Homeownership Does Not Create Wealth
May 11, 2011
It is easy to see why policymakers have bought into the uncontested belief that homeownership is a good investment. Looking at the Case-Shiller housing price index over time, we can see that prices grew steadily until the 1990s and then took off like a rocket until the bubble burst in 2006. However, while owning a home is rarely a bad thing, it might not be the great investment our parents told us it would be, says Anthony Randazzo, the Reason Foundation's director of economic research.
- When you adjust these numbers for inflation, housing prices stayed nearly flat from the end of World War II until the mid-1990s.
- Only once the so-called 1992 Government-Sponsored Enterprise (GSE) Safety and Soundness Act opened up the floodgates of federal subsidies, later to be caffeinated by the Federal Reserve's loose monetary policy in the early 2000s, did prices double nationally.
- Of course, that price jump was a bubble and prices have fallen nearly back to levels last seen in the 1990s.
- By this measure, there really was very little national investment gain in housing until excessive subsidies created the housing bubble.
This is not to say homeownership is a bad thing. And on an individual level, low- and middle-income families certainly were able to build equity during this period -- which is a good mechanism for creating wealth. But a lesson from the evolving "foreclosure society" in the wake of the housing bubble is that what many thought was homeownership was simply a twisted form of renting, says Randazzo.
Source: Anthony Randazzo, "The Myth of Homeownership Wealth Creation," Reason Foundation, April 26, 2011.
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