Homeownership isn't a good aim of policy

A nation of homeowners isn't better than a nation of renters – and it may even be worse.

Over the weekend, Adam Posen, a former member of the Bank of England's Monetary Policy Committee, made a point beloved of economists but all-too-rare in circles of public debate: there's not actually any reason to think home ownership is a good thing. Posen writes (in the Financial Times, although it's reposted outside the paywall by his employers the Peterson Institute):

Policies to increase home ownership do not necessarily improve the supply or distribution of housing, as the UK experience demonstrates, and often works against it. The OECD’s Better Life Index shows that no relationship exists between a country’s home-ownership levels and its average housing satisfaction and quality. And there is no iron law that higher-income economies must have higher rates of home ownership: Mexico, Nepal and Russia all have home-ownership rates of more than 80 per cent, while the French, German and Japanese rates are 30-40 percentage points lower. The US and the UK rates sit between them at about 65 to 70 per cent.

As housing policy, home ownership is pretty bloody terrible. Matt Yglesias, commenting on Posen's post, points out that it's essentially encouraging massive investments in what is, at heart, a consumer good. (Land is a commodity, but the house on top is a durable good). That then leads to the political debate around housing turning into a debate around how best to preserve the value of that consumer good. Imagine, Yglesias writes, a world in which most people had a car worth hundreds of thousands of pounds:

If we banned the construction of new cars and trucks, then America's existing stock of cars and trucks would become more valuable, but this would be a way of impoverishing the country, not enriching it.

To make the same point more succinctly, I always like coming back to Dan Davies of Crooked Timber:



Housing policy requires cheap houses, but the politics of lots of people owning houses leads to a pressure for continued increase in the sale price of homes.

(That's made worse still by the peculiarities of the UK housing market, specifically the typical way buy-to-let financing works. The landlord buys a house, the rent pays the mortgage, and then they profit from the appreciation on the property. That means it's not enough even for house prices to be stable; they need continued, reliable increases)

Indirectly, then, policies to support homeownership render effective housing policy impossible. But they also have damaging direct effects.

Treating homeownership as an untrammelled good serves to disguise the trade-off inherent in buying a house. Renting has a place in the housing mix: it allows people to live in a house without being tied to it, lets them pass on the financial risk of repairs, lets them avoid the need for loans or capital, and lets them downsize fair By increasing the relative cost of renting, the choice between owning a house and renting one becomes a no-brainer: if you can afford a house, you should buy one.

That leads to the sort of problems highlighted by David Blanchflower and Andrew Oswald earlier this year: homeownership is correlated with unemployment. Buying a house ties you to a particular area, and a particular labour market; it increases the hurdle required to move to find work. Similarly, buying a house locks you into a particular mortgage payment, making it a lot harder to take a pay cut (while retraining, say), which can amplify the effects of sectoral shifts.

Homeownership as a policy to be pursued has a steadily increasing set of downsides, and a steadily decreasing set of upsides. Whether that means change will actually come is a different question, though.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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PMQs review: Theresa May shows again that Brexit means hard Brexit

The Prime Minister's promise of "an end to free movement" is incompatible with single market membership. 

Theresa May, it is commonly said, has told us nothing about Brexit. At today's PMQs, Jeremy Corbyn ran with this line, demanding that May offer "some clarity". In response, as she has before, May stated what has become her defining aim: "an end to free movement". This vow makes a "hard Brexit" (or "chaotic Brexit" as Corbyn called it) all but inevitable. The EU regards the "four freedoms" (goods, capital, services and people) as indivisible and will not grant the UK an exemption. The risk of empowering eurosceptics elsewhere is too great. Only at the cost of leaving the single market will the UK regain control of immigration.

May sought to open up a dividing line by declaring that "the Labour Party wants to continue with free movement" (it has refused to rule out its continuation). "I want to deliver on the will of the British people, he is trying to frustrate the British people," she said. The problem is determining what the people's will is. Though polls show voters want control of free movement, they also show they want to maintain single market membership. It is not only Boris Johnson who is pro-having cake and pro-eating it. 

Corbyn later revealed that he had been "consulting the great philosophers" as to the meaning of Brexit (a possible explanation for the non-mention of Heathrow, Zac Goldsmith's resignation and May's Goldman Sachs speech). "All I can come up with is Baldrick, who says our cunning plan is to have no plan," he quipped. Without missing a beat, May replied: "I'm interested that [he] chose Baldrick, of course the actor playing Baldrick was a member of the Labour Party, as I recall." (Tony Robinson, a Corbyn critic ("crap leader"), later tweeted that he still is one). "We're going to deliver the best possible deal in goods and services and we're going to deliver an end to free movement," May continued. The problem for her is that the latter aim means that the "best possible deal" may be a long way from the best. 

George Eaton is political editor of the New Statesman.