Homeownership Advantages Questioned by FDIC Chief

It's National Home Ownership Month, prompting lots of talk about the value of owning a home. The rhetoric isn't all bubbly.

Sheila Bair, the outspoken head of the Federal Deposit Insurance Corporation, recently questioned the government's role in promoting homeownership. The speech wasn't widely covered, but The New York Times' Joe Nocera drew attention to it in a column headlined "Wake-Up Time for a Dream."

"Sustainable home ownership is a worthy national goal," Bair told the Housing Association of Nonprofit Developers. "But it should not be pursued to excess when there are other, equally worthy solutions that help meet the needs of people for whom home ownership may not be the right answer."

Nocera calls her comments "a bit of honest heresy."

What's Bair's line of thinking?

Nocera explains:
"The financial crisis might well have been avoided if we as a culture hadn't invested so much political and psychological capital in the idea of owning a home. After all, the subprime mortgage business's supposed raison d'être was making home ownership possible for people who lacked the means -- or the credit scores -- to get a traditional mortgage. It's also why bank regulators and politicians were so willing to avert their eyes from the predations and excesses of the subprime companies."

He notes that the government pushes for homeownership in many other ways too: through agencies such as Fannie Mae and Freddie Mac; through the mortgage interest tax deduction; even through presidential speeches about that great "American dream." An interesting number that Nocera digs up: Government subsidies to housing totaled a staggering $230 billion in 2009.

Conservatives have been railing against the government's involvement in homeownership for a long time.

Mark Calabria, director of financial regulation studies at the Cato Institute, tells AOL HousingWatch that homes are not the great social boon that everyone makes them out to be. Studies that show correlations between ownership and, say, political engagement or neighborhood safety don't really prove cause-and-effect, he argues.

"The studies don't show that homeownership makes people more responsible. Maybe it's just that responsible people are the ones who buy homes," he says.

Like others in this camp, Calabria advocates nixing the mortgage interest tax deduction. Only the wealthy are usually able to deduct it anyway, he says, since most Americans take a standard deduction instead of itemizing.

"Government policy should be neutral," he says. "We shouldn't be picking who is an owner and who is a renter."

It's not just conservatives who argue against government subsidies.

Robert Shiller, Yale University professor and real estate guru (best known for warning about the housing bubble), has been talking about the dangers of subsidies for years. In a recent interview with CNNMoney.com, he asked, "What's so good about owning a home that the government provides this function?"

He argues that the limits on so-called "conforming mortgages" have been stretched so far that the government is now helping pay for $900,000 McMansions. "Why would we want to teach people to expect extravagances to be subsidized?"

Perhaps homeownership is a little bit like marriage: The parts alone rarely add up in a commonsense way, but the emotional benefits of the whole are incalculable.

See tools and tips on the practicality of financing a home at AOL Real Estate.

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