by Mark A. Calabria
A recent New York Times piece focusing on the financial health of the Federal Housing Administration (FHA), offered a couple of examples of borrowers who would not have gotten mortgages, but for FHA’s low downpayment and underwriting requirements.
Take for instance a Ms. Shimon, mentioned in the piece. If she had to come up with a larger than 3.5 percent downpayment, she “would still be a renter,” in the words of The New York Times. Yes, my reaction was probably the same as yours; no, not that, not a renter, anything but being a renter. I am trying to remember at what point in our history did being a renter become a social stigma, or some sort of disease to be cured? Of course, the article does not explain why it would be bad if Ms. Shimon had stayed a renter, because apparently TheNew York Times assumes all decent, upstanding people own their own homes.
Now yes, there are dozens of academic studies that show owning your own home is associated with being a better citizen, better educational and health outcomes for your children, and greater savings on the part of owners. But it is important to remember that none of these studies show that homeownership causes these outcomes, just that on average, homeownership is associated with these outcomes. More importantly, the marginal homeowner, who would not have bought a home without some sort of subsidy, is likely to be quite different than the average homeowner.
Some, like my home-building friends, might justify ever-expanding homeownership because it creates construction jobs. But so does building apartments. If we had a shortage of apartments, they maybe encouraging people to buy homes would relieve pressure on the rental market. But the glut of apartments is almost as big as the glut in homes. Rental vacancy rates are near historic highs in much of the country. Even with declining home prices, in many places it still makes more financial sense to rent.
The federal government’s obsession with homeownership was one of the contributing factors to the financial crisis. It is time we recognized renting as a viable option for many households, and starting treating renters as if they were as equal citizens as anyone else.