Thursday, April 23, 2009

Weighing up the policy of encouraging home ownership

Home ownership: Shelter, or burden?

The social benefits of home ownership look more modest than they did and the economic costs much higher.

Posted by 51ck-6-51x @ 12:50 PM (1042 views)
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7 thoughts on “Weighing up the policy of encouraging home ownership

  • Wot no comments?
    After a whole hour? …and at lunch time?!

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  • mark wadsworth says:

    666, be fair, it’s a long article. I agree with the thrust of it though.

    People have got to choose, is a home a place to live or an investment? You can’t have it both, and it can’t really be an investment because there’s no fundamental reason why homes should go up in value in the long run, ergo it is a place to live.

    I like the quote from Adam Smith at the end which is from the chapter in which he muses on taxation and decides that Land Value Tax (“a tax on the ground rent of houses”) is the least bad tax.

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  • shipbuilder says:

    There’s a lot of silly stuff in the last bit about homeowners being more law-abiding and better educated because they are homeowners. I’m getting a bit bored of the whole correlation = causation in the media, especially from people who should know better. It’s pretty basic stuff.

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  • mark wadsworth – good points. With the ability to give your assets away upon death, and the added benefit of trust funds to avoid some of the inheritance tax, a house can be a home for you and an investment for your children or grandchildren. (or could provide income for you when you move into a retirement home / smaller property and own outright)

    My late grandfather was born in the slums of Hoxton in 1902 to relatively new immigrants from Eastern Europe with very little in the way of wealth. Later in life he started a few different successful businesses and ploughed much of his money into property (he would always tell me how property is usually one of the best investments, and always will be over the long term) which he let out (commercial and residential), it’s a classic story of rags to riches. I live in one of two flats in a building which he bought, like every other – outright, in 1962, and my neighbour above me has lived there since shortly after. He paid for a private education for myself and my two sisters and left my parents a handsome inheritance – I count my lucky stars that he was such a shrewd individual and that he managed to ride his luck since it means I got a first class education (I am not bad-mouthing state schools by the way, just saying that my school was pretty damn good!) and have already managed to save a substantial sum of money towards what I hope will be an outright purchase of my first home. It is, however, unfortunate, and I think it really is wrong, that his struggle and success means it is easier for me to become wealthy – but I, as most, will take advantage of any free option (and as many will take advantage of a market inefficiency).

    shipbuilder – I totally agree with the correlation vs causation point (most people don’t understand this for some bizarre reason, but you are right about the authors – I thought the same thing when I read the article), although I think there is some truth to the argument that home owners (or, rather, those financially committed to paying off their mortgage ;p) are more likely to take more of an interest in the upkeep of their locality.

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  • Britishblue says:

    I think it depends on a number of factors. For instance I rent a house which allowing for a 20% reduction from peak prices is technically worth 500k. I pay £1350 a month in rent. Looking at the figures I can’t see any economic argument for buying apart from speculating on a future boom. Properties cost money to maintain, whether it is a new boiler every 8 years or repairs to the roof. However, there may be some people where given another 10-15% depreciation on houses will feel it is better economically to buy, based on the fact that in the longer term the house is not going to lose that much money and the rent to mortgage ration favour’s the mortgage. (based on a 5.5% average interest rate not the phoney one we have at the moment). If the house I rent was half the price it is now (250k)and I was confident that we are not going to see inflation, with higher interest rates (above the 5.5% trend) at the same time as house prices stagnating over a long period of time because of the debt in the economy I would buy. Apart from that I think I am sitting pretty. House are not even at 2002 levels yet and that was when many people knew we were in a bubble.

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  • I’m getting a bit bored of the whole correlation = causation in the media
    Indeed shipbuilder, typical cut n’paste easy copy journalism.

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  • paul – nowt to do with cut & paste methinks, although that and regurgitation do seem to be the main skills of journalism today, what with the modern news wire. Rather it is the blind belief of journalists in bogus research conclusions. If I only test the correlation between two data sets, then there is no inference as to causation whatsoever. A could cause B, B could cause A, it could be a sampling effect, or A could cause C which is correlated to B, etc…

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