I read a great article from City Journal last night written by Steve Malanga. The article chronicles the governments misguided efforts to promote homeownership and how these efforts led to many crisies over the past century and are responsible for the troubles we are in today.
I post this because I see where the city of Newark and the state of New Jersey are still promoting homeownership to low income citizens. Through incentives to developers and tax incentives to homeowners they are perpetuating all of the errant policies that have contributed to this mess. The bottom line is that hme ownership is a burden that most families, low income to upper-middleclass, could do without.
Freeing up their income from a non-producing asset, a home, to be used for education, healthcare, entertainment, entreprenuership, etc… will do far more for helping these families and individuals better themselves than the cart before the horse argument that homeownership makes someone a good citizen.
Not to mention that homeownership locks people to an area that may fluctuate on an economic basis, safety basis or education basis thereby limiting the options a family or individual has to better their lot by moving to a more vibrant area.
A few excerpts:
As Washington grapples with the current mortgage crisis, advocates from both parties are already warning the feds not to relax their commitment to expanding homeownership—even if that means reviving the very kinds of programs and institutions that got us into trouble. Not even the worst financial crisis since the Great Depression can cure us of our obsessive housing disorder.
Some misguided logic as to the value of homeownership – the root cause
“The home owner has a constructive aim in life,” Hoover said, exhorting Americans to buy property. “He works harder outside his home, he spends his leisure hours more profitably, and he and his family live a finer life and enjoy more of the comforts and cultivating influences of our modern civilization.” Hoover urged “the great lending institutions, the construction industry, the great real estate men . . . to counteract the growing menace” of tenancy.
This sounds similar to the issues in the commercial market today
Soon after the October 1929 Wall Street crash, the housing market began to collapse, just as in today’s crisis, though the reasons were slightly different: panicked depositors withdrew money from their accounts, prompting bank runs; the banks ran out of capital and stopped making loans; and the mortgage market seized up. Homeowners, who in that era typically had short-term mortgages that required several refinancings before being paid off, suddenly couldn’t find new loans. Defaults exploded—by 1933, some 1,000 homes were foreclosing every day.
Something directly referencing the issues Newark & other inner cities have faced over the past 50 years
Ignoring these problems, the government embarked on yet another failed attempt to increase homeownership: the FHA’s urban-loan debacle of the 1960s and early seventies, its most ruinous lending mistake yet. This time, the object was to solve America’s urban discontent. Riots had ripped apart Cleveland, Detroit, Los Angeles, Newark, and other cities during the mid-sixties. Politicians in both parties argued that extending the American dream of homeownership to poor blacks (especially those who’d migrated from the rural South to northeastern cities) and to immigrants (especially Puerto Ricans) would stabilize urban communities and prevent further violence. “Past experience has shown that families offered decent homes at prices they can afford have demonstrated a new dignity, a new attitude toward their jobs,” said Democratic congressman Wright Patman. Or as Republican senator Charles Percy bluntly put it: “People won’t burn down houses they own.”
A little more modern day
A 1998 sales pitch by a Bear Stearns managing director advised banks to begin packaging their loans to low-income borrowers into securities that the firm could sell, according to Stan Liebowitz, a professor of economics at the University of Texas who unearthed the pitch. Forget traditional underwriting standards when considering these loans, the director advised. For a low-income borrower, he continued in all-too-familiar terms, owning a home was “a near-sacred obligation. A family will do almost anything to meet that monthly mortgage payment.”
Bunk, says Liebowitz: “The claim that lower-income homeowners are somehow different in their devotion to their home is a purely emotional claim with no evidence to support it.”
Looking to the future – lessons not learned…
Yet before we’ve even worked our way through this crisis, elected officials and policymakers are busy readying the next. Barney Frank, the Massachusetts congressman who serves as chair of the House Financial Services Committee, has balked at proposals to privatize Fannie Mae and Freddie Mac, which would eliminate their risk to taxpayers and their susceptibility to political machinations. Why? Simple: the government uses them to subsidize the affordable-housing programs that Frank supports.