May/June 2012

The Subversion of Homeownership

As recently as 25 years ago, homeownership was a privilege enjoyed by a small minority of people around the globe. Today, more than 60 percent of the world's families own homes, and in many countries that rate is higher still.

The United States, however, is stuck in the middle of the pack, and the reason, Cato senior fellow Randal O'Toole argues in his new book, is that we are suffering the predictable fallout from what he calls "a war on homeownership."

Many analysts have concluded that the recent financial crisis was caused by federal efforts to stimulate homeownership. But in American Nightmare: How Government Undermines the Dream of Homeownership, O'Toole offers a slightly different take. While federal policies certainly made the real-estate bubble worse, it was restrictive state and local barriers — regulations that discouraged home buying — which caused the bubble in the first place.

O'Toole offers his hometown of Portland, Oregon, as an example. Some years ago, planners began limiting the land available for single-family homes and subsidizing multifamily dwellings — with the explicit purpose of pushing people into apartments. Throughout the country, what began as zoning ordinances soon devolved into outright battles against urban sprawl, with many regions now actively pursuing land-use restrictions, from urbangrowth boundaries to time-consuming permitting processes. Today, "close to half of all homes in America are in areas with supply constraints," O'Toole writes — and similar plans are now being enacted in many metropolitan areas across the nation.

The immediate impact is to make housing more expensive. "The negative effects of growth management on housing affordability are far greater than the positive effects of federal housing programs," O'Toole writes. But their ultimate impact is much broader.

These anti-homeownership policies make housing more volatile, "attracting speculators to heavily regulated markets during economic upswings and putting more homeowners underwater during downswings." They make it more difficult for homeowners to move when new job opportunities arise and increase local unemployment because employers avoid high-cost regions. They exacerbate "problems of intergenerational equity": high prices mean windfalls for home sellers — who tend to be older — and translate into huge costs for younger people looking to buy.

"In short," O'Toole writes, "homeownership did not let us down; government planning did by trying to discourage single-family homes," he writes. In the end, rebuilding that dream will rely on taking discretion away from "the whims of politicians and the arrogance of central planners."