At least since the time of Abraham Lincoln, America’s civic religion has included among its commandments, “Thou shalt own thy home.”
The Great Emancipator signed the Homestead Act, deeding federal land to those who farmed it five years, because, he proclaimed, “I am in favor of cutting up the wild lands into parcels, so that every poor man may have a home.”
When the U.S. enacted the modern income tax in 1913, it included a deduction for mortgage interest, backing Lincolnian poetry with public payouts. (Today, the deduction runs about $77 billion annually in lost Treasury revenue.) Unlike other capital gains, the sale of a home is exempt from taxes on its appreciated value. Meanwhile, in our alleged enlightenment, we shoveled subprime mortgages, requiring little or no money down, at low-income and credit-risky borrowers — only to watch many lose their shelter during the financial collapse.
That cautionary experience notwithstanding, a Boston nonprofit brokerage has been trying to resurrect subprimes, its CEO decrying the “national disgrace” of “the low amount of homeownership, mortgages for low- and moderate-income people and for minority homebuyers.”
If he and we really wanted to help struggling Americans with shelter, we’d drop the bedtime stories about homeowning, a fixation on which fuels inequality while ignoring those who actually merit our concern: renters.
I was in my mid-50s before I first owned my home, so I can attest that renting is not the end of life as we know it. I’m also aware of owning’s advantages; equity in your home is a form of automatic savings that renting doesn’t provide, and the lack of housing stability inherent in a year-to-year lease can have negative effects on children’s development and welfare (though some research suggests those problems are exaggerated).
But a recent Brookings Institution brief throws cold water on politicians’ paeans to what George W. Bush called “the ownership society.”
Renting, traditionally the way young workers starting their careers have afforded a roof over their heads, is probably going to be more widespread going forward. Homeowning peaked in 2005, when 69 percent of the population owned their homes. By 2015, it fell to 63 percent, rebounding slightly since. The plunge is due partly to the high cost of homes, but it also reflects cities with innovation-based economies filling with young and peripatetic renters who dominate their information-age workforces.
Across the spectrum, aging baby boomers sometimes lose the physical ability to maintain a home, another goad to constructing multi-unit rental housing.
Renting ... is probably going to be more widespread going forward.
If renting is our first line of affordable housing, and if it’s likely going to expand in the future, how do we treat renters? While the poorest of them can get public housing, people who earn too much to qualify for federal housing but too little to buy a home must find an affordable apartment without a taxpayer subsidy like the mortgage interest deduction (MID). And Donald Trump himself couldn’t devise a more regressive policy for our new Gilded Age than the deduction.
Its value increases as the mortgage gets bigger — and big mortgages are held by big-wallet homeowners, making the deduction a subsidy for the affluent. The MID is available only to taxpayers well-off enough to itemize.
In an orgy of compassion, the government, recognizing plutocrats struggle to afford basic necessities like a waterfront cottage on Cape Cod, lets them take the deduction on second residences as well.
With the average homeowner’s net wealth $195,400, compared with the average renter’s $5,400, it’s time to make renting easier while clawing back taxpayer dollars from homeowning. Phasing out the MID, or at least stiffening the inadequate cap put on it by the 2017 tax bill, would be a start. We’d need to give homeowners adequate time to adjust their financial planning. But remember that other prosperous nations do just fine without this raid on the public purse.
Second, to tweak Tip O’Neil’s wisdom, all anti-renter politics is local. While innovation cities are flooding with youthful renters, from San Francisco to Greater Boston, zoning and land use restrictions put the supply of multi-family apartments in a headlock, limiting supply and driving up price.
Minneapolis gave renters a Christmas gift in December when it abolished zones restricted to single-family homes. Other cities must amend their ordinances as well to encourage rental construction.
That supply-side fix must be married to demand-side help. “For low-income families,” Brookings writes, “residential instability is largely a function of not having enough income to cover monthly rent.” To increase their income, we could test the idea of a basic income for the poor to replace our anti-poverty bureaucracy. Alternatively, Brookings suggests boosting existing housing vouchers and wage subsidies for the working poor.
The Institution also advocates private sector reforms such as multi-year apartment leases, with pre-set annual rent raises, to limit year-to-year sticker shock for tenants.
As crucial as these economic reforms, Brookings reminds us, is a new mindset towards renting: “A truly progressive political agenda would seek to make renting one’s home — whether for a year or for a lifetime — more financially stable and more socially acceptable for middle-class Americans.”