Fairy Tales Can Come True

Could it be true that the home-as-investment is not all that it has been cracked up to be? That it is, in reality, a very dangerous instrument? Could this part of the American Dream be more of a Fairy Tale?

Here in Park Hill that’s a difficult position to champion. We have experienced property values increase year after year. Even in the housing crisis and subsequent recession property values here held steady and even increased in many instances.

So is there really any argument here? The surprising answer may be “Yes, there is.”

There are several threads of thought regarding the dangers of high rates of home-ownership. One strand being that it hurts the economy by inhibiting the free movement of the labor force.

The reasoning is that housing prices often move in tandem with the performance of local labor markets. This means that prices fall at exactly the time that owners, having lost their jobs, may have to move elsewhere in order to find work.

Supporters of this thread claim that a healthy and resilient economy is, in no small part, reliant upon its ability to handle bad times without costly spikes in unemployment. It requires the ability to reallocate its workers to where the growing industries are. When homeowners become stuck, it is usually at the worst possible time and can make a bad economic situation even worse.

Another argument for why owning might be socially costly is that it can lead to an attitudes like “Not in My Back Yard!” Homeowners can be so protective of their property values that they often oppose new developments near to them. Change usually comes at a cost, and fears – whether rational or not – can obstruct progress. By doing what they perceive is right for their neighborhoods they can undermine economic development in their cities and countries.

Other criticisms deal with the nature of home ownership as an asset type. It is a single and often highly leveraged form of wealth and that it has been unnaturally subsidized by government policies. These include tax breaks on mortgage interest, financial rules reducing loan costs by providing guarantees to institutions that offer mortgages and local governments zoning rules that favor properties more likely to attract buyers than renters.

In response, proponents of high levels of homeownership ask whether the glass is really half empty? And even if it is … it must then be at least half full. After all, there are benefits as well as costs to stability.

Homeowner stability is most often linked with positive outcomes for families and neighborhoods. People with an equity stake in their community are incented on several levels to protect their interest.

For example, studies show that children of homeowners are more likely to finish high school than children of renters. Other research reveals that homeowners not only work to improve local schools but also are more involved citizens with higher levels of voting and political involvement. After all it makes sense to protect one’s investment by making the neighborhood more desirable for prospective buyers.

Other proponents point out that the mortgage crisis in America turned many dreams into nightmares, since the collapse of the housing market left many owners with mortgage balances greater than their house values. This condition – known as negative equity – is not an argument against homeownership, but an argument against excessive leverage brought about by too easy credit for unqualified buyers.

The view of homeownership as a pillar of economic and social welfare is deeply ingrained across much of the Western World.

Nevertheless it’s always good sometimes to question and listen to alternative views. Sometimes it’s good to recall the tale of the Emperor, and check to see if he has any clothes on after all.

Neil Funsch has been a mortgage broker for 18 years, the last five in Park Hill. He can be reached at 303-229-2684 or neil.funsch@gmail.com.