Wednesday, June 23, 2010

Florida says Homeownership is Overrated (WSJ)

Richard Florida, one of the leading public intellectuals on the future of cities and the originator of the "Creative Class" concept, had an interesting article in the Wall Street Journal last week: Homeownership is Overrated: Today's economy requires a more mobile workforce.  After acknowledging the important role that homeownership has played in cultural conceptions of the "American Dream" for the last several generations, Florida critiques the norm:

Owning a home may actually be a drawback given the economic flexibility required to power long-lasting recovery. My colleagues and I tracked homeownership levels across U.S. cities and regions to see how they correlate to other measurable demographic and economic factors. As we expected, the rates of homeownership are greatest where housing prices are lowest. But cities with high levels of homeownership—in the range of 75%, like Detroit, St. Louis and Pittsburgh—had on average considerably lower levels of economic activity and much lower wages and incomes. Far too many people in economically distressed communities are trapped in homes they can't sell, unable to move on to new centers of opportunity.

Now I think there are two different questions here that Florida doesn't distinguish: (1) whether homeownership is good for individual homeowners; and (2) whether it is good for society at large.  But Florida makes some excellent points.  He goes on to make a policy prescription that I think is long overdue, particularly from the left:

First and foremost, the Obama administration should end its ongoing measures to prop up the housing market. The massive federal subsidies for homeownership, which totaled some $230 billion in 2009 according to the Congressional Budget Office, should be phased out, and the tax deduction for mortgage interest eliminated.


The next critical step is to encourage the transition to more and better rental housing. Multifamily housing is one of the few profitable bright spots in a ravaged housing industry. There are thousands upon thousands of unsold condos and foreclosed homes that can and should become rentals.

Florida concludes with a much-needed questioning of the cultural assumption that property ownership is the sine qua non of the "American Dream":

A "home of one's own" has been the emblem of prosperity and stability for a very long time. The idea is rich with psychological and cultural significance, but we have come to an economic juncture where we must re-examine even our most cherished beliefs. We can begin by updating our definition of the American Dream.

Matt Festa

Development, Federal Government, Financial Crisis, Housing, Mortgage Crisis, Real Estate Transactions | Permalink

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I couldn't agree more with Mr. Florida. For a little over a year, I have been mortgage free and renting. Bringing my family out of our home and into an apartment has been one of the most economically sound decisions I have ever made. It minimized my risk exposure and offered me flexibility with work I didn't have before.

Thanks Matt for the link and summary of Mr. Florida's article.

Posted by: Sid Burgess | Jun 24, 2010 2:10:12 AM

Florida is an interesting thinker for sure. The interesting thing to watch moving forward is whether the sacred cow of the mortgage deduction keeps its current beloved status.

Posted by: Timothy R. Hughes | Jun 24, 2010 9:39:21 AM

Funny how some folks think that me paying less in taxes (via the mortgage deduction) is a "subsidy". I can deduct the interest on my govt bonds, major medical and education expenses, and lots more. Think I pay any taxes on my ethanol plant? Hah. You wanna attack the tax code? I'm with ya there, but fix the whole thing please.

Posted by: dean s | Jun 25, 2010 8:29:14 AM

There was a study years ago in one of the Fed publications demonstrating that higher home ownership rates increase unemployment, precisely because of the lack of mobility. I believe it was in the 80s - years before the financial meltdown. I am always surprised that this argument is never even referred to in wider discussions of home ownership, unemployment, etc.

Posted by: Howard Katz | Jun 26, 2010 4:14:01 PM