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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Appreciate the full horror of Nigel Farage's pro-Trump speech

The former Ukip leader has appeared at a Donald Trump rally. It went exactly as you would expect.

It is with a heavy heart that I must announce Nigel Farage is at it again.

The on-again, off-again Ukip leader and current Member of the European Parliament has appeared at a Donald Trump rally to lend his support to the presidential candidate.

It was, predictably, distressing.

Farage started by telling his American audience why they, like he, should be positive.

"I come to you from the United Kingdom"

Okay, good start. Undeniably true.

"– with a message of hope –

Again, probably quite true.

Image: Clearly hopeful (Wikipedia Screenshot)

– and optimism.”

Ah.

Image: Nigel Farage in front of a poster showing immigrants who are definitely not European (Getty)

He continues: “If the little people, if the real people–”

Wait, what?

Why is Trump nodding sagely at this?

The little people?

Image: It's a plane with the name Trump on it (Wikimedia Commons)

THE LITTLE PEOPLE?

Image: It's the word Trump on the side of a skyscraper I can't cope with this (Pixel)

THE ONLY LITTLE PERSON CLOSE TO TRUMP IS RIDING A MASSIVE STUFFED LION

Image: I don't even know what to tell you. It's Trump and his wife and a child riding a stuffed lion. 

IN A PENTHOUSE

A PENTHOUSE WHICH LOOKS LIKE LIBERACE WAS LET LOOSE WITH THE GILT ON DAY FIVE OF A PARTICULARLY BAD BENDER

Image: So much gold. Just gold, everywhere.

HIS WIFE HAS SO MANY BAGS SHE HAS TO EMPLOY A BAG MAN TO CARRY THEM

Image: I did not even know there were so many styles of Louis Vuitton, and my dentists has a lot of old copies of Vogue.

Anyway. Back to Farage, who is telling the little people that they can win "against the forces of global corporatism".

 

Image: Aaaaarggghhhh (Wikipedia Screenshot)

Ugh. Okay. What next? Oh god, he's telling them they can have a Brexit moment.

“... you can beat Washington...”

“... if enough decent people...”

“...are prepared to stand up against the establishment”

Image: A screenshot from Donald Trump's Wikipedia page.

I think I need a lie down.

Watch the full clip here:

Stephanie Boland is digital assistant at the New Statesman. She tweets at @stephanieboland