The Washington PostDemocracy Dies in Darkness

The false promise of homeownership

Instead of boosting the American Dream, policies encouraging homeownership exacerbate inequality.

The policies that make homeownership attainable for many Americans also exacerbate inequality. (John Bazemore/AP)

The sacrosanct status of homeownership, and of the public policies that sustain and encourage it, is one of the rare points of agreement across the political spectrum today. The 2016 Democratic platform promised to ensure that “everyone has a fair shot at homeownership.” President Trump proclaimed June “National Home Ownership Month,” while Housing and Urban Development Secretary Ben Carson labeled homeownership “the essence of freedom.” Most Americans concur, seeing homeownership at the heart of the American Dream.

This wasn’t always so. While Americans today equate homeownership with long-standing ideas about what it means to be American, in actuality, politicians and a powerful real estate lobby constructed this ideal in the post-World War II era — with profound implications for inequality. Realtors and politicians came together to promote affordable homeownership to stifle demand for more public housing. The policies they enacted made homeownership more attainable for middle- and upper-income white families, but have left minorities and low-income Americans behind in the process. If this was the American Dream, it was one purposefully put out of reach of many Americans.

World War I-era real estate agents and the federal government launched the effort to idealize homeownership through  “Own Your Own Home” campaigns that associated single-family homeownership with character, thrift and patriotic Americanism.

Yet in the 1930s, as the Roosevelt administration sought to stimulate economic growth and bolster Americans’ standard of living, New Deal housing experts evaluated other methods to providing mass shelter. Large-scale public housing, cooperative ownership and rent control were all on the table. Facing acute World War II-era housing shortages, New Dealers in the 1940s still hoped to enhance citizens’ economic security through significant expansion of public housing for working- and middle-class urbanites. At least one 1946 poll showed that Americans favored renting to ownership.

Cold War politics transformed the calculus.

A powerful “real estate lobby” — a political juggernaut consisting of the real estate, home builder, apartment owner and banking industries — denounced public housing as un-American. Europeans might turn to socialistic housing, they railed, but the United States would reject what Fortune magazine called “socialism by default.” They succeeded in whittling down public housing goals and limiting access to only the very poor.

Policies designed to make homeownership more attainable emerged as the alternative to robust public housing. From the 1930s through the 1960s, Congress enacted several new federal policies and programs that institutionalized the long-term, fixed-rate, fully amortizing mortgage, which, in turn, fueled the post-World War II housing boom.

Boosters touted this boom as a triumph of free enterprise. Hardly. Government subsidies created and sustained it.

The federal government insured lenders against financial loss and subsidized homeowners to the tune of billions of dollars through the mortgage interest tax deduction. Originally enacted in 1913 as part of a provision that enabled taxpayers to subtract all consumer interest from their taxable income, in the postwar decades, the mortgage deduction won expansive political support from the real estate lobby. It was a valuable incentive for homeownership.

By design, these government subsidies remained largely invisible. Homeownership became — in the minds of the white homeowners who benefited from it — a commodity they achieved through their own hard work without government assistance.

For those left out, however, the government’s role was more visible. Federal policies and real estate agent practices locked people of color out of the burgeoning suburbs and denied capital to older urban and minority neighborhoods. Federal mortgage insurers declared those areas unsafe for investment, leaving neighborhoods starved for capital and minority buyers at the mercy of highly exploitative contract deeds. Those unable to buy competed for overpriced, ill-maintained rental housing. Only the poorest who were lucky enough to reach the top of long waiting lists inhabited public housing.

By 1968, the federal government had built 800,000 public housing units, a fraction of the 10 million single-family homes funded by the Federal Housing Administration and Veterans Affairs.

Even while making it difficult for the poor to share in homeownership, policymakers promoted homeownership as an instrument for establishing political stability and as an antidote to the “culture of poverty.” In the face of intensifying pressure from civil rights activists and urban rebellions, policymakers in the late 1960s finally sought to expand homeownership opportunities for low-income and minority urbanites. The homeownership ideal, they hoped, might rescue the poor.

Various FHA programs and legislative initiatives followed. Perhaps most successful, the 1977 Community Reinvestment Act required banks to invest in underserved communities; by 2008, it had spurred more than a trillion dollars of lending, much of it in mortgages. Habitat for Humanity, ACORN Housing Development Corp. and other nongovernmental efforts also provided financial and technical assistance to low-income buyers.

But homeownership ideology ultimately undermined the larger goal, set out in the 1949 Housing Act, of “a decent home and a suitable living environment for every American family.”

Over the past four decades, free-market enthusiasts in both parties wielded the homeownership ideal to kill public housing. Texas Republican Dick Armey even titled a speech that called for the destruction of public housing “The Road Away from Serfdom.”

Instead of expanding or maintaining public housing, both Republicans and Democrats doubled down on the homeowner ideal as a poverty solution and dismantled the regulatory regime that had long protected home buyers from exploitation. The consequences were catastrophic. Freed from regulatory shackles, lenders aggressively targeted low-income minority buyers and homeowners with predatory “financial products” that extracted what little wealth they held. The tepid regulatory changes enacted in the wake of the 2008 crash were too little, too late.

As Republicans ponder tax reform in the coming months, the backers of the homeownership ideal will mobilize to protect the mortgage interest deduction, portraying any proposal to cap or eliminate it as an affront to the American Dream. They worry that changes to the mortgage deduction will reduce the financial benefit of homeownership and, therefore, the desirability of owning a home.

Whatever its fate, the mortgage deduction should be seen for what it is: a substantial government subsidy that largely benefits middle-class and wealthy homeowners. In 2012, it cost the federal government $68.2 billion. Only 3 percent went to households earning under $50,000 a year, while 77 percent went to households earning more than $100,000 a year.

The homeownership ideal is not likely to disappear. But neither should the 1949 Housing Act’s promise of “a decent home and a suitable living environment for every American family.” It is past time to acknowledge its complex history and to recover past ways — or imagine new ones — to live up to this laudable goal.