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Standing Up for Homeownership

By Brian Summerfield, Online Editor, REALTOR® Magazine

Is the traditional model of homeownership in need of an overhaul? Is it even worth defending? Five years ago, these questions might have seemed absurd, but today, several commentators are posing them — and often coming down in favor of extensive and expansive changes to the system.

For instance, the latest issue of Time magazine has a cover story controversially titled, “The Case Against Homeownership.” (An abbreviated version of the article is available online.) Author Barbara Kiviat begins the piece with the statement, “Homeownership has let us down,” and subsequently describes what she considers to be the “dark side” of this institution.

I’ve seen similar arguments come out in recent weeks, but I’ll pick on Kiviat’s because it’s timely, it’s high-profile, and it condenses most of the criticisms that opponents of the status quo of homeownership have made recently into a single body of work. Here are the broad strokes of her case:

  1. Perhaps the government shouldn’t incentivize homeownership so much. Kiviat argues that incentives such as the mortgage interest deduction make owning a home seem more desirable than it really is.
  2. Homeownership encourages sprawl. Because most home owners live in single-family detached dwellings, development tends to expand out to places far from city centers, which creates more of a strain on resources.
  3. The social benefits of homeownership are negligible. Although some benefits — such as higher academic performance of children — appear to be related to homeownership, one can find a similar correlation with, say, car ownership. And neither of these matter that much.
  4. A home isn’t necessarily a safe investment. Kiviat says a loose lending environment caused housing prices to shoot up, and many ordinary consumers were left holding the bag when credit tightened up and values plummeted.

One major issue with Kiviat’s overall argument is that she seems to be conflating a few other problems with homeownership. For instance, the institution of homeownership in and of itself did not cause the housing boom and bust. This was due more to special circumstances in the financial sector than it was to people wanting to own a home. The hazardous mortgage lending environment was largely a product of Wall Street’s efforts to bring in vast amounts of capital for investment without properly assessing risk. Without that, the housing bubble could never have been inflated to begin with.

Also, the rise of suburban and exurban sprawl cannot be explained solely by Americans’ penchant for single-family houses, which exist in major cities too. (Plus, there’s no shortage of apartment complexes and townhomes in many suburbs.) Infrastructure investments, inexpensive land, and lower cost of living also played a role in development of the outer rings of metropolitan areas.

Additionally, Kiviat’s claim that homeownership (and ownership in general) plays a nominal role in creating social benefits such as better education and greater civic engagement doesn’t hold up. She asks if we should “realize that both home and car ownership are probably markers of something else, like a stable family life or living in a nice neighborhood?” She means this question to be rhetorical, but it really isn’t. One could easily turn it around: Shouldn’t we realize that a stable family life or living in a nice neighborhood are probably markers of home and car ownership? Can Kiviat or any other person making a “case against homeownership” provide a common, clear-cut example of a stable family life and a nice neighborhood not being accompanied by large rates of homeownership?

Perhaps her most compelling argument is that the government distorts demand for homeownership through incentives. To be sure, there is room for honest disagreement about what and how much the government should do in the housing sector. But even here, Kiviat comes up short. First, she says “Washington lavishes homeowners with special treatment.” But compared to whom, exactly? Senior citizens? Manufacturers? The big investment banks that played a central role in the housing bubble? Why target home owners over any of these other groups? Near the end of the article, she vaguely advocates using “the levers of government to help create high-quality jobs.” Would that be “lavishing special treatment” on American workers, the majority of whom are presumably home owners?

Finally, Kiviat doesn’t really offer an alternative to Washington’s current role in housing. Instead, she points out — and complains about — the fact that the mortgage interest deduction exists and that home owners typically don’t pay taxes on profits from the sale of a house. Is she advocating getting rid of the MID and taxing home-sale earnings? It would seem that way, but she doesn’t provide much detail on what might be done differently.

The good news is that most Americans still see homeownership as a good thing, and even after the downturn, the reasons for opting to own a home over renting remain pretty much the same. But as these stories continue to come out, and they will, it will be critical for REALTORS® to continue to make the case for homeownership.

[Editor's note: To learn about the issues being raised in the media and what the facts are, REALTOR® Magazine is hosting a webinar Tuesday, Sept. 28, at 3 p.m. Eastern Time, with NAR Chief Economist Lawrence Yun and housing policy analyst Howard Glaser of the Glaser Group. Registration link.]

Brian Summerfield

Brian Summerfield is Manager of Business Development and Outreach for NAR Commercial and Global Services. He can be reached at bsummerfield@realtors.org.

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Comments
  1. A much more thorough treatment of homeownership in the context of the greater US economy and its future is Richard Florida’s “The Great Reset.” Chapter 22 is entirely about homeownership. The hallmark of Florida’s books, including one of my favorites, “The Rise of the Creative Class” is his thorough research. The data is there to support his hypotheses. One of the surprising corollaries for me was that unemployment is about 2% higher in areas where there is greater homeownership. He also tracks the financial gains for homeowners over the long term from 1900 to 2009. There are some surprises there.

    I think owning a home is a good thing – I own one myself and it’s my primary residence. I think where we went off the rails is when we used the housing industry and related industries like mortgage lending to create a large part of the foundation for our national economy. Houses used to be primarily to live in. America used to be in the business of business. Somewhere along the way, America got into the business of housing as an economic driver and then it all came crashing down. I’m open to hearing competing points of view on this. I think in one way or another, there will be great changes ahead.

  2. Tari Torch Sweeney

    If you take away the dream of home ownership, you take away an American Dream. It really is that simple. What do we do? Return to living in tall hi-rise buildings, renting for our entire lives, having our children grow up in concrete jungles? Please. Images of Russia (how they live) come to mind here….

  3. Floyd Cable

    Kiviat, represents well the narrow view and thinking that is so typical of what the nation is reading and watching on TV…namely, that nothing outside their tiny little circle counts! Had Kiviat bothered to do some real research in writing this, so called article, to view the entire country rather than the areas of the country where real estate markets were wildly overpriced to begin with, there would have been a balanced and realistic picture and most likely a different conclusion drawn in this article.
    But why let facts get in the way of a forgone conclusion…after all, since Time Magazine is tanking why shouldn’t everything else follow.

  4. It seems that the “logic” Barbara Kiviat used is equivalent to another liberal attitude: Raising children is expensive and inconvenient, therefore people should not have children.

    Homeownership is good for USA, as it is for any other country. If for all the labor that people provide for their employers and the economy, they cannot even afford to purchase a home and grow equity, where is any sensible balance in the economy and in the political system?

    The problem is not homeownership.
    The problem is failure of the politicians to provide a stable lending and financial enviroment.

  5. Twenty five years ago, I worked for the Internal Revenue Service. I recall from my training that the home mortgage deduction and exclusions for sale of a personal residence were created because the turnover of housing drives our national economy. It would be difficult to list all of the industries and jobs directly connected: building supplies, furniture and manufacturing, appliances, yard service and home maintenance, electrical and plumbing. The list goes on forever.

    As a residential broker for the past ten years, I have seen this play out so many times, A new home becomes an incentive for many purchases that create and sustain jobs and drive our economy.

  6. I wonder if Barbara Kiviat owns her home or rents one of the high-rise condos in the city – I wonder if she has ever been into the small cities and towns in America and watched children playing in neighborhoods where they live in happiness and contentment in homes their parents have worked for in order to provide them the stability and security of The Great American Dream.

  7. Wow! Politics aside, the Time article by Kiviat has to be the most ignorant and misleading analysis of the housing crisis. You did a great job, Brian in refuting that.

    FYI Time Mag and BAR-BA-RA: It wasn’t homeownership that did that, it was fraud, system abuse and illegal/unethical behavior. Typical media mentality- let’s label the process as the cause and completely ignore the REAL cause. That way, we can encourage the implementation of policies to reward bad behavior and further regulate the GOOD guys under the guise of charity and responsibility, but instead they just encourage the “victim mentality” and entitlement mindset and fail to produce any positive results.

    All politicking aside, the Time article is one more tactic used to delude the public into thinking that homeownership- the #1 hedge against inflation, the #1 wealth builder historically, THE PURSUIT OF HAPPINESS (ever heard of the Declaration of Independence?)- is the cause for calamity, the creator of sorrow and MUST BE FURTHER REGULATED AND/OR DISCOURAGED!
    Really? Discourage the #1 wealth builder? Discourage the housing industry from developing- one of the KEY elements of our American economy? Really? You want us to be unemployed and poor? Hmmm, great idea *eye roll* Why don’t we just blow up Wall Street and the Constitution while we’re at it.

    Here’s an idea BAR-BA-RA, how about we stop feeding the greed mentality and enforce the codes of law and leave the rest of us alone. Had common sense policies been in place in lending starting back in the 90′s and early 2000′s and fraud was prevented (a dream, I know), then we would be in a very different situation. Stop encouraging stupidity, we have enough of it as it is.

  8. brad

    I’m going to go against conventional wisdom and agree with general view of the article, and disagree with the trade association-laden views of Mr. Summerfield.

    First, for the association and its members to blame the crash on Wall Street is dead wrong. Realtors have just as much if not more to blame for this mess than Wall Street. Wall Street doesn’t sell homes, realtors do. Wall Street just provided the instruments to make it easy to purchase homes, and brokerages everywhere took advantage of the situation, so much so that a large majority of brokerages either own their own mortgage companies or are tied in with them. And the realtors had more to gain from putting everyone who wanted to buy a home into a mortgage. To think that Wall Street was the only group to profit from such practices is a spin on the truth. It’s easy to sell more homes when you control the mortgage process isn’t it?

    Second, where were the realtors when the numbers started hitting the skids years before the crash? Why didn’t they sound the alarm to consumers that something ugly was brewing…the NAR had all the stats and they saw the problem long before the public did, yet they continued to push buyers with their “it’s a great time to buy a home” even though they saw that it wasn’t. The conveniently put their industry over consumers. Is it a wonder why few people trust realtors…who can blame them.

    Lets face it, if you bought and sold a home at the right time, you made out well, but if you bought into the misleading industry spin and purchased a home when the market was actually starting to experience problems, then you got killed.

    Don’t think for one minute that all the major brokerage franchises did see this happening, because they too were selling and repackaging their fair share of subprime loans to people who they knew couldn’t really afford it. They not only made their fee for the mortgage and the sale of the mortgage, but they also made the sales commission and probably even made fees on the title insurance as well. That’s a huge incentive to mislead. Let me guess…the major brokerage firms were the honest mortgage providers throughout all of this.

    Stop complaining when others author their views, I don’t know anything about Barbara Kiviat, but I assume that she had nothing to gain financially by offering her views…maybe they’re just honest opinions. But we all know that the NAR and it’s members have something to gain when they spin the facts to meet their needs. Let me guess, you still think it’s a great time to buy a home, and there’s no risk involved, and you’re still the only ones providing mortgages to buyers who can only afford it.

    I’d like to see congress investigate the brokerage industries loan practices over the last dozen years. Selling mortgages is a very profitable business…so what do you think they’ll find?

    For once, let’s start seeing some honesty coming from the industry. Clean up your own act before you start playing the blame game. You do share the blame.

  9. Brian Summerfield

    Hi everyone:

    Thanks for all of your comments. I really appreciate it, and enjoyed reading the wide range of responses.

    Catherine: I’ve read Florida’s “Creative Class,” but haven’t gotten to “The Great Reset” yet. I’ll have to check that out.

    Brad: I think your understanding of mortgage financing is somewhat misguided. With a few possible exceptions, individual REALTORS® (that is, the professionals NAR represents) don’t do mortgage lending or financing. Most REALTORS® sell properties, not mortgages. The mortgages usually come from servicing companies, and during the boom years, the proliferation and expansion of these companies was made possible by Wall Street’s efforts to bring in unprecedented amounts of capital for lending. (For more info, follow the link in the post above that refers to that point.)

    Also, we aren’t “complaining” about Kiviat’s views, we’re disagreeing with them on a logical basis. And Kiviat, to her credit, did not attempt to blame problems in the housing market on real estate practitioners like you did. Your response makes me suspect you have an agenda that you aren’t being entirely clear about.

  10. brad

    Brian, I have no agenda. Yes, I was commenting mostly about the comments, though as I stated, I do differ with most as to the value of home ownership, because it’s not a guarantee, as we can see.

    By no means am I misguided about realtors selling homes, and placing the buyers into mortgages through affiliate firms, or firms that are beholden to the brokerage companies, like all the major franchises have, as well as other firms. They are profit centers and have paid off quite handsomely over the years. You mentioned that the problem was created by Wall Street, but conveniently left out that the brokerage industry happily played along, and in fact added to the subprime mess. They too approved mortgages for buyers when they shouldn’t have, because there was a hugh incentive doing so…so there’s a lot of blame to to go around. And the realtors and the NAR also pushed the “you can’t lose buying a home” theory…and we see just how wrong that was.
    And continually spinning the stats to keep pushing sales, when knowing that the something ugly was happening out there, and not telling consumers that maybe they should take pause, isn’t much different than what Goldman did. It may not have been criminal by legal standards, but we all know that it wasn’t right.

    And btw, I’m just a guy who was out there buying properties, building and selling homes, as well as being a licensed Realtor, and I don’t like what I saw, and still see. For several years leading up to the crash I saw the crash coming and I was smart to sell all my projects before the market completely collapsed. And if I saw it coming, and I don’t have a team of economists working for me, then why didn’t you all in Washington see it to? Also, early in my career I worked for the NAHB, and we were always concerned how different we were with our interpretations of the market compared to the NAR. We looked at it differently because if we put an unrealistic spin on things, and our members invested billions of dollars buying land and building homes, when the stats pointed in another direction, then they could easily lose those billions real fast, whereas realtors only risk was not making money. When it’s your money on the line, then you have to know fact from fiction. As a builder, I even question the value of home ownership, and have been telling young people for the past several years to rent something and save their money, and wait a few years to see how things shake out. And I have the same view today.

    What I point out does answer the question about the of home ownership. If consumers have the real facts, and not trade association spin facts filled with conflict of interest, then consumers can make the choice themselves. And with all due respect to your rebuttal to Kiviat’s article, you have you own view of the ownership concept. and I’m sure someone could write a book explaining why you’re wrong.

    The problem is, we don’t know who to believe, because the NAR has an agenda, as do the banks, brokerage firms etc. I just wish that someone would be honest with us and give us the real facts, and be honest about it. We just want the truth, the whole truth and nothing but the truth, then we can make our decisions based on real facts, not fantasy or playing politics. It’s time for someone to stand up for the people who we make a living selling homes to…consumers. They’re the ones who have gotten screwed in all of this, and I feel worse for them than my I do for my builder and Realtor friends.

  11. Julia Ussery

    The ability to own property is one of many great things about being an American. I say it is included in there with all the freedoms that those that have gone before us fought and died for from those first settlers to those of today. One of my ancestors was given a land grant for having fought with Andrew Jackson and some of that land is still owned by his decendants. If a person is responsible and wants to be a home and property owner I feel it is their right. And we as a profession need to shout this from the highest mountain. Donate to RPAC.

  12. Brian Summerfield

    Hi Brad:

    Thanks for clarifying your position. A few follow-up points:

    1. You said: “I do differ with most as to the value of home ownership, because it’s not a guarantee, as we can see.”

    I agree that it’s not a guarantee. And I’ve written about the problem with that mentality:

    http://speakingofrealestate.blogs.realtor.org/2009/12/23/top-10-real-estate-developments-of-the-00s-1/

    What I do know is that in normal markets, it’s traditionally been a relatively safe long-term investment. Average home values (denominated in 2000 dollars) in the United States went up in every decade between 1940 and 2000, according to U.S. Census Data:

    http://www.census.gov/hhes/www/housing/census/historic/values.html

    Also, according to the Federal Reserve, home owners generally have a mean net worth around 10 times greater than renters, which is due in part to the fact that they have a great deal of wealth in their houses:

    http://www.federalreserve.gov/pubs/oss/oss2/2007/bull09_SCF_nobkgdscreen.pdf

    2. You said: “You mentioned that the problem was created by Wall Street, but conveniently left out that the brokerage industry happily played along, and in fact added to the subprime mess” and “It’s time for someone to stand up for the people who we make a living selling homes to…consumers.”

    Do you honestly believe that many consumers did not “happily play along” as well? I’m not trying to make the case that every single real estate practitioner or company has been completely ethical at all times in the past decade. But I definitely have to disagree with the following statement in your previous comment: “Realtors have just as much if not more to blame for this mess than Wall Street.” What I am saying is that whatever the motivations of real estate pros, loan service providers, and consumers were, the housing bubble could not have inflated without Wall Street aggressively recruiting new investment capital for bonds and collateralized debt obligations connected to all kinds of mortgage loans without properly assessing risk.

    3. You said: “As a builder, I even question the value of home ownership, and have been telling young people for the past several years to rent something and save their money, and wait a few years to see how things shake out. And I have the same view today.”

    Well, that’s an interesting line of work to be in if you don’t believe in homeownership. Also, if you’re telling people to “wait a few years,” then that doesn’t strike me as being against homeownership generally. It seems you have more specific reservations about becoming a home owner in this current market. But that’s not really what I’m talking about in the blog post. I’m discussing homeownership as an institution, not what’s going to happen to housing values over the next couple of years.

    4. You said: “I’m sure someone could write a book explaining why you’re wrong.”

    And I’m sure my wife would agree with you on that.

  13. brad

    Brian, this is where the industry fails consumers. You’re falling back on the decades old industry line that if you hold onto a home 10, 20, 30 years then you’ll make money, but the problem is that history doesn’t always repeat itself the same exact way. This may very well be one of the times that it doesn’t, but since we can’t predict the future we shouldn’t be skewing something that could be considered as misleading the public.

    There’s nothing wrong with someone authoring an opinion that goes against the status quo of a trade association. The public needs to see things from a different perspective of a group who has an obligation to their members…not to the public.

    However, let me say that the NAR does do good for consumers in many places, but that doesn’t give them carte blanche for everything they do. There are some serious conflicts of interest with the associations point of view.

    Yes the housing market will “come back”….whatever that means, but what it comes back” as” no one knows. What happened to the industry the past few years is a game changer, and it may never go back to “what it was” or even close to that, in our lifetime. This is a serious issue and everyone has to rethink the value of everything in their lives.

    Builders as well as realtors have to face the fact that many of us may not be of value anymore, and surely not at the sales price and commission structure that we’ve all gotten used to. I see the need for less of both industries, and everyone should be focused on reinventing themselves in preparation.

    As for the article, buying and selling homes may be profitable for builders, realtors and other industry related businesses, but that doesn’t mean it’s always good for buyers and owners, and for the taxpayers who have to fund everything.

    To tell millions of homeowners who who purchased homes over the past decade, to wait and everything will be ok, is a sales pitch…not a fact. And most can’t wait that long.

    Yes consumers “played along”, but it was our industry that did the sales job on the public, not the buyers…and two wrongs don’t make a right. I’ve never heard the NAR apologizing for anything regarding the crash, and no one can deny that they played a major roll in this…they stood by knowing it was happening and didn’t sound the alarm. Wall Street may have created the programs, but they didn’t sell the homes…Realtors did.

    The builders also knew that by providing mortgages themselves, that they’d sell more homes…and that wasn’t right either. And it’s the same thing that car makers and dealers do all the time….but it doesn’t make it right. Their industry can’t take the economy down, but as we see housing can

    You remarked about me being a builder and telling people not to buy homes at certain times, as being interesting…but it’s not. Living through the 70′s and early 80′s as the son of a home builder, my family had many discussions about the recession and what the President was considering at the time when interest rates hit historic highs and killing the housing market. There were talks about bailing out builders at the time, and we were against it, because it wasn’t right for the economy…though it may have helped us from having to shut down our business. We even went as far as talking to one of the Presidents advisors, who was a well known builder and industry leader, and urged him not to bail out the builders. Sometimes we have to do the right thing.

    I was against the recent buyer tax credits, and I was really fumed about how the large residential developers got their huge tax breaks…when they shouldn’t have. It was a disgrace how they pulled that off. I don’t see them using that money to put anyone back to work…do you?

    Sometimes you have to stand up for what’s right for us as a country and not what’s right just for a trade association. Sure, owning a home is a great thing and it creates a lot of trickle down jobs, and helps the economy, but when you allow people to twist and turn the stats to so people continue to buy homes, when maybe they shouldn’t be, so realtors, builders and bankers, and everyone else can make money…that’s where it becomes unfair to the public not to tell the truth.

    And btw, I got a laugh about the comment your wife would have. Glad she has a sense of humor. Believe me, my wife has a lot to say about me too.

  14. The media is constantly bombarding us with negative headlines, and it seems these days the housing market can’t get a break. Besides the factual negative data, there has been an onslaught of media publications that argue against the American dream of homeownership.

    Perhaps the most widely read argument against homeownership was published in the September 6th, 2010 issue of Time Magazine and written by Barbara Kiviat.

    Before I read this article, I had already read several similar points of view against homeownership. After contemplating for a minute or two, I would usually come to the following questions and conclusions:

    “Who wouldn’t want to own a home?”

    “Who would want to rent forever?”

    “Obviously, the author doesn’t have children.”

    “Obviously, the author has never owned a home.”

    My easiest dismissal was “It must be another stock broker who wrote this one.”

    However, since it was Time Magazine broadcasting the message, I thought there must be a rationale that would allow me to come to the realization that the goal of homeownership should seriously be questioned.

    My eyes quickly darted across each word looking for any facts that would give me my “AH HA” moment. Instead I was angered, and apparently I am not the person to be angered about the article. Why the anger?

    I believe it is because American’s are tired of this movement against homeownership. Is this agenda an attempt to soften the blow to the millions of Americans who have lost their homes during the housing crisis? Is this the answer to the folks who will lose their homes in the near future?

    After being told there was “Hope for Homeowners”, I am angry because so many Americans have lost their homes. I am angry that after 3 years into the housing crisis there have been no real solutions for homeowners. Americans are being mislead into applying for loan modifications that will probably never be approved, banks are “conveniently” losing documents, and recently it has been reported there are cases of Banks filing false documents in foreclosure proceedings.

    There is no direction to follow for the millions of American’s who pay their mortgages on time, but whose mortgages remain underwater (and may be there for a very long time). 23% of Americans’ mortgages are underwater, and the principal remedy being used by Lending Institutions is FORECLOSURE. After nearly a trillion dollar bail out, the American people are still LOSING THEIR HOMES.

    The discussion should not be against home ownership. The discussion should be “How do we really solve the housing crisis?” Undermining the American Dream is not fooling anyone.

  15. brad

    Megan, you’re so right with this. So why isn’t the NAR voicing their thoughts on a solution, and present something that doesn’t put the burden on taxpayers, and create a profit center for realtors. If the realtors profit from the solution, then they’re no better than than Wall Street. To get out of this mess we all have share the hit, and not profit from a situation that we to helped create.

    The association is so used to putting out propaganda that I don’t think they’re capable of producing something where they’ll share the sacrifice we all have to make on this one.

  16. barri

    I can live with the views of the article, and even with the generic industry line rebuttals from Mr Sommerfield, but Peters views border on the absurd, because he as most Realtors argue that because something may have worked for a very long time, means that it will always work the same way, and that just isn’t true.

    The housing market may never rebound to what it once was, or even close to it. So just because we’re in an industry who profits from more sales, doesn’t mean that our opinions are more realistic than everyone elses. We as an industry have some really big biases, and in times of trouble we need to better assess what’s happening in the market and be honest about it with the public.

    Peters “wealth builder” theory is from another era, because for the last 4-6 years housing has been a destroyer of wealth, not a builder, and all indications are that this won’t be reversed for a very long time.

    I think he should start his own lending institution and start providing mortgages to everyone who wants a house and lets see how long he’s in business.

    The world is suddenly different and we’re all going to have to learn to adapt to a new way of life and business.

    What was seemingly good for our economy, suddenly became our worst nightmare.

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