Tyler Cowen argues that homeownership shouldn’t be subsidized. First he quotes Eric Posner arguing that both Clinton and George W. Bush encouraged low-income people to make high risk investments which ultimately left some of them worse off. Here’s Tyler’s extension of the argument:
You'll note that Henry Paulson has been calling for the mortgage agencies to be resurrected as "public utilities" of some sort. I don't understand this path. There is a very good (modern) liberal case against more home ownership: behavioral economics is true, people overestimate their prospects, poor people shouldn't take too much risk, and the natural market tendency is too much home ownership, not too little. That's without taking environmental issues into account.
Here is a recent Richmond Fed article, skeptical of the idea of homeownership subsidies.
For those who want a summary, the other modern liberal critiques are that subsidizing housing tends to lead to bigger houses for the rich and to crowd out affordable housing (both rental and owned). In addition, homeownership rates tend to be highest in cities like Detroit, which discourages people from moving to cities where there are jobs. I tend to think the marginal cost of middle class job creation is lower in cities that are booming than those that are depressed so redirecting funds to save towns with high home ownership isn’t really an effective full employment policy.
Anyhow, housing is a fundamental need, and I do support the approach of getting long-term itinerant people in secure housing rather than on the streets, though not concentrated facilities like public housing of old. But once you’re dealing with people with jobs, some sort of housing subsidy might make sense, but it should apply just as well to renters as owners and should be capped in either case.
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