More on Home Ownership

Tom already hit this Paul Krugman column, so I’ll just put together a list:

1. “I.R.S. lets you deduct mortgage interest from your taxable income but doesn’t let you deduct rent” But not mortgage principal. And the interest deduction still leaves an owner out of pocket for at least 65%—probably more.
2. “[I]f the market value of the house falls, the buyer can easily lose his or her entire stake.” But they still own the house, and still get to live there. (If I buy a corporate bond, the market price may also decline below par—but it’s an unrealised loss. If the corporation declares bankruptcy and the Delaware courts are corrupt [oh, wait…], then I lose that investment too—and I have nothing to show for it.) So when Krugman says, possibly accurately, that “there are probably around 10 million households with negative home equity,” he doesn’t mean that they’re on the streets. He just means they’re not making a profit.*
3. “Owning a home also ties workers down.” No argument here; how is this a benefit to homeowners?
4. “Buying a home usually though not always means buying a single-family house in the suburbs, often a long way out, where land is cheap.” Again, no argument, though I would assume homebuyers would consider the Total Cost of Ownership. And, again, how is this a benefit to homeowners?

So Krugman has presented at least two (arguably three, if you forget that Dean Baker, for instance, profited well by selling his home in 2003 or 2004) negative externalities to home ownership in an 800-word column. Those seem as if they might well be worth that deduction on mortgage interest.**

As I’ve noted elsewhere, there are “homeowners” on Lon Gisland who bought in 1989 and couldn’t “afford” to move until at least 2002. And that was without the Bush administration’s, er, help.

Though, if you think about it, in a standard mortgage, the deduction has a declining value the longer one stays. Then again, the value of stability is not minor, and probably compensates for the minor decline in the interest deduction.

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