-- Posted by Neil H. Buchanan
In my post on Monday, I responded (only somewhat defensively) to Professor Hockett's most recent Dorf on Law post, in which he offered some extremely helpful thoughts on how best to handle the ongoing problem of mortgage foreclosures on U.S. homeowners. He described three categories of distressed borrowers, each of which calls for a different policy remedy. I continue to think that his analysis represents a major breakthrough that might allow us finally to make real progress on the foreclosure problem.
My complaint, such as it was, involved Professor Hockett's comment that some people (ahem!) might "throw the baby out with the bathwater" and claim that the foreclosure crisis proves that individual home ownership is a fundamentally bad idea. I do, in fact, believe that individual home ownership is a bad idea, and that the current problems at least strongly demonstrate some of the reasons that people generally should not be single-asset investors (which is what almost every homeowner becomes). Admitting, as I have in most of my posts on this subject, that there is quite a difference between starting from a fresh slate -- asking, in the abstract, whether we should enact policies that encourage, discourage, or a neutral regarding home ownership -- and trying to reverse a decades-old policy regime (no matter how ill-begotten), I suggested that there are ways both to respect and protect current home ownership and to slowly guide people out of the home ownership trap (for example, in what amounts to "own-to-rent" programs).
In his typically engaging fashion, Professor Hockett commented on my post as follows, in pertinent part:
"[A]greed!, even on the imprudence of net-worth-concentration in homes! In other work which I've not made much of in recent years owing to the crisis, I've worked to design hedging instruments (sometimes with old mentor Bob Shiller) meant to address this problem. More on that in the near future. One reason that I tend to favor that route over the rental route is that a sort of cultural path dependence - including a sorta civic republican political cultural heritage - seems to me apt to keep us fixated on owning. And, relatedly, home-owning seems in a way to 'ground' people in this country in a way less needful, perhaps, in other nations in which better established cultural patterns seem to do the necessary grounding."
Professor Hockett thus suggests that we can simultaneously keep people in homes, while overcoming my main objection to home ownership -- the risk of personal economic devastation for homeowners who need to cash out (e.g., to retire) when the market is down. If such protection is possible, then I certainly will be much more open to the pro-ownership argument.
Even so, this does strike me at least as a helpful reminder that there are costs to trying to keep the current system going. Without knowing the details of Bob's plan, I cannot guess as to its cost; but it is worth remembering that there is something on the other side of the ledger, to weigh against the costs of transitioning out of the ownership model. (As I have discussed, the biggest problem in any transition is how to deal with the loss in value of individual homes when the government stops subsidizing their price. In other words, am I not saying that we should prevent people from taking the risk of being economically devastated, by guaranteeing that they will be economically devastated?) Yes, it would be costly to move to a new system. But it would be costly to stay with the current system, and it would also be costly to move to a "Hockett Hedge," as it were. We are now down to an empirical question.
I confess, however, that I think I will lose the empirical comparison. The depth of our social commitment to home ownership is almost surely so deep that unwinding it would be much, MUCH more costly than any of the limping-along-with-the-current-basic-approach alternatives. I am arguing for a "purer" system, in an impure world that might have (probably already has) priced my system into irrelevance, at least over any reasonable time period.
That said, however, I should at least register some doubts as to Bob's stated reason for thinking that the current system is worth saving. He offers the suggestion that the cultural path dependence of home ownership is connected to civic republican virtues, by which I suspect that he means that people who own homes might be more committed and connected to their neighborhoods and (broadly speaking) to their local political systems, if they feel a sense of literal ownership in their community. He admits that this might not be necessary in other countries, where people might feel "grounded" even without being homeowners, but that it seems necessary here.
Along similar lines, a comment by Paul Scott on my Monday post describes the types of improvements that he has performed on his home, actions on his part that were almost certainly driven by his being the owner of the property, not a renter. He thus describes well how people will invest their time and efforts (and additional money) in their homes (and, as Professor Hockett suggests, ultimately invest in their communities) only if they feel invested in a formal sense in the property.
Although I find these arguments plausible, I do have my doubts. I have owned five homes in my life, none of them for more than 4 years. In each case, I was told from the word go that, if I had any plans to sell the house, I should NEVER do anything to the house that would personalize it, because that would make it harder to sell. Given that the median period of home ownership in the U.S. is only 6 or 7 years (and people know that they are not really rooted, merely by virtue of owning a home), it seems to me that there is every reason to believe that even homeowners will often refuse to invest in their homes and communities in the ways that the civic republican model describes.
On the other side of the story, I know that many people in major cities (especially New York) live in the same rental unit for their entire lives. If they know (as many apparently do) that they will not be moving, then they become just as involved in PTA's, local theater groups, and so on, as anyone anywhere in the country or the world. Therefore, this does not seem to be a difference of Americans versus non-Americans, but simply a matter of expected tenure.
In an earlier discussion along these lines on Dorf on Law, a commenter pointed out that this point actually amounts to an argument in favor of rent control. Many people have told me that they do not feel as invested in rentals as in owned homes, because their landlord could either literally or effectively evict them at any time. In places where that is not true, people become ensconced, in both good ways and bad ways. One of the good ways is that they become better neighbors, and better civic republicans.
Even so, Professor Hockett is ultimately aiming to make his work as useful as possible to a current policy audience. His unique stripes show him to be somewhat exotic, in making policy suggestions that break from the common mold, and that require some government intervention that might generate some political resistance. Nonetheless, he is doing something that I am not: Thinking about how to solve today's problem, as soon as possible. I, on the other hand, am content to think about whether there is a big-picture fantasy world in which a better outcome is possible. Neither Professor Hockett nor I are plow horses, but we are different from each other. Which brings me back to the title of this post.