Rethinking Housing

new orleans 11/2006I am rethinking it. We used to have 70% of our mortgage paid but when we bought a new house, one year ago, we decided to put only the minimum amount (20%) down. I don’t want my assets tied up in a house, after two experiences with our houses taking a year to sell (in 1993-94 and 2009-2010), and a long stretch of unemployment for my spouse.

[Granted, we just put a chunk of change into the patio, fencing and new garden. That’s a little bit investment — though we will not likely see a return on even half of what we spent — but it’s mainly for our own present enjoyment and convenience. ]

So I was heartened to hear some confirmation bias via Here & Now’s recent story, Rethinking The Dream of Home Ownership (scroll down one story to listen) which cites James Kwak’s essay, Housing in Ten Words at The Baseline Scenario. Kwak cautions against home ownership as an investment. In fact, in the long run, with only a few blips as exceptions, housing as an asset class has really never has been a good investment, not as good as stocks or even Treasury bonds:  For most of the second half of the 20th century, housing went up about 1% per year after inflation.

The idea isn’t that buying a house is better or worse than renting; it’s that buying a house is not the investment you may think it is, and it has pros and cons just like renting does.  We think house-buying is a great investment, for many reasons, including propaganda and psychological fallacies like price illusion and optimism bias.

Speaking of propaganda, house-ownership was apparently first promoted to Americans as a way to fight Communism:

“The idea that everybody should own a house … is a product of the 1930s…. Socialism and Communism were seen as very real threats. We think of the New Deal in the 1930s as the height of American liberalism, and it was, in many ways, but at the same time, the reason we had those policies was to co-opt workers away from the Communist party and away from social revolution. One of the ideas was that people who have a stake in society, meaning property,  are less likely to revolt against the social order.”

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