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Mortgage expert articles - contributing voices

Should the government do more to encourage renting?


After World War II, hundreds of thousands of soldiers came home from the battlefronts -- many newly married -- to find they had nowhere to live, so they crowded into dwellings already inhabited by relations.

By the late 1940s, entrepreneurial builders began to create the first tract developments that have become the suburbs of today, but the developers might not have been so successful if the government hadn't greased the growth of the nascent mortgage industry. One way in which the government made home ownership more accessible was by extending the standard mortgage term to 30 years. The longer term allowed for low monthly payments and no balloon payment.

The government has been making it easier to own a home ever since.

"We have a number of policies supporting home ownership in the United States, ranging from the home mortgage interest deduction through low interest rates," notes Michael Lea, the director of the Corky McMillin Center for Real Estate at San Diego State University.

The rise of subsidies for homeowners

In 1950, 55 percent of Americans owned their own homes; by 1970 that percentage jumped to 63 percent, and for most Americans it was cheaper to buy than to rent, reported the Wall Street Journal.

This is not to say the government didn't also support multifamily homes (mostly through Section 8 housing and low-income housing tax credits). But the beneficiaries of these policies were mostly the more needy end of the housing market and not the middle class.

"We are subsidizing the wealthier homeowners and the poorer renters," said Doug Bibby, president of the National Multi Housing Council in Washington, D.C. "We should still subsidize the poorer renters, but we are oversubsidizing wealthy homebuyers."

Should the government encourage renting?

So, the question arises, should the government do more to encourage renting? I believe the answer is no.

The mess that we are in today is not because we didn't do enough to encourage renting. Instead, through government and banking programs, we changed the psychology of home ownership from basic shelter considerations to making it the prime investment vehicle for most American families.

A toxic mix of low mortgage rates, government instigation, brake-free banking, a compliant Wall Street, and corporate and personal greed created a crucible where the single-family home became the symbol of every American's best chance to get rich. Sure, you could win more with a lottery pick, but buying a home offered better odds and you could live in your investment. What could be better?

The best policy going forward is to de-emphasize the home as an investment vehicle, other than something with an appreciation that is long-term at best.

"With the foreclosure crisis, we realized that we went too far in one direction, home ownership," says Maureen Friar, president and CEO of the National Housing Conference/Center for Housing Policy in Washington, D.C. "Everyone got on the bandwagon. People became homeowners without the necessary financial wherewithal."

The myth of the homeowner as a better community citizen

The Clinton and Bush administrations' push for home ownership was partly due to the view that neighborhoods do better when more people own their property -- that home ownership means you have a stake in your community you wouldn't have if you rented. During that time, there was an implicit negative connotation to renting, which completely ignored the great boom in middle-class apartment developments in places like Queens, N.Y., that brought middle-class dreams to a whole borough in New York City.

"There is not a shred of evidence showing that a homeowner is a better citizen than a renter, but that's the conventional wisdom," Bibby notes.

Apartment living should no longer be seen in a negative light, admonishes Friar, but even she doesn't believe the government should start pushing deep into the multifamily industry.

"Encouraging renting is not the way to go, but acknowledging that renting is part of the housing mix is," she adds.

Bibby agrees. "Demographics and household formation are organically re-creating a positive attitude toward renting. Downsizing baby boomers, echo boomers, new immigrants and the fact that married couples with children are just 20 percent of the total number of households shifts sentiment to more rentals."

In 2004, the percentage of all Americans owning homes reached 70 percent, while 76 percent of white Americans owned their abode, both record numbers, according the U.S. Census Bureau.

A swing toward renting, despite attraction of current mortgage rates

Some people suggest that 35 percent of Americans probably should never be homeowners because they don't have the income, are recently out of college and just starting a career, which could mean a new job in a different city in the near future. At the other end of the demographic continuum, some seniors -- especially those with health problems -- should not own a home.

Sometimes events overtake government solutions. The deflation of housing prices has changed the psychology of homeownership.

While a majority of Americans (67 percent) continue to believe housing is a safe investment, that number is down 16 percentage points from 2003, according to Fannie Mae's latest National Housing Survey.

According to the same survey, 33 percent of all respondents (up 3 percentage points) say they would be more likely to rent their next home if they were to move.

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