It’s official: Over the past couple of decades, the United States spent vast amounts of time, energy and, above all, money — both private and public — to raise the national rate of homeownership, with exactly nothing to show for it.
The Wall Street Journal reports that 63.9 percent of U.S. households owned their residences in the fourth quarter of 2014, precisely the same percentage as in the third quarter of 1994. In fact, the current homeownership rate is a mere 1 percentage point higher than it was 50 years ago, census data show.
The 1994 date is significant because, as the Journal pointed out, it was just a few months before President Bill Clinton, a Democrat, announced a “national homeownership strategy” in June 1995, with an explicit goal of 67.5 percent homeownership by 2000. The next president, Republican George W. Bush declared his vision of an “ownership society” with a target of 5.5 million new minority homeowners by 2010.
With successive administrations from both parties pushing federal agencies so hard in the same direction, it’s not surprising that the homeownership rate did, indeed, hit an all-time high of 69.1 percent in early 2005.
Given the financial corners that were cut to pump up the rate, it’s also no surprise that the figure has retraced its statistical steps since the housing market began to tank in 2007.
Whether you blame Wall Street, Washington or some combination of the two, the simple fact is that government and business sold millions of people an American Dream that could not survive a sour economy, with nightmarish results for them and for the country.
The big lesson here is equally straightforward: Central planning does not work. There is no “right” level of homeownership, and it’s folly to pursue one, much less to pretend that boosting homeownership represents a risk-free way for government to achieve various social goals without directly paying for them.
Yet that is precisely what Clinton and Bush did, arguing that homeownership would be a path to wealth for individual families, particularly minorities long denied a piece of the American rock, as well as a kind of bonding agent for the neighborhoods and local communities upon which a strong democracy supposedly rests.
In truth, the low-down-payment loans many people were encouraged to take during the boom were not much different from leases, in economic terms. They were wealth-building tools only in the speculative sense that, yes, you could convert a tiny equity stake into massive gains — if housing prices never ceased rising.
Far from being a no-downside investment, a typical 30-year, fixed-rate mortgage places a highly leveraged, illiquid bet on a single asset class, real estate — in violation of the first principle of investing, which is to diversify risk.
Even now, after the housing market has largely healed, a tenth of America’s 50 million mortgaged residential properties have negative equity, according to the latest survey by CoreLogic, a leading real estate information firm. Another 19 percent lack the recommended 20 percent equity cushion.
As for community-building, the homeownership-rate roller coaster of the past 20 years arguably destabilized communities, as a recent Post series on wiped-out African American homeowners in Prince George’s County suggests.
It was never really the case that the quality of our democracy hinged on a particular rate of homeownership, as long as people are generally free to own their own homes, of course. Germany, Denmark and the Netherlands are all strong democracies; all have lower rates of homeownership than the United States, according to data compiled by San Diego State University economist Michael Lea.
For all its professed free-market principles, the United States is unique in the industrialized world in the degree to which its national ethos stigmatizes renting and its national government subsidizes mortgages, through the tax deduction for mortgage interest and Fannie Mae and Freddie Mac guarantees for securities backed by 30-year mortgages.
That system is due for an overhaul, but Congress remains deadlocked as lobbyists from all the interest groups that benefitted from the old system — mortgage bankers, builders, real estate agents, low-income housing advocates — seek to preserve, or resurrect, the parts that advantage them.
Genuine reform would abandon any vestige of the old central-planning mentality, and apply the lessons of the past two decades, as well as experience in countries such as Australia and Canada with homeownership rates comparable to, or better than, the United States. Both put much greater emphasis on market mechanisms, especially shorter-term mortgage products that require large down payments and share the risk of interest-rate volatility between borrowers and lenders.
Under those conditions, people are more likely to have a truly sustainable stake in their property and homeownership is more than just a political catchphrase.