The current collapse of the real estate bubble can be attributed not only to bankers and insurers, but also to government’s vigorous support of homeownership. In most rich countries, including the United States, governments subsidize private housing in order to encourage stable, law-abiding neighborhoods. However, the actual benefits of homeownership are not as great as are popularly believed. A new series of articles in The Economist indicate that artificially inflated homeownership does not increase prosperity in good economic periods, and can actually make a recession worse for homeowners and renters alike.

first tuesday take: While governments like to support homeownership as a route to a happier, wealthier society, the reality is that a house can quickly turn into an income-destroying trap during an economic downturn. Other investments have more assured income and greater flexibility than the massive commitment most families make when purchasing a home. Brokers, agents, and especially homebuyers ought to carefully evaluate the risks and benefits of homeownership before they commit themselves or others to purchase. Lenders are now forcing buyers to make this evaluation, and buyer’s agents are quickly moving back to fundamentals to determine which prospective buyers are qualified to be homeowners.

As the two attached articles demonstrate, the benefits are not as great as they initially appear, and the risks are much higher than should be borne by the large portion of the population (11 million people) artificially driven into homeownership by the government. Federal and state housing policy have been disastrous in getting homeownership above the historically stable 64% of the population, the percentage of homeowners which existed for 20 years prior to the current decade. California’s share of this excess is around 1,000,000 people, with roughly 750,000 foreclosures still to come before the state returns to a stable trend in ownership. With that return to homeownership stability, brokers and agents will experience a less dramatic cycle of boom and bust for California real estate sales in the coming decades.

Re: “Building castles of sand”, from The Economist and “Home ownership: Shelter, or burden?” from The Economist