Thursday, July 9, 2009

Pros and Cons of Homeownership


Joel Kotkin describes the benefits:

Rather than a source of economic weakness, this renewed quest for homeownership could underpin a sustainable recovery. As prices fall to reasonable levels, more people will qualify for reasonable loans. First, the empty houses and somewhat later, the condominiums now on the market will find buyers, in most places in a matter of a few years.

This shift will create huge opportunities for a diverse set of geographies. For urban areas like New York or Los Angeles, there will be a unique--perhaps once in a generation--chance to induce middle-class people to settle down in big-city homes or condominiums. If they become homeowners, they will be more likely to stay than move elsewhere to the suburbs or other regions when the time comes to buy a home.

And against:
Robert Shiller, an economist at Yale University and an expert on national housing markets, has estimated that "from 1890 through 1990, the return on residential real estate was just about zero after inflation." Throw in the costs of maintenance of the property and it's easy to see how renting could certainly be cheaper than owning, even if you include the tax advantages. Yet the opportunity cost of those home investments - the foregone investment opportunities elsewhere - go largely unseen ...
Not to be forgotten, a homeowner is slowly building an asset that can later be used to help support their retirement. More responsible homeowners will, at least in theory, mean there will be less people completely dependent on their government when they stop working. That is the main reason I am supportive of government policies to encourage home ownership. In a way, it is forced savings. However, the government also has a role to play through regulation to protect these homeowners from the type of bubble we are climbing our way out of now.


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