Tag Archives: homeownership

Mortgage interest tax deduction being discussed

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With the federal government looking for more money, a budget deficit commission has been discussing possible changes to the tax code to bring in more revenue. One option among a number of options: limiting or revoking the mortgage interest deduction.

Whatever this commission recommends, I can imagine the political fights that may ensue.

The possible housing bubble in China

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While the American housing crisis continues, FinanceAsia takes a look at the current housing situation in China:

Many homebuyers nowadays in China consider their property assets as part of their long-term savings plan, as well as a hedge against inflation.

Why property? China’s tightly run financial system leaves only three places for its zealous savers to put their money. Bank deposits are one option. But they yield 2.25%, less than the 3.1% rise in May’s consumer price inflation. The equity markets are a second choice. But stocks have been performing poorly; Shanghai’s benchmark index was one of the world’s worst performers in the first half of 2010. (And the bond market is underdeveloped.) Even with its high transaction costs and manic price moves, property has become the preferred investment choice for everyone from young married couples to middle-aged factory workers trying to ensure their retirement.

Recent statistics show that there are about 64 million apartments and houses that have remained empty during the past six months, according to Chinese media reports. On the assumption that each flat serves as a home to a typical Chinese family of three (parents and one child), the vacant properties could accommodate 200 million people, which account for more than 15% of the country’s 1.3 billion population. But instead, they remain empty. This is in part because many Chinese believe that a home is not a real home unless you own the flat.
And so people prefer buying to renting, and as a result, the rental yield is relatively low.

That’s a lot of vacant property. This is a testament to the power of cultural norms regarding housing: since renting is less desirable, a large percentage of the housing stock goes unoccupied. Also, savings behavior seems partly driven by these norms (and perhaps also by limited economic returns elsewhere) – houses have developed into investments rather than just places to live.

I don’t know much about the Chinese housing market but it is intriguing to read about non-American norms and values attached to housing. I wonder how these norms and values developed over time.

Thinking about a culture of homeownership

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The recent cover of Time featured a story about homeownership. While the story emphasized the idea that homeownership is not an unquestionable good (particularly economically), it also argued something else: homeownership is an important part of American culture that should be examined.

For generations, Americans believed that owning a home was an axiomatic good. Our political leaders hammered home the point. Franklin Roosevelt held that a country of homeowners was “unconquerable.” Homeownership could even, in the words of George H.W. Bush’s Secretary of Housing and Urban Development (HUD), Jack Kemp, “save babies, save children, save families and save America.” A house with a front lawn and a picket fence wasn’t just a nice place to live or a risk-free investment; it was a way to transform a nation. No wonder leaders of all political stripes wanted to spend more than $100 billion a year on subsidies and tax breaks to encourage people to buy.
With the economic crisis surrounding homes (and the foreclosure issue is going to be around for a while), some are beginning to question the role of housing within the American dream. From the early days of American life, the single-family home was a special place that dovetailed with American emphases on individualism, the nuclear family, and an anti-urban bias.
Of course, this cultural ideal was pushed along and aided by government and economic policies that emphasized homeownership. So, now faced with economic troubles, the country could either support or move away from this value:
1. Support this value by making houses a safer investment and tightening up the mortgage markets so that lenders and borrowers are working together rather than simply trying to profit.
2. Change or work against this value by supporting other kinds of housing tenure, primarily renting. But this could include moves toward more co-operative housing or other options.
Thus far, I would say Option #1 has been chosen: try to shore up the housing market without questioning whether homeownership should be the ideal or if other options are possible.
I’m not suggesting homeownership is necessarily good or bad. What this housing crisis does offer is an opportunity to ask how homeownership fits into our future vision of America.

Defining the middle class

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A Yahoo! article lays out six markers of being middle class, according to an unnamed government task force. As the article suggests, middle class is a nebulous term in America:

People earning 20% of the average income and people earning 80% all claim to be part of the middle class. More than a few millionaires make the claim too.

Here are the six markers according to the task force: home ownership, automobile ownership, providing a college education for children, having retirement security, having health care coverage, and being able to take family vacations.

Looking at this list, I’m struck by three thoughts:

1. It seems quite American with its emphasis on owning a home, owning a car, and being able to take vacations.

2. This sounds like a life that has to be, or at least typically is, lived in the suburbs.

3. This would take quite a bit of money. Particularly with the point on providing for college, the middle class lifestyle is going to take a decent amount of income. Would the US median household income of $52,029 (2008 estimates from the American Community Survey) cover this? I’m guessing it would be difficult and it means most families would have to have two good incomes. Critical to all of this (and it was not mentioned) is to have a fairly high-paying career.