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Are homeowners better people?

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One of the reasons for subsidizing homeownership is the widely held belief that homeowners are good citizens. Ten years ago, Denise DiPasquale and I wrote a paper investigating the links between ownership and civic behavior. Controlling for income, education, age and other variables, we found that homeowners were 16 percent more likely to vote in local elections, 11 percent more likely to know the name of their member of Congress and 10 percent more likely to say that they have recently worked to help “solve local problems.”

But we also found that almost one-half of the effect of homeownership disappeared when we controlled for the time that the person had lived in the home. Owners are typically much less mobile then renters, and people who stay put are more likely to become civically engaged.

That's economist Ed Glaeser, who notes that the expanded homeowner's tax credit does something very peculiar: encourages current homeowners to swap one home for another, which has no salutary effect on behavior, and does not take existing housing stock off the market. Why are we doing this again?

Photo credit: AP Photo/Carlos Osorio.

By Ezra Klein  |  November 10, 2009; 9:31 AM ET
Categories:  Economic Policy , Housing Crisis  
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Comments

"and does not take existing housing stock off the market. Why are we doing this again?"

Because it allows people to trade up, thus opening up some entry-level places for first-time buyers.

All the tax credits in the world for first-time buyers won't help if there isn't any inventory they can afford. The starter-home people need to "move up one" so the first-timers can have homes to move into. Incentivizing *both* of those purchses helps move the system along.

Posted by: mccxxiii | November 10, 2009 10:08 AM | Report abuse

Why are we doing it again? Because economic activity, even if it is not productive activity, creates taxable transactions, which fills the coffers of state and local governments. Plus, while I have no study to confirm it, I would bet that when people move, they have a tendency to buy new "stuff" that they wouldn't otherwise. New furniture, new window treatments, new appliances, paint and carpeting. That's consumer activity that can provide a modest amount of stimulus.

Posted by: Rick00 | November 10, 2009 10:11 AM | Report abuse

My experience is that the "civic engagement" of property owners mainly extends to zealously protecting their property values. Sure, they're more likely to go to town halls or public hearings, but they're doing it to protest public housing and solar panels, or demand that their home values be protected in a "historic district." Big deal.

Posted by: NS12345 | November 10, 2009 11:02 AM | Report abuse

What makes you think that a tiny $6500 tax credit will entice ANYONE to sell a current home and buy another? $6500 isn't nearly enough to offset the risk of selling in this market, buying a new home and closing both of them by 4/30/2010.

People who try to gain this $6500 tax credit will find they get jammed for time, and have to either give up the fight to make this tight deadline, or reduce their home or buy a home they might not choose if they had the luxury of time.

No, this $6500 tax credit won't motivate people who don't have their homes already for sale. It might very well help those who sold their homes in the last 2 years (yes, the 2 year rule applies), and who are renting now.

Stable neighborhoods, towns and cities depend on stable homeowners. We are creating a generation of people who have lived as children in tent cities, in the woods, in cars, at grandma's trailer, and who are currently suffering the fear and shame of parents losing their homes, and the effects of divorce caused by financial traumas.

Do you want to suggest once again that the housing meltdown should be allowed to continue until it finds it's own bottom? Shame on you, you callous, sheltered person, you.

This is a depression, and it is time to end it before only the rich and the banks own all of our homes. Things are far too lopsided in our society.

Oh yeah ... maybe that's the goal: the end of society as we know it?

Posted by: common1sense | November 10, 2009 11:36 AM | Report abuse

lets start to phase out the mortgage deduction at around 500K of home cost and completely eliminate it at 1000k to 1500k. So the first 500K of mortgage will get an interest deduction but beyond that a decreasing percentage of the mortgage interest is deductible. This would keep the middle class interest deduction intact but not subsidize millionaires buying homes. Also, second home mortgage deductions should be disallowed.

Posted by: srw3 | November 10, 2009 11:56 AM | Report abuse

Is there really any question about the intention of the Home Buyers Tax Credit? It's to artificially support asset prices in a pathetic attempt to keep the housing bubble from continuing to deflate. Same with delaying inevitable foreclosures - you wouldn't see all these "hot bidding wars" in the low end if they weren't artificially holding up thousands of foreclosures. This would be one thing if those people would actually get to stay in their homes, but as the policy currently stands, they're just delaying the inevitable.

This credit ought to be called the Home Sellers Credit anyway, they can now tack on another $8k (or $40k if you use your loan for a down payment, thus levering up the amount of money you can take out in loans) to prop up the price of their house. A neat trick, eh?

Posted by: bridgietherease | November 10, 2009 1:56 PM | Report abuse

No idea why would we do this. Most of the benefits will flow to those who happen to be in the market for a new house anyway.

I still think we should direct stimulus funds to improving unemployment insurance, or perhaps implementing a short-work scheme in which companies can cut hours and the government makes up most of the lost wages, a'la Germany (see Kevin Hassett's article below). Keeping the unemployed at work or at least with a decent income reduces foreclosures and inventory, accomplishes the same goal and actually helps people who NEED help.

http://www.bloomberg.com/apps/news?pid=20601039&sid=ax3kyE3bILDY

Posted by: justin84 | November 10, 2009 6:33 PM | Report abuse

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