Supporting Housing, But at What Cost?by Tim Manni
My colleagues and I at HSH have asked and debated over this question for most of the year: “To what cost are we willing to promote home ownership?” As close to the market as we are, we fully recognize the value of home ownership. However, our lawmakers have steadfastly promoted it above any other option despite a housing crisis and a soaring national budget. The question is: “When is enough enough?”
Washington has developed multi-billion dollar programs to modify and refinance troubled mortgages, subsidize mortgage rates, we’ve thrown massive lifelines to Fannie Mae and Freddie Mac, a $10 billion homebuyer tax credit extension, and the list goes on.
This year, the government devoted four times the amount of budgetary resources to homeownership as it devoted to rental housing, or around $230 billion in spending and tax breaks for homeowners compared to around $60 billion for renting, the CBO reported.
The report notes that, until recently, most government support for homeowners came in the form of tax breaks that don’t require government spending but result in the government collecting less in taxes than what might be owed.
But recent efforts to help stabilize a fragile housing market means that government spending now accounts for around half of federal support for housing, including a $75 billion tab for the government’s loan modification programs and taxpayer money to keep Fannie Mae and Freddie Mac in the black. That doesn’t include aid that the government has agreed to give to state housing finance agencies through Fannie and Freddie, or any aid that the Federal Housing Administration may need in the future.
For years, many have widely criticized Congress’ demand for home ownership as a contributing factor to the recent housing bubble. Those same criticisms are once again beginning to filter in as critics claim Congress is inflating another bubble before we’ve had time to recover from the first.
Let’s put these numbers into context. It’s worth noting that the $230 billion spent this year alone (leaving out the cash spent on Fannie and Freddie, FHA, Subsidized rates, HFA, etc.) could have been used to buy 1.29 million homes outright. If that was the case, the government wouldn’t have to worry as much about high foreclosure, re-default, or delinquency rates.
Is too much money being dedicated to housing? Is it time Washington promoted renting with the same vigor they have for owning?