Time to Rethink Homeownership Preferences

November 13, 2012

Several months ago, I was sitting at our dining room table and thought I heard raindrops while my husband was showering. Turns out I was hearing water running down the inside of a wall from a pipe that had been leaking for some time.

So parts of the pipe had to be replaced, of course. Also the rotted drywall, plus an unrotted portion that the plumbers had sawed out. And the whole dining room-living room area had to be repainted because the new drywall would otherwise look lighter.

Got me to thinking about costs of homeownership we don’t read much about — and more generally, about how our public policies tend to push people toward a housing choice that, for many, may be personally unsuitable and/or financially imprudent.

Consider, for example, the federal income tax code. People who sign on to a mortgage get to deduct the interest they pay, plus “points,” i.e., upfront interest that cuts the mortgage rate. Also what they pay in real property taxes.

These are fine examples of  “upside down” tax policies — so called because they deliver the most to those who need it least.

High-earners get the largest deductions because their top tax bracket is higher and they generally buy costlier houses.

Also multiple houses. And they can take interest deductions on the first $1 million they owe for two of them.

Low-income filers who’ve managed to get a home loan get a much smaller tax benefit — less than $100, on average, from the mortgage interest deduction, according to a Center for American Progress brief.

In many cases, this cuts their tax liability less than the standard deduction they can take instead. Which one reason some economists say that the mortgage interest deduction doesn’t promote homeownership — only the purchase of costlier homes.

There’s, of course, no tax preference at all for people who indirectly pay mortgage interest and property taxes as a portion of their rent.

And they generally can’t deduct interest on other debt they incur, except for student loans.

Homeowners who borrow against their equity can — interest on as much as $100,000-worth of debt, no matter what they use the money for.

These policies don’t spring out of nowhere. Owning a home is a key element of the American Dream.

We pay more than twice as much to support it, through the tax code, as for all programs administered by the U.S. Department of Housing and Urban Development, CAP says. And the Center’s talking only about the mortgage interest deduction.

This deduction alone cost the federal government an estimated $140.5 billion last year — more than any other tax expenditure except the exclusion of employer-provided health insurance from what the Internal Revenue Services counts as income.

So there’s a good fiscal argument for blowing away the homeownership preferences — if not altogether while our economy in general and the housing market in particular are still so shaky, then when our recovery seems reasonably secure.

But I think there’s a broader argument as well.

Homeownership is fine for those who can afford it — not only the mortgage, the insurance and the taxes, but the unexpected expenses like leaking pipes and fires.

Fine for those who are quite certain they want to sink roots in one place — and can uproot if they need to, even if housing prices fall.

But we can have secure, stable communities and residents who engage in civic activities, go to PTA meetings, etc. without distorting housing choice incentives, though interested parties say otherwise.

We read that younger people aren’t embracing homeownership the way they used to. Perhaps, as some experts suggest, we’re witnessing “the creation of a generation of renters” — and thus a partial redefinition of the American Dream.

I think this would be a healthy thing for individuals, communities and our society as a whole.

Surely it would be healthy to rebalance public policies and our collective narrative of middle-class success so that signing a lease becomes every bit as good as signing a mortgage contract.


Income Ladder Hard to Climb If You’re Born at the Bottom, New Report Shows

July 26, 2012

Many news stories and opinion pieces on the latest report from the Pew Center’s Economic Mobility Project — as well there might be.

Because “pursuing the American dream,” as the report is entitled, could be as rewarding as chasing a will o’ the wisp — especially for those born to low-income parents and most especially of all if they’re black.

At the very least, the report gives the lie to our “rags to riches” story. It’s “more of a Hollywood fairytale than an actual reality,” says Ethan Gelling at the Corporation for Economic Development, echoing the Pew project manager.

I think we need to parse the data into two separate issues, as the Pew analysts also do.

One is economic mobility as measured by movement up or down the quintiles into which income is commonly divided.

As the Pew analysts say, economic growth — especially at the top — puts the major rungs on the income ladder further apart. Obviously harder then to climb from one to another.

That’s how we can have what, at first blush, seem two contradictory findings. On the one hand, 93% of adults in the bottom fifth have family incomes higher than their parents did. On the other hand, only 57% move up into a higher fifth — and only 13% into one of the top two fifths.

Some argue that the root cause, i.e., the grossly disproportionate distribution of the wealth our economy generates, is bad in and of itself.

Rakim Brooks at Demos, for example, warns that the public as a whole loses trust in institutions “when it begins to associate the rich with the fortunes of the country.”

Others have said that income inequality is partly responsible for the credit crunch so many households now find themselves in.

People, they say, often define their wants upward, based on what they see richer folks have. They buy — or rather, make down payments on — houses they can’t afford. They put all sorts of “status-defining” goods on credits cards — enormous flat-screened TVs, designer accessories, etc.

I’m rather more preoccupied with the second issue. Do people in the bottom fifth have enough to live on, plus a modicum of what the Pew analysts call wealth and some others refer to as assets?

Do they, in other words, have a reserve for costly emergencies? A cushion against plain old hard times? Some resources to give their children a good start in life?

The answer from the Pew project is a resounding No.

The median income of families in the bottom fifth was a paltry $19,202 in 2009 — nearly $2,850 below the federal poverty line for a family of four.

And their median wealth, i.e., assets like home equity, money in the bank, a car, was just $2,748 — about $4,690 less than the bottom fifth had a generation ago.

The two figures are, I assume, closely related. If you’re, at best, making barely enough for basic needs, you’re not squirreling away money for a rainy day — let alone investing in mutual funds and the like that will, in the long run, make your nest egg grow.

Why families in the bottom fifth are in such bad straits is a much more complex question. Panelists at a recent all-day conference co-hosted by Demos and partners went at it from many angles.

I’ll mention here only what seemed one broad consensus. A college education — at the very least, enough to earn an associate’s degree or certificate — is a big part of the solution.

Yet, as we know, college is getting very expensive. Pell grants, which the lowest fifth could qualify for, rarelyt cover the costs — and now have new restrictions that tend to rule out self-supporting work during enrollment.

I don’t suppose I need to say anything about loan burdens — except perhaps to note that they surely seem especially formidable for potential students in the bottom fifth, whose prospects for moving up the income scale are iffy, at best.

Yet the Pew figures indicate that their families can’t help them.

Nor, indeed, will the parents all have the resources to provide what their infants and toddlers need to do well when they start school, e.g., a healthful diet, high-quality child care, time to read to them, take them to the zoo, etc.

Fewer than half of poor children are “school ready” when they start kindergarten, according to a study from the Brookings Institution. Three-quarters of children in families with moderate and high incomes are.

And when you start behind, you tend to stay behind, as some Pew figures on reading skills show.

Not surprising then that the dropout rate for low-income students is five times the rate for students from high-income families.

This is one way that income inequality passes from generation to generation. Not just inequality, but poverty too.


What Is Poverty In America?

October 16, 2011

Mercedes Diane Griffin Forbes, civil rights columnist for the Washington DC Examiner, takes on the Heritage Foundation’s dismissive report on poverty in America.

“No matter how extreme some may think the idea of poverty is,” she writes, “for millions, it is not merely an idea born out of media hype, it is in fact a reality.”

The evidence is surely on her side. But her own idea of poverty seems to me warped by what I guess I’d call a middle-class bias.

She starts from an hypothesis ventured by the head of the Census Bureau’s Poverty Statistics Branch. To wit, the recession-driven jobs crisis may be the single largest factor in the increased poverty rate.

Key figure here: Nearly 1.8 million more poor working-age people had gainful employment for, at most, one week last year.

Griffin Forbes adds some of the dismal figures coming out of the Bureau of Labor Statistics.

Persistently high unemployment rates — over 9% for all but two months since May 2009.

Near-record rates for those who’ve been actively looking for work for at least 27 weeks — more than 2 million of them so long that they’ve exhausted even the maximum extended unemployment insurance benefits the federal government has been funding.

Disproportionately high unemployment rates for blacks and Hispanics. Even higher rates for teenagers.

And look, says Griffin Forbes, at the results of the Heldrich Center’s latest work trends survey.

These show not only “the sting” of unemployment and underemployment, but lower pay for those who do find jobs. Specifically:

  • More than half of those who found work settled for less pay and nearly a third took a cut in job-related benefits.
  • The median starting salary for new college graduates dropped by 10% between 2006-8 and 2009-10.

So what’s her big takeway?

” Poverty in America … is about the ‘American Dream’ becoming increasingly unattainable for millions, who by all accounts have done everything they were supposed to do to ‘make it.'”

Who are these millions?

“Middle class [families] finding that they can no longer meet their basic needs and relying on credit cards to keep the lights on and pay the rent … the college educated finding that they cannot pay their student loan debt.”

These people are indeed suffering from the impacts of the recession. Also from longer-term economic trends that have dramatically shifted income growth to the wealthiest fraction of Americans.

But they aren’t, to my mind, what poverty in America is.

Poverty has a whole lot more to do with not being able to meet your basic needs at all. Painful tradeoffs between food, rent, health care, clothes for the kids, etc. Or so little money that even tradeoffs are impossible.

It’s about not having the education or the resources to go to college, even with financial aid.

It’s about growing up in communities where the American Dream has long been out of reach for all but a few extraordinarily fortunate individuals.

A pre-recession study for the Center on American Progress found that upward mobility was more a myth than a reality for large numbers of poor children — especially black children.

Nearly 63% of those who were born to families in the bottom fifth of the income scale remained there as adults. The percent was higher than for white children, even when factors like parents’ education levels, working hours and assets were accounted for.

I’m as concerned as Griffin Forbes about hard-working Americans who had a purchase on middle-class life and now find themselves at the brink of homelessness — or worse.

But their plight isn’t, as she claims, a “dirty little secret.” We read about it all the time.

And it certainly isn’t, “in a nutshell,” what poverty in America is.


What Is This American Dream Anyway?

October 10, 2011

Recent events have got me thinking about the American Dream.

Here in our nation’s capital, a conference brought together a large group of well-known progressives under the rubric “Take Back the American Dream.”

The plan, we’re told, was to “channel … grassroots energy into an unstoppable force” that would counter corporate and Tea Party threats to “the fundamental pillars of middle class prosperity.”

One of the two sponsoring organizations was the newly-formed Rebuild the Dream — a nonprofit that “tells the story of, and acts as a hub for the emerging American Dream Movement.”

It’s got a contract that’s clearly a counterpoint to the Republicans’ Contract With America and the update Pledge version they issued last year.

Ten steps to get our economy back on track — mostly policy positions that progressive organizations have argued for at least since the last Presidential election.

It’s the preamble, however, that tells us what the American Dream means to the organization and the more than 306,000 people who’ve signed on to the contract.

“Liberty and justice … for all,” it says. “Americans who are willing to work hard and play by the rules should be able to find a decent job, get a good home in a strong community, retire with dignity, and give their kids a better life.”

We see similar sentiments in the We Are the 99 Percent stories brought to us, we’re told, by “the people who occupy wall street.”

As Washington Post blogger Ezra Klein observes, these generally aren’t rants against the system, anarchist manifestos or calls for revolution, though some of the movers and shakers envision the Wall Street occupation as a seedbed for radical change of some sort.

They’re “small stories of people who played by the rules … and now have nothing to show for it” — or “worse … tens of thousands of debt.”

Here again the notion of playing by the rules and the expected payoff.

The very fact there are so many stories tells us something about the distress that millions of Americans are feeling.

The home page summarizes many of their grievances. “We are getting kicked out of our homes … forced to choose between groceries and rent … denied quality medical care … forced to work long hours for little pay and no rights, if we are working at all.”

Add to these the many references to large debts, mostly for college loans. These tell us something about the age group most actively engaged in the Occupy Wall Street movement, but also why.

The writers feel betrayed by the rules.

Get a good education and you’re on your way to a secure middle-class life. Who didn’t hear this during their growing-up years?

But the Heldrich Center reports that only 56% of those who got their degrees last year were employed in spring 2011. Stories of those who’re tending bar, pumping gas or flipping burgers at McDonald’s are unfortunately commonplace.

Many more figures on the American Dream blog, which proclaims that “millions of young Americans want what was promised to them. They want good jobs that will enable them to enjoy the ‘American Dream.'” And they’re “mad as hell.”

When the term “American Dream” was coined, in 1931, it referred mainly to equality of opportunity.

“It is not a dream of motor cars and high wages merely,” wrote James Truslow Adams, “but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

Rebuild the American Dream’s contract reflects this vision in its reference to “liberty and justice.” But — and I think this is characteristic of the common understanding now — “justice” means reaping the economic rewards of “playing by the rules.”

The problems that have brought the American Dream to the fore are, in many cases, recession-related.

But they seem to have convinced many people that something is fundamentally wrong with our system — something that can’t be cured just by creating more jobs and getting the rich to pay their fair share.

And indeed, something is fundamentally wrong. But it’s something — or rather, some things — that have been wrong for longer than the American Dream has been part of our language.

There have always been people who worked hard, stayed out of trouble, honored their debts, scrimped and saved as best they could and yet never got anything like the payoffs that the current American Dream promises.

No “pillars of middle class prosperity for them.”

I would hope that any reforms that emerge from the groundswell of anger and frustration we’re witnessing would bring the American Dream within the reach of these people too.


Traditional Values Get New Packaging

October 15, 2009

The launch issue of National Affairs includes a lengthy and thought-provoking article by Ron Haskins, co-director of the Brooking Institution’s Center on Children and Families.

Basically, Haskins seeks to shift the debate on anti-poverty policies from income inequality to upward mobility. After all, he says, the American dream isn’t economic equality. It’s the chance to get ahead.

The first part of the article marshals economic studies to show that income inequality in the U.S. isn’t really as great as it’s commonly said to be–or increasing as much as alleged.

But this effort to correct the inequality story is just a preamble to the heart of the argument. Haskins dives into that with an account of what he and Brookings colleagues found when they analyzed long-term data on economic mobility together with data on employment, family composition, education and other personal characteristics.

These, he says, are what really matter because the reasons people are poor “have to do not only with economics but also with culture, history, and especially individual behavior and personal choices.”

Looking at the impacts of getting a four-year college degree, he concludes that mobility is “alive and well in America”–though not what it could be, given what we see in other industrialized countries, or what it should be, given the “enormous” investments in anti-poverty programs.

What we need, he says, is more public policies, like student financial aid, that support personal effort. But that’s only part of the agenda. Haskins and his colleagues recommend:

  • Expanding the “serious” work requirements and the work supports in TANF to include beneficiaries of the food stamp program and subsidized housing–this because they view welfare reform as a great success.
  • Expanding programs that focus on the early growth and development of poor children.
  • Promoting marriage and two-parent families because “the growth of female-headed families is like a giant poverty-generating machine.”

Much of this makes me very uncomfortable. No doubt that our traditional cultural values–education, hard work, marriage and responsible child-rearing–are correlated to prosperity. No doubt that personal responsibility–or lack of same–helps determine what income bracket we’re in. And no doubt whatever that expanding supports for low-wage workers and helping poor children get a good start in life are important and worthwhile.

But my sense is that Haskins’s agenda is about half a step away from blaming poor people for their situation–and maybe not even half a step away from a very rigid and conservative view of what a family should be.

And is economic mobility–the chance to move up (and down) the income scale–really the be all and the end all anyway? My dream for America is different.


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