A new stimulus program really got me riled up. Not because it's unlikely to work and will cost billions -- although both are true -- but because it's desperately clinging to the same bubble mentality that's cost this economy so dearly: the idea that homeownership is a universal birthright.
I'm talking about the Obama administration's recent plan to grant $3 billion to unemployed homeowners in 17 states and the District of Columbia, partly through $50,000 interest-free, non-recourse loans that can be used to cover mortgage payments, insurance, and taxes.
In essence, this is a generous extension of unemployment benefits. In itself, that's fine. But the plan targets unemployed homeowners, while explicitly and outrageously leaving out the 33% of the country that chooses to rent.
The message from Washington could not be any clearer: If you have a mortgage on the roof over your head, your well-being is backed by the nation's full faith and credit. If you have a lease on the roof over your head, well, best of luck to you.
Renters have feelings, too!
This reminds me of a Wall Street Journal article responding to Rep. Barney Frank's analogy that homeowners facing foreclosure before the passage of a bailout bill were akin to soldiers being killed before hearing news of a cease-fire. "Readers who don't equate moving into a rental with death in combat should direct their comments to Mr. Frank's office," the Journal said.
Without a doubt, losing your home in foreclosure is emotionally devastating. But doesn't the same hold true for renters who face eviction? So much has been reported about the foreclosure crisis that few noticed the nationwide eviction rate soared 127% in 2009. Don't these struggling renters deserve equal treatment among their homeowning neighbors?
We have to acknowledge that the government has already extended unemployment benefits to 99 weeks and spent untold billions on foreclosure mitigation programs, three years after the financial crisis struck. If someone can't keep up with their monthly mortgage, that's tragic. But maybe it's time to accept that many of these homeowners never should have gotten into such arrangements in the first place.
Ironically, legions of unemployed homeowners may be jobless in part because they're homeowners. The inability to sell your house, usually because it's underwater, chokes off mobility, which is an absolute necessity when looking for a new job. This is especially true in a recession, when job opportunities are fragmented region by region. If your home prevents you from moving to where the jobs are, you'd be better off without it.
This partly explains why a wide body of research shows that high homeownership rates are counterproductive to economic growth. As University of Toronto professor Richard Florida finds: "The most innovative, most productive, and most highly skilled regions have rates of homeownership of 55-to-60 percent, while those where homeownership exceeds 75 or 80 percent are economically distressed."
The stigma against renting is incredibly overrated. Yet programs like the Obama administration's fight tooth and nail to uphold the idea that homeownership is a treasure that should never be forfeited. It's so backward it hurts.
Defending sanity
At least two readers have emailed me, asking why I support some bailout programs while vehemently opposing others. This column seems like a good time to clear that up.
Recessions are a healthy part of capitalistic economies. Panic-induced, pants-wetting meltdowns are not. What we faced during the fall of 2008 was entirely the latter. Letting AIG (NYSE: AIG ) , American Express (NYSE: AXP ) , Goldman Sachs (NYSE: GS ) , Morgan Stanley (NYSE: MS ) , and General Electric (NYSE: GE ) all collapse within hours of each other is not the healthy "creative destruction" economist Joseph Schumpeter envisioned. It would have been a needlessly chaotic crash stemming from the capital market's lack of rationality, inflicting more pain on bystanders than the banks themselves. It was sheer panic.
That's why I think TARP and other emergency programs installed by the Federal Reserve were entirely justified. Painful and unfair? Absolutely -- but still justified.
What we're dealing with today is completely different. Programs like this new plan for unemployed homeowners aren't arresting irrational meltdowns. They're fencing off the natural and healthy corrections that recessions force. There's nothing panic-induced or hasty about foreclosures today. A recent Bank of America (NYSE: BAC ) conference call revealed that the bank's average foreclosure takes 13 to 14 months to complete. That's a pretty calm and orderly affair, and the market's natural way of reminding us that not everyone can or should own a home.
Still, an unfortunate group of policymakers seem bent on defending the dogmatic benefits of homeownership, despite the past three years' overwhelming evidence to the contrary. I don't see how that's anything but counterproductive, both in the short and the long run.
Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.
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