President Barack Obama is sending a clear message to the American public this week: The federal government remains committed to increasing homeownership and propping up the housing market.
Twice this week, in Arizona on Tuesday while unveiling his updated housing policy, and again on Wednesday during a live chat on the White House website moderated by Spencer Rascoff, the CEO of real-estate website Zillow, Obama asserted that owning one’s home is a universal American aspiration—and that public policy should be designed to promote it. “Home ownership is the quintessential element of the American Dream,” the President said. “It's what all of us understand when we say we want middle-class security.”
Obama did not actually offer any major new proposals. This week's housing-policy drive offered only a few modest suggestions, most notably letting all homeowners refinance in order to take advantage of low interest rates. The rest of his housing platform is a reiteration of pre-existing proposals, such as the American Jobs Act’s $15 billion for rehabilitating vacant properties, and arguments as to why unrelated policy goals will help stimulate the housing market. (During the live chat, Obama said that passing comprehensive immigration reform would increase the supply of potential homeowners, and that student loan reform would allow young people to save up a down payment.)
Obama’s remarks may not warm the hearts of economic wonks, some of whom argue that government support and preferences for mortgages distorts the market, making housing unnecessarily expensive. But the live chat showed that he has correctly gauged the bread-and-butter concerns of many average voters. Several questions submitted to Obama online were from homeowners worried about their home’s value: Will higher interest rates slow the housing market and hurt home values? Will there be a Housing Affordable Refinance Program 3.0? Steve from Minnesota wanted to know what will fill the role of Fannie Mae and Freddie Mac if the government winds them down, as Obama has proposed.
A few questions, though, showed the neglected side of America’s housing problems. Jennifer, a high-school teacher in North Carolina, said that her rent goes up every year but her salary stays the same, and she can't afford a mortgage. What, she asked Obama, should she do? Obama’s answer—teachers should be paid more, and we should build more affordable rental housing—does not directly address her problem. (A higher salary and cheaper rent, of course, would solve her problems, but Obama did not offer policies to effectuate either goal.) Jacob from Los Angeles said he just graduated from college and, despite having a full-time job, is living with his parents. With student loan debt, he said, he wonders if he will ever be able to move out, even just to rent a place.
And there is the disconnect between Obama’s framing and the needs of struggling young people. Increasingly, young Americans are happy to rent and to live in central cities. Buying a home is not actually a universal aspiration, especially at certain life stages. But whereas we take it as a given that other life essentials, such as food and health care, should be kept cheap, American housing policy is not geared towards making housing affordable. Rather, the goal is to help everyone buy a home and build equity through rising housing values. That’s great for any given homeowner, but a problem for a society that is investing more and more of its capital in bigger homes—instead of more productive uses. It’s also bad news for first-time home buyers and renters: Since the latter two groups tend to be poorer than existing homeowners, policies like the home mortgage interest tax deduction are regressive. In addition to creating perverse economic incentives, these policies spur suburban sprawl.
Yet the vast middle-class is where the votes reside. And even though President Obama is in his second-term, he has shown no appetite for challenging middle-class wisdom.
Charts based on data provided by the Tax Policy Center