, TX, 03/26/2009
E. Phelps has an interesting point of view... wrong! but interesting.. He's missed the point of It's a Wonderful Life and seems to be siding with Potter! Work hard, but don't own anything. But then he is a director.. hmmm.. what's up with that.
Sorry, I'll continue to own my own home thank you....
From Silver Spring, MD, 03/26/2009
I agree with RC Brooks's comment above. In addition, I would add this: I don't know anything about Edmund Phelps's personal situation, except that he is a professor at Columbia and that he says that he is "a renter ... But that's not why I have these positions. It just happens that I'm a renter." Nevertheless, I would be curious to know if by this he means that he is 'renting' in Columbia's (heavily subsidized) faculty housing system. (Many major universities in the NY area rent apartments to their faculties at a fraction of market value and allow them to keep one of the university-owned apartments after retirement). If so, it would explain his apparent lack of appreciation that for most Americans, especially those living on the coasts (plagued by rapidly rising rents), home ownership is the main (perhaps only) strategy for avoiding poverty (possibly even homelessness) in old age. The fact is that for most of us today the "older idea that the American dream is having a career, getting a job, and getting involved in it, [is] ... the core of the good life" will not hold true after retirement, if it ever did before.
If Prof. Phelps is not 'renting' in Columbia's house system, I would be sincerely curious to know how he plans to meet rapidly rising NY area rents once he is on a fixed retirement income, especially in the face of the currently disastrous declines in all sectors of investment.
From New Market, MD, 03/26/2009
I believe the notion of renting vs buying is a matter of one's finances and perspective on life. As RC noted earlier, if one is lucky to be sitting a large sums of money, to rent or buy is a non issue...simply because you have choices others with less money don't have.
My personal perspective on the renting vs buying issue, finances not withstanding, is as I get older, I am more agreeable to trade possessions for experiences.
Example. I could sell my house as I get closer to retirement, invest the tax-free profit from the sale, then rent a comfortable place inexpensively, freeing up extra money (in addition to retirement savings) to travel, retire early, charity work, or explore a new hobby. This premise assumes you manage the money wisely into the future.
From San Jose, CA, 03/26/2009
I was horrified at listening to Prof. Phelps! I am 38 and I just NOW got into a house, after assuming I would never, ever be able to afford it in California.
After very carefully looking through my finances with the help of my CPA, we figured out what I could afford. It was based on my income and on the deductions allowed. I bought a modest condo in the best neighborhood I could afford, close to my daughter's school and too my work.
If Prof. Phelps had his way I would be out of luck. I would lose my new home, as I assume would many, many others. Do we really need another round of foreclosures? Because I predict that would happen. I hope his logic doesn't win out.
From New York, NY, 03/26/2009
I believe the professor misspoke on the requirements of the 1997 Community Re-Investment Act. It did NOT loosen criteria.
Please fact-check this as I believe you will find that none of the entities subject to the act have had a large increase in defaults. Outfits like ACORN, etc. have new homeowner screening & training about the process of buying a home.
The banks & investment banks were the ones that copycatted each other. If some is good, too much was barely enough.
Also, the "subprime" problem has already been eclipsed by the greater housing problems that have hit - Greenwich CT !!
This is the type of information that should have either preceded or followed the interview - BUT I agree with the professor that home ownership is not necessary for an "American Dream" to happen.
Renting allows you to concentrate on other things.
pronounced "gryson"
From Yorba Linda, CA, 03/26/2009
I don’t agree at all with your guest today, Edmund Phelps. He admitted that people in New York are strange, and they are. Manhattan’s tiny size, crammed together living, and astronomical prices require that people spend their lives in small apartments, usually rented, surrounded by concrete. People in most other parts of the country live differently, and have a more independent idea of how we want to live. For many of us, the loss of the tax deduction for mortgage interest at this late date would make it extremely difficult or impossible for us to keep our homes, and probably lead to another round of foreclosures. I deeply resent Mr. Phelps’ implication that ordinary people shouldn’t feel a need to own the place they call home—outside of Manhattan it’s a strongly felt emotion. The fact that our Federal government decided to make it easier for people to own seemed to me to be an “AT LAST” moment—government really trying to help people make their lives happier. I’m a 64-year-old woman who owns a comfortable condominium surrounded by trees and grass and beautiful views. I like that fact that I make all the decisions about the condition and design of the inside of my home. I don’t have to ask someone’s permission to paint, re-design or redecorate. I don’t worry about a tight-fisted landlord not keeping things up to par, or deciding that he wants the place back and I have to leave (which happened to me in the past). Seems to me that most of the people calling for the deletion of the mortgage interest deduction are those who don’t need it. Funny how that works.
From Nevada, MO, 03/26/2009
Mr. Edmunds stated that the Democrats are obsessed with people owning housing. Wasn't it just 3-4 yrs ago when President Bush bragged that home ownership was the highest it had ever been. Did it not grow faster during Bush's terms than any other time?
03/26/2009
Wow, this is a really ridiculous argument.
You are paying interest, in fact you are paying someone else's interest.
Assuming you are NOT sitting on a million dollars or more when you retire, how will you afford to live? Through buying your own home, you are providing for your retirement.
He speaks of savings, but do you really advocate giving over 10% of you life's earnings to someone else so they can own property.
And, to say its not taxed? I don't know about other people, but I have had to pay property taxes for quite some time.
This is not very hard to figure out.
Ok, say you rent the same home for ten years. Then, the land lord decides to sell out to developers. While you do have a contract for the present, you can bet you will be packing your bags when its up, whether you want to or not.
Or, if landlords only change places... will you current arrangement be fine with the new landlord. Your brother lives with you and your family. Old landlord said it was fine, you new landlord hates the idea and won't allow it.
Certainly there are situations where renting is useful, particularly to those who may relocate frequently to follow their job.
For most Americans however, we do not have millions nestled away, due to the constraints the industries we work in, have on pay. And for what we do earn, is it wise to throw that hard earned money into an asset for someone else?
While there was a lot of jargon during the housing bubbles, some precepts were absolutely true.
Renting is usually more expensive than buying, largely due to the fact that maintenance and taxes are usually plugged into that figure.
It's similar to leasing a vehicle. You get use of it, but when the term is over, you have nothing to trade in. Hope you have been saving your pennies.
As I said, for some it makes sense, but for a great many of us, it's foolish to rent our whole lives. Particularly those with limited incomes. Those with lower incomes will have a much harder time putting any significant money away for a nice retirement community. With what limited savings they will likely have, it would be much better to not have to pay rent when living on a fixed income.
Talk about common sense... we definitely need more.
From Nevada, MO, 03/26/2009
Mr. Edmunds stated that the Democrats are obsessed with people owning housing. Wasn't it just 3-4 yrs ago when President Bush bragged that home ownership was the highest it had ever been. Did it not grow faster during Bush's terms than any other time?
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