View all newsletters
Sign up to our newsletters

Support 110 years of independent journalism.

  1. Business
  2. Economics
30 July 2013updated 26 Sep 2015 12:31pm

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.

By Alex Hern

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:

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU

 

 

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.

Content from our partners
The promise of prevention
How Labour hopes to make the UK a leader in green energy
Is now the time to rethink health and care for older people? With Age UK

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU