For decades U.S. housing policy has focusedon promoting homeownership. In this study,I show that the set of policies designed to furtherhomeownership has been ineffective andexpensive and that homeownership as a publicpolicy goal is not well supported.
I document that homeownership rates haveremained roughly constant over the past 40years. I then show why homeownership policieshave not boosted homeownership rates. Thefirst policy I consider, the deductibility of mortgageinterest from income for tax purposes, isa tax break enjoyed by people earning above-medianincomes who should otherwise have notrouble buying a home. The other key policy,the subsidization of the large mortgage entitiesFannie Mae and Freddie Mac for the purposesof reducing the rate of mortgage interest, hasbeen ineffective because Fannie and Freddiemarginally affect mortgage interest rates, andmortgage interest rates are essentially uncorrelatedwith homeownership rates. A back-of-the-envelopecalculation suggests the present valueof the cost of these two policies to U.S. taxpayersis a staggering amount, $2.5 trillion.
Finally, I show that policymakers fail to makethe case for promoting homeownership as anexplicit public policy goal. I note that the costsand risks of homeownership are almost neverdiscussed by public agencies and that the benefitsof homeownership as widely articulatedare either hard to measure or are quickly refutable.I conclude that U.S. housing policies andgovernment institutions designed to promotehomeownership are deeply flawed. Serious discussionshould occur at the highest levels abouteliminating current policies and de-emphasizinghomeownership as a policy objective.